Jharkhand High Court
The State Of Jharkhand Through … vs M/S Himachal Construction Com. Pvt. Ltd on 10 December, 2024
Author: S. N. Pathak
Bench: S.N. Pathak, Anubha Rawat Choudhary
IN THE HIGH COURT OF JHARKHAND AT RANCHI
Commercial Appeal No. 5 of 2022
The State of Jharkhand through Executive Engineer, Minor
Distribution Division No. 3, Swarnrekha Multipurpose Project, Water
Resources Department, Dimna, P.O., P.S.: Jamshedpur, Jamshedpur,
District East Singhbhum
... ... Respondent/applicant /Appellant
Versus
M/s Himachal Construction Com. Pvt. Ltd. 11, H.I.G. Adarsh Nagar
Sonari, P.O. & P.S.: Jamshedpur, Dist: East Singhbhum, Jamshedpur-
831011 through Sri B.N. Dikshit, Managing Director, M/s Himachal
Construction Com. Pvt. Ltd. 11, HIG Adarsh Nagar, Sonari, P.O., P.S.
Jamshedpur, District- East Singhbhum
... ... Claimant/Respondent/ Respondent
---
CORAM : HON'BLE DR. JUSTICE S.N. PATHAK
HON'BLE MRS. JUSTICE ANUBHA RAWAT CHOUDHARY
---
For the Appellant : Mr. Sachin Kumar, AAG-II
: Mr. Ravi Prakash Mishra, Advocate
: Mr. Karamdeo, Advocate
: Ms. Surabhi, Advocate
For the Respondent : Mr. Ajit Kumar, Senior Advocate
: Mr. Indrajit Sinha, Advocate
: Mr. Shresth Gautam, Advocate
: Mr. Rahul Anand, Advocate
---
C.A.V. on 19th September 2024 Pronounced on 10th December 2024
Per, Anubha Rawat Choudhary, J.
1. This appeal has been filed for setting aside the judgment dated
07.02.2020 passed in Original Suit No. 07 of 2018 arising out of
Miscellaneous Arbitration Case No. 8 of 2016 whereby the petition
filed under section 34 of Arbitration and Conciliation Act, 1996
(hereinafter referred to as the Act of 1996) challenging the award
dated 07.12.2015 has been dismissed by learned District Judge-I cum
Commercial Court, East Singhbhum, Jamshedpur. The Arbitral award
has been passed by the sole Arbitrator who is a retired Chief Engineer
of Road Construction Department, Government of Jharkhand namely
Shri Suresh Mishra.
2. The foundational background regarding the contract.
The case arises out of agreement no. 3/SMC/88-89 dated 17.01.1989
for excavation of residual work of Chandil Left Bank Main Canal
from km 22.555 to km 25.481. The work relates to the minor
distribution division no. 3 (previously minor distribution division no.
5) of the State of Jharkhand.
The background of the case is that the Government of India received
credit from International Development Association for Subarnarekha
Multipurpose Project, Bihar (now Jharkhand). Tenders were invited
by the Chief Engineer, Subarnarekha Multipurpose Project through
Tender Notice dated 02.09.1988. Pursuant to the tender notice,
respondent – M/s Himachal Construction Company Private Limited
(hereinafter referred to as the claimant) successfully participated and
contract was approved for acceptance in favour of the claimant vide
memo dated 06.01.1989 issued by Chief Engineer (Subarnarekha
Multipurpose Project), Chandil Complex. The agreement was signed
on 17.01.1989 between the Executive Engineer, Subarnarekha Canal
Division, Haludbani representing the then Government of Bihar and
the director of the claimant. The contract was on item rate basis.
In terms of the agreement the claimant was required to do all that was
needed to complete the excavation work of the aforesaid Chandil
Bank Main Canal to the extent of the kilometers mentioned above and
if required, was also to carry out work beyond listed items and
quantities for which they were entitled to be paid by taking them as
“extra items” and “contract variation” as per General Conditions of
Contract.
The estimated cost of work as per tender notice was Rs. 131.56 lakhs
and the agreement was valued at Rs. 1,20,11,200.00. The work as per
the written order was to commence on 17.01.1989 and the completion
period was 6 months from the written order and accordingly, the work
was to be completed by 16.07.1989.
3. Extension of time for completion of work
The extension of time for completion of work was granted in phases
upto 30.06.1992. The work could not be completed within the period
of extended time i.e. by 30.06.1992 and the letter granting extension
2
of time till 30.06.1992 was issued by the Chief Engineer, which was
letter no. 980 dated 20.05.1992.
4. The Cause of action for the dispute and the developments
thereafter till dismissal of petition filed before the learned
Arbitrator under Section 16 of the Act of 1996 vide order dated
09.05.2005.
a. The clauses of the contract relevant for this issue are clause nos.
50 and 51 which are quoted as under:
“50. SETTLEMENT OF DISPUTES:
If the Contractor considers any work demanded of
him to be outside the requirements of the contract, or
considers any drawings, record or ruling of the Executive
Engineer on any matter in connection with or arising out of
the contract or carrying out of work to be unacceptable, he
shall promptly ask the Executive Engineer in writing for
written instructions or decision. Thereupon the Executive
Engineer shall give his written instructions or decision
within a period of thirty days of such request.
Upon receipt of the written instructions or decision
the Contractor shall promptly proceed without delay to
comply with such instructions or decision.
If the Executive Engineer fails to give his
instructions or decision in writing within a period of thirty
days after being requested, or if the Contractor is
dissatisfied with the instructions or decision of the
Executive Engineer, the Contractor may within thirty days
after receiving the instruction or decision appeal to
Superintending Engineer, who shall afford an opportunity
to the Contractor to be heard and to offer evidence in
support of his appeal. This officer shall give a decision
within a period of sixty days after the Contractor has been
given the said evidence in support of his appeal.
If the Contractor is dissatisfied with this decision,
the Contractor within a period of thirty days from the
receipt of the decision shall indicate his intention to refer
the dispute to arbitration, failing which the said decision
shall be final and conclusive.
51. ARBRITRATION:
All the disputes or difference in respect of which the
decision has not been final and conclusive shall be referred
for arbitration to a sole arbitrator appointed as follows:
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Within thirty days of receipt of notice from the
Contractor of his intension to the dispute to arbitration of
Chief Engineer, Subernarekha Multipurpose Project,
Jamshedpur shall send to the Contractor a list of three
officers of the rank of Superintending Engineer or higher,
who have not been connected with the work under this
contract. The Contractor shall within fifteen days of receipt
of this list select and communicate the Chief Engineer the
name of one officer from the list who shall then be
appointed as the sole arbitrator. If Contractor fails to
communicate his selection of name, within the stipulated
period, the Chief Engineer shall without delays select one
officer from the list and appoint him as the sole arbitrator.
If the Chief Engineer fails to send such a list within thirty
days, as stipulated, the Contractor shall send a similar list
to the Chief Engineer within fifteen days. The Chief
Engineer shall then select one officer from the list and
appoint him as the sole arbitrator within fifteen days. If the
Chief Engineer fail to do so the Contractor shall
communicate to the Chief Engineer the name of one officer
from the list, who shall than be the sole arbitrator.
The arbitration shall be conducted in accordance
with the provisions of the Indian Arbitration Act, 1940 or
any statutory modification thereof. The decision of the sole
arbitrators shall be final and binding on the parties
thereto. The arbitrator shall determined the amount of cost
of arbitration to be awarded to either parties, performance
under the contract shall continue during the arbitration
proceedings and payments due to the Contractor shall not
be with-held unless they are the subject matter of
arbitration proceedings.
All awards shall be in writing and in case of awards
amounting to Rs. 1.00 lack and above, such awards shall
state the reasons for the amount awarded.
Neither party is entitled to bring a claim to
arbitration if the arbitrator has not been appointed before
the expiration of thirty days after defects liability period.”
b. It was the case of the claimant that extension was granted
without imposition of any liquidated damages as the extension
was primarily on the ground of non-clearance of forest land in
the alignment of canal, non-shifting of utility services like high-
tension electric towers, presence of Jaida (worship place) on the
alignment and scarcity of fund for timely payment on account
of bills which was evident from the letters of recommendation
4
of extension of time by the concerned officers. The scarcity of
fund was also evident from the fact that no payment of work
done could be made beyond 13th running on account bill.
c. It was further case of the claimant that it was not unusual for
large projects not being completed within time as pre-requisites
like land acquisition, mandatory permission from concerned
ministries, shifting of utility services and fund flow required for
timely payment of bills are not arranged by the employer in
advance. Under the tender notice in paragraph no. 6, the status
of the project was mentioned and it was stated therein that the
land was already acquired partially and forest land acquisition
was in progress. It was the case of the claimant before the
learned Arbitrator that the transfer of forest land could not be
made till the progress of the work was going on.
d. It was the case of the claimant before the learned Arbitrator that
after expiry of the last extension of time upto 30.06.1992, the
agreement was neither closed/foreclosed/rescinded nor the
claimant was asked to demobilize the plant and machinery from
the site and to submit the final bill for payment. On the
contrary, the claimant was asked to extend the validity of bank
guarantees. Further it was the case of the claimant that the State
issued various correspondences assuring the claimant that
allotment of fund was expected from Government of Bihar and
the portion of the work involved would fall under priority zone
and a letter dated 18.04.1992 was issued to this effect by the
executive engineer asking the claimant to mobilize plant and
machinery. A review of the progress was held in the chamber of
Hon’ble Minister of Irrigation of the then State of Bihar on
18.11.1992 and it was decided to take necessary action
regarding closure of such contracts which are not in the interest
of the project, but to ask those contractors to go ahead with the
work slowly which was in the interest of the project. A
newspaper report dated 15.12.1993 wherein it was published
that work at Subarnarekha Multipurpose Project was to begin in5
a period of six months gave a ray of hope to the claimant
regarding restart of the unfinished work. Another meeting of the
officials of the Subarnarekha Project and Builders’ Association
of India (Jamshedpur Centre) was held on 12.08.1998 which
was for the purpose of finding out ways and means to restart the
balance work on priority basis as allotment of a sum of Rs. 40
crores was expected during the financial year. In the said
meeting between the officials of Subarnarekha Multipurpose
Project and Builders’ Association of India certain points of
agreement were entered into:-
i. Attempts would be made to get the balance work
completed by existing contractors and if they are not
interested, after due notice final measurement would be
taken jointly in presence of existing contractors.
ii. On the request of Builders’ Association to give allowance
for silt accumulated during the period of suspension of
work almost for 8 to 10 years, it was agreed that due
allowance will be considered after the final measurement
is taken by September 1998.
iii. Extension of time will be granted before the balance
work is started for which the Chief Engineer was
competent.
iv. After invitation of tender for balance work, if the old
contractors are ready to do the work as per terms and
conditions, at lower rate under the new tenders, there
would be no objection in awarding the work to
contractors who have executed the work.
e. It was further case of the claimant that as a follow-up of the
aforesaid meeting, the executive engineer issued a letter dated
27.08.1998 and informed the claimant that their work has been
put under 2nd priority and sought consent from the claimant as
to whether they were ready to do the balance work at their old
rate. It is further case of the claimant that the claimant wrote a
letter to the Executive Engineer stating that “since the work has6
been put under second priority and its date of recommencement
is not fixed, he, therefore, will be able to do the work at
schedule of rate prevailing at the time of execution of work”. In
the meantime, the Government of Bihar through the Joint
Secretary (Irrigation) issued letter dated 11.12.1998 with a
direction that if the cost of balance work at the time of
invitation of tender for balance work at “1998 schedule of rate”
was more than the cost of balance work as per existing contract
rate including price escalation up-to-date, old contracts may be
revived.
f. The cause of action for the claimant arose when the Executive
Engineer invited fresh tender for the remaining work on
17.09.2000. The grievance of the claimant was that the tender
was invited without ascertaining whether the estimated cost of
balance work as per 1998 schedule of rate is less than the cost
of balance work as per the old contract rate including price
escalation upto 1998 as directed by the aforesaid letter of the
department dated 11.12.1998. It was their case that the
Government had issued the direction that if the cost as per old
agreement including price escalation is less than the estimated
cost as per 1998 schedule of rate, old agreement may be revived
to avoid any future litigation. It was their further grievance that
the existing contract with the claimant was not finalized before
inviting fresh tender for balance work.
g. It was further case of the claimant that the engineers who were
responsible for taking final measurement were not present on
the various dates and time fixed for the purpose and under such
circumstances, a legal notice for attending final measurement
ought to have been published in the newspaper. Thus, final
measurement as agreed by both the parties was never taken nor
any effort was made to ascertain the quantities of silt
accumulated in the canal during the period of stoppage of work
from 30.06.1992 to the date of measurement taken by the group
of engineers authorized for taking final measurement.
7
h. The fresh tender for balance work was sent to the Secretary,
Water Resources Department vide letter dated 11.01.2001 who
reviewed the tender and observed “since most of the tenders
relate to balance work of subsisting contracts which have not
been finalized/closed or rescinded, the chances of litigation and
court cases are there”. Hence the Chief Engineer was directed
vide letter dated 14.05.2001 to finalize the subsisting contracts,
close the agreements and report and only thereafter, the fresh
tender could be considered. By referring to aforesaid
communications, the claimant contended that the tender for
balance work was invited without finalizing the subsisting
contract with the claimant and the contract was not finalized
even till 14.05.2001. However, in the meeting of tender
committee held on 28.08.2001 the balance work with regard to
agreement was allotted to one Bihar State Construction
Corporation at the cost of Rs. 1,35,16,985/- on the condition
that the final bill of the work done by previous agency must
have been finalized by 28.08.2001 as per the rule before the
new agency takes up the work.
i. In the aforesaid background, the claimant filed a writ petition
before this Court being W.P.(C) No. 5408 of 2001 which was
also subject matter of consideration in LPA No. 312 of 2002
and ultimately, vide order dated 15.07.2002 liberty was granted
to the claimant to invoke arbitration clause as per the
agreement, if so desired.
j. Consequently, the claimant invoked clause 50 of the General
Conditions of Contract dealing with ‘settlement of disputes’ on
16.10.2002 before the Executive Engineer, Minor Distribution
Division No. 5 who rejected all the claims on 13.11.2002
against which the claimant preferred appeal before the
Superintending Engineer on 04.02.2003 under Clause 50 of the
General Conditions of Contract.
k. It is further case of claimant that the Superintending Engineer
remained silent for more than 4 months and consequently, the8
claimant gave notice to the Chief Engineer in terms of Clause
51 of the General Conditions of Contract vide letter dated
08.04.2003, but the Chief Engineer did not abide by the
provisions of Clause 51 and did not send panel of 3 prospective
arbitrators to the claimant within 30 days for selection of one
arbitrator amongst the three. The claimant exercised their right
and sent a panel of 3 arbitrators vide letter dated 12.05.2003.
Having no reply from the side of the Chief Engineer, the
claimant communicated one name out of the list of 3 engineers
sent earlier to the Chief Engineer who would be the sole
arbitrator vide letter dated 29.05.2003 which according to the
claimant was in accordance with the provisions of Clause 51 of
the General Conditions of Contract. Thus, the arbitral tribunal
was constituted appointing the learned Arbitrator and the letter
dated 30.06.2003 was issued by the claimant to the learned
Arbitrator with a request to convene preliminary meeting and
issue necessary directions.
l. Pursuant to such letter, a preliminary meeting was convened on
26.08.2003 but the executive engineer vide letter dated
26.07.2003 raised objection regarding appointment of sole
arbitrator. Thereafter, the executive engineer filed a petition
challenging the jurisdiction of the learned Arbitrator vide letter
dated 27.09.2003 which was followed by hearing of the
objection in terms of section 16 of the Act of 1996. A date of
hearing was fixed on 10.01.2004 on which day, the executive
engineer or his counsel did not appear. The claimant appeared
and filed a rejoinder.
m. By way of last indulgence, the date was fixed on 20.03.2004
and on that day also, nobody appeared on behalf of the
executive engineer, however, they sent a time petition dated
17.03.2004 mentioning that Miscellaneous Case No. 3 of 2004
was filed in the Court of Sub-Judge-I, Jamshedpur and sought
adjournment, which was objected by the claimant by filing a
petition dated 20.03.2004.
9
n. The learned Arbitrator ultimately gave another chance by way
of last chance to the State to make submission on 27.05.2004
and on that day, it was reported that the Miscellaneous Case No.
3 of 2004 was finally heard on 25.05.2004 and the order was
reserved. Consequently, the matter was adjourned. The
Miscellaneous Case No. 3 of 2004 was dismissed by the learned
Sub-Judge- I, Jamshedpur vide order dated 29.05.2004.
Subsequently, it was reported that a civil revision petition was
filed against the order of the sub-judge. The civil revision
petition being Civil Revision No. 139 of 2004 was decided vide
order dated 09.02.2005 by the High Court and the order passed
by the learned Sub-Judge was affirmed and civil revision was
dismissed.
o. Ultimately, vide order dated 09.05.2005 the petition under
section 16(i)(ii) and (iii) of the Act of 1996 was dismissed by
the learned Arbitrator and with the consent of parties, the next
date of hearing was fixed as 16.08.2005.
5. The Claim
The claimant filed statement of claim on 05.03.2006. The claimant
filed revised claim on 04.06.2012. The claims were primarily in three
compartments, that is, claim relating to the work done, claim on
account of delay and damages and miscellaneous claims like cost of
arbitration etc.
6. The chart relating to the claim/modified claim and awarded
amount is as under:
Claim Briefs of claims In Org. Claim In Mod. Claim Awarded Amt.
No. in C-1 on in C-16 on (Rs.)
05.03.2006 04.06.2012
PART - 1 (for work
done)
1 Work done by 76,25,494.90 1,82,90,280 61,26,290.00
Claimant beyond 13th
R/A bill
2 Outstanding interest 19,64,828 NIL
amount due upto
29.05.2003 against
payment already made
3 Claim against short 3,70,248 2,22,281.00
payment made in
different on account
bills which have not
10
been paid yet
4 Claims for Extra items 1,282,600 NIL
of work as per clause
30 and 31 of General
conditions of contract
5 Claim for refund of 2,50,355.00 2,50,355.00
deductions made for
EoT but not refunded
even after sanction of
Extension of Time by
competent Authorities
6 Short payment made in 5,290 Withdrawn by
13th on account bill for Claim
lack of payment
Total 76,25,495 2,21,63,601 65,98,926
Interest on due amount 13% per annum from 01.10.1992 (3 months after
the last date of extension of time of completion i.e.
30.06.1992) till date of award.
