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. 4 of 2022
The State of Jharkhand through Executive Engineer, Minor
Distribution Division No. 3, Swarnrekha Multipurpose Project, Water
Resources Department, Dimna, 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.- Sonari, Jamshedpur- 831011 through Sri B.N.
Dikshit, Managing Director, HIG Adarsh Nagar Sonari, P.O. and P.S.
Sonari, 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. 8 of 2018 arising out of
Miscellaneous Arbitration Case No. 9 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 06.12.2015 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. 1/SMC/87-88 dated 24.09.1987
for excavation of residual work of Chandil Left Bank Main Canal
from km 21.39 to km 22.19, km 30.57 to km 31.03 and km 31.33 to
km 31.69. 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 30.01.1987 which was followed by corrigendum
dated 19.03.1987. 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
09.09.1987 issued by Chief Engineer (Subarnarekha Multipurpose
Project), Chandil Complex. The agreement was signed on 24.09.1987
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 Clause 31 and 32 of the
General Conditions of Contract.
The estimated cost of work as per tender notice was Rs. 146.32 lakhs
and the agreement was valued at Rs. 1,46,34,879.20. The work as per
the written order was to commence on 24.09.1987 and the completion
period was 15 months from the written order and accordingly, the
work was to be completed by 23.12.1988.
3. Extension of time for completion of work
The extension of time for completion of work was granted in phases
upto 30.06.1991. A recommendation was made to extend the time of
completion till 30.06.1992 but the final order extending the time for
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completion of work till 30.06.1992 was not communicated to the
claimant. The work could not be completed within the period of
extended time i.e. by 30.06.1991 and the letter granting extension of
time till 30.06.1991 was issued by the Chief Engineer, which was
letter no. 1400 dated 20.05.1991.
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 Arbitration and Conciliation
Act, 1996 vide order dated 09.05.2005.
a. The clauses of the contract relevant for this issue are clause nos.
51 and 52 which are quoted as under:
“51. 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.
Il 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 instructions 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.
52 ARBRITRATION:
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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:
Within thirty days of receipt of notice from the
Contractor of his intension to refer the dispute to
arbitration the 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 delay 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 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
of arbitrators shall be final and binding on the parties
thereto. The arbitrator shall determined the amount of
costs 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 lakh 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-
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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
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 16th running on account bill which
was paid on 28.12.1989 although the work was going on
between the period from 28.12.1989 to 30.06.1991 with slow
pace.
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 like Ministry of Environment and Forest, shifting of
utility services and fund flow required for timely completion of
work 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 and, in some portion, proceeding of transfer of forest
land 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 30.06.1991, 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 final 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,
by various correspondences after 30.06.1991, assured the
claimant that allotment of fund was expected from Government
of Bihar and his portion of the work would fall under priority
zone. A letter dated 18.04.1992 was issued by the executive
engineer to mobilize plant and machinery. A review of the
progress was held in the chamber of Hon’ble Minister of5
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 in 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 a sum of Rs. 40 crores of allotment
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 siltation due to stoppage of work for 8 years, it was
decided that after taking final measurement by
September, 1998, decision in this regard would be taken.
iii. For the rate of extra item, it was decided that the schedule
of rate applicable at the time of work done would be
applicable and not the present schedule of rate.
iv. Extension of time will be granted before the balance
work is started for which the Chief Engineer was
competent.
v. After invitation of tender, if the old contractors are ready
to do the work as per terms and conditions of fresh6
tenders, there would be no objection in awarding the
work to them at the same rate.
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 his 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 his portion
of work has been put under 2nd priority and its date of
recommencement is not fixed, they would be able to do the work
at the schedule of rate prevailing at the time 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
27.08.2000 for Rs. 230.00 lakhs. 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
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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 30.06.1991 to the date of measurement taken by the group
of engineers authorized for taking final measurement.
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 and rescinded, chances of 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 M/s Shantanu Construction at the cost of Rs.
1,69,10,733/- 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. 5465 of 2001 which was
also subject matter of consideration in LPA No. 313 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.
8
j. Consequently, the claimant invoked clause 51 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 51 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, the
claimant gave notice to the Chief Engineer in terms of Clause
52 of the General Conditions of Contract vide letter dated
08.04.2003, but the Chief Engineer did not abide by the
provisions of Clause 52 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 52 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 Arbitration and
Conciliation Act, 1996. A date of hearing was fixed on
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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.
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 modified claim on 01.05.2011. 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:
10
Claim Briefs of claims In Org. Claim In Mod. Claim Awarded Amt.
No. in C-1 on in C-15 on (Rs.)