PART – 2 (delay
damages)A1 Claim due to Overhead 1,35,32,618.00 1,24,11,574.00 82,40,000.00
losses
A2 Demand due to need to 41,67,312.90 49,86,273.00 12,60,000.00
restructure rates during
extended time of
completion
A3 Loss due to profit not 37,73,485.85 28,84,821.00 Rejected
earned at appropriate
time as on 31.03.1990
A4 Loss due to 14,79,81,600.00 1,34,06,740.00 69,30,000.00
underutilised tools and (period
plants and machineries changed to 33
(Annual rental value of months)
P&M @
Rs.65,94,960/-) as full
rate
a) Underutilization
period from 18.09.89 +1,97,84,880 +51,80,000.00
to 30.06.92 (till last
EoT) at full rate (33
months)
b) Idle period @ 30%
of full rate from 3,31,91,650 1,21,10,000.00
01.07.1992 to
31.08.1998 (74
months)
A5 Loss of productivity 21,36,946.08 No detail Rejected
furnish
A6 Opportunity losses 62,05,786.67 5,204,854 Rejected
A7 i) Loss due to As per actual 1,28,55,949.00 i)Rs.5,64,392
Additional cost of BG
of Rs. 657800.00 for
performance
Guarantees upto 27,37,630.00 ii) Rejected
27.12.08
ii) Loss due to
additional cost of BG
11
for security Deposit of
Rs. 543800.00
revalidated upto
21.6.09A8 Loss due to Blocked 11,55,928.00 No detail Rejected
Material cost furnish
A9 Loss due to delay in As per actual No detail Rejected
payments of O/A bills furnish
Claim for Price 71,60,789.00 Rejected
A10 Adjustment
8,14,33,510.00 2,16,10,000.00
+A7(i)Rs.
5,64,392.00
(Interest to be
calculated
separately)
B1 Interest Losses As per actual 1,03,99,28,319 To be
calculated
separately
B2 Cost of Arbitration As per actual 14,25,000.00 1,87,500.00
Interest On Rs. 2,16,10,000.00 interest @ 12% per annum
from 26.08.2003 (date of 1st Arbitration meeting)
till date of award.
On Rs.5,64,392.00 interest @13% per annum from
28.12.2008 till the date of award.
On cost of arbitration of Rs. 1,87,500.00 interest
@ 15% per annum from the date of award.
Future interest @ 15% on “the awarded amount together with
interest” from the date of award till the date of actual payment.
7. The State filed counter claim which has been rejected as
follows:
Description of Claimed Amount (Rs.) Amount
Recovery suggested Awarded
by the Respondent (Rs.)
Recovery of Excess 62,45,870.00 Rejected
payment made to
Claimants on the
basis of so-called 14th
& Final bill
8. Under part-I, claim no. 5 has been fully allowed and claim nos.
1 and 3 have been partly allowed totaling to Rs. 65,98,926.00. So far
as delay damages under part -II are concerned, claim no. A1 (claim
due to overhead losses) has been partly allowed to the extent of Rs.
12
82,40,000.00. Claim no. A2 (Demand due to need to restructure rates
during extended time of completion) has been partly allowed to the
extent of Rs. 12,60,000.00. Claim no. A3 (loss due to profit not
earned at appropriate time as on 31.03.1990) has been rejected. Claim
no. A4 (loss due to underutilised tools and plants and machineries)
has been partly allowed to the extent of Rs. 1,21,10,000.00. Apart
from the aforesaid, loss due to additional cost of bank guarantee
relating to performance guarantee upto 27.12.2008 has been partly
allowed to the extent of Rs. 5,64,392.00. Further cost of arbitration
has also been allowed to the extent of Rs. 1,87,500/-. Interest as
mentioned above has also been allowed.
9. Following issues were framed by the learned Arbitrator:
“1. Are the claims barred by limitation?
2. Are the claims submitted by claimants Arbitrable?
3. Are the claims maintainable under agreed terms of contracts
and as per the provision of contract Act?
4. Who is responsible and liable for non-completion of work
under the agreement, the claimants or the Respondents?
5. Whether the Respondents is entitled to recover a sum of
Rs.62,45,870.00 with interest thereon at appropriate rate from
the due date from the claimants?
6. Is there merit in various claims of claimants?
7. Interest
8. Cost of arbitration”
10. From perusal of the arbitral award, all the issues were dealt
from paragraph 48 onwards and all the issues were decided in favour
of the claimant but the claims were allowed only to the extent
indicated above.
11. The petition under section 34 of the Act of 1996 filed by the
State has been dismissed. The learned Court after considering the
materials and the grounds raised in the petition filed under Section 34
of the Act of 1996 recorded that the claimant had invoked arbitration
clause at pre-mature stage; the appointment of Arbitrator was
unilateral and against the clause of the agreement; without any
measurement excess amount was paid to the claimant by the
department till 13th R/A bill; the Arbitrator did not consider the
counter-claim properly which was based on the final measurement
13
being 14th R/A bill whereby a minus bill of Rs. 62,45,870/- was raised;
the Arbitrator did not consider that against the agreement value of Rs.
1,20,11,200.00, the claimant received Rs. 1,01,82,309/- as 13th R.A.
Bill on 16.11.1991 and balance work was only to the extent of Rs.
18,28,891/- then under what circumstances, the claimant claimed that
the work done beyond 13th R.A. bill was to the extent of Rs.
1,82,90,280/- as per modified claim and the learned Arbitrator
awarded Rs. 61,26,290/- under the head work done by the claimant
plus amount of Rs. 2,22,281/- was also awarded under the head short
payment made in different on account bills. However, the learned
Court refused to set-aside the award by observing that as per the
judgments “even if two views are possible, reappraisal of material on
record by the court and substituting its own view in place of
Arbitrator’s view is not permissible in absence of perversity.” The
Court observed that once the arbitrator has applied his mind to the
matter, the court cannot reappraise the same as if it were in appeal.
The learned court in paragraph 15 of the impugned order held that the
court is not required to re-appreciate and re-evaluate the findings
given by the Tribunal and refused to interfere with the award.
Paragraph 14 and 15 of the impugned judgment is quoted as under: –
“14. Although I find that some merit in the contention of
learned counsel of the applicant/ respondent is that (a) the
Opp. party has invoked Arbitration Clause 51 at pre-mature
stage (b) the appointment of Arbitrator Er. Suresh Mishra,
Retired Chief Engineer, R.C.D., Govt. of Jharkhand is
unilaterally by the claimant/OP against the Clause of the
Agreement. (c) Without measurement excess amount was paid
to claimant/ Op by the Applicant department till 13th R/A bill.
(d) Not properly consider by Ld. Arbitrator counter claim of
department of final measurement 14th R.A minus bill Rs.
62,45,870/-.(e) last not least that agreement value Rs.
1,20,11,200/- OP received Rs. 1,01,82,309/- as 13th R.A bill,
on 16-11-1991 having balanced amount of work of
Rs.18,28,891/- then how the claimant/ OP claim on the head of
work done by claimant beyond 13th R.A. Bill by his Modified
claim of Rs.1,82,90,280/- and ld. arbitrator surprisingly
awarded Rs 61,26,290/- and further awarded 2,22,281/- short
payment made in different account of bills, but in view of the
judgment refereed above by the claimant/ OP in which Hon’ble
court held that “even if two views are possible, reappraisal of
14
material on record by the Court and substituting its own view
in place of Arbitrator’s view is not permissible in absence of
perversity. Once the Arbitrator has applied his mind to the
matter before him, Court cannot reappraise the said matter as
if it were in appeal’. Further relying upon M/s. Associated
Construction Versus Pawanhans Helicopters Pvt. Ltd,
Navodaya Mass Entertainment Limited Vs. J.M. Combines,
Sutlej Construction Limited Vrs. Union Territory of
Chandigarh, Rastriya Ispat Nigam Limited Vrs. Diwan Chand
Ramsaran, Associate Builders Versus Delhi Development
Authority, Sangyong Engineering & Construction Co. Ltd.
Versus National Highways Authority of India (NHAI) (Supra)
the Hon’ble Apex Court has held an award cannot be set aside.
The arbitrator is a Judge chosen by the parties and his
decision is final. The court is precluded from reappraising the
evidence. Even in a case where the award contains reasons, the
interference therewith would still be not available within the
jurisdiction of the court unless, of course, the reasons are
totally perverse or the judgment is based on a wrong
proposition of law’ The Honb’le Apex Court further observed
that “the jurisdiction is not appellate in nature and an award
passed by an arbitrator cannot be set aside on the ground that
it was erroneous. It is not open to the court to interfere with the
award merely because in the opinion of the court, another view
is equally possible. It is only when the court is satisfied that the
arbitrator had misconducted himself or the proceedings or the
award has been improperly procured or is otherwise invalid
that the court may set aside such award.” The Hon’ble Apex
Court further observed that ” It must also be borne in mind that
a court does not sit as one in appeal over the award of the
arbitrator and if the view taken by the arbitrator is permissible,
no interference is called for on the premise that a different view
was also possible.” The Hon’ble Apex Court further observed
that “Even if on the assessment of material, the court while
considering the objections under section 34 is of the view that
there are two views possible and the Arbitral Tribunal has
taken one of the possible views which could have been taken on
the material before it, the court would be reluctant to
interfere.”
15. Hence this court is not required to re-appreciate and re-
evaluate the findings given by the Tribunal. Therefore, in view
of the above said discussion and after considering the
contentions of the learned counsels for the parties and in view
of the authoritative pronouncements discussed above and also
as this court is not sitting in appeal against the impugned
award the court is not required to re-appreciate or re-evaluate
the evidence led before the Arbitral Tribunal, I find that the
Respondent/ Applicant herein has failed to make out a case for
15
any interference with the impugned award dated 07-12-2015
passed by the Arbitral Tribunal, U/s. 34 of the Arbitration and
Conciliation Act.”
12. Submission of the State.
Learned counsel for the State (appellant) has referred to sections 7, 8,
16, 23, 34 and 37 of the Act of 1996 and also Article 137 of the
Limitation Act, 1963 to submit that these provisions would fall for
consideration by this Court in this appeal. It is also submitted that the
learned Commercial Court has failed to duly exercise its power under
section 34 of the Act of 1996. He has submitted that in order to
challenge the arbitral award, inter alia, following grounds were raised
under section 34 of the Act of 1996 but were not properly considered
by the learned Commercial Court: –
Jurisdiction of learned Arbitrator.
(i) The very appointment of the learned Sole Arbitrator was illegal and
arbitrary and contrary to the terms of the contract and the procedure
which was to be followed for the dispute resolution under the contract
between the parties. Further, the appointment of the Arbitrator could
only be made under the terms of the Contract and with the consent of
the parties, which was not the case at hand. The State had filed an
application under Section 16 of the Act of 1996 before the Sole
Arbitrator challenging its jurisdiction and composition of the Sole
Arbitrator which was contrary to Clause 50 & 51 of General
Conditions of contract and accordingly, appointment of the Arbitrator
was by itself illegal and contrary to the contract containing arbitration
clause between the parties.
Claims barred by limitation
(ii) The claims of the Claimant were barred by limitation. The Original
Claims of the Claimant made in the year 2002 and the modified
claims filed in the year 2012, both were barred by limitation as more
than 3 years had passed from the date of cause of action concerning
those claims. However, the learned Arbitrator, despite the fact that the
claims were barred by limitation and objection was also filed by the
State in its written statement before the learned Arbitrator, allowed the
claims which were hopelessly barred by limitation. Reliance has been
16
placed on the judgment passed in the case of “Bharat Sanchar Nigam
Limited Vs. Nortel Networks” reported in (2021) 5 SCC 738 and also
the judgment in “Binod Bihari Singh Vs. Union of India” reported
in (1993) 1 SCC 572 to submit that the bar of limitation may be
considered if such plea has not been specifically raised. Limitation
Act is a statute of repose and bars a cause of action in a court of law,
which is otherwise lawful and valid, because of undesirable lapse of
time under the limitation Act, is a well-accepted principle of
jurisprudence and public policy.
(iii) It has been submitted that the learned Sole Arbitrator has not
examined the claims and has recorded a general finding concerning
the claims being not barred by limitation instead of analyzing each
and every claim as to when its cause of action arose and whether the
each and every specific claim thereupon would be barred by
limitation.
(iv) A specific plea of limitation was raised before the learned Arbitrator
concerning the original claims filed in 2002 by the Claimant being
barred by limitation. It is further submitted that since the original
claim being barred by limitation, any further modification of the
claims and filing of additional claims allowed under section 23(3) of
the Act of 1996 is also illegal and all and any such additional claims
filed by the Claimant in 2012 would also be barred by the plea of
limitation as taken by the State before the learned Arbitrator
concerning the claims filed originally in the year 2002.
(v) The last time extension was granted till 30.06.1992. Thereby, the
cause of action between the parties concerning the dispute arose in the
year 1991 (when the last payment of bill was made) or when the last
extension expired between the parties. The claimant submitted its
claims in the year 2002, thereby its claims are completely barred by
limitation.
(vi) The claimant made no efforts to finalize the contract and submitted no
bills after the period of 1991-1992 and thereby its claims were barred
by limitation.
17
(vii) The Executive Engineer’s letter no. 713 dated 27.08.1998 asked the
claimant whether they were willing to complete the work at the
agreement rate which the claimant refused, thereby marking a
complete end of contractual relationship between the parties.
(viii) The State in its Written Statement/ Statement of Defence, in addition
to aforesaid objection regarding jurisdiction and limitation, disputed
all the claims and also their basis stating that the claim was not based
on contract between the parties and there was no evidence or
documentary data including bills of expenditure incurred to support
any of the evidence to support the Claims and the aforesaid
submissions were made before the learned Commercial Court while
challenging the award under Section 34 of the Act of 1996 .
(ix) The Sole Arbitrator awarded the Claimant high rates of interest,
without any basis for the same, whatsoever, being recorded in the
Arbitral Award.
(x) The Arbitral Award is liable to be set aside by this Court as the same
is patently illegal and has been passed in contravention of ‘public
policy of India’ as the findings are based on no evidence at all and the
claims have been allowed by placing reliance on irrelevant materials
and assumptions of losses suffered by the Claimant despite no
evidence or bills or documents to support or prove the aforesaid losses
by the Claimant.
(xi) The Claims of the Claimant suffer from substantial overlap of claims
which have been allowed on the basis of no evidence to support those
claims and only on the basis of the presumption of loss made by the
Arbitrator on a document i.e. the Report of Rates and Cost Committee
published by Ministry of Power and Irrigation, Central Water Power
Commission, which is in no way or form can be used for calculating
losses or presumption of losses, but rather it is a guideline concerning
how estimates of project cost are to be calculated and has no
application in the facts and circumstances of the instant case.
Rejection of counter claim- all payments are advance payments,
subject to clearance of final bill as per clause 32 of the conditions
of contract.
18
(xii) The rejection of the counter claims of the Claimant has been done by
the Sole Arbitrator in the most mechanical manner and without
assigning any reasons for the same. The work awarded to the claimant
could not be completed despite the grant of extension due to the
Claimant’s negligence, laches, incapacity and mismanagement which
was evidenced from the various correspondences made by the
Executive Engineer. The State was entitled to recover a sum of Rs.
62,45,870.00 with interest as excess payment made to the Claimant.
Further, the claim of recovery was rejected despite such claim being
evident from the records of correspondence and section measurement
taken of the work done in presence of the parties. The state was
entitled to recovery of the excess payment made earlier to the
claimant in view of the Clause 32 of the Contract between the parties
i.e. ‘Payments and Certificates’ wherein all interim payments are to be
treated as advance payments, subject to clearance of final bill.
Award in breach of clause 32 of the general conditions of contract.
(xiii) Clause 32 of the Contract deals with ‘Payment and Certificates’ and it
provides that payment will be made at monthly intervals.
Accordingly, the claimant was required to submit bills for the work
done to the executive engineer on or before the last day of the month
which the claimant in the present case failed to submit. While
considering the claims, the learned Arbitrator ignored the aforesaid
fact and allowed the claims with escalation (Claim No. A2 concerning
demand due to restructure rates during extended time of completion)
and considered the bills submitted after much delay although the
claimant had breached the terms of the contract.
(xiv) Claim No. 1 concerning the amount due for work between the period
from 16.11.1991 till the last EOT i.e. 30.06.1992 amounting to a sum
of Rs 1,82,90,280 (Award allowed for a sum of Rs 61,26,290.00)
which was modified and claimed in 2012, Claim No. 3 concerning
short payments of bills, Claim No. 5 concerning Claim for refund of
deductions made for extension of time (EOT) in 1992 and Claim No.
6 concerning Short payment made in 13th on Account Bill, all
constituting Part -I of the Claims awarded in Award under challenge
19
in Commercial Appeal No. 5 of 2022, amounting to a total sum of Rs
65,98,926.00/- were all completely and hopelessly barred by
limitation as the cause of action had arisen long back in the period
between 1988-1992. Further, the modification of claims whereby
these claims and amount claimed therein was allowed to be added and
submitted in 2012 was illegal and arbitrary and the same was allowed
in violation of section 23(3) of the Arbitration Act, 1996 and is liable
to be set aside.
Award of delay damages.
(xv) Part (b) of the award concerning the ‘Delay Damages’ i.e. Claim No.
A1 concerning ‘Overhead losses for underutisized and unutilised
overheads’, Claim No. A2 concerning demand due to restructure rates
during extended time of completion, Claim No. A3 concerning ‘Loss
of profit not earned at appropriate time’ and Claim No. A4 concerning
‘Loss due to underutilised and unutilised tools, plant and machineries’
suffer from substantial over-lap of claims and have been allowed by
the Sole Arbitrator in contravention of the Act of 1996 as well as the
Hon’ble Supreme Court rulings in “Batliboi Environment Engineers
Vs. Hindustan Petroleum Corporation Ltd and another” reported in
(2024) 2 SCC 375 and also in “M/s Unibros Vs. All India Radio”
reported in (2023) SCC Online SC 1366 and settled principles of
considerations when claims concerning delay damages are to be
awarded. The same has been allowed without any relevant evidence
whatsoever for the aforesaid losses actually being suffered but rather
by indirectly applying the ‘Hudson Formula’ in the guise of placing
reliance on the Article 2.36.1 of the report of Rates and Cost
Committee published by Ministry of Power and Irrigation, Central
Power Commission. There has been no evidence or discussion
concerning the actual losses suffered on any of the claims and the
same has been allowed by the Sole Arbitrator merely on the basis of
calculations and indirect application of the Hudson Formula and the
entire claims concerning the delay damages are liable to be set aside.
20
(xvi) The learned counsel has referred to paragraphs 16 and 20 to 27 of the
aforesaid judgment passed in Batliboi Environment Engineers
(Supra). He has also referred to paragraphs 15 and 16 of the aforesaid
judgment in M/s Unibros (Supra). It is submitted that the principles in
connection with ‘delay damages’ have been settled by the aforesaid
judgments. It has also been submitted that the learned Sole Arbitrator
had allowed multiple claims of same nature or specifications of losses
that too without any evidence in support of such claims.
(xvii) It has been submitted that while deciding the claim, Article 2.36.1 of
the Report of Rates and cost committee published by Ministry of
Power and Irrigation, Central Water Power Commission has been
relied upon by the learned Arbitrator by stating it to be a trade
practice. It has been submitted that such approach is entirely wrong
and erroneous. It has been further submitted that the aforesaid report
concerns calculation of estimates for projects and has no basis
whatsoever to allow claim for ‘delay damages’ and accordingly, the
learned Arbitrator has relied upon irrelevant material. Such approach
of the learned Arbitrator is patently illegal and is against the public
policy of India. It has been reiterated that the claims have been
allowed which are based on no real evidence to support the losses and
irrelevant document has been relied to make assumption of losses
suffered by the claimant despite there being no evidence to support
such losses. It has also been reiterated that overlapping claims on
account of ‘delay damages’ under each heading of losses have been
allowed in a most mechanical manner without any evidence
whatsoever.
Scope of interference in arbitral award.
(xviii) With regard to the scope of interference in Arbitral Award, reliance
has been placed on the judgment passed by the Hon’ble Supreme
Court in the case of “Ssangyong Engineering & Construction
Company Ltd. Vs. NHAI” reported in (2019) 15 SCC 131
(paragraphs 40 and 41) and also the judgment in the case of “DMRC
Ltd. Vs. Delhi Airport Metro Express (P) Ltd.” reported in (2024) 6
SCC 357 (paragraphs 33 to 42).
21
(xix) Apart from the aforesaid judgments, the learned counsel for the state
has also relied upon following two judgments:
“Binod Bihari Singh Vs. Union of India” reported in (1993) 1 SCC
572 (paragraph 10)
“J.C. Budhraja Vs. Chairman, Orissa Mining Corpn. Ltd.” reported
in (2008) 2 SCC 444 (paragraphs 20, 21, 25, 26, 29 & 34).
13. Submissions of the Claimant.
Scope of interference
I. The application under consideration is one filed under Section
37 of the Act of 1996. Therefore, it has to be tested on the
touchstone of section 37 and no more. Section 37 of the Act of
1996 lays down certain grounds which have to be proved by the
party who intends to have the arbitral award set aside.
II. The Award has been passed by the learned Arbitrator after
perusal of several documents consisting of thousands of pages
submitted by either party during the Arbitral proceedings which
continued for numerous sittings wherein both the parties were
represented by their Counsels. Arguments were also advanced
by the Executive Engineers and Assistant Engineers
representing the case of the State.
III. The learned Arbitrator has dealt with the matter in details based
on the evidences, records and pleas produced before him by
both the parties, as the arbitrator is a Retd. Chief Engineer of
the Government of Jharkhand as such he is an expert of this
field and having special knowledge, has either accepted or
rejected the claims within his jurisdiction after application of
his mind which has been disclosed in the outcome of the Award
which in no ways can be termed as perverse.
IV. The claimant in the written submissions has also referred to the
judgment of the Hon’ble Supreme Court delivered on
20.09.2024 in Civil Appeal Nos. 3981-3982 of 2024 in the case
of “OPG Power Generation Private Limited Vs. ENEXIO22
Power Cooling Solutions India private Limited” and has
referred to paragraph 68 of the said judgment.
Limitation
V. The first ground so taken by the State is with regards to the fact
that the claims of the Claimant are for work executed in the year
1989-92 whereas the section 21 notice invoking arbitration was
sent in the year 2003.
VI. The Claimant has filed all detailed list of dates and from perusal
of the same it can be verified that the claimant had invoked
clause 50 of the agreement on 16.10.2002 and clause 51
containing Arbitration clause on 08.04.2003 whereas the
dispute had arisen on 17.09.2000 when the State issued a fresh
tender without closing the contract.
VII. As such the period for limitation vis-Ă -vis arbitration would
arise only from the date of dispute that is 17.09.2000.
Reference has been made to the judgment of the Hon’ble
Supreme Court in the case of “Major (Retd.) Inder Singh
Rekhi Vs. Delhi Development Authority” reported in (1988) 2
SCC 338.
VIII. At paragraph 48 of the arbitral award, while dealing with the
issue of limitation it has also been noted that on 14.12.2008 the
counsel for the state had admitted that the claimants were well
within the right to refer the dispute for arbitration and it has
been held that the agreement between the parties was very much
alive on the date of pressing the claims and demand on
16.10.2002 as it was neither finalized nor foreclosed as per
terms of Agreement. The work was kept in abeyance and the
contractor was asked to extend the validity of bank guarantee.
Further, an ancillary argument has also been made to the effect
that a part of the claims was modified on 04.06.2012 which
were hit by limitation. Before addressing to the issue, no
response/objection was ever filed by the State before the
learned Arbitrator in this regard.
23
IX. At paragraph 48 of the Award, the learned Arbitrator has taken
note of Clause 34 and Clause 51 of the Agreement for release of
claims. As per Article 137 of Limitation Act the right to apply
occurred after the balance work was put to tender without
having finalized the contract of claimant.
X. The claimant has also relied upon the judgment passed by the
Hon’ble Supreme Court reported in (2016) 1 SCC 530 (Vasant
Balu Patil and others Vs. Mohan Hiranchand Shah and
others) to submit that once an amendment is made and no
objection is made to such amendment and the same is allowed
without any precondition, then under the concept of relation
back the relief added/amended shall relate back to the date of
filing of the case, that is, in the present case the date of
invocation of arbitration under section 21 of the Act of 1996.
XI. As such, both factually and legally the amendments were made
and none of the claims is hit by the laws of limitation.
XII. The learned Arbitrator has negated the issue of limitation.
Section 16 of the Act of 1996
XIII. During the course of the arbitration proceeding, the appellant
had filed the application under section 16 of the Act of 1996
challenging the jurisdiction of the learned Arbitrator.
XIV. Clauses which govern invocation of arbitration and the ground
for challenge are clauses 50 and 51 of the general conditions of
contract which provide for arbitration.
XV. The grounds so taken by the Appellant are as under:-
(a) Appeal before the Superintending Engineer was not
preferred within 30 days of the decision of the Executive
Engineer;
(b) Without waiting for the decision of the Superintending
Engineer in appeal the arbitration clause was invoked; and
(c) The Sole Arbitrator was appointed unilaterally by the
claimant.
XVI. Clause 50 of the conditions of contract speaks that on
emergence of four types of grievances, the contractor shall ask
24
for written decision/instructions from the Executive Engineer
and upon the decision of the Executive Engineer being still
unsatisfactory, the contractor would prefer an appeal before the
Superintending Engineer within 30 days. In the present case the
Executive Engineer’s decision came on 17.11.2002 which was
received by the claimant on later date and the appeal was
preferred on 04.02.2003. The filing of appeal before the
Superintending Engineer beyond 30 days was not challenged
before the learned Arbitrator and as such it cannot be raised for
the first time before this Hon’ble Court. Such plea is barred
under section 4 of the Act of 1996 and as interpreted by the
Hon’ble Supreme Court in the case of “Narayan Prasad Lohia
Vs. Nikunj Kumar Lohia and others” reported in (2002) 3
SCC 572. Clause 51 of the agreement was invoked on
08.04.2003 praying for appointment of arbitrator.
The appeal under clause 51 of the agreement was made on
04.02.2003 along with evidences, sixty days expired on
04.04.2003 but no communication was received from
Superintending Engineer inviting any further evidence or
offering any opportunity of hearing till 04.04.2003 and the
learned Arbitrator has given a finding that the Superintending
Engineer kept mum over the appeal for more than four months
and asked for evidence only on 18.06.2003 after being aware of
the fact that the sole Arbitrator has been appointed by the
claimant and Arbitral Tribunal has been constituted on
29.05.2003 which has been recorded in the award at page 28
and 29.
The Chief Engineer in terms of Clause 51 of the agreement did
not send a list of three prospective arbitrators within 30 days of
the receipt of notice invoking arbitration vide Claimant’s letter
dated 08.04.2003. Then the Claimant in terms of Clause 51 sent
a list of three prospective arbitrators to the Chief Engineer to
select one. The Chief Engineer failed to select one out of three
names proposed by the claimant within 15 days, therefore, the
25
claimant was entitled to finalize one of them, and that is what
has happened in this case. It is submitted that there is no
challenge set up either under section 16, section 34 or under
section 37 of the Act of 1996 claiming that this procedure was
incorrect.
XVII. Further, similar clauses have been interpreted by Jharkhand
High Court in Arbitration Appeal no. 14 of 2007 holding that
clause 51 (in this case clause 50) of the agreement is
independent to clause 52 (in this case clause 51).
XVIII. In light of the aforesaid facts, the learned Arbitrator had decided
this issue vide an order dated 09.05.2005.
Claims
XIX. Claimant claimed in 2 parts:
i. Claim Part-1 deals with claims against work done but not paid.
ii. Claim Part-2 deals with claims which relate to damages under
the heads: –
a. Overhead losses
b. Escalation (demand due to need to restructure rates
during extended time of completion)
c. Idling of plant and machinery
d. Bank Guarantee charges
XX. In regards to the claim of escalation it has been stated that the
said claim was also made in Commercial Appeal No. 4 of 2022
but the same was negated by the learned Arbitrator on the
ground that the contract had an inbuilt escalation clause of price
adjustment. Whereas in this case there was no price adjustment
clause as such escalation has been allowed on the basis of
cogent evidence of finding of fact in regards to the inordinate
delay on the part of the state.
XXI. There are two issues to be dealt with while dealing with claims
relating to ‘delay damages’ which are –
(i) whether the claims are overlapping, and
26
(ii) whether there are any evidences which could have
been relied upon by the learned Arbitrator while awarding
under this very head?
(iii) whether there is any scope for interference in the
matter of award of escalation?
XXII. The claim for overhead has been partially allowed. The
claimant had claimed overheads @ 10% of the value of job in
light of the trade practices so published by the Government of
India in regards to similar irrigation project works. Section 73
of the Indian Contract Act, 1872 talks about two components
i.e. “damages” and “compensation”. ‘Compensation’ means to
make good the actual loss whereas the word ‘Damages’ can
include a component which might not be in form of loss but
which a person might have gained (e.g. expected profit). The
judgment of the Hon’ble Supreme Court in the case of Batliboi
Environment Engineers (Supra) had the occasion to discuss
the concept of damages and compensation. In the aforesaid
judgment at paragraph 10 it was mentioned as under:
“10. BEEL had, as observed above, accepts the position
that the loss towards overheads and profits/profitability
has to be arrived at by applying the percentage formula,
variant with the execution of the work. Thus, in our
opinion, the loss towards overheads and
profits/profitability is to be computed on the payments due
for the unexecuted work, and should exclude the payments
received/receivable for the work executed. In other words,
based on the value of the work executed by BEEL, the
proportionate amount has to be reduced for computing
the damage/compensation as a percentage of expenditure
on overheads, and damages for loss of profit/profitability.
Damages towards expenditure on overheads and loss of
profit are proportionate, and not payable for the work
done and paid/payable. Delay in payment on execution of
the work has to be compensated separately.”
The learned Arbitrator took note of aforesaid proposition of
law and excluded the period during which work was done for
the purposes of computation for overhead costs. The concept
of profit from unexecuted work and loss of profit owing to
27
delay is required to be understood in terms with paragraph 10
of the judgment in the case of Batliboi Environment
Engineers (Supra). In the aforesaid paragraph, it has been
provided that for the unfinished work on the basis of the
remaining quantum of work, loss of overhead and profit can
be granted. In the present case the claim of loss of profit has
been denied.
XXIII. It is submitted that the State has also argued that the claim of
overhead so allowed is virtually under the Hudson’s formula
which is factually not correct for the following reasons:
a) Award in the present case does not carry the element of
profit percentage (as taken in Hudson Formula).
b) Award in the present case is on the basis of the sum paid
for total work and against work done but not paid. (which
means not on the basis of contract sum as taken in Hudson
Formula)
c) In the present case, the learned Arbitrator on the basis of
total work done (total work paid and award against work done
but not paid) has considered the total effective utilization of
Claimant’s resources which is in terms with the judgment in
Batliboi Environment Engineers (Supra).
d) Award in the present case is on the basis of work load as
per Contract. (not on the basis of Contract period as taken in
Hudson Formulae)
e) Award in the present case for computation of losses has
been categorized in 3 parts and not on the basis of total period
of delay in a straight line as taken in Hudson Formulae.
(f ) For demand of Overhead losses, neither Loss of Profit has
been pleaded nor awarded.
The learned Arbitrator has taken all due care in order to avoid
any kind of overlapping in any form and it can be safely said
that the learned Arbitrator has not computed and awarded losses
of overhead on the basis of Hudson Formulae and the award has
been passed upon attendant facts & circumstances which is
28
within the domain and decision of the arbitrator. The method of
computation is within the sole jurisdiction of the learned
Arbitrator as held in paragraph 15 of the judgment in Batliboi
Environment Engineers (Supra).
XXIV. As such now coming into the issue of evidence in support of
this claim of overhead which has been allowed by the learned
Arbitrator.
Trade usage or industrial practice have all along been
considered as a valid form of evidence.
In order to support Trade usage in form of evidence, documents
of Government of India for the purpose of component of
Overhead in an irrigation project was brought before the learned
Arbitrator by the Claimant which were never objected by the
State. The said documents were:
a. Report of rates and cost committee.
b. Report of committee of cost control of river valley
projects.
These documents so produced in form of evidence are in
common trade usage while executing this kind of irrigation
work and for computation of overhead @ 10% value has been
taken note of. This is an estimate for executing the kind of work
which was allotted to the claimant/respondent. An estimate by
the government agency shows a trade practice which was
adopted by the Government while issuing these kinds of tender.
The learned Arbitrator has given a finding that based on the
trade practice as also exhibited vide the report of Rates and Cost
Committee published by Ministry of Power and Irrigation,
Central Water Power Commission, submitted by Claimant, it is
stated under Article 2.36.1 that allowance of 10% could be
considered adequate for contractor’s actual expenses on
Supervisory establishment, field Office and share of Head office
charges, Travelling expenses etc. Further finding has been
recorded by the learned Arbitrator to the effect that taking 10%
is a general government practice. Trade practices is a way of
29
doing business that is commonly used in particular industry and
have all along been considered to be as a piece of evidence and
the same also finds mention in section 28 (3) of the Act of 1996.
It is further submitted that in a similar matter taking note of this
very trade practices in form of evidence for computing
overhead expenses to the tune of 5% of the Contract, the
learned Arbitrator in the case of “Associate Builders v. DDA”
had allowed the claim of overhead. The Division Bench of the
Hon’ble Delhi High Court had taken a note of this very fact
with regards to claim no. 15. While dealing with this claim, the
Division Bench had negated the stand of the arbitrator taking
5% as a trade usage for grant of overhead expenses which finds
mention at paragraph 12 of the said judgment. Finally, the
Division Bench had set aside the award and modified the same
negating trade usage and evidence of 5% under the head of
overhead expenses. Matter was then challenged by the
claimants i.e. Associate Builders in Civil Appeal No. 10531 of
2014 before the Hon’ble Supreme Court who negated the
findings holding therein that while dealing with appeal under
section 37 of the Act of 1996, the scope of interference is quite
restrictive and the division bench had exceeded its jurisdiction
by re-appreciating the quantity and quality of evidence which
was impermissible in eye of law. Finally, accepting the
evidence so relied upon by the Arbitrator in form of trade usage
for taking note of 5% as overhead values in such contract, the
said claim was allowed in the appeal and the award of the
Arbitrator involved in the said case was restored. It is submitted
that it is no more res-integra that trade usage forms part of an
evidence which can be taken note of while allowing the claim
for overheads.
XXV. The attempt was made by the government to evolve a
comprehensive standard schedule of rates for major items which
largely constitute major portion of project estimate. Clause 6.01
of the Report of Committee on Cost Control of River Valley30
projects provides “needless to say that due to diversity of
existing construction practices there is bound to be some
variation between prevailing practice and provisions in
standard schedule of rates” as such even in the committee’s
report it has been opined that on the basis of the prevailing
practices the rates might fluctuate but the basic rates would be
nearly the same and as such the same is required to be
considered as a trade usage.
Further, the next document i.e. Report of the Rates and Cost
Committee which is again a Government of India formed
Committee provides that the Government of India considered it
necessary to evolve comprehensive standard schedule of rates
including detailed analysis of such rates which can be used for
basic schedule for all projects.
Both the aforesaid reports suggest that in similar kind of work it
is expected that the overhead cost would be 10% of the value of
work as such the same forms part of trade usage or industrial
practices which has been accepted all along by the Contract
Act, 1872 under section 1 as well as under section 28 of the Act
of 1996. Further, trade usage has also been accepted in the
aforementioned judgment of Batliboi Environment Engineers
(Supra) at paragraph 44. Acceptance of trade usage also find
mention in the latest judgment of the Hon’ble Supreme Court in
the case of “DMRC Ltd. Vs. Delhi Airport Metro Express (P)
Ltd.” reported in (2024) 6 SCC 357 at paragraph 35. The
learned Arbitrator has taken a plausible view and need not be
interfered under section 34 or section 37 of the Act of 1996.
XXVI. In regards to the claim of idling of plant and machinery, the
learned Arbitrator has reduced the claim into half. Further, the
learned Arbitrator has reduced the claim by 15% for major
repairs and depreciation and thereupon has granted only 25%,
as only 25% of the work was left to be completed. As such, this
award under this very head is strictly in terms of the judgment
of the Hon’ble Supreme Court in the case of Batliboi
31
Environment Engineers (Supra). Only for such portion of
remaining work i.e. 25 %, 1/3rd of the remaining claim has been
allowed under this head. The evidence under this claim are the
documents enclosed with C-7 and C-11, that is, list of plant and
machineries and their evaluation. The learned Arbitrator has
taken note at paragraph 111 of the award that the State admitted
in para 13 of their written statement that the state was not liable
for extra expenditure on Plant & machineries after expiry of the
Extended time of Completion (30.06.1992). As such the learned
Arbitrator has mentioned that the State had admitted that some
tools, plants and machineries were deployed at site of work by
the claimant but had asserted that the claimant is not at all
entitled for the above amount after expiry of the extended time
of completion (30.06.1992).
Minus bill.
XXVII. This issue has been dealt in detail by the learned Arbitrator
under issue no.5. By virtue of this final bill itself negative bill
has been raised which is the counter-claim. The learned
Arbitrator has further recorded the detailed reasons why the
final bill cannot be considered. The State has admitted that the
measurement recorded upto 13th RA bills are true and correct
and the final bill has not been checked and passed as per
provision. The correctness of the findings of the learned
Arbitrator has neither been challenged either before the learned
Arbitrator or before this Hon’ble Court.
14. Findings of this Court
14 (A). Scope of interference in arbitral award.
14(A)(i) In the present case, the petition under section 34 of the aforesaid
Act of 1996 has been filed after coming into force of the Arbitration and
Conciliation (Amendment) Act, 2015 and in view of judgment of Hon’ble
Supreme Court in “Ssangyong Engg. & Construction Co. Ltd. vs. NHAI”
(2019) 15 SCC 131, the case will be governed by the law which existed post
2015 amendment regarding the permissible grounds for setting aside an
arbitral Award. Since the matter is governed by the Arbitration and32
Conciliation (Amendment) Act, 2015, it would be useful to compare the
provisions relevant for the purposes of this case as it stood prior to the 2015
amendment and post 2015 amendment in the Act of 1996 for appreciating
the scope of section 34 in the facts and circumstances of this case.
Pre amendment Post amendment 34. Application for setting aside 34. Application for setting aside arbitral Award - (1) ......... arbitral Award - (1) ..............
(2) An arbitral award may be set aside by (2) An arbitral award may be set aside by
the Court only if – the Court only if-
(a) ………………………. (a) ……………………………………….
(b) the Court finds that – (b) the Court finds that-
(i) the subject matter of the dispute is not (i) the subject matter of the dispute is not
capable of settlement by arbitration under capable of settlement by arbitration under
the law for the time being in force, or the law for the time being in force, or
(ii) the arbitral Award is in conflict with (ii) the arbitral Award is in conflict with
the public policy of India. the public policy of India.
Explanation.- Without prejudice to Explanation 1.- For the avoidance of
the generality of sub-clause (ii) of clause any doubt, it is clarified that an Award
(b), it is hereby declared, for the is in conflict with the public policy of
avoidance of any doubt, that an award is India, only if, –
in conflict with the public policy of India (i) the making of the Award was
if the making of the award was induced induced or affected by fraud or
or affected by fraud or corruption or was corruption or was in violation of
in violation of section 75 or section 81. section 75 or section 81; or
(ii) it is in contravention with the
fundamental policy of Indian law; or
(iii) it is in conflict with the most basic
notions of morality or justice.