05.03.2006 01.05.2011
PART - 1 (for work done)
1 Payment due against "Extra 23,65,244 Rejected
items of work under clause
31 & 32 of General
condition of contract P/11
& including admissible
Price Adjustment
2A Extra Excavation and 12,75,730 Rejected
disposal of ordinary rock of
18,000.00 m3 including nits
disposal beyond 1.0 km
along with admissible Price
Adjustment
3B Amount held up for 2,70,333 2,70,333
disposal of 16,020.0 m3 of
excavated material as per
MB No. 90 p/31 as per 7th
R/A bill paid on 25.3.1988
withadmissible Price
Adjustment
4C Excavation of ordinary rock 18,01,619.00 21,54,781 21,54,781
without blasting of
27,235.356 m3 and its
disposal beyond 2.0 km
after 16th R/A bill and
balance payment of
ordinary rock with blasting
of 99,781.56 m3 paid at
Reduced Rate as per MB
No. 119 P/41 in 16th R/A
bill including admissible
Price Adjustment thereon
5D Claim due to deduction of 77,310 77,310
Amount on account of
Extension of Time paid
even after sanction of EOT
by CE
6E Claim for amount of 96,623 96,623
admissible Price
Adjustment on the value of
work done for Rs.7,73,093/-
in 14th, 15th and 16th R/A
bills
7 Claim for Price Adjustment 2,53,928 2,08,983
on account of material
component (2% of total
work) and POL component
(8% of total work) which
have not been paid from 1st
to 16th R/A bills as per
Modified claim at P/7
8 Interest on fine of Rs. Rejected
1000/- was paid by the
Claimants to the Forest
Dept.
Total 18,01,619 64,93,949 28,08,030
11
9 Interest on due amount 13% per annum from 01.10.1991 (3 months after
the last date of extension of time of completion i.e.
30.06.1991) till date of award.
PART – 2 (delay damages)
A1 Overhead losses for 67,22,287.74 63,90,563 39,39,000
underutilised and unutilised
overhead
A2 Demand due to need to 7,72,413.6 12,36,418 Rejected
restructure rates during
extended period
A3 Loss due to profit not 47,95,921.89 18,28,530 2,50,000
earned at appropriate time
A4 Loss due to underutilised 20,04,91,200 6,03,43,800 92,41,129
and unutilised Tools, Plant
and Machineries.
A5 Loss of productivity 18,47,100.84 No detail Rejected
furnish
A6 Opportunity losses 28,29,409.98 24,39,146 Rejected
A7 i) Loss due to Additional As per actual 1,96,80,275 (i) 6,90,484
cost of BG of Rs. & (ii) Rejected
4,38,960.00 for
performance Guarantees
upto 30.06.2014
ii) Loss due to additional
cost of BG for security
Deposit of Rs. 2,82,800.00
revalidated upto 30.6.2009
A8 Loss due to Blocked 12,96,300 No detail Rejected
Material cost furnished
A9 Delay in Payment of bills As per actual 5,45,064 Rejected
(Amount of Interest
Rs.19,526) with compound
interest
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 2,15,000
9,24,63,796 1,34,30,129.00
+ A7(i)
6,90,484.00
Interest On Rs. 1,34,30,129.00 interest @ 12% per annum
from 26.08.2003 (date of 1st Arbitration meeting)
till date of award.
On Rs. 6,90,484.00 interest @13% per annum
from 01.07.2014 till the date of award.
On cost of arbitration of Rs. 2,15,000 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:
12
Description of Claimed Amount (Rs.) Amount
Recovery suggested Awarded
by the Respondent (Rs.)
Recovery of Excess 62,83,715.00 Rejected
payment made to
Claimants on the
basis of so-called 17th
& Final bill
8. Under part-I, claim no. 3B, 4C, 5D and 6E have been fully
allowed and claim no. 7 has been partly allowed totaling to Rs.
28,08,030.00. So far as delay damages under part -II are concerned,
claim no. A1 (overhead losses for underutilised and unutilised
overheads) has been partly allowed to the extent of Rs. 39,39,000;
claim no. A3 (loss due to profit not earned at appropriate time) has
been partly allowed to the extent of Rs. 2,50,000; Claim no. A4 (loss
due to underutilised and unutilised tools, plant and machineries) has
been allowed to the extent of Rs. 92,41,129. Apart from the aforesaid,
loss due to additional cost of bank guarantee relating to performance
guarantee upto 30.06.2014 has been partly allowed to the extent of Rs.
6,90,484. Further cost of arbitration has also been allowed to the
extent of Rs. 2,15,000/-. 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 of claimants maintainable under agreed terms
of contract as well as 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 are entitled to recover a sum of
Rs.62,83,715/- with interest thereon 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 39 onwards and all the issues were decided in favour
13
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 51 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 16th RA bill; the arbitrator did not consider the counter-
claim properly which was based on the final measurement being 17 th
R.A. bill whereby a minus bill of Rs. 62,83,715/- was raised; the
arbitrator did not consider that against the agreement value of Rs.
1,46,34,879.20, the claimant received Rs. 1,35,90,888/- as 16th R.A.
Bill on 28.12.1989 and balance work was only to the extent of Rs.
10,43,991/- then under what circumstances, the claimant claimed that
the work done beyond 16th R.A. bill was to the extent of Rs.