Explanation 2. –For the avoidance of
doubt, the test as to whether there is a
contravention with the fundamental
policy of Indian law shall not entail a
review on the merits of the dispute.
(2A) An arbitral Award arising out of
33
arbitrations other than international
commercial arbitrations, may also be
set aside by the Court, if the Court
finds that the Award is vitiated by
patent illegality appearing on the face
of the award:
Provided that an award shall not be set
aside merely on the ground of an
erroneous application of the law or by
reappreciation of evidence.
14(A)(ii) Prior to coming into force of the 2015 amendment, the Hon’ble
Supreme Court in the judgment in “ONGC Limited vs. Saw Pipes Limited”
(2003) 5 SCC 705, held that an Award contrary to substantive provisions of
law or the provisions of Arbitration and Conciliation Act, 1996 or against
the terms of the contract would be patently illegal, and if it effects the rights
of the parties, it would be open to interference by the Court under section
34(2) of the aforesaid Act of 1996. By another judgment in “ONGC vs.
Western Geco International Ltd.” (2014) 9 SCC 263, the Hon’ble Supreme
Court, by further expansion of the phrase “public policy of India” contained
in section 34 of the Act of 1996, added three other distinct and fundamental
juristic principles which were to form part and parcel of the fundamental
policy of Indian law. It was held that without meaning to exhaustively
enumerate the purpose of the expression ‘fundamental policy of Indian law’,
three distinct and fundamental juristic principles must necessarily be
understood as a part and parcel of the fundamental policy of Indian law
which are absence of ‘judicial approach’, violation of the principles of
natural justice and so irrational that no reasonable person would have arrived
at the same. It was also held that it was neither necessary nor proper to
attempt an exhaustive enumeration of what would constitute the fundamental
policy of Indian law. In “Associate Builders v. DDA” (2015) 3 SCC 49, the
head “public policy of India” was considered as falling into following heads
and subheads:
a. Fundamental policy of Indian Law-
34
i. Compliance with statutes, Judicial Precedents orders of
superior courts in India. (para 27)ii. Need for judicial approach- decision be fair, reasonable
and objective. (para 29)iii. Natural Justice compliance- Audi alterem partem rule.
(para 30)
iv. Wednesbury reasonableness- Perversity or irrationality.
(para 31)b. Interest of India. (Para 35) Related to foreign powers of India
c. Justice or morality (para 36), and
d. Patent illegality-
i. Contravention of substantive law of India.
ii. Contravention of Arbitration and Conciliation Act, 1996.
iii. Contravention of terms of contract.
Perversity has been considered in the following terms:
“31. The third juristic principle is that a decision which is
perverse or so irrational that no reasonable person would have
arrived at the same is important and requires some degree of
explanation. It is settled law that where:
(i) a finding is based on no evidence, or
(ii) an Arbitral Tribunal takes into account something
irrelevant to the decision which it arrives at; or
(iii) ignores vital evidence in arriving at its decision,
such decision would necessarily be perverse.
32. A good working test of perversity is contained in two
judgments. In Excise and Taxation Officer-cum-Assessing
Authority v. Gopi Nath & Sons [1992 Supp (2) SCC 312], it was
held: (SCC p. 317, para 7)
“7. … It is, no doubt, true that if a finding of fact is arrived at
by ignoring or excluding relevant material or by taking into
consideration irrelevant material or if the finding so
outrageously defies logic as to suffer from the vice of
irrationality incurring the blame of being perverse, then, the
finding is rendered infirm in law.”
In Kuldeep Singh v. Commr. of Police [(1999) 2 SCC 10 : 1999
SCC (L&S) 429] , it was held: (SCC p. 14, para 10)
“10. A broad distinction has, therefore, to be maintained
between the decisions which are perverse and those which
35
are not. If a decision is arrived at on no evidence or evidence
which is thoroughly unreliable and no reasonable person
would act upon it, the order would be perverse. But if there is
some evidence on record which is acceptable and which
could be relied upon, howsoever compendious it may be, the
conclusions would not be treated as perverse and the findings
would not be interfered with.”
Justice has been considered in the following terms –
“36. The third ground of public policy is, if an award is against
justice or morality. These are two different concepts in law. An
award can be said to be against justice only when it shocks the
conscience of the court. An illustration of this can be given. A
claimant is content with restricting his claim, let us say to Rs 30
lakhs in a statement of claim before the arbitrator and at no
point does he seek to claim anything more. The arbitral award
ultimately awards him Rs 45 lakhs without any acceptable
reason or justification. Obviously, this would shock the
conscience of the court and the arbitral award would be liable
to be set aside on the ground that it is contrary to “justice”.
Patent illegality: Again sub-divided into:
a) Para 42.1- contravention of substantive law of India
b) Para 42.2 – contravention of the Arbitration Act
itself.
c) Para 42.3 – arbitrator deciding outside the terms of
the contract14(A)(iii) The expanding nature of the interpretation of the term
‘fundamental policy of Indian law’ in order to set aside an Award under
section 34 of the Act of 1996 was noticed and was followed by law
commission recommendations which ultimately culminated in an
amendment of the aforesaid Act of 1996 vide Amendment Act 2015. The
entire background and the purpose of the Amendment Act 2015 in the
aforesaid Act of 1996 have been fully narrated and explained in the
judgment in “Ssangyong Engg. & Construction Co. Ltd.” (2019) 15 SCC
131. The expansion of “public policy of India” in “ONGC Ltd. v. Saw Pipes
Ltd.” (2003) 5 SCC 705 [“Saw Pipes”] and “ONGC Ltd. v. Western Geco
International Ltd.” (2014) 9 SCC 263 [“Western Geco”] has been done
away with and a new ground of “patent illegality” with inbuilt exceptions
have been introduced through 2015 amendment.
36
14(A)(iv) The judgment passed by the Hon’ble Supreme Court in the case of
“Ssangyong Engg. & Construction Co. Ltd.” (supra) has considered the
impact of the 2015 amendment in the Act of 1996 and summarised in
paragraph nos. 35 to 41 of the report. Some of the points relevant for the
purposes of this case are as under:-
A. The ground for interference insofar as it concerns the “interest of
India” has since been deleted.
B. In paragraph 35 it has also been held that the ground for
interference on the basis that the award is in conflict with justice
or morality is now to be understood as a conflict with the “most
basic notions of morality or justice”. This again would be in line
with paragraphs 36 to 39 of Associate Builders. Para 36 of
Associate Builders deals with ‘justice’ to hold that only such
arbitral awards that shock the conscience of the Court that can be
set aside on this ground being against justice.
C. In paragraph 37 it has been held that insofar as domestic awards
made in India are concerned, an additional ground is now
available under sub-section (2-A), added by the Amendment Act,
2015, to Section 34. Here, there must be patent illegality appearing
on the face of the award, which refers to such illegality as goes to
the root of the matter but which does not amount to mere
erroneous application of the law. In short, what is not subsumed
within “the fundamental policy of Indian law”, namely, the
contravention of a statute not linked to public policy or the public
interest, cannot be brought in by the backdoor when it comes to
setting aside an award on the ground of patent illegality.
D. Reappreciation of evidence, which is what an appellate Court is
permitted to do, cannot be permitted under the ground of patent
illegality appearing on the face of the award.
E. para 42.1 of Associate Builders, namely, a mere contravention of
the substantive law of India, by itself, is no longer a ground
available to set aside an arbitral award.
F. The change made in Section 28(3) by the Amendment Act really
follows what is stated in paras 42.3 to 45 in Associate Builders,
namely, that the construction of the terms of a contract is primarily
for an arbitrator to decide, unless the arbitrator construes the
contract in a manner that no fair-minded or reasonable person
would; in short, that the arbitrator’s view is not even a possible
view to take. Also, if the arbitrator wanders outside the contract
and deals with matters not allotted to him, he commits an error of
jurisdiction. This ground of challenge will now fall within the new
ground added under Section 34(2-A). Para 42.3 to 45 of the37
judgement passed in the case of Associate Builders (supra) are
quoted as under:-
“42.3. (c) Equally, the third subhead of patent illegality is
really a contravention of Section 28(3) of the Arbitration Act,
which reads as under:
“28. Rules applicable to substance of dispute.–
(1)-(2) * *
(3) 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.”
This last contravention must be understood with a caveat. An
Arbitral Tribunal must decide in accordance with the terms of the
contract, but if an arbitrator construes a term of the contract in a
reasonable manner, it will not mean that the award can be set aside
on this ground. Construction of the terms of a contract is primarily
for an arbitrator to decide unless the arbitrator construes the
contract in such a way that it could be said to be something that no
fair-minded or reasonable person could do.
43. In McDermott International Inc. v. Burn Standard Co. Ltd., this
Court held as under: (SCC pp. 225-26, paras 112-13)
“112. It is trite that the terms of the contract can be
express or implied. The conduct of the parties would also
be a relevant factor in the matter of construction of a
contract. The construction of the contract agreement is
within the jurisdiction of the arbitrators having regard to
the wide nature, scope and ambit of the arbitration
agreement and they cannot be said to have misdirected
themselves in passing the award by taking into
consideration the conduct of the parties. It is also trite that
correspondences exchanged by the parties are required to
be taken into consideration for the purpose of construction
of a contract. Interpretation of a contract is a matter for
the arbitrator to determine, even if it gives rise to
determination of a question of law. [See Pure Helium
India (P) Ltd. v. Oil and Natural Gas Commission and
D.D. Sharma v. Union of India.]
113. Once, thus, it is held that the arbitrator had the
jurisdiction, no further question shall be raised and the
court will not exercise its jurisdiction unless it is found
that there exists any bar on the face of the award.”
44. In MSK Projects (I) (JV) Ltd. v. State of Rajasthan, the Court held:
(SCC pp. 581-82, para 17)
“17. If the arbitrator commits an error in the construction
of the contract, that is an error within his jurisdiction. But
if he wanders outside the contract and deals with matters
not allotted to him, he commits a jurisdictional error.
Extrinsic evidence is admissible in such cases because the
dispute is not something which arises under or in relation
to the contract or dependent on the construction of the
contract or to be determined within the award. The
38
ambiguity of the award can, in such cases, be resolved by
admitting extrinsic evidence. The rationale of this rule is
that the nature of the dispute is something which has to be
determined outside and independent of what appears in the
award. Such a jurisdictional error needs to be proved by
evidence extrinsic to the award. (See Gobardhan Das v.
Lachhmi Ram, Thawardas Pherumal v. Union of India,
Union of India v. Kishorilal Gupta & Bros., Alopi Parshad
& Sons Ltd. v. Union of India, Jivarajbhai Ujamshi Sheth
v. Chintamanrao Balaji and Renusagar Power Co. Ltd. v.
General Electric Co.)”
45. In Rashtriya Ispat Nigam Ltd. v. Dewan Chand Ram Saran, the Court
held: (SCC pp. 320-21, paras 43-45)
“43. In any case, assuming that Clause 9.3 was capable of
two interpretations, the view taken by the arbitrator was
clearly a possible if not a plausible one. It is not possible
to say that the arbitrator had travelled outside his
jurisdiction, or that the view taken by him was against the
terms of contract. That being the position, the High Court
had no reason to interfere with the award and substitute its
view in place of the interpretation accepted by the
arbitrator.
44. The legal position in this behalf has been summarised
in para 18 of the judgment of this Court in SAIL v. Gupta
Brother Steel Tubes Ltd. and which has been referred to
above. Similar view has been taken later in Sumitomo
Heavy Industries Ltd. v. ONGC Ltd. to which one of us
(Gokhale, J.) was a party. The observations in para 43
thereof are instructive in this behalf.
45. This para 43 reads as follows: (Sumitomo case, SCC p.
313)
’43. … The umpire has considered the fact
situation and placed a construction on the clauses
of the agreement which according to him was the
correct one. One may at the highest say that one
would have preferred another construction of
Clause 17.3 but that cannot make the award in any
way perverse. Nor can one substitute one’s own
view in such a situation, in place of the one taken
by the umpire, which would amount to sitting in
appeal. As held by this Court in Kwality Mfg.
Corpn. v. Central Warehousing Corpn. the Court
while considering challenge to arbitral award does
not sit in appeal over the findings and decision of
the arbitrator, which is what the High Court has
practically done in this matter. The umpire is
legitimately entitled to take the view which he holds
to be the correct one after considering the material
before him and after interpreting the provisions of
the agreement. If he does so, the decision of the
umpire has to be accepted as final and binding.'”
G. A decision that is perverse as understood in paragraphs 31 and 32
of Associate Builders, while no longer a ground for challenge39
under “public policy of India”, would certainly amount to a patent
illegality appearing on the face of the award.
Thus, a finding based on no evidence at all or an award that
ignores vital evidence in arriving at its decision would be perverse
and liable to be set aside on the ground of patent illegality.
Paragraphs 31 and 32 of the judgement passed in the case of
Associate Builders(supra) are quoted above.
14(A)(v) In “Sutlej Construction Limited Vs. Union Territory of
Chandigarh” (2018) 1 SCC 718, it has been held that when the Arbitrator
has taken a reasonable view on the basis of a plausible view there is no
scope of reappreciation of evidence and substitute its view unless the view
taken by the Arbitrator shocks the conscience of the Court.
14(A)(vi) The judgement of Hon’ble Supreme Court delivered on
20.09.2024 in Civil Appeal Nos. 3981-3982 of 2024 in the case of “OPG
Power Generation Private Limited Vs. ENEXIO Power Cooling Solutions
India private Limited” has held in para 68 as under –
“Scope of interference with an arbitral award
68. The aforesaid judicial precedents make it clear that
while exercising power under Section 34 of the 1996 Act
the Court does not sit in appeal over the arbitral award.
Interference with an arbitral award is only on limited
grounds as set out in Section 34 of the 1996 Act. A possible
view by the arbitrator on facts is to be respected as the
arbitrator is the ultimate master of the quantity and quality
of evidence to be relied upon. It is only when an arbitral
award could be categorized as perverse, that on an error of
fact an arbitral award may be set aside. Further, a mere
erroneous application of the law or wrong appreciation of
evidence by itself is not a ground to set aside an award as
is clear from the provisions of sub-section (2-A) of Section
34 of the 1996 Act.”
14(B). Jurisdiction (objection under section 16 of the Act of
1996)
a. The order dated 09.05.2005 passed by the learned Arbitrator
whereby the objection under section 16 of the Act of 1996 was
dismissed has been placed on record.
b. It was the case of the State before the learned Arbitrator that the
claimant submitted their claim to the Executive Engineer vide
letter dated 16.10.2002 which was rejected. The claimant
40
preferred appeal before the Superintending Engineer who in
turn was to give his decision within a period of 60 days only
after the claimant had offered evidence in support of appeal and
the claimant had been heard by the Superintending Engineer. It
was their case that the period of 60 days for giving decision by
Superintending Engineer commences from the date when the
claimant has been heard and offered evidence in support of the
appeal. It was their further case that vide letter dated 18.06.2003
the Superintending Engineer had directed the claimant to
produce evidence in support of the appeal and a reminder was
also given vide letter dated 10.07.2003 and thereafter, the Chief
Engineer vide letter dated 21.08.2003 directed the claimant to
produce evidence in support of appeal, but no evidence was
produced. It was their specific case that in absence of decision
of Superintending Engineer, the claimant had no right under the
agreement to invoke arbitration clause for appointment of
arbitrator. It was their further case that ultimately the
Superintending Engineer had rejected the claims of the claimant
vide letter dated 31.01.2004 and the claimant had not indicated
their intention to refer the alleged dispute to arbitration, hence
the decision in appeal by the Superintending Engineer had
become final and conclusive and the arbitration was beyond the
scope of submission to arbitration and consequently, the learned
Arbitrator had no jurisdiction to consider, arbitrate and decide
the alleged dispute raised by the claimant.
c. On the other hand, it was the case of the claimant at the stage of
petition under section 16 of the Act of 1996 before the learned
Arbitrator that the petition was misconceived. It was submitted
that the claimant had communicated the name of sole arbitrator
to the respondents vide letter dated 29.05.2003 which was duly
received by them on 29.05.2003/30.05.2003. A reference was
made to the order dated 29.05.2004 passed by the learned Sub-
Judge in Miscellaneous Case No. 3 of 2004 wherein it was
41
observed that the miscellaneous case was a device to delay the
disposal of the arbitral proceedings.
d. The attention of the learned Arbitrator was also drawn by the
claimant to the order dated 09.02.2005 in Civil Revision No.
139 of 2004 arising out of Miscellaneous Case No. 3 of 2004
whereby the High Court observed that the order of the Sub-
Judge did not suffer from any infirmity or improper and illegal
exercise of jurisdiction, warranting interference by the High
Court.
e. It was the further case of the claimant before the learned
Arbitrator that the appointment of sole Arbitrator was done in
accordance with the arbitral agreement between the parties
which was preceded by the order passed by the High Court
dated 15.07.2002 in LPA No. 312/313 of 2002. It was their case
that the claimant submitted their demand before the executive
engineer which was rejected without any germane reason.
Consequently, the claimant preferred appeal before the
Superintending Engineer enclosing all documentary evidence of
correspondences with respect to dispute and statement of
demand (dues and damages). However, the Superintending
Engineer, instead of fixing a date of hearing, chose to sleep over
the matter and did not fix a date of hearing within stipulated 60
days nor gave any decision in the matter of appeal despite all
documentary evidence on which settlement of dispute rested
was submitted by the claimant. It was their case that the
Superintending Engineer should have afforded an opportunity
to the claimant to be heard and offer additional evidence in
support of appeal, if at all required.
f. It was further case of the claimant that on account of no
response from the Superintending Engineer, a notice was given
to the Chief Engineer in terms of Clause 51 of the agreement
vide letter dated 08.04.2003 and even the Chief Engineer did
not abide by the provision of Clause 51. Upon expiry of period
of 30 days for sending a panel of prospective arbitrators, the
42
clamant in exercise of their right to send the panel within 15
days, submitted a list of 3 eminent engineers vide letter dated
12.05.2003 and having received no reply from the Chief
Engineer, the claimant communicated the name of one of the
officers to the Chief Engineer from the list who would be the
sole arbitrator as per clause 51 of the agreement vide letter
dated 29.05.2003.
g. It was their case that the claimant had acted strictly in terms of
the provisions under the agreement and the time-frame recorded
in clause 51 of the agreement to ensure that the period of
limitation i.e. 15 days given to the contractor (claimant) may
not expire.
h. It was further case of the claimant that the letter written by the
Superintending Engineer after expiry of the time prescribed
under the agreement was an afterthought to cover up the
lapses/laches to save the authorities concerned after
appointment of the sole arbitrator. It was also submitted on
behalf of the claimant that it was incorrect on the part of the
State to say that the decision of the Superintending Engineer by
which claim had been rejected vide letter dated 31.01.2004 had
become final and conclusive and it was equally wrong to argue
that the arbitration was beyond the scope of arbitration. The
arbitral tribunal was constituted on 29/30.05.2003 and the
authorities had no jurisdiction to write any letter to the claimant
and the Superintending Engineer was not competent to reject
the claim of the claimant vide alleged letter dated 31.01.2004.
i. After having recorded the submission of respective parties, the
learned Arbitrator has recorded his finding as follows:
“Perused the record and considered the arguments
made on behalf of both the parties. I find that the only
grievance of the Respondents is that before the decision was
taken by the Superintending Engineer, the appointment of Er.
Suresh Mishra as Arbitrator is illegal. I also find that the
matter has gone to Hon’ble High Court in L.P.A. No. 312/313
of 2002 and in pursuance to the said order steps were taken
by the Claimants resulting in appointment of Er. Suresh
Mishra as Sole Arbitrator. I find that Arbitral Tribunal has
43
been constituted on 29/30-5-2003 and thereafter many
correspondences have been made by the authorities
concerned. It has been fairly conceded by the Special G.P.
appearing on behalf of the Respondents that appeal was
preferred before the Superintending Engineer on 04/2/2003
and the Superintending Engineer directed the Claimants vide
annexure 8 and 9 i.e. letter No. 1101 dated 18/6/2003 to
produce evidence in support of his appeal. The
Superintending Engineer did not fix a date of hearing for
about five months. He should have afforded opportunity to the
Claimants to produce evidence in support of Appeal if at all
required. Rightly when the Claimants did not get any response
in pursuance of said Appeal from the Superintending
Engineer, proceeded with the terms of Arbitration Agreement
resulting in constitution of Arbitral Tribunal. The Claimants
have established beyond doubt that the Arbitral Tribunal has
been constituted legally and lawfully following the terms of
Agreement between the parties. I do not find any force in the
submissions made by the Special G.P. appearing on behalf of
the Respondents and hence the Petition dated 10/4/2005 filed
by the Respondent U/S 16(i), (ii) and (iii) of the Arbitration
and Conciliation Act, 1996, is hereby dismissed.
Next date of hearing is fixed on 16/08/2005 at
11.30 A.M. at the same venue (MIG, B/21, Harmu Housing
Colony, Ranchi – 834012) and both the parties are hereby
directed to submit their respective Claims / Counter-Claims
on the date fixed.”
j. The learned Arbitrator while giving the final award again
considered the point regarding arbitrability and maintainability
of claim vide issue Nos. 2 and 3 and again recorded the
sequence of events in connection with taking of steps by the
claimant and the stage relating to clause 50 and 51 of the
General Conditions of Contract and also recorded the specific
stand of the State that the claimant did not act in pursuance of
clause 50 of the General Conditions of Contract on the basis of
which it was argued that the claims were not arbitrable and not
maintainable under the agreed terms of contract. The learned
Arbitrator again considered the submissions in paragraph 49 of
the impugned award and recorded its finding as under: –
“Replying the argument made by the counsel for respondents
the learned counsel for claimants submitted that the issues in
question (issue no 2 & 3) have attained their finality as this44
Arbitral Tribunal has given its verdict in this 10th sitting on
19.05.2005 which has never been challenged by Respondents
(State of Jharkhand) and prior to that misc case of 2004 has
been discussed by learned sub judge-I, Jamshedpur as well as
the Hon’ble High Court of Jharkhand respectively. After the
Arbitral Tribunal was constituted on 29.05.2003, the
Superintending Engineer directed the claimants through his
letter no. 1101 dated 18.06.2003 tÎż file evidences in support of
his appeal which was filed on 04.02.2003. He submitted that
the issues raised by the learned counsel has no force of law as
the Superintending Engineer did not act upon the appeal for
more than four months.
Considering the arguments made on behalf of both the parties,
I find that the only grievance of Respondent is that before the
decision on appeal was taken by the Superintending Engineer,
the appointment of Er. Suresh Mishra as Sole Arbitrator is
illegal. The issue of appointment of Sole Arbitrator was
discussed in detail and verdict on 09.05.2005 in the 10th
sitting of Arbitral Tribunal which has never been challenged
by the Respondents. I also find that the matter has also gone
to Hon’ble High court in LPA No. 312 of 2002 and in
pursuance of the order dated 15.10.2002 of the Hon’ble High
Court in this case, steps were taken by the claimants resulting
in appointment of Er. Suresh Mishra as Sole Arbitrator. I find
that the A.T. has been constituted on 29.05.2003 and
thereafter correspondence have been made by the authorities
concerned. It has also been fairly conceded by the Special
Govt. Pleader appearing on behalf of Respondents that appeal
was preferred by the claimants before the Superintending
Engineer on 04.02.2003 and the Superintending Engineer
directed the claimants for the first time on 18.06.2003 after a
lapse of 134 days to produce evidences in support of appeal.
Thus the Superintending Engineer did not fix a date of
hearing on the basis evidences submitted with the appeal. The
Superintending Engineer should have at least provided an
opportunity to claimants to be heard at the earliest and to
produce additional evidences in support of appeal if at all
required. The question arises, how long the claimants should
have waited for any response and opportunity to be heard by
the Superintending Engineer with regard to his appeal
specifies if the contractor is dissatisfied with the decision of
the Executive Engineer he may within 30 days appeal to
Superintending Engineer, who shall afford an opportunity to
the contractor to be heard and to offer evidence in support of
his appeal. This officer shall give decision within a period of
60 days after the contractor has given evidences in support of
appeal. But the Superintending Engineer kept mum over the
appeal for more than four months and asked for evidence on45
18.06.2003 after being aware of the fact that the sole
Arbitrator has been appointed by the claimants and Arbitral
Tribunal has been constituted on 29.05.2003.
Rightly when the claimant was not afforded even an
opportunity to be heard, he proceeded with the terms of
Arbitration Agreement contained in clause -51 of general
condition of contract resulting in constitution of Arbitral
Tribunal after the Chief Engineer also did not act upon the
issue of appointment of sole arbitrator as per clause -51.
Thus, the constitution of Arbitral Tribunal has been made
legally, lawfully and as per terms of Arbitration laid down in
the Agreement.
The claimants have established beyond doubt that the Arbitral
Tribunal has been constituted legally and lawfully adhering to
the terms of Agreement between the parties.
Thus, Arbitral Tribunal therefore, does not find any force in
the arguments of Respondent’s counsel challenging the
Arbitrabitity and maintainability of claim under the agreed
terms of contract, hence the submission urged on behalf of
Respondents on the issue of arbitrability and maintainability
of claims under agreed terms of contract between the parties
under issue no. 2 and 3 are squarely rejected. It is held that
the Claims of the Claimants are arbitrable and maintainable
under the terms of the agreement.”
k. Upon considering the materials on record, the learned Arbitrator
clearly held that although clause 50 of the General Conditions
of Contract specifies that if the contractor is dissatisfied with
the decision of the Executive Engineer, he may within 30 days
appeal before the Superintending Engineer, who shall afford an
opportunity to the contractor to be heard and to offer evidence
in support of his appeal, but the Superintending engineer kept
mum over the appeal for more than 4 months and asked for
evidence only on 18.06.2003 after being aware of the fact that
the sole Arbitrator has been appointed by the claimant and
Arbitral Tribunal has been constituted on 29.05.2003. The
learned Arbitrator also held that when the claimant was not
offered even an opportunity to be heard by the Superintending
Engineer, he proceeded with the terms of contract contained in
clause 51 of the General Conditions of Contract resulting in
constitution of the Arbitral Tribunal and after having held that
the Chief Engineer also did not act upon the issue of
46
appointment of sole Arbitrator as per clause 51 of the General
Conditions of Contract, the learned Arbitrator decided the issue
Nos. 2 and 3 in favour of the claimant by holding that the
claims were arbitrable and maintainable.
Consideration of the Findings of the learned Commercial
Court on this point.
l. This Court finds that the learned commercial Court, while
observing in the impugned judgement that the claimant had
invoked arbitration at pre-mature stage, has not at all considered
the findings recorded by the learned Arbitrator while deciding
the issue Nos. 2 and 3 as framed by the learned Arbitrator
regarding arbitrability and maintainability of the claims and
also has not at all considered the decision of the sole Arbitrator
on 09.05.2005 by which the petition filed under Section 16 of
the Act of 1996 was rejected. However, the learned Court has
refused to interfere with the award even after holding that the
claimant had invoked arbitration at pre-mature stage by
observing that even if two views are possible, reappraisal of
materials on record is not permissible.
m. This Court is of the considered view that the said observation
of the learned Commercial Court has been passed without any
deliberation and without taking care of the findings recorded by
the learned Arbitrator on 09.05.2005 while rejecting the petition
under Section 16 of the Act of 1996 and also without
considering the finding recorded in the arbitral award whereby
issue Nos. 2 and 3 as framed by the learned Arbitrator regarding
arbitrability and maintainability of the claim was decided in
favour of the claimant. However, the fact remains that the
learned commercial court has refused to interfere with the
findings in connection with arbitrability and maintainability of
the claims by stating that there is no scope for reappreciation of
the materials on record and to come to a different finding. This
Court has discussed the findings of the learned Arbitrator as
recorded while disposing the petition filed under section 16 of
47
the Act of 1996 and also the decision of the learned Arbitrator
on issue nos. 2 and 3 on the point of arbitrability and
maintainability of the dispute and finds no scope for
interference in the limited jurisdiction as the findings are
backed by reasons and based on appreciation of materials on
record.
n. In the judgment passed by this Court in Arbitration Appeal No.
14 of 2007 decided on 17.03.2023 wherein similar clause 51
and 52 of the agreement (in the present case the relevant clauses
are clause 50 and 51 of the agreement) were subject-matter of
interpretation, this Court has recorded that it was the specific
case of the appellant-State that the claimants having not
exhausted appellate remedy under clause 51 of the agreement
could not invoke clause 52 of the agreement to appoint an
Arbitrator. In the facts and circumstances of the said case and
considering the judgment passed by the concerned commercial
Court, this Court held in the said case that the claimants were
entitled to invoke clause 52 of the arbitration clause without
resorting to remedies provided under clause 51 of the
agreement. This Court is of the considered view that the
interpretation given to clause 51 and 52 of the agreement
involved in Arbitration Appeal No. 14 of 2007 may not have
any bearing in this case in view of the fact that the learned
Arbitrator in the present case has held while deciding the
petition under Section 16 of the Act of 1996 and also in the
final award while deciding issue Nos. 2 and 3 that the procedure
prescribed under clause 50 as well as 51 of the agreement were
duly followed by the claimant.
o. Considering the scope of interference in the arbitral award as
discussed above, this Court finds that the order dated
09.05.2005 passed by the learned Arbitrator rejecting the
petition under section 16 of the Act of 1996 and also the
decision of issue no. 2 and 3 deciding the point regarding
arbitrability and maintainability of the claims are well reasoned
48
and did not call for any interference under section 34 and now
under section 37 of the Act of 1996.
p. The point regarding jurisdiction of the learned Arbitrator
dealing with arbitrability and maintainability of the claims is
decided against the State and in favour of the claimant.
14 (C). Limitation
I. The point of limitation was decided by the learned Arbitrator
vide paragraph no.48 of the award.
II. The learned Arbitration referred to Article 137 of the Limitation
Act and observed that the period of limitation is 3 years which
commences from the date when the right to apply accrues and the
question when such right to apply accrues will depend on the
facts and circumstances of each case. The learned Arbitrator
referred to clause 34 of the General Conditions of Contract and
quoted the same and observed that it relates to release of claims.
Clause 34 as quoted in the award and not disputed by the parties
is as under: –
“After completion of work and prior to final payment, the
contractor shall furnish to the Executive Engineer, a release of
claims against the Govt. arising out of contract, other than the
claims specifically described, evaluated and excepted from the
operation of release by the contractor.”
III. The learned Arbitrator also referred to clause 51 of the General
Conditions of Contract and observed that as per the said clause
neither party is entitled to bring claims to arbitration if the
arbitrator has not been appointed before the expiration of 30 days
after defects liability period. Thus, the learned Arbitrator referred
to Article 137 of the Limitation Act as well as different clauses of
the Contract to deal with the point of limitation.
IV. Thereafter, the learned Arbitrator dealt with the point as to when
the right to apply accrued in the case and observed that the
original time of completion was extended from time to time and
last extension was granted up to 30.06.1992. Thereafter, the
extension of time was not granted to claimant beyond 30.06.1992
perhaps due to stoppage of world bank credit. It was further
49
observed by the learned Arbitrator that if the respondents wanted
to close/foreclose or rescind the contract, the Executive Engineer
ought to have given notice in writing as per clause 44 of General
Conditions of Contract and ought to have asked the claimant to
submit final bill. The learned Arbitrator recorded that the
claimant could have been asked to demobilize the plant and
machinery from the site of work, instead the work was kept in
abeyance and the contractor was asked to extend the validity of
bank guarantee.
V. Thereafter, the learned Arbitrator referred to the various
correspondences which would reveal that the agreement was
neither closed nor foreclosed/rescinded beyond 30.06.1992. The
learned Arbitrator referred to the letter dated 18.04.1992 whereby
the Executive Engineer wrote to the claimant that his portion of
work falls under priority zone fixed by the department and
allotment of funds is expected during the period 1992-93 and a
request was also made to mobilize the plants and machinery. The
learned Arbitrator further recorded that a review of progress of
work was held on 18.11.1992 in the office chamber of the
concerned Minister which revealed that various actions were
contemplated to get the balance work completed and the regional
officers were directed to review all cases and report; a reference
was also made to a high level meeting held on 12.08.1998 and
various options to restart the work were discussed keeping in
mind the expected allotment of fund of Rs. 40,00,00,000/-
(rupees forty crores) from Water Resources Department and it
was also decided in the said meeting that attempt would be made
to get the work done by the existing contractor.
VI. The learned Arbitrator, after referring to the aforesaid
communications to show that the matter was still under
consideration, referred to the action of the Executive Engineer on
17.09.2000 who invited tender for balance work without
finalizing the subsisting agreement of the claimant. This action
was followed by filing of a writ petition by the claimant being
50
W.P. (C) No. 5408/5465 of 2001 which was also subject matter of
consideration in L.P.A. No. 312/313 of 2002 before the High
Court and finally vide order dated 15.07.2002 liberty was granted
to the claimant to invoke arbitration. Consequently, the claimant
filed their claims vide their letter dated 16.10.2002 addressed to
the Executive Engineer with a request to pay the dues and
compensation within 90 days failing which it would be construed
that the dispute will be required to be adjudicated as per
conditions of contract. The learned Arbitrator ultimately recorded
his finding that the agreement was alive on the date of pressing
the claims and demands on 16.10.2002 and the fresh tender was
issued to complete the balance work without finalizing the
subsisting contract and the State failed to substantiate their
argument by showing any definite date as to when the cause of
arbitration arose. The learned Arbitrator also observed that even
the measurement of the work done by the claimant was not
finalized and therefore there could not have been any frozen
dispute between the parties and ultimately held that the claim
was not barred by limitation. Paragraph 48 of the award is quoted
as under: –
“From the details mentioned above, it is apparent that, the
agreement between the parties was very much alive on the
date of pressing the claims and demands on 16.10.2002 as
it was neither closed/foreclosed nor finalized as per terms
of Agreement. The counsel for the Respondents Shri C.S.P
Sinha, Special Govt. Pleader during his argument on the
issue on 14.12.2008 could not substantiate that the
claimants were not within their right to refer their disputes
to Arbitration on 16.10.2002.
Also clause 34 at Page 11 of General Condition of
Contract deals with release of claims as below: “After
completion of work and prior to final payment, the
contractor shall furnish to the Executive Engineer, a
release of claims against the Govt. arising out of contract,
other than the claims specifically described, evaluated and
excepted from the operation of release by the Contractor”.
As per Clause-51 of General Condition of Contract
“Neither party is entitled to bring a claim to Arbitration if
51
the Arbitrator has not been appointed before the expiration
of 30 days after defects liability period”.
As per Article 137 of Limitation Act the right to apply
occurred after the balance work was put to tender without
having finalized the contract of claimants. The Respondents
have also failed to substantiate any definite date as to when
cause of action for Arbitration arose. In fact even the
measurement for the work done by Claimants were not
finalized by the Respondents, therefore, there could not
have been any limitation in respect of dispute between the
parties.
Therefore, in view of the facts mentioned above (the
Statement of the Respondents) in the written statement that
the claims of the claimants are barred by limitation and
also raised under issue no.1 has only got to be rejected and
it is held that the Claims of the Claimants are not barred by
limitation.”
VII. Upon perusal of the discussions made by the learned Arbitrator
with regard to the point of limitation, this Court finds that there is
no specific or separate discussion with regard to the limitation of
the amended claim but the limitation with regards to the claims
/amended claims has been discussed in totality in the light of the
clauses of the contract and correspondences between the parties
and also the materials placed on record. The State even failed to
satisfy the learned Arbitrator as to when the cause of action in
terms of the contract arose to raise the claim. The claim was filed
before the learned Arbitrator on 05.03.2006 and the claimant had
modified their claim on 04.06.2012. The learned Arbitrator has
specifically recorded in paragraph 80 of the award that the
claimant had modified their claims on 04.06.2012 depending
upon the materials brought on record by the respondents. The
number of claims had increased on submission of copy of
measurement books containing running account bills showing
kept back amounts and items paid at reduced rate. The claims
have increased only in such cases where on submission of
documents by the respondent during argument, the records have
revealed that the items of works were paid at reduced rate due to
52
indecision at proper level. The aforesaid finding of the learned
Arbitrator is quoted as under: –
“83) At this stage, I only wish to state that as the hearing
proceeded, the claimants modified their claims depending upon
materials brought on record by Respondents after they
submitted copies of O/A payments made alongwith detailed
measurements entered in Measurement books, which shows
kept back amount for checking by Executive Engineer, items
paid at reduced rates, amount kept back for EOT but not
refunded even after sanction of EOT by competent authorities.
All these claims have been detailed in modified claims by
claimants in Ann.C16 submitted on 04.06.2012 before the
Arbitral Tribunal with copy to Respondent. The number of
claims have increased after records revealed a number of kept
back quantities, reduced rates, deduction on account of EOT
and indecision at proper level. The claimant was not aware of
these under-payments as the measurements of all O/A bills for
payments were taken by Respondents (JE, AE & EE) and the
claimant was not given copies of bills prepared by Respondent
even after being requested by the claimants. During the
argument, the Respondent had to concede the correctness of
increased claims as there was concrete evidence in support of
claims.”
VIII. It is further not in dispute that the point of limitation was raised
by the State when initial claim was filed but there was no
separate plea taken when the modified claim was filed on
04.06.2012 and it appears that on account of such reason, there is
no specific discussion with regard to the point of limitation with
respect to the modified claim dated 04.06.2012 while dealing
with issue No. 1. However, the learned Arbitrator while
considering the claims has recorded the case of the claimant
explaining the reasons of filing modified claim. It has been
recorded while dealing with claim no.1 that payment of 13 th R/A
bill was made amounting to Rs.76,25,494.00. But, after the
copies of MB’s relating to 1st to 13th R/A bills and so-called 14th
& final bill was submitted to Arbitral Tribunal with copies to the
claimant by the respondents, the claimant submitted modified
claim in Ann. C/16 (from P/1 to P/37) on 04.06.2012 on the basis
of details of payment actually made to the claimant. According to
claimants, all the bills relating to O/A payments were prepared by
53
Respondents and copies of bills were not made available to
claimant in spite of several requests. As such, they were not
aware of details of payment made to them and hence, it
necessitated the need to submit modified claims by way of
computation and there was no change in the basis of claims.