64,93,949/- as per modified claim and the learned Arbitrator awarded
Rs. 28,08,030/- under the head work done by the claimant plus short
payment made in different account of 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
14
Clause of the Agreement. (c) Without measurement excess
amount was paid to claimant/ Op by the Applicant
department till 16th R/A bill. (d) Not properly consider by
Ld. Arbitrator counter claim of department of final
measurement 17th R.A minus bill Rs. 62,83,715/-.(e) last
not least that agreement value Rs. 1,46,34,879=20 OP
received Rs. 1,35,90,888/- as 16th R.A bill, on 28-12-1989
having balanced amount of work of Rs.10.43,991/- then
how the claimant/ OP claim on the head of work done by
claimant beyond 16th R.A. Bill by his Modified claim of
Rs.64,93,949/- and ld. arbitrator surprisingly awarded Rs
28,08,030/- head of work done by claimant + 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 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 the15
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 any interference with the impugned
award dated 06-12-2015 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 Sole16
Arbitrator which was contrary to Clause 51 & 52 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 2011, 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 claims
barred by limitation and objections was also filed by the Respondent-
State in its written statement before the learned Arbitrator, allowed the
claims which were hopelessly barred by limitation. Reliance has been
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
17
filed by the Claimant in 2011 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 30.06.1991. 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.
(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.
18
(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 33 of the conditions
of contract.
(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.
62,83,715.00 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 33 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 of price adjustment in breach of clause 33 of the general
conditions of contract.
(xiii) Clause 33 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
19
considering the claims, the learned Arbitrator ignored the aforesaid
fact and allowed the claims which included price adjustment and
considered the bills submitted after much delay although the claimant
had breached the terms of the contract i.e. clause 33.
(xiv) While specifically referring to claim no. 6(E), which was relating to
“Claim for price adjustment not paid on the work done for labour
component in 14th, 15th and 16th O/A bill paid on 22.09.1989,
12.12.1989 and 23.12.1989” for a sum of Rs 96,623.43 and also
Claim No. 7 concerning “Claim for price adjustment for calculating
Price Adjustment towards Material and POL Component concerning
1st to 16th R/A bills” for a sum of Rs 2,53,928/-, it is submitted that
both the claims i.e. claim no. 6(E) and claim no. 7 were allowed by
the learned sole Arbitrator and upheld under section 34 of the Act of
1996 without considering the fact that both the claims were
completely barred by limitation. It has been submitted that these
claims constituted claims concerning bills paid in the year 1988 and
onwards and they were not included in the original statement of claim
submitted in the year 2002 before the state or even in the statement of
claim filed before the learned sole Arbitrator in the year 2006. These
claims were included in the modified claim filed in the year 2011. It is
the case of the State that the claim regarding price adjustment could
not have been permitted as the claimant never raised these bills in
terms of the clause 33 of the agreement between the parties. It is
submitted that these aspects of the matter have not been properly
considered by the learned Court while considering the petition under
section 34 of the Act of 1996.
Award of delay damages.
(xv) Further grievance of the State is in connection with claim no. 2
relating to ‘Delay Damages’. It is submitted that there was no
evidence in support of such claim and unproved claim of losses made
by the claimant without any support of any evidence or bills or actual
losses suffered by the claimant. The entire claim on account of ‘Delay
Damages’ is unsubstantiated claim primarily based on mere
calculation of assumed losses based on indirect application of
20
‘Hudson Formula’ without any basis for the same. Particular reference
has been made with regard to claim no. A1 concerning ‘Overhead
losses for underutilised and unutilised overheads’, Claim No. A3
concerning ‘Loss of profit not earned at appropriate time’ and Claim
No. A4 concerning ‘Loss of underutilised and unutilised tools, plant
and machineries’ and it is also submitted that the claims under these
heads are overlapping and such claims have been allowed by the
learned sole arbitrator which is contrary to 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 and also judgment in the case of “M/s
Unibros Vs. All India Radio” reported in (2023) SCC Online SC
1366. 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.
(xvi) 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 support21
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.
(xvii) 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).
(xviii) 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 75 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.
22
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. ENEXIO
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
1991 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 51 of the agreement on 16.10.2002 and clause 52
containing Arbitration clause on 08.04.2003 whereas the
dispute had arisen on 27.08.2000 when the state issued a fresh
tender without closing the contract.
VII. As such the period for limitation vis-à-vis arbitration would
arise only from the date of dispute that is 27.08.2000.
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 44 of the arbitral award, while dealing with the
issue of limitation it has also been stated that on 14.12.2008 the
counsel for the state had admitted that the claimants were well
23
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 01.05.2011 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.
IX. At paragraph 39 of the Award, the learned Arbitrator has taken
note of Clause 35 and Clause 52 of the Agreement for release of
claims.
X. It was the case of the claimant all along that the measurement
books were under the custody of the state and the same were
never provided during the execution of work to the claimant; it
was only before the learned Arbitrator that the copies of the
measurement books and other documents were filed and also
provided to the claimant and then for the first time the claimant
came to know that there were certain deductions made from the
running bills which were required to be reimbursed to the
Claimant as such the claimant had filed the amendment
application before the learned Arbitrator which was never
objected to by the state.