IX. This Court finds that the learned Arbitrator has sufficiently
applied his mind on the point of limitation with regards to the
original claim as well as the modified claim even though he has
not dealt with the point of limitation with respect to the modified
claim separately. The learned commercial court has not discussed
this point separately and has refused to interfere with the award
by stating that there is no scope for interference in the arbitral
award by re-appreciating the evidences.
X. Considering the scope of interference in the matter of arbitral
award as discussed above and considering the aforesaid
discussions made on the point of limitation and also the findings
recorded by the learned Arbitrator with regard to entire claim,
this Court is of the considered view that the learned Arbitrator
has cited the reasons to entertain the claim and modified claim
and has certainly taken a possible view which is reasoned and
based on materials on record and therefore the findings of the
learned Arbitrator on the point of limitation did not call for
interference under limited jurisdiction under section 34 of the Act
of 1996 and now also does not call for interference under section
37 of the Act of 1996. The point of limitation is accordingly
decided against the State and in favour of the claimant.
15. Examination of claims in the limited jurisdiction
under the Act of 1996.
Claims have been allowed in two major parts, they are: (I) for
work done under claim nos. 1, 3 and 5 and (II) for delay damages,
extension of bank guarantee, cost of arbitration.
Original claim Modified Claim
1] – Work done by Claimant 1]- Outstanding dues of the Claimant
54
beyond 13th R/A Bill – Rs. upto 13.05.1992.
7,625,494.90 Claimed amount is Rs. 1,82,90,280.00
3] - No Claim. 3]- Claim against short payment made
in different on account bills which
have not been paid yet-
Rs. 3,70,248/-
5]- No Claim. 5]- Claim for refund of deductions
made for EoT but not refunded even
after sanction of Extension of Time by
competent Authorities - Rs. 2,50,355/-
A-1] A-1]
OVERHEAD LOSSES OVERHEAD LOSSES
The total contract value was Rs The Overhead cost constitute the
1,20,11,200.00 and the job was to following elements of expenditure :-
be done in 6 months. The work (a) Establishment charges including
load contracted was worth Rs those for the Head Office and the field:
20,01,866.67 per month. The (i) Salaries (technical and non-
amount of work done is Rs. technical) including leave & other 1,78,07,884.00. Therefore, the charges effective Time of Contract is 9 (ii) Stationary, printing, postage &
months only. The total stay on job telephone charges
has been 153 months and therefore (iii) Staff cars and travelling
the idle stay on job is 31 months allowances
and idle period in suspension is (iv) Entertainment and publicity
122 months. The overheads (v) Housing, medical & other welfare
provided in this highly skilled facilities
industry is about 10% of the job (vi) Legal expenses
amount, i.e. @ Rs. 2,00,186.70 per (vii) Contingencies
month and 3% of the job amount (b) Consultant’s Fees
during idle period in suspension (c) Audit Charges
i.e. @ 60,056.00 thus we have lost (d) Other hidden expenses
overheads amounting to
Rs.1,35,32,618.00 and this amount The total contract value was Rs
may please be paid to us. 1,20,11,200.00 and the job was to be
done in 6 months The work load
contracted was worth Rs 20,01,866.67
per month. The amount of work done
is Rs. 2,88,48,207.00. Therefore, the
effective Time of Contract is 14.41
months say 14 months only. But due to
late hand over of a portion of site, non-
shifting of electric transmission tower,
long time taken in dewatering of
previously accumulated water,
frequent local problems, harassment
by the forest department, objection by
villagers, non-payment of monthly
55
bill, the progress of work badly
suffered and the Claimants’ had to stay
for a very long period. The total
stay on job has been 160
months and therefore the
underutilised/underemployed stay on
job is 26 months and idle period in
suspension is 120 months. Though the
actual overhead expenditure is much
more than 10% of the work value, the
Claimants have charged only 10% of
the job value in this highly skilled
project ie. Rs. 2,00,186.70 per month
and 3% of the job, i.e. @ Rs.
60,056.00 per month on idle period in
suspension. Thus, Claimants have lost
overheads amounting to Rs.
1,24,11,574.20 [(2,00,186.70 x 26 +
60,056.00 x 120) = 52,04,854.20 +
72,06,720.00 = 1,24,11,574.20] and
this amount may please be paid to the
Claimant with due interest.
A-2] A-2]
DEMAND DUE TO NEED TO DEMAND DUE TO NEED TO
RESTRUCTURE RATES RESTRUCTURE RATES DURING
At the end of our contracted EXTENDED PERIOD:
period i.e. 16-07-1989, we have At the end of the contracted period i.e.
done work worth Rs.39,16,841.00 16/07/1989, the Claimants have done
and the balance work remained to work worth Rs.39,16,841.00 and the
be executed. On this work, we balance work remained to be executed.
charge 30% extra to account for The Respondents have categorically
abnormal price rise, in addition to admitted this aspect in many letters.
usual escalation. We, therefore, On this work, the Claimants charge
demand an additional amount a 20% extra to account for abnormal
sum of Rs.41,67,312.90 on work price rise, in addition to usual
done beyond 16-07-1989 which is escalation. We therefore, demand an
to a tune of Rs.1,38,91,043.00. additional amount, a sum of
Rs.49,86,273.20 on work done beyond
16/07/1989 (Rs.2,49,31,366.00). The
work beyond 16/07/1989 and specially
during the Gulf War (Iraq) was
executed during the period with
abnormal rise in prices of Diesel,
Lubricants, Spares etc. The National
economy during this period was in a
very bad shape with abnormal price-
rise.
A-4] A-4] LOSS DUE TO UNDER- 56 LOSS DUE TO UNDER- UTILISED TOOLS, PLANTS AND UTILISED TOOLS, PLANTS MACHINERIES: AND MACHINERIES: The Claimants have submitted the list We had at the site deployed tools, of tools, plants and machineries and plants, machineries whose the same has been categorized as C-7, collective rental value or Hire- perusal of which indicates that the charges amount to Rs. 9,67,200.00 Claimants own large no. of dumper, per month. As computed, total idle Hydraulic Excavator, Drill Machine, period is 153 months. We have Air compressor, Dozer, Tractor, car, therefore, lost Rs. 14,79,81,600.00 Jeep, truck etc. worth Rs. worth Rental/Hire charges. 1,61,13,491/- ownership and price indications have also been filed . besides Tax Token and Insurance receipts. The Claimants had to pay very substantial amount to the bank as interest as the tool, plants and machineries were purchased after obtaining loan from the bank. The Claimants had utilized those tools, plants and machineries in the execution of the work result of which was very positive in nature. The losses occurred due to Respondent's fault are categorized as follow:- Ref.: C-11 Page - 17 (i) The under utilized period from 01/04/1990 for 26 months i.e. upto 13/05/1992 (ii) The remaining idle period of 120 months i.e. upto 20/05/2002 (upto 20/05/2002, the effective idle period including underutilised is 146 months from 31/03/1990) Annual rent per year is Rs.65,94,960.00 -C-11 - Page-17. (iii) During the idle period of 120 months the rental losses per year incurred by the Claimants have been taken @30% of the annual rent in normal conditions. A-7] ADDITIONAL COST A-7] OF INSURANCE, BANK ADDITIONAL COST OF BANK GUARANTEES ETC.: GUARANTEE, ROAD TAX, During extended period, we have INSURANCE ETC.: C-10 had to service insurance and Bank During extended period, the Claimants Guarantees, which was not had to service Insurance, Road Tax and contemplated. We shall submit Bank Guarantees. The Bank actual figures of expenses so Guarantees have been extended with 57 incurred till such time that the their validity at the instance of the
department kept the facilities due Respondents for execution of the
to their failure to have the job work. The Performance Guarantee of
completed as per actual. Rs.6,57,800.00 has been extended upto
27/12/2008 to execute the work
whereas the Security Deposit of
Rs.5,43,500.00 in the shape of B.G.
has been revalidated upto 21/06/2009.
The Insurance and Road Tax etc for
the equipments were served upto
20/05/2002 at the cost of the
Respondents. Also, these are
mandatory. At the cost of repetition, it
is submitted that the Claimants
performed the work in full swing upto
May, 1992 but due to several
problems, hindrances, monetary
constraints, for which the Claimants
were not at all responsible and only the
Respondents were at fault, the work
could not be completed during
stipulated period and the duration was
extended. The Claimants had to keep
the facilities idle at the site due to
Respondent’s failures and actual
figures of expenses so incurred by the
Claimants till such time are being
submitted.
(i) BANK GUARANTEE
(Performance)
On Rs. 6,57,800.00 Compensation till
27/12/2008 be paid.
(ii) BG COMMISSION on above (i)
Rs.2,00,783/- for which compensation
be paid
(iii) SECURITY DEPOSIT:
Rs.5,43,500.00
Total commission paid Rs.65,220.00
for average: 3 Years 1 month
losses on this be compensated.
(iv) ROAD TAX & INSURANCE:
Road Tax & Insurance paid for the
period 1988-89 TO 2002-03
Need not be considered for payment as
these expenses have been taken care of
while computing the losses due to
underutilized/Idle Tools, Plants and
Machineries (A-4)
58
16. Claim no.1 – claim for work done by the Claimant beyond 13th
R/A Bill
With respect to Claim No.1 dealing with amount of work done after
13th R/A Bill, the learned Arbitrator recorded that 13 th R/A bill was
paid on 16.11.1991 for work measured up to 15.05.1991 and the time
for completion of work was extended till 30.06.1992 and the initial
claim under this head was for Rs.76,25,494.00. After the copies of
measurement books relating to 1st to 13th R/A Bills and so-called 14th
and final bill submitted by the State to the learned Arbitrator with
copies to the claimant, the claimant modified the claim on 04.06.2012
on the basis of details of payment actually made to the claimant. The
claimant had submitted modified claim for quantity of work done up
to 30.06.1992 and also considering 15 % of silt deposit and disposal of
excavated materials and deducting the quantity of work done by the
previous agency (BAPL) as per the details mentioned in the
measurement book. The response of the State was also duly recorded
by the learned Arbitrator wherein the State disputed the claim.
17. With respect to silt deposit, the objection was raised that the
percentage which was adopted by the claimant was totally unpractical
and hypothetical and quantity of silt, if any, can be decided by the
direct measurement only at the time of starting further work. It was
asserted that it could be considered average 50 cm depth in Bed
portion only and the quantity as per state was 13,610.90 m3 only. It
was also asserted that at the time of measurement, 15 cm of depth of
silt is automatically accounted for in the measurement due to obvious
reasons and the calculation of the measurement as per the State was
also recorded.
18. As per the calculation of the State, there was excess payment to
the claimant to the extent of 50,000 m3. It was also asserted that
however, 47,376.00 m3 of excess quantity of earthwork was
previously reported by the respondent State vide letter dated
11.01.2001. A negative bill prepared by the department was termed as
14th and final bill. The learned Arbitrator recorded that the 14 th and
59
final bill was neither signed by the group of Engineers authorized to
take final measurement nor signed by the Executive Engineer in
charge of Division.
19. The learned Arbitrator referred to the documents and in
particular by referring to letter of the Executive Engineer of the State
dated 11.01.2001 held that the quantity of work comes to 6,36,875 m 3
without considering the silt deposit and also observed that with respect
to silt deposit during no work period, there was huge difference
between the quantity shown by the claimant under letter dated
06.12.2000 and the aforesaid letter dated 11.01.2001.
20. The learned Arbitrator considered the various documents and
recorded its finding in connection with balance work to be paid
without considering the silt deposit as under:
Total work done by BAPL & HCC 6,36,875.00 m3
(without considering silt)
Less work done by BAPL on the (-) 4,23,613.00 m3
basis of deduction in O/A bills
Total work done by claimant (without 2,13,262.00 m3
considering silt deposit)
Deducting quantity of work paid upto (-) 1,97,534.00 m3
13th R/A bill in all categories of
excavation
Balance work to be paid without 15,728.00 m3
considering silt deposit during 9
years of idle period
21. After having come to the conclusion that quantity of the balance
work to be paid without considering silt deposit during 9 years of idle
period to be 15,728.00 m3, the learned Arbitrator took into
consideration similar work of the same canal having similar features
and calculated the quantity of silt for 9 years in the following manner:
–
Length of Canal after deducting gaps = 2.627 km.
Idle period = 9 years (monsoons)
Qty. of silt deposit = (27.453.00 x 2.627 x 9) / (1.062 x 8) =
76,397.00 m3
22. Thereafter held that the total quantity of balance work of
excavation done by the claimant was 92,125.00 m3: –
60
“Therefore, total quantity of work in excavation of all categories of
earth work done by Claimant = 15,728.00 + 76,397.00 = 92,125.00 m3”
23. After having quantified the total quantity of work of
excavation, the learned Arbitrator quantified the amount with respect
to the claim under claim no.1 vide paragraph no.98 of the award as
under:
“98) In the 13th O/A bill almost all the quantity of earth in excavation for
which payment was made by the Respondents was under the category of
Soft Rock with blasting but, I am allowing only 50% of the quantity under
Soft Rock with blasting and balance 50% quantity under Soft Rock
without blasting the rate of which is lesser.
Taking 50% of this quantity as soft rock with blasting and 50% as
per excavation of soft rock without blasting, cost of the same including
disposal of excavated material may be calculated as following: –
For soft rock with blasting
Excavation 46,062.00 m3 x Rs.70/ m3 Rs.32,24,340.00
Disposal with 1-2 km lead 46,062.00 m3 @ 19/ m3 Rs.8,75,178.00
For excavation without blasting
Excavation 46,063.00 m3 @ 25/ m3 Rs.11,51,575.00
Disposal with 1-2 km lead 46,063.00 m3 @ 19/ m3 Rs.8,75,197.00
Total Rs.61,26,290.00
Therefore, I award an amount of Rs.61,26,290.00 against claim no.1 for
which a sum of Rs.76,25,494.00 has been claimed by claimants in
original claim. Interest @ 13% per annum will be paid separately from
01.10.1992 till the date of award as also charged from contractor on the
amount of advances as per clause 8 of General condition of contract at
P/4.”
24. This Court finds that the learned Arbitrator has passed a well
-reasoned award on this point and there was no scope for
interference in the award under this head under the limited scope
for interference under section 34 and now under section 37 of the
Act of 1996.
25. Claim no.3: Claim against short payment made in different
on account bills which had not been paid yet.
The claim no. 3 has been considered by the learned Arbitrator vide
paragraph 100 of the award and upon going through the records the
learned Arbitrator held that the payment made in 11th, 12th and 13th on
account bills showed that certain deductions were made or certain
quantities which were withheld by citing reasons. The short payment
61
was recorded to be Rs. 1,47,967.00 due to void measurement and
ultimately, the learned Arbitrator calculated that an amount of Rs.
2,22,281.00 was payable and awarded interest @13% per annum on
the awarded amount from 01.10.1992 (3 months after last extension
date) till the date of award as also charged from the contractor on the
amount of advance as per clause 8 of the General Conditions of
Contract. The amount of interest was directed to be calculated in the
interest claim along with other awards.
26. This court finds that the learned Arbitrator has passed a well –
reasoned award on this point and there was no scope for
interference in the award under this head under the limited scope
for interference under section 34 and now under section 37 of the
Act of 1996.
27. Claim no. 5 was claim for refund of deductions made for
EoT (Extension of Time) but not refunded even after sanction of
Extension of Time by competent Authorities. This related to the
amount deducted from 4th, 5th, 7th, 8th, 9th, 10th and 11th RA bills
amounting to Rs.2,50,355/-. The learned Arbitrator recorded that the
extension of time was sanctioned by the Chief Engineer lastly upto
30.06.1992 and therefore, the claimant was entitled for payment of
Rs.2,50,355/- deducted for want of extension of time (EOT) on
11.12.1989, 04.01.1990, 29.05.1990, 27.12.1990, 31.12.1990,
25.02.1991 and 31.03.1991 for which the extension of time was
granted on 20.05.1992 up to 30.06.1992.
28. The learned Arbitrator has passed a well -reasoned award on
this point and there was no scope for interference in the award
under this head under the limited scope for interference under
section 34 and now under section 37 of the Act of 1996.
Delay damages
29. Under the heading of ‘Delay Damages’, the learned Arbitrator allowed the
claim under claim nos. A1, A2 and A4. Under each head, the claim was partly
allowed as projected in the aforesaid chart. The learned Arbitrator analyzed the
various claims of ‘delay damages’ from paragraph 107 onwards of the award.
62
i. Claim no. A1 was relating to overhead losses related to idle or
underutilised overheads.
ii. Claim no. A2 was related to Demand due to need to restructure
rates during extended period.
iii. Claim No. A4 was on account of loss due to underutilised and
unutilised tools, plants and machineries.
Claim no. A2 -‘demand due to need to restructure rates during the extended
period’
30. Finding of learned arbitrator on this point is as under: –
“109) SUB CLAIM NO. A2:- Demand due to need to restructure
rates during Extended period.
The claimants in the original claim (Annex C1) at p/17 have mentioned
that the work done upto original date of completion (16.07.1989)
amounts to Rs. 39,16,841.00 but, they had to continue the work upto
30.06.92 at their agreemented rate and hence, they have claimed 30%
extra to account for work done beyond 16.7.89 due to abnormal price
rise in addition to usual escalation for the work done beyond 16.7.89.
Therefore, they have demanded (claimed) an amount of Rs.
41,67,312.00 on above amount of work done as extra for work done
beyond original date of completion.
Again, in modified claim (Annex C16) they have calculated the amount
of work done beyond original date of completion (16.7.89) after receipt
of copies of MB’s made available to Arbitral Forum with copy to
claimant, as Rs. 2,49,31,366.00. The claimants have claimed 20% extra
for abnormal rise in prices due to price escalation which is not
included in the agreement and also due to abnormal rise in price of
Diesel, Lubricants, Spares and other related items due to Gulf war in
Iraq which badly affected the National Economy. Thus, they have
revised their demand of claim to Rs. 49,86,273.00 @ 20% of work done
during this period.
While arguing on the issue of need to restructure the rates during
extended period, the claimants drew the attention of Arbitral Forum to
case cited at AIR 1980, Delhi between Delhi Metro Electric Company
vrs Delhi Development Corporation, New Delhi where the claimants
argued that any provision in fixed rate or no escalation would apply to
contract that was executed during the agreed initial period of
completion (6 months i.e. upto 16.7.89). The claimants also invited the
attention to (1984) 2 Sec 680, Tarapore & Co. vrs. Cochin Shipyard
and argued that in the event of facts related to contracts, the agreement
to that extent would become OTIOSE and the said judgement mentions
63
that contractors claim for compensation for excess expenditure
incurred due to price rise cannot be turned down on ground of absence
of price escalation clause in regard to contract. The claimants also
cited case AIR 1989 SC 1034 for P.M. Panl vrs. Union of India where it
has been observed that delay would require damages to be
compensated.
The Respondents have argued that there is no provision of price
adjustment clause under the agreement and therefore, the claim of
contractor is not at all tenable. But, at the same time, they could not
show any provision in creating a bar to evaluate the claim.
The question which arises from consideration is whether in absence of
any price adjustment clause as well as in absence of any
reasonableness as to the period of extension whether the rates to be
valid for three and half (3 1/2 ) years (17.1.89 to 30.6.92) that was to
be completed within 6 months. However, the admitted fact is that the
work was going on slowly with breakage in continuity due to indecision
on the part of Respondent, decision on the issue of classification of
excavated material as mentioned earlier, the rate can be considered for
restructuring by way of compensation under delay damages to the
extent of 10% of actual work done beyond the original date of
completion, which comes to Rs. (16536250.00- 3916841.00) = Rs.