XI. 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.
24
XII. As such, both factually and legally the amendments were made
and none of the claims is hit by the laws of limitation.
XIII. Lastly to sum up the issue of limitation, it is stated that the last
measurement made and measurement book so entered is dated
16.04.2002 and having invoked the arbitration on 29.05.2003,
the same cannot be said to be hit by the laws of limitation.
XIV. The learned Arbitrator has negated the issue of limitation on
these very grounds.
Section 16 of the Act of 1996
XV. 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.
XVI. Clauses which govern invocation of arbitration and the ground
for challenge are clauses 51 and 52 of the general conditions of
contract which provide for arbitration.
XVII. 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.
XVIII. Clause 51 of the conditions of contract speaks that on
emergence of four types of grievances, the contractor shall ask
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 13.11.2002 which was
illegible/faint faxed copy as such the Claimant vide letter dated
05.12.2002 and 22.01.2003 requested the Executive Engineer to
provide the readable copy of the said letter which was provided
in the end of January, 2003 and the appeal was preferred on
25
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 52 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 29.
The Chief Engineer in terms of Clause 52 of the agreement did
not send a list of three prospective arbitrators within 30 days on
the receipt of notice invoking arbitration vide Claimant’s letter
dated 08.04.2003. Then the Claimants in terms of Clause 52
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 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.
XIX. Further, invoking clause 51 of the agreement prior to clause 52
has been negated by the Hon’ble Jharkhand High Court in
26
Arbitration Appeal no. 14 of 2007 holding that Clause 52 is
independent to clause 51 as such waiting for the decision was
not mandatory. The arbitration clause as provided under Clause
52 of the agreement does not provide for a pre-condition that a
decision of the engineer/superintending engineer is required
against which only an arbitration can be invoked. Clause 52
provides that any and all disputes can be referred for arbitration
as such there was no requirement for availing clause 51 prior to
invoking clause 52 of the agreement. Further, if clause 28 is
taken into consideration it will clarify that the Engineer’s
decision cannot be for the sums due as such there was no
occasion to wait for the decision of the Superintending
Engineer.
XX. In light of the aforesaid facts, the learned Arbitrator had decided
this issue vide an order dated 09.05.2005.
Claims
XXI. 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
overhead losses, idling of plant and machineries and other losses.
Damages
XXII. There are two issues to be dealt with under the sub-head which
are – (i) whether the claims are overlapping, and
(ii) whether there are any evidences which could have
been relied upon by the arbitrator while awarding under
this very head.
Claims allowed in the head of ‘damages’ in the present case are:
a. Overhead losses
b. Idling of plant and machine
c. Loss of profit not earned at the relevant time
d. Bank Guarantee charges
XXIII. Before referring to the issues in support of the claims so
allowed, it has been categorically stated that the
claimant/respondent is not pressing the claim of loss of profit
27
which has been allowed to the extent of Rs.2,50,000/- in
Commercial Appeal No. 4 of 2022.
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 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
delay is required to be understood in terms with para 10 of
the judgment in the case of Batliboi Environment Engineers
(Supra). In the aforesaid paragraph, it has been provided that
28
for the unfinished work on the basis of the remaining
quantum of work, loss of overhead and profit can be granted.
Whereas in the present case the claim of loss of profit has
been given up.
XXIV. 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 that the total effective utilization of
Claimants’ resources was for 16 months in place of 15 months
of the original agreement period [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
within the domain and decision of the arbitrator. The method of
computation is within the sole jurisdiction of the learned
29
Arbitrator as held in paragraph 15 of the judgment in Batliboi
Environment Engineers (Supra).
XXV. 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 vide C-10 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 in para 84(2) of the Award 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 doing business that is commonly
used in particular industry and have all along been considered to
30
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.
XXVI. 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 Valley
projects provides “needless to say that due to diversity of31
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.
XXVII. 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
Environment Engineers (Supra). Only for such portion of
32
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 (Invoices of Plant & Machineries)
and C-10 (Justification for deployment of Plant & Machineries
alongwith analysis of rate) and the same has not been
controverted before the learned Arbitrator and in the present
appeal. The learned Arbitrator has taken note at paragraph 99 of
the award that the State admitted in para 13 of their written
statement that they were not liable for extra expenditure on
Plant & machineries after expiry of the Extended time of
Completion (30.06.1991). As such the Ld. Arbitrator has
mentioned that the State had admitted that “some tools, plants
machineries were deployed at site of work by the claimant but
the claimant is not at all entitled for the above amount after
expiry of the extended time of completion (30.06.1991).
Minus bill.
XXVIII. 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, in which there are certain
essential points which are required to be taken note of. The
learned Arbitrator in minutes of meeting of 43rd, 44th, 59th, 60th,
66th and 67th Sitting has taken a note that the State has admitted
that the measurement recorded upto 16th 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
33
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 and
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
34
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
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.