1,26,19,409.00. As analyzed before, after considering award amount,
on application of indices published by Reserve Bank, the escalation
when applicable may have cumulative rise of 50% during this long
period.
I consider the amount of Rs. 12619409.00 as work done beyond
16.07.1989 for the need to restructure the rates/grant of
escalation/rationalizing the price over this long period when contract
continued to be operated. The amount of Rs.12,60,000.00 is awarded
against the claim amount of Rs. 47,86,273.00 as per modified claim by
the claimants.
This is based on the fact of having examined work done during the
original period, work done since then, the escalation as would have
been payable as also on consideration of entitlement and reasonability
of this amount over and above the bill at contracted rate. This claim is
essentially considered on the basis of delay not attributable to
claimants resulting in damages to be compensated.”
31. Upon perusal of the discussion made in connection with claim no. A-2
this Court finds that the amount was claimed in connection with work done
beyond 16.07.1989 (the agreed initial date for completion of work), on account
of abnormal price-rise in addition to usual escalation. The claim was termed as
64
‘demand due to need to restructure rates during the extended period’. The
initial claim was for 30% extra to account for the work done beyond
16.07.1989. However, in the modified claim the percentage was reduced to
20%. It was stated that the claim was on account of abnormal rise in prices due
to price escalation not included in the agreement and also abnormal rise in
price of diesel, lubricants, spares and other related items due to Gulf war in
Iraq. The revised claim was for an amount of Rs. 49,86,273.00 @ 20% of
work done in the said period. It was asserted that any provision of fixed rate or
no escalation would apply to contract that was executed during agreed initial
period of completion i.e. 6 months upto 16.07.1989. The claimant also relied
upon the judgment passed by the Hon’ble Supreme Court reported in (1984) 2
SCC 680 to say that in the event of facts relating to contracts the agreement to
that effect would become OTIOSE and the contractor could claim
compensation for excess expenditure incurred due to price rise which cannot be
turned down on account of absence of price escalation clause.
32. On the other hand, the State had argued that there is no provision for price
adjustment clause under the agreement.
33. The learned Arbitrator posed a question as to whether in absence of any
price adjustment clause as well as in absence of any reasonableness as to the
period of extension, whether the rates to be valid for three and half (3 ½) years
i.e. 17.07.1989 to 30.06.1992 that was to be completed within six months. The
learned Arbitrator was of the view that rate can be considered for restructuring
by way of compensation under delay damages to the extent of 10% of actual
work done beyond the original date of completion which comes to Rs.
1,65,36,250.00 – Rs. 39,16,841.00 = Rs. 1,26,19,409.00. Thereafter, the
learned Arbitrator referred to the indices published by Reserve Bank of India
and observed that the escalation when applicable may have cumulative rise of
50% during this long period. This court finds that in the entire award, except at
this place there is neither any discussion regarding indices published by
Reserve Bank nor any of the parties had relied upon such indices before the
learned Arbitrator. This Court further finds that there was no evidence with
respect to the escalated price claimed by the claimant.
34. The learned Arbitrator thereafter considered the aforesaid amount of work
done beyond 16.07.1989 at Rs. 1,26,19,409.00 and awarded escalation of Rs.
65
12,60,000.00 [about 10% of Rs. 1,26,19,409.00] as against claim of Rs.
49,86,273.00. The entire discussion in connection with claim no. A-2 is based
on no evidence and an ad-hoc amount of Rs. 12,60,000.00 has been awarded
which comes to 10% of the value of work done beyond the scheduled date of
completion of work i.e. 10% of Rs. 1,26,19,409.00.
35. This Court finds that till the date of doing work beyond the extended
period of contract, none of the parties had repudiated the contract and
admittedly there is no clause in the agreement regarding price adjustment or
escalation and the agreement was on item rate basis which included both labour
and material component. In such circumstances, the grant of escalation is ex-
facie beyond the terms of the contract. Further, on account of so-called
abnormal rise in prices of material due to gulf war, the claimant never pleaded
frustration of contract and continued to work and claimed escalation though
there was no clause in the agreement enabling the claimant to claim escalation
or price adjustment. Thus, the award on account of demand due to ‘need to
restructure rates during the extended period’ under claim no. A-2 was on the
face of the award not only without any evidence, but was also beyond the terms
of the contract.
36. This Court further finds that the agreement value of the work was Rs.
1,20,11,200.00 and as per the learned Arbitrator, the total value of work done
was Rs. 1,65,36,250.00 out of which the value of work done beyond the
original date of completion was Rs. 1,26,19,409.00. The learned commercial
court has recorded and it is not in dispute that upon payment of 13 th running on
account bill on 16.11.1991 the remaining work was only to the extent of Rs.
18,28,891/- and the learned Arbitrator awarded Rs. 61,26,290/- for the work
done beyond 13th running on account bill under claim head 1. The escalation
has been allowed under claim no. A-2 ‘need to restructure rates during the
extended period’ to the extent of Rs. 12,60,000.00 for the work done beyond
16.07.1989 that too without any evidence. However, the learned Commercial
Court did not scrutinize the components of allowed claims and as to how the
learned Arbitrator has arrived at his findings and allowed the claims under
various heads.
37. This Court is of the view that the award of escalation under claim no. A-2
-‘demand due to need to restructure rates during the extended period’ is
66
based on ‘no evidence’ and accordingly, the award to this extent suffers from
patent illegality and is perverse which is fit to be set-aside even under the
limited scope for interference under section 34 and now under section 37 of the
Act of 1996. The award on this count is clearly severable from the rest of the
award.
claims under claim nos. A-1 and A-4 [A-1 – overhead losses due to
underutilised and unutilised period and A-4 – losses for underutilised
and unutilised tools, plant & machineries]
38. The claim under claim nos. A-1 and A-4 are based on common
computation of underutilised and unutilised period, therefore such computation
of period is dealt first.
Computation of underutilised and unutilised period for claim no. A-1 and A-
4.
39. Claim no. A-1 was relating to idle and underutilised overheads for
which the claim was for an amount of Rs.1,24,11,574.00. It was argued that the
overhead which were provided in the price bid and actually spent and deployed
was @10% of the value of job which amounted to Rs.20,01,867.00 per month.
The claimant computed the period and claimed that the job remained idle for
120 months as per revised claim. For the same idle and underutilised period,
the claimant made revised claim for tools, plant and machineries under claim
no. A-4. The computation for the idle or underutilised period is the same for
both A-1 and A-4.
40. Some of the salient points with regard to the work have been recorded in
paragraph 108 of the award as under: –
1 Date of Agreement 17.1.1989
2 Stipulated date of completion 16.7.1989
3 Total work done excluding price 2,88,48,207.00/-
Adjustment
4 Original cost of work as per 1,20,11,200.00/-
Agreement
5 Period of completion 6 months up to 16.7.89
6 Cost of work done under stipulated Rs. 39,16,841.00/-
period
7 Work Load as per contract Rs. 20,01,867.00/- per
month
8 Total period of work done 41 months (17.1.89 to67
30.6.92)
9 Total period on job suspension 119 months (01.7.92 –
20.5.2002) Keeping the
operation absence
10 Underutilized period of work 41-14 = 27 months
(17.3.90 to 30.6.92)
11 Total period on job including active 160 months (17.1.89 to
period + Underutilized period + 20.5.2002)
idle period
12 Amt of work done beyond 16.7.89 Rs. 2,49,31,366.00/-
and till date of suspension
13 Expected work of 2,88,48,207.00/- would have been done in
14.41 months i.e. by 31.03.1990
14 Idle period when the job was under 119 months (30.6.92 to
suspension awaiting fund 20.05.2002)
th
15 Date of Entry of 13 R/A 13.05.1991
16 Date of Underpayment 16.11.1991
17 Date of work order to successor 20.05.2002
Agency
18 Total Excavation quantity in 2,65,130.0m3
claimants' Agreement
19 Total disposal quantity in 1,90,630.0m3
claimants' Agreement
20 Date of suspension of work due to 30.06.1992 (EOT)
paucity of fund
N.B.: Some of the above figures which were based on certain
assumptions, have been revised later on, with the change in
quantity/amount of actual work done.
41. The learned Arbitrator arrived at following breakup of delay: –
1 Delay attributable to Respondents 33 Months
with full idle resources of
claimants
2 Delay attributable to Respondents 74 Months
with skeletal or fractional
resources.
3 Concurrent delay when both the 45 Months
parties were in dormant state (No
compensable delay to the party)Although the claimant claimed under-utilised period as 26 months but the
learned Arbitrator has considered the under-utilised period as 33 months68
without any explanation. This has resulted in grant of more relief than
claimed for under-utilised period, both under claim no. A-1 and A-4.
Modified claim Awarded
overhead loss was @10% for 26 overhead loss was @8% for 33
months when partial work was going months when partial work was going
on and @ 3% for 120 months the on and @ 2% for 74 months the
period when no work was going on at period when no work was going on at
the site which comes to the site which comes to Rs.
Rs.1,24,10,582/- (Rs. 2,00,187.00 x 26 82,40,000/- (Rs. 1,60,000.00 x 33 +
+ Rs. 60,056 x 120) Rs. 40,000.00 x 74)
42. After having dealt with idle and underutilised period which is common
for both overhead losses and on account of tools, plant and machineries, the
modified claims under heads A-1 (overhead losses) and A-4 (tools, plant and
machineries) are further considered as follows:-
Further points regarding claim head A-1 (overhead losses)
43. The different component under overhead losses as mentioned in the
modified claim are as follows:
Salaries (technical and non-technical) including leave and
other charges;
Stationary, printing, postage and telephone charges;
Staff cars and traveling allowances;
Entertainment and publicity;
Housing, medical and other welfare facilities;
Legal expenses;
Contingencies;
Consultation fee, audit charges and other hidden expenses.
44. Although no evidence was led with regards to actual amount spent on
overheads as claimed under different sub-heads mentioned above, but before
the learned Arbitrator the claimant relied upon so called trade practice
exhibited vide the report of the year 1956 on estimate of Rates and Cost
Committee published by the Ministry of Power and Irrigation, Central Water
Power Commission, and referred to Article 2.36.1 thereof to submit that the
allowance of 10% could be considered adequate for contractor’s actual
69
expenses on Supervisory establishment, field office and share of Head Office
charges, Travelling expenses etc. Said Article 2.36 is quoted as under: –
“2.36. CONTRACTORS’ OVERHEADS AND PROFITS
2.36.1. Overheads – An allowance of 10 per cent would be
adequate for the contractor’s actual expense on supervisory
establishment, field office and share of head-office charges,
travelling expenses, publicity, interest and insurance of damage to
plant and injury to labour.
2.36.2. Profits- We believe that in normal circumstances an
allowance of 10 per cent of the prime cost as contractor’s profit is
reasonable.”
45. The claimant had prayed for damages on loss of overheads by applying a
fixed percentage based on the value of contract calculated per month taking
period of contract as 6 months (10% for under-utilised period of 26 months and
3% for unutilised period of 120 months) and the learned Arbitrator has also
allowed the claim on percentage basis @8% per month for period of under-
utilization taken as 33 months and @2% per month for unutilised period taken
as 74 months. The claimant also advanced their arguments before the learned
Arbitrator on the basis of Hudson’s and Eichley’s formula. The award was
made on percentage basis; 8% of value of monthly allocation of work
calculated by dividing value of contract as awarded by period of 6 months till
expiry of extended period of contract for under-utilised period and 2% for
unutilised period. This was without any evidence on actual loss suffered and
reference was made only to Government method of preparation of estimate
which as mentioned above provided for 10% for loss of profits and 10% on
overheads. The claim for Loss of Profit was rejected by the learned Arbitrator.
The findings of the learned Arbitrator with regards to the overhead losses are as
under: –
“Looking at rate of progress, the overhead could not be considered
as exceeding 8% of job, although the prevailing practice is to allocate
10% as seen by documents brought before the Arbitral Forum and
also as admitted to be the practice in Government method of
preparation of estimate. Accordingly, considering the anticipated
work load of Rs. 20,01,867/- Month (contract value Rs.
1,20,11,200.00) it would be Rs. 1.60 lac per month @ 8%.
As explained above, for idle period of 33 months against the claimed
idle period of 152 months, I award a sum of Rs. 52,80,000/- @ 1.60
lacs/month. In addition, overhead loss @ Rs. 40000/- per month @
2% only is admitted for period of 74 months when no site work was
70
executed but, extended Head Office overhead and Skeletal site office
remained i.e Rs. 29,60,000/-. For remaining period of 45 months, no
compensation is awarded.
Total compensation awarded under this claim comes to (33 x
Rs.160000.00) Rs.52,80,000+ 29,60,000(74 x Rs.40000.00) =Rs.
82,40,000/-, I award a sum of Rs.82,40,000/- against claim No. A1.”
46. Admittedly, no evidence has been led with regard to claim on account of
overhead expenses from the side of the claimant. The claimant admittedly did
not produce any books of accounts, bills, vouchers, etc. to substantiate its claim
for overhead expenses. However, reliance was placed on section 28(3) of the
Act of 1996 that the Arbitral Tribunal has to decide the case not only in
accordance with terms of the contract but has also to take into account the
usage of trade applicable to the transaction. The only material which has been
relied upon by the claimant and also by the learned Arbitrator is Report of
Rates and Cost Committee and the Report of Committee on Cost Control of
River Valley projects published by Government of India which was said to be
the norms for preparation of estimate for issuance of government tenders, as
quoted above.
47. It has been rightly pointed out by the learned counsel appearing on behalf
of the State that Article 2.36.1 of the Report of Rates and cost committee
published by Ministry of Power and Irrigation, Central Water Power
Commission which concerns calculation of estimates for projects is an
irrelevant material to allow delay damages on account of overhead expenses.
This Court is of the considered view that such approach of the learned
Arbitrator and reliance on such material dealing with preparation of estimates
for projects goes to the root of the matter and by no stretch of imagination the
same can partake character of trade usage much less trade usage pertaining to
the transaction. The term used in section 28(3) of the Act of 1996 is trade
usage pertaining to the transaction. When seen in the light of the aforesaid
judgments regarding scope of interference in arbitral award, this Court is of the
view that the award of delay damages on account of loss of overheads is ex-
facie perverse being based on no evidence and by taking into consideration
irrelevant material in the name of ‘trade usage’ as explained above. This Court
is of the considered view that no fair minded or reasonable person would adopt
71
such a course and is not even a possible view which could have been taken by
the learned Arbitrator.
48. It is not in dispute that upon payment of 13 th running on account bill on
16.11.1991 the remaining work was only to the extent of Rs. 18,28,891/- and
the learned Arbitrator awarded Rs. 61,26,290/- for the work done beyond 13th
running on account bill under claim head 1. Huge amount has been awarded on
account of losses due to overhead expenses for underutilised and unutilised
period.
49. The law laid down by the Hon’ble Supreme Court in the case of “Batliboi
Environment Engineers Vs. Hindustan Petroleum Corporation Ltd and
another” reported in (2024) 2 SCC 375 vide Paragraphs 10, 15, 16 and 23 is
put in points as follows: –
a) When the loss towards overheads and profits/profitability has to be
arrived at by applying the percentage formula, variant with the
execution of the work, such losses are to be computed on the payments
due for the unexecuted work, and should exclude the payments
received/receivable for the work executed.
b) Based on the value of the work executed, the proportionate amount has
to be reduced for computing the damage/compensation as a percentage
of expenditure on overheads, and damages for loss of
profit/profitability.
c) Damages towards expenditure on overheads and loss of profit are
proportionate, and not payable for the work done and paid/payable.
d) Delay in payment on execution of the work has to be compensated
separately.
e) Sections 55 and 73 of the Contract Act, 1872, which deal with the effect
of failure to perform at fixed time in contracts where time is of essence,
and computation of damages caused by breach of contract, respectively,
these sections neither lay down the mode nor how and in what manner
computation of damages for compensation has to be made. As
computation depends upon attendant facts and circumstances and
methods to compute damages, how the quantum thereof should be
determined is a matter which would fall within the domain and decision72
of the arbitrator. This is without doubt, a sound legal and correct
proposition.
f) However, the computation of damages should not be whimsical and
absurd resulting in a windfall and bounty for one party at the expense of
the other. The computation of damages should not be disingenuous. The
damages should commensurate with the loss sustained.
g) In a claim for loss on account of delay in work attributable to the
employer, the contractor is entitled to the loss sustained by the breach
of contract to the extent and so far as money can compensate. The party
should to be placed in the same situation, with the damages, as if the
contract had been performed.
h) The principle is that the sum of money awarded to the party who has
suffered the injury, should be the same quantum as s/he would have
earned or made, if s/he had not sustained the wrong for which s/he is
getting compensated.
i) Ordinarily, when the completion of a contract is delayed and the
contractor claims that the contractor has suffered a loss arising from
depletion of income from the job and hence turnover of 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 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.
j) 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.
Thus, it has been held by the Hon’ble Supreme Court that a percentage
formula can be applied for award of damages on account of expenditure on
overheads, loss of profit/profitability but same has to be computed taking
73
into account the payments due for the unexecuted work and should exclude
the payments received/receivable for the work executed. It has also been
held that the computation of damages should not be whimsical and absurd
resulting in a windfall and bounty for one party at the expense of the other;
the computation of damages should not be disingenuous and the damages
should commensurate with the loss sustained so that the party should to be
placed in the same situation, with the damages, as if the contract had been
performed. The principle is that the sum of money awarded to the party
who has suffered the injury, should be the same quantum as she/he would
have earned or made, if she/he had not sustained the wrong for which
she/he is getting compensated. Paragraphs 10, 15, 16 and 23 of the
judgment passed by the Hon’ble Supreme Court in the case of Batliboi
Environment Engineers (Supra) are quoted as under:
“10. BEEL had, as observed above, accepts the position that the loss
towards overheads and profits/profitability has to be arrived at by
applying the percentage formula, variant with the execution of the work.
Thus, in our opinion, the loss towards overheads and profits/profitability
is to be computed on the payments due for the unexecuted work, and
should exclude the payments received/receivable for the work executed.
In other words, based on the value of the work executed by BEEL, the
proportionate amount has to be reduced for computing the
damage/compensation as a percentage of expenditure on overheads, and
damages for loss of profit/profitability. Damages towards expenditure on
overheads and loss of profit are proportionate, and not payable for the
work done and paid/payable. Delay in payment on execution of the work
has to be compensated separately.”
15. McDermott International Inc. refers to Sections 55 and 73 of the
Contract Act, 1872 (for short “the Contract Act”), which deal with the
effect of failure to perform at fixed time in contracts where time is of
essence, and computation of damages caused by breach of contract,
respectively, and states that these sections neither lay down the mode nor
how and in what manner computation of damages for compensation has
to be made. As computation depends upon attendant facts and
circumstances and methods to compute damages, how the quantum
thereof should be determined is a matter which would fall within the
domain and decision of the arbitrator.