28(3) In all cases, the arbitral tribunal 28(3) While deciding and making an
shall decide in accordance with the award, the arbitral tribunal shall, in all
terms of the contract and shall take cases, take into account the terms of
into account the usages of the trade the contract and trade usages
applicable to the transaction. applicable to the transaction.
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 1996 Act, 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 be35
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-
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.
36
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
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
37
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.
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.
38
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 the
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
39
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
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
40
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 challenge
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 of41
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
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
42
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
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
43
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 52 of the agreement
vide letter dated 08.04.2003 and even the Chief Engineer did
not abide by the provision of Clause 52. Upon expiry of period
of 30 days for sending a panel of prospective arbitrators, the
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 52 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 52 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
44
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
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 advanced by the Special G.P. appearing on
behalf of the Respondents and hence the Petition dated
10/4/2005 filed by the Respondent U/S16(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
45
claimant and the stage relating to clause 51 and 52 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 51 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 vide paragraph Nos.
45, 46 and 47 of the impugned award and recorded its finding in
paragraph Nos. 46 and 47 as under: –
“46. Replying the argument made by the counsel for
respondents, the learned counsel for claimants submitted that
the issues in dispute (issue no 2 & 3) have attained their
finality as this Arbitral Tribunal has given its verdict in 10th
sitting on 19/5/2005 which has never been challenged by the
state of Jharkhand and prior to that misc. case no. 3 of 2004
and civil Revision no 139 of 2004 have been dismissed by the
learned sub judge-1 of Jamshedpur as well as the Hon’ble
High court of Jharkhand respectively. After the Arbitral
Tribunal was constituted on 29/5/2003, the Superintending
Engineer directed the claimants through his letter no. 1101
dated 16.06.2003 to file evidence in support of his appeal
which was filed on 4/2/2003 He submitted that the issues
raised by the learned counsel of Respondents has no force of
law as the Superintending Engineer did not act on appeal for
more than four months.
Considering the arguments made on behalf of both 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 has been given by the Sole
Arbitrator on 9/5/05 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. High court in LPA
no 313 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 claimants resulting in appointment of Er suresh
Mishra as Arbitrator. The Arbitral Tribunal has been
constituted on 29/5/2003 and thereafter, correspondence have
been made by authorities concerned. It has also been finally
conceded by the Special Govt. Pleader appearing on behalf of
Respondents that appeal was preferred by the claimants
before the Superintending Engineer on 4/2/03 and the
Superintending Engineer directed the claimants for the first46
time on 18/6/2003 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 of evidence
submitted with the appeal within 134 days. The
Superintending Engineer should have at least afforded an
opportunity to claimants to be heard at the earliest and to
produce additional evidence 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. Clause
51 of condition of contract specifies that 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. But he kept mum
over the appeal for more than four months and asked for
evidence only on 18/6/2003 after being aware of the fact that
the sole Arbitrator has been appointed by the claimants and
Arbitral Tribunal has been constituted on 29/5/03.
Rightly when the claimant was not afforded even an
opportunity to be heard by SE, he proceeded with the terms of
Arbitration Agreement contained in clause- 52 of general
condition of contract resulting in the constitution of Arbitral
Tribunal after the Chief Engineer also did not act upon the
issue of appointment of sole arbitrator as per clause -52 of
General Condition of Contract.
The claimants have established beyond doubt that the Arbitral
Tribunal has been constituted legally and lawfully following
the terms of Agreements between the parties.
47. I do not find any force in the arguments of Respondent’s
counsel regarding the Arbitrability and maintainability of
claims, hence, the submission urged on behalf of Respondents
on the issue of arbitrability and maintainability of claims
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 51 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
47
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 52 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
appointment of sole arbitrator as per clause 52 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 clause 51 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 clause 51 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
48
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 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 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 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 51 as well as 52 of the
49
General Conditions of Contract 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 on issue nos. 2 and 3 deciding the point regarding
arbitrability and maintainability of the claims are well reasoned
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 Nos. 39 to 44 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 35 of the General Conditions of Contract and
quoted the same and observed that it relates to release of claims.
Clause 35 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 Government arising out of the contract,
other than claims specifically Identified, evaluated and
excepted from the operation of the release by the contractor.”
III. The learned Arbitrator also referred to clause 52 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 defect liability period. Thus, the learned Arbitrator referred
50
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 in paragraph 40 of the award
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
30.06.1991. Thereafter, the extension of time was recommended
up to 30.06.1992, but the final order was not communicated to
the claimant and it was perhaps due to stoppage of world bank
credit. It was further observed in paragraph 41 of the award 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 contractor 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 30.06.1991. The
learned Arbitrator referred to the letter dated 03.04.1992 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/-
51
(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
27.08.2000 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
W.P. (C) No. 5465/2001 which was also subject matter of
consideration in L.P.A. No. 313/2002 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 in paragraph 44 of the award 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 44 of the award is quoted as under: –
“44. 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 finalized nor foreclosed as per terms of
Agreement. The counsel for the Respondents Shri C.S.P Sinha
Special Govt. Pleader during his argument on the issues on
14/12/08 admitted that the claimants were well within their
right to refer the disputes to Arbitration on 16.10.2002.
52
Therefore, the statement of the Respondents as mentioned in
the written statement and issue suggested that the claims of
claimant are barred by limitation has only got to be rejected
as the claims are not barred by limitation as the right to apply
accrued after the balance work was put to tender without
finalizing the subsisting contract as the Respondents have
failed to substantiate their argument by showing any definite
date as to when cause of action for Arbitration arose. In fact,
even the measurements for the work done by the claimants
were not finalized by the Respondents and therefore, there
could not have been any frozen dispute between the parties. 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 vide their submissions dated 30.04.2011.
The learned Arbitrator has specifically recorded in paragraph 59
(relevant at page 43 of the award) that the claimant had modified
their claims vide their submission dated 30.04.2011 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 respondents during argument, the records have
revealed that the items of works were paid at reduced rate due to
indecision at proper level. The aforesaid finding of the learned
Arbitrator is quoted as under: –
“59…
53
I shall state them at the end of the Award in one
schedule. At this stage, I only wish to state that as the hearing
proceeded, the claimants modified their claims vide their
submission dated 30.04.2011 depending upon the materials
brought on record by the Respondents. The number of claims
have increased on submission of copy of MB’s containing
Running A/C bills showing kept back amounts and items paid
at reduced rates. The claims have increased only in such cases
where on submission of documents by Respondent during
argument, the records have revealed that the items of works
were paid at reduced rate due to indecision at proper level.
The claimant has submitted Modified claim in C15 from p/1 to
p/43 based on records submitted by the Respondent.”
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 through
submission dated 30.04.2011 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 submission dated
30.04.2011 while dealing with issue No. 1. However, the learned
Arbitrator while considering the claim has come to the aforesaid
finding that the revision of claim was occasioned due to
submission of copy of measurement book containing running
account bills showing kept back amounts and items paid at
reduced rates; the modified claim was raised as per clauses of the
contract and they could be raised at that stage and even the state
could not say as to when the cause of action arose to raise the
claim.
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.
54
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.
14 (D) 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. 3B, 4C, 5D, 6E and 7 and (II) for delay
damages, extension of bank guarantee, cost of arbitration.
Original claim Modified Claim
3B - No claim. 3B-
Amount held up for disposal of
16,020.0 m3 of excavated material as
per MB No. 90 p/31 as per 7th R/A bill
paid on 25.03.1988 admissible Price
Adjustment.
4C- Work done after 16th RA 4C- Work done after 16th RA Bill.
Bill. Excavation of ordinary rock of
Excavation of ordinary rock of 27,235.356 m3 @ Rs. 40/m3.
27,235.356 m3 @ Rs. 38/m3. - Rs. 10,89,414.24
- Rs. 10,34,943.53 Extra cost for disposal of aforesaid
Extra cost for disposal of aforesaid ordinary rock beyond 2 km @
ordinary rock from 1 km to 2 km Rs.23/m3 – Rs. 6,26,413.18
@ Rs.28.15/m3 – Rs. 7,66,675.27 Arrear of excavation of ordinary rock
Total Rs. 18,01,618.80 of 99781.56 m3 x 40/m3 = Rs.
1,99,563.12
Price adjustment on this for labour :
0.75 x (90/100) x 1915390.55 x
55
{(762.84 – 643.66)/643.66 =
Rs.239391.00
Total Rs. 21,54,781.63
5D- No Claim. 5D- Deduction prior to extension of
time which became payable after grant
of extension of time with respect to
14th, 15th and 16th RA Bill dated
22.09.1989, 16.12.1989 and
26.12.1989 –
Rs. 77,310.00
6E- No Claim. 6E -Price Adjustment on 14th, 15th and
16th RA Bill on total of Rs. 7,73,093.
Claim amount Rs. 96,623.41
[0.75 x (90/100) x 773093 x {(762.84
– 643.66)/643.66 =
Rs. 96,623.41]
7- No Claim. 7- Claim for Price Adjustment on
account of material component (2% of
total work) and POL component (8%
of total work) which have not been
paid from 1st to 16th R/A bills as per
Modified claim at P/7
Each on Rs. 1,82,85,301/-
On Material & POL:
The figures are not available for
increase/decrease in cost of materials
content & similarly for POL. So, the
Claimants are taking the same % of
increase in that of labour.