16. This is without doubt, a sound legal and correct proposition.
However, the computation of damages should not be whimsical and
absurd resulting in a windfall and bounty for one party at the expense of
the other. The computation of damages should not be disingenuous. The
damages should commensurate with the loss sustained. In a claim for
loss on account of delay in work attributable to the employer, the
contractor is entitled to the loss sustained by the breach of contract to
the extent and so far as money can compensate. The party should to be
placed in the same situation, with the damages, as if the contract had
74
been performed. The principle is that the sum of money awarded to the
party who has suffered the injury, should be the same quantum as s/he
would have earned or made, if s/he had not sustained the wrong for
which s/he is getting compensated.
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.”
50. In the aforesaid judgement passed by the Hon’ble Supreme Court in the
case of Batliboi Environment Engineers (Supra), in paragraph 10 [which has
been heavily relied upon by the learned counsel for the claimant] the claimants
accepted the position that the loss towards overheads and profits/profitability
was to be arrived at by applying the percentage formula, variant with the
execution of the work.
51. In the present case also the claimant had prayed for damages on account
of loss of overheads by applying a fixed percentage based on the value of
contract calculated per month taking period of contract as 6 months (10% for
under-utilised period of 26 months and 3% for unutilised period of 120
months) and the learned Arbitrator has also allowed the claim on percentage
basis @8% per month for period of under-utilisation taken as 33 months and
@2% per month for unutilised period taken as 74 months.
52. Since the claim on account of overheads has been allowed on percentage
basis, the learned counsel for the claimant by relying upon paragraph 10 of the
aforesaid judgement Batliboi Environment Engineers (Supra), has submitted
that the learned Arbitrator has taken note of aforesaid proposition of law and
excluded the period during which work was done for the purposes of
computation for overhead costs. It has been submitted that in the aforesaid
paragraph of the judgement, it has been provided that loss of overhead and
profit can be granted for the unfinished work on the basis of the remaining
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quantum of work. This Court finds that the award of damages on account of
loss of overheads has not been passed in tune with paragraph 10 of the
judgement in Batliboi Environment Engineers (Supra). The part of the period
during which work was done has been included for the purposes of
computation of Overhead expenses in the shape of overhead expenses for
under-utilised period on percentage basis that too without any evidence of
actual Overhead expenses and without any evidence to the extent of utilisation/
non-utilisation.
53. This Court also finds that the learned Arbitrator while computing the
value of monthly allocation of work for the purposes of computation of loss of
overheads per month has taken into consideration the scheduled period of work
of 6 months (17.01.1989 to 16.07.1989) and not the extended period of work,
that is, 41 months (17.01.1989 to 30.06.1992) and has awarded damages on
percentage basis as follows: –
33 months of under-utilised period 8% per month as mentioned above
calculated till extended date of
completion of contract work.
74 months of unutilised period i.e. @ 2% per month as mentioned
from 01.07.1992 to 31.08.1998 [the above.
date on which the claimant refused to
complete the work at the contractual
rate]
54. In view of the aforesaid findings, the award of delay damages on account
of loss on account of overheads is shockingly whimsical and absurd and is
patently illegal which could not have been sustained even under the amended
provision of section 34 of the Act of 1996. However, having noted the
aforesaid figures, the learned commercial court failed to examine the claims
even under the limited scope under section 34 of the Act of 1996 and has failed
to consider the aforesaid aspects of the matter and has mechanical observed
that there is no scope of reappreciation of evidences and an award is to be
sustained when the view taken by the Arbitrator, is a plausible view.
Further points in connection with Claim no. A-4, i.e. Loss due to
underutilised and unutilised Tools, Plant and Machineries.
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55. The findings of the learned Arbitrator are at paragraphs-111, which read
as follows: –
” 111) Sub claim No. A4 (loss due to underutilized Tools and Plants and
Machineries):-
In respect of Sub claim A4, the same computation of idle period as in
case of claim Al would be held valid.
The claimants have stated in their original claim (C1) at page 18 that the
collective rental value /hire charges of Tools and plants and Machineries
deployed for the work amounts to Rs.9,67,200/- per month. As computed
the total idle period is 153 months and therefore, loss of hire charges is
Rs. 14,79,81,600/- work Rental value.
But, in modified claim (C16) at page 10 on the basis of list of plants and
machineries submitted in Annex C7 and their Rental Value calculated in
Annex C11 at page 17, the Annual Rental Value of above Plants and
Machineries has been shown as Rs.65,94,960/- per year i.e. Rs.
5,49,580/- per month.
In response to claimants original claim (Annex 1), the Respondent in
their written statement (R1) in para-13 have denied the Rental value of
Rs. 14,79,81,600/- or any amount claimed by the claimant for plants and
machineries at site. The Respondents have not admitted that the Rental
Value of Tools and Plants and Machineries at site is Rs. 9,67,200/- per
month. The Respondents have not admitted the total idle period of 153
months. Even if, it is admitted that some Tools, Plants Machineries were
deployed at the site of work, Respondents are not at all liable for the
same after Extended time of completion (30.06.92). Thus, the
Respondents have not authenticated the entire list of Tools and Plants
and Machineries as listed by claimants in Annex C7 and evaluated in
Annex C11.
Before I consider any compensation for Idle Plants and Machineries, it
will not be out of reference to mention here that the Arbitration of
disputes of two contracts (1/SMC/87-88 dated 24.9.89 and 3/SMC/88-89
dated 17.1.89) of the same Agency are being conducted by me. While
going into details of compensation for idle plant and machineries, it has
been found that the details of compensation for Idle plant and
machineries in both the Agreements are the same bearing the same
Registration No., Cost of Purchase and Date of Purchase in both the
agreement in Annex C7 which shows that the same Plant and
Machineries have been used in both contract agreements. Since, the
proceeding of both the disputes are conducted by me, it is imperative on
my part to go into details of this issue although no reference with regard
to this issue has been made by Respondents. Considering the fact that
compensation for the same Idle machineries during the same idle period
cannot be awarded in two works presuming that the same plants and
machineries have been used in both agreements NO. 1/SMC/87-88 dated
24.9.87 and 3/SMC/88-89 dated 17.1.89 and hence, I am of opinion that
only 50% of the cost of Annual Rental Value of Plants and Machineries77
shown at p/17 of Annex C4 (Agr. No. 1/SMC/87-88) should be taken into
consideration in case of 3/SMC/88-89.
Total Rental value of plant and machineries shown in Annex C7 on the
basis of calculation comes out to Rs. 59,29,920/- per year as detailed
below:-………………………..
Taking 50% of Annual Rental Value under this agreement, the annual
rental value comes to Rs. 29,64,960.00 i.e. Rs. 2,47,080.00 per month.
But, looking at the long period of idle stage of Plant and Machineries, it
will have to be reduced by at least 15% for major repairs and
depreciation etc and hence, the Rental value per month will come down
to Rs. 2,10,018.00/- per month.
Further, on perusal of balance work at the end of last date of extension of
time, it is apparent that approximately 25% of Agreemented work was
left out and hence it was imperative on the part of claimants to keep
maximum 1/3rd of Plants and Machineries beyond this date if at all, it
was kept to complete the balance work during completely idle period to
mitigate the losses. Hence, the Rental Value beyond 30.6.92 is taken as
Rs. 70,000.00 per month only.
Therefore, I award a sum of Rs. 69,30,000.00/- @ Rs. 2,10,000.00/- per
month for 33 months of partial idle period and a sum of Rs. 51,80,000/-
for completely idle period of 74 months @ Rs 70,000.00 per month
awarding a total amount of Rs. 1,21,10,000.00/- under claim No. A4
against claimed amount of Rs. 3,31,91,650.00/-.”
56. In the original claim under claim no. A-4, the claim was stated to be in
connection with payment of rent for under-utilised and un-utilised tools, plant
and machineries, but in the modified claim it was stated that the claimant had
purchased the tools, plants and machineries by taking loan from the bank and
was paying the hire charges to the bank.
57. In the award, it has been recorded that the claimant had given the same
list of tools, plants and machineries for another contract with the State in the
same project operative for the same period and consequently the entire claim
was considered at 50% by the learned Arbitrator. The learned Arbitrator
reduced 15% of hire charges on account of major repairs, depreciation etc. and
arrived at the rental value of the tools, plants and machineries at Rs. 2,47,080/-
per month. The learned Arbitrator recorded that since till the last date of
extension of time (30.06.1992) 25% of total work was left to be done, it was
imperative from the doctrine of mitigation of losses to keep maximum 1/3 rd of
tools, plants and machineries if at all they were kept at the site to complete the
balance work and hence rental value of tools, plants and machineries
considering the doctrine of mitigation of losses was assumed to be 1/3 rd of the
78
machines beyond the last date of extension of time (30.06.1992) and thus
assumed to be 1/3rd and took the same @ Rs.70,000/- per month .
58. Further since no evidence was produced as to whether the claimant had
any other available work where the plant and machineries could have been
utilised or whether the claimant was prevented from participating in any other
tender where these plant and machineries were required to be utilised, no
amount could have been awarded under claim no. A-4. In order to claim
damages on account of under-utilisation/ un-utilization of tools, plants and
machineries (claim no. A-4) it was incumbent upon the claimant to produce
evidence with respect to any other available work where the plant and
machineries could have been utilised and because of this contract they could
not be used or to produce evidence to the effect that the claimant was
prevented from participating in any other tender where these plant and
machineries were required to be utilised and because of this contract they could
not participate in such tender/contract. Further, it was never the case of the
claimant that due to non-availability of tools, plant and machineries for other
work/contract/tender they suffered any losses /damages much less any evidence
on such point. In view of the aforesaid discussions and in absence of any such
evidence as mentioned above, the award on account of losses due to un-utilised
or under-utilised tools, plant and machineries is patently illegal based on no
evidence to support any loss/damages on this head.
59. This Court is of the view that the award on account of escalation (A-2),
under-utilised and un-utilised overheads (A-1) and expenditure on account of
under-utilised and un-utilised plant and machinery (A-4) is shockingly
disproportionate as the balance value of work to be performed was Rs.
18,28,891/- till the date of payment made under 13th R/A bill when compared
to the total value of work and is also contrary to the judgement passed by the
Hon’ble Supreme Court in the case of Batliboi Environment Engineers
(Supra). The award on account of delay damages under head A-1, A-2 and A-4
is whimsical, absurd and shocking resulting in a windfall and is not at all
commensurate to the losses, if any. The award on account of delay damages
under head A-1, A-2 and A-4 is patently illegal which could not have been
sustained even under the amended provision of section 34 of the Act of 1996.
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60. This Court finds that although the learned Commercial Court has recorded
that after the receipt of 13th RA Bill the balance work left to be completed by
the claimant was to the extent of Rs. 18,28,891/- and expressed surprise as to
how such huge amount was claimed on account of balance work but has
completely failed to undertake the scrutiny of the award under various heads
under the limited scope under section 34 of the Act of 1996 and has refused to
interfere with the award by simply stating that there was no scope of
reappreciation of evidence led before the learned Arbitrator. Before this Court
the learned counsels have advanced their arguments, records produced and
referred during the course of arguments and matter has been considered as
above.
61. Accordingly, the award of losses/ damages under the claim nos. A-1, A-2
and A-4 being clearly severable from rest of the award are set-aside.
Counter claim of the State.
62. So far as counter-claim of the State is concerned, the same was covered by
the issue no. 5 as framed by the learned Arbitrator. The State had claimed that
they were entitled to recover a sum of Rs.62,45,870/- with interest from the due
date from the claimant. The issue no. 5 has been dealt with by the learned
Arbitrator from paragraph 54 to 83 as well as in paragraph 119 of the award.
63. It was the specific case of the State as recorded in paragraph 59 of the
award itself that a sum of Rs. 1,01,82,389/- was paid to the claimant upto 13th
RA bill but the cost of work done as per final bill, i.e. the 14 th Bill was
evaluated to be of Rs. 39,36,520/- only and hence the State was entitled to
recover a sum of Rs. 62,45,870/- from the claimant.
64. The learned Arbitrator considered the various materials on record relied
upon by the respective parties and recorded in paragraph 59 of the award that
during the argument put forth by the State, it was submitted that on perusal of
copy of measurement book containing on account bills, all the payments
including 13th on account bill were paid on the basis of section measurement
duly checked by the engineers in-charge of the work. The learned Arbitrator
recorded that there was no justification for reducing or deleting the quantities
of item work in 14th and final bill. The learned Arbitrator also recorded that in
51st sitting the pleader representing the Government specifically stated “since
no counter claim has been made by the Respondent in this regard nor any
80
claim has been made by the claimants with regard to alleged final bill, it need
not be considered.”
65. The learned Arbitrator, after hearing both the parties and having gone
through the correspondences and copies of on account bills along with detailed
measurements submitted by the State and on perusal of the records, recorded
his findings in different paragraphs right from paragraphs 61 to 78 and some of
such findings are as under:
“61) All on account bill right from 1st O/A to 13th O/A have been paid
on the basis of section measurement and also checked by concerned
Engineers.
62) No correspondence regarding excess payment has been made by the
Executive Engineer during the payment of all O/A bills. Even beyond this
period upto the alleged final bill preparation in 2002, no such
correspondence regarding excess payment was made with the claimants.
63) The work under the Agreement was stopped after 30.06.1992 for
want of fund as the World Bank stopped the credit as a result of which no
payment for work done beyond May’91 to June’92 was made for the
Project. Even the State Govt. could not arrange fund and the work was
kept in abeyance without finalizing the contract. As per MB No.41 (P/1-
15), the entry of final measurement has been recorded on 09.05.2002
without desilting the canal. The claimants have not accepted the final
measurement and as such they have not signed the so called final
measurement. According to claimants, they were not associated with the
process of measurement. As per claimant’s statement, it was an
imaginary bill having no head and tail.
64) Huge quantity of siltation and debris from the adjoining hilly terrain
during the 10 monsoon period from 1992 to 2001 cannot be denied
which has not been taken into consideration leading to the huge
difference in quantities of excavation paid upto 13th R/A bill and the so
called 14th and final bill as also mentioned by Sri Revati Raman Kumar,
the then Executive Engineer in his reply with response to Executive
Engineer, M.D.D. No. 5 Letter no.500 dated 25.05.2002.
65) From the perusal of 13th R/A bill entered and paid in MB No. 150
P/45-58, it shows that a total quantity of 1,97,534,244 m3 of excavation
under the Agreement item nos.1,2 & 3 has been paid for the work done
upto 25.05.1991 which has been reduced to 1,34,031.389 m3 in alleged
14th and final bill. It is worth mentioning that no measurement for the
work done during the period from 25.05.1991 to 30.06.1992 was taken
by the Executive Engineer after payment of 13th R/A bill.
66) From the perusal of all on account bills, it is evident that
measurements used to be taken recorded checked and paid by the
departmental Engineers concerned and hence, it cannot be assumed that
the claimant was paid in excess by the Respondents in the 13th O/A bill.
81
The Engineer in charge of recording final measurement has recorded on
MB No.41 P/9-11 that there is no N.S.L (Pre-Level) entry for the reach
from km.23.651 to 25.408 but, the measurement has been recorded on
the basis of one Block level available in sub divisional record. This
cannot give the exact quantity executed by the claimants.
57) If such a huge amount of Rs.62,45,870/- was paid in excess of actual
work done by the contractor, the department should have taken stringent
action against the Engineers in charge for preparation of bills and
making payment. But, no action has been reported to have been taken
against them.
68) After preparation of so called final bill, the Executive Engineer,
M.D.D.no.5 through his letter no.500 dated 25.05.2002 asked
explanation from all concerned. Only one reply from the Executive
Engineer Sri Revati Raman Kumar making payment of 13th R/A bill has
been submitted.
69) In his reply, Sri Revati Raman Kumar has strongly defended the
payment made to the claimants upto 13th O/A bill. The explanation of Sri
Kumar has been enclosed at P/88-89 Annexure-C6.”
66. The learned Arbitrator ultimately recorded that the very basis of final
measurement was faulty and erroneous. Further, the final bill was neither
signed by the group of engineers especially authorized by the government
through letter no. 1916 dated 06.10.1998 nor signed by the concerned
executive engineer and hence the 14th bill could not be treated as final bill.
Accordingly, the learned Arbitrator held that the State was not entitled to
recover a sum of Rs.62,45,870/- from the claimant.
67. Further discussion in connection with the counter-claim was made in
paragraph 119 of the award. The learned Arbitrator recorded that although no
formal counter-claim was lodged by the State, but they mentioned in paragraph
8 of the written statement that a sum of Rs.62,45,870/- was paid in excess upto
13th RA bill and the same was recoverable from the claimant. The issue has
been fully discussed while deciding issue no. 5. The learned Arbitrator also
recorded that while arguing the issue the counsel for the State had also agreed
that there was no base for reducing the quantities and the amount paid upto 13 th
RA bill and that the so-called final bill was not even signed by the Executive
Engineer along with the group of engineers especially authorized to take final
measurement vide aforesaid letter dated 06.10.1998 and accordingly, the final
measurement was not acceptable to the learned Arbitrator.
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68. The learned Arbitrator also recorded that during the argument the State
was asked to produce witness in support of their contention of recoverable
amount from the claimant, but they did not wish to produce any witness and
ultimately, based on the records and arguments advanced by both the parties
before the learned Arbitrator, the recovery suggested by the State was rejected.
69. This Court finds that the learned Arbitrator has passed a reasoned order in
connection with the rejection of counter-claim by taking into consideration all
the facts and circumstances. Learned counsel appearing on behalf of the State
has not been able to point out any ground calling for interference in the said
findings while rejecting the counter-claim of the State by the learned Arbitrator
under section 34 or under section 37 of the aforesaid Act of 1996.
70. This Court also finds that the learned Commercial Court, while
considering the petition under section 34 of the Act of 1996, has recorded that
counter-claim of the State based on final measurement of 14 th bill was not
properly considered. However, there is no discussion in the entire impugned
order as to how the learned Court came to such a finding. The fact remains that
the learned Court refused to interfere with the award on the ground that there
was no scope for reappreciation of evidences on record and coming to a
different finding.
71. The learned Arbitrator having considered the materials on record to reject
the counter-claim of the State seeking refund of Rs. Rs.62,45,870/- based on
so-called measurement being 14th bill/final bill by a well-reasoned findings and
therefore, the refusal by the learned commercial court to interfere with the
award rejecting the counter-claim of the state did not call for any interference
under section 34 of the Act of 1996, much less under section 37 of the Act of
1996.
72. Conclusion
The point of limitation and the point of jurisdiction of the learned Arbitrator
are decided in favour of the claimant.
Award on account of delay damages under claim nos. A-1, A-2 and A-4 are
set-aside. The rest of the award being clearly severable is sustained. The
summary is as follows: –
83
Claim Heads Decision of this Court
Claim no.1 Claim for work done after 13th No interference in the award.
RA Bill.
Claim no.3 – short payment in connection
with different running on account bills
Claim no.5 – deduction made prior to
extension of time.
A-1 Set-aside
Overhead losses for underutilised and
unutilised overhead
A-2 Set-aside
demand due to need to restructure rates
during the extended period'- relating to
escalation
A-4 Set-aside
Loss due to under-utilised and un-utilised
tools, plant and machineries.
Counter claim No interference in the award refusing
to allow counter claim
73. This appeal is partly allowed to the aforesaid extent.
74. Pending interlocutory application, if any, is closed.
(Dr. S. N. Pathak, J.)
I Agree.
(Dr. S. N. Pathak, J.)
(Anubha Rawat Choudhary, J.)
Jharkhand High Court, Ranchi
Dated: 10th December, 2024
Pankaj
A.F.R
84