Price Adjustment on Materials
[0.75 x (2/100) x 18285301 x {(762.84
– 643.66)/643.66 = Rs. 50785.56
Price Adjustment on POL
[0.75 x (8/100) x 18285301 x {(762.84
– 643.66)/643.66 = Rs. 203142.23
Total Rs. 253927.79
A-1] A-1]
OVERHEAD LOSSES OVERHEAD LOSSES
The total contract value was Rs. The Overhead cost constitute the
1,46,34,879.20 and the job was to following elements of expenditure :-
be done in 15.00 months. The (a) Establishment charges including
work load contracted was worth those for the Head Office and the field:
Rs 9,75,658.61 per month. The (i) Salaries (technical and non-
amount of work done is technical) including leave & other
56
Rs.1,53,92,507.00. Therefore, the charges
effective Time of Contract is 16.00 (ii) Stationary, printing, postage &
months only. The total stay on job telephone charges
has been 162 months and therefore (iii) Staff cars and travelling
the idle stay on job is 29 months allowances
and idle period in suspension is (iv) Entertainment and publicity
133. The overheads provided in (v) Housing, medical & other welfare
this highly skilled industry is facilities
about 10% of the job amount, i.e. (vi) Legal expenses
@ Rs. 97,565.86 per month and (vii) Contingencies
3% of the job during idle period in (b) Consultant’s Fees
suspension i.e. @ Rs.29,269.75 (c) Audit Charges
thus we have lost overheads (d) Other hidden expenses
amounting to Rs.67,22,287.74 and
this amount may please be paid to The total contract value was
us. Rs.1,46,34,879.20 and the job was to
be done in 15 months The work load
contracted was worth Rs.9,75,658.61
per month. The amount of work done
is Rs.1,82,85,301.00. Therefore, the
effective Time of Contract is 19
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, presence of Jaida
in portion of the canal, possession of
forest land, long strike of gazetted and
non gazetted staff, non-payment of
monthly 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 179 months and
therefore the
underutilised/underemployed stay on
job is 25 months and idle period in
suspension is 135 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.97,565.86 per month and
3% of the job, i.e. @ Rs. 29,269.75 per
month on idle period in suspension.
Thus Claimants have lost overheads
amounting to Rs.63,90,563.00
[(97,565.86 x 25 + 29269.75 x
135)=24,39,146.50+39,51,416.43=
57
63,90,563.00] and this amount may
please be paid to the Claimants with
due interest.
A-3] A-3]
LOSS DUE TO PROFIT NOT LOSS DUE TO PROFIT NOT
EARNED AT APPROPRIATE EARNED AT APPROPRIATE TIME:
TIME: claim given up by the claimant A-4] A-4] LOSS DUE TO UNDER- LOSS DUE TO UNDER-UTILISED UTILISED TOOLS, PLANTS TOOLS, PLANTS AND AND MACHINERIES: MACHINERIES:
We had at the site deployed tools, The Claimants have submitted the list
plants, machineries whose of tools, plants and machineries and
collective rental value or Hire- the same has been categorized as C-7,
charges amount to Rs 12,37,600 perusal of which indicates that the
per month. As computed, total idle Claimants own large no. of dumper,
period is 162 months. We have Hydraulic Excavator, Drill Machine,
therefore lost Rs. 20,04,91,200.00 Air compressor, Dozer, Tractor, car,
worth Rental / Hire charges. Jeep, truck etc. worth Rs.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 and upto
May 1989, 2,38,000 m3 of excavation
work was performed. The losses
occurred due to Respondent’s fault are
categorized as follow-
(i) The underutilised period from
24/4/89 for 25 months i.e. upto
23/5/1991
(ii) The remaining idle period of 135
months i.e. upto 31/8/2002 (upto
31/08/2002, the effective idle period
including underutilised is 160 months
from 24/04/1989)
Annual rent per year is
Rs.45,26,160.00
58
15. Claim on account of work done and price adjustment under claim
nos. 3B, 4C, 5D, 6E and 7.
The clauses of the General Conditions of Contract relevant for the claim of
work done are clause 33 dealing with ‘payments and certificates’ and clause 58
dealing with ‘price adjustment’. The said clause 58 provides for price
adjustment for labour, material and POL. Though the formula is the same
but the variables are different for each one of them. This will be apparent
from the following chart:
Labour Material POL
VL = Increase or decrease VM = Increase or decrease VP = Increase or decrease
in the cost of work during in the cost of work during in the cost of work during
the quarter under the quarter under the quarter under
consideration due to consideration due to consideration due to
changes in rates for labour. change in the rates for change in rates of POL.
materials other than POL.
R= The value of the work R= The net value of work R= The net value of the
done in rupees during the done in rupees during the work done in rupees
quarter under quarter under during the quarter under
consideration. consideration. consideration.
io = The average consumer io = The average wholesale io = The average official
price index for industrial price index (all price of high speed diesel
values applicable to commodities except POL) at the consumer pump
Jamshedpur (wholesale for quarter in which nearest to work site.
price) for the quarter in tenders were opened as
which tender were opened published in Reserve Bank
as published in GOI of India Bulletins.
Ministry of Labour
Bureau, Simla and
available in Reserve Bank
of India Bulletins for the
quarter under
consideration.
i = The average consumer i = The average wholesale i = The average official
price index for Industrial price index (all price of high speed diesel
works (wholesale prices) commodities except POL) for the quarter under
for the quarter under for the quarter under consideration.
consideration. consideration.
PL= Percentage of labour PM= Percentage of PP= Percentage of POL
components to be taken materials components component which shall be
90% of the value of work which shall be considered considered 8% (percent)
done during the quarter. as 2% of the value of work of the value of the work
done during the quarter. done during the quarter.
59
16. The records reveal that in the Original Claim dated 05.03.2006 filed
before the learned Arbitrator an amount of Rs.18,01,619.00 was claimed on
account of excavation of ordinary rock without blasting and its disposal to the
extent of 27,235.356 m3 which was done after 16 th on account bill.
Subsequently, the claim was modified and the rate was changed to Rs.40/m3
instead of Rs.38/m3 and further the arrear amount for excavation of ordinary
rock to the extent of 99,781.56 m3 was claimed which was made on the basis
of measurement book filed by the State. The claimant had also claimed price
adjustment in the modified claim. Under the contract, there is a provision for
price adjustment under Clause 58 of the General Conditional of Contract. The
modified claim was filed on 01.05.2011.
17. It is the case of the State that the claim regarding price adjustment could
not have been permitted as the claimant never raised the bill in terms of the
clause 33 of the General Conditions of Contract between the parties. Clause 33
of the Contract deals with ‘Payment and Certificates’ and it provides that
payment will be made at monthly intervals and 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.
18. This Court finds that the entire claim on account of price adjustment was
raised for the first time in the modified claim filed on 01.05.2011 and no bill
was ever raised or even if raised no claim was made on account of price
adjustment at the time of invocation of arbitration or even at the time of filing
claim before the learned Arbitrator in the year 2006. The learned Arbitrator
exercised his power under section 23(3) of the Act of 1996, though opposed by
the State, and allowed the modified claim to be taken up for consideration.
However, upon perusal of the award it appears that for price adjustment of
labour component, no serious objection was raised and rather it was agreed by
the State to some extent and the Clause 33 does not prescribe that the claim on
price adjustment has to be necessarily raised along with the bill. Under such
circumstances, the award on account of price adjustment so far as the labour
component is concerned cannot be said to be patently illegal or perverse
calling for any interference under section 34 or 37 of the Act of 1996.
60
So far claim of price adjustment regarding material and POL is concerned,
the claimant did not produce the figures for its calculation and the same calls
for interference as discussed below under claim no.7.
19. The different claims under work done and price adjustment which have
been allowed are as under:-
i. CLAIM NO. 3B- Amount held up for disposal of 16,020.0 m3 of
excavated material as per measurement book in terms of 7th R/A bill
paid on 25.03.1988 with Price Adjustment.
The claim has been introduced in the modified claim and is based on
measurement book. The amount as claimed is based on amount withheld
on 25.03.1988 for the extra work of disposal of excavated material
beyond 1 K.M. amounting to Rs. 2,40,300/- and price adjustment of Rs.
30,033/-, total being Rs. 2,70,333.00. The learned Arbitrator allowed the
claim and also price adjustment by referring to the price adjustment on
labour component as per clause 58 of the General Conditions of
Contract. Paragraph 64 of the award wherein calculation with regard to
the aforesaid claim has been made, is quoted as under:
“64. On the basis of the record submitted by respondent, the
claimant has claimed the difference of rate of disposal of excavated
material within 1 km and beyond 1.0 km.
On perusal of photocopy of MB No. 91, page 36, it is apparent that
the excavated material of 16,020.0 m3 has been disposed off in areas
which is beyond 1.0 km as per certificate of Junior Engineer and
signed by other officials. This 7th O/A bill has been passed on
25.03.1988 as recorded on P/40 of Mb No. 91. The claimant has
demanded the difference of rate and price adjustment on difference of
amount as per Clause-58 of General Condition of contract. The
Agreemented rate for disposal upto 1.0 km is Rs.8/- per m3 and the
rate for disposal beyond 1.0 km up to 2 km has been sanctioned as
Rs.23/- per m3 by SE vide his order No. 1185, dated 7/12/89 as
mentioned on MB No. 91 P/43. Thus, the difference of rate is (Rs.23-
8) Rs15/ per m3.
Difference of amount for 16,020.0 m3 = Rs.2,40,300.00
Admissible PA as clause 58 of General Condition of Contract
= 0.75 x (90/100) x 2,40,300 x 762.84 – 643.66
643.66 = Rs.30,033.00
Total = 2,40,300 + 30,033 = 2,70,333.00
Therefore, I award a sum of Rs.2,70,333 against Claim No. 3B.
The interest on award will be payable from the date it fell due on
25.03.1988 to the date of award @13% per annum.”
61
So far as award of amount under this head including award of price
adjustment is concerned, the learned Arbitrator has passed a well –
reasoned award and applied the formula of price adjustment as
applicable for labour component 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.
However, at the same time the learned Arbitrator, while considering the
claim under this head, has also awarded interest @13% from 25.03.1988
till the date of the award which is in conflict with the award of interest
on the same component at the same rate but for a different period, that is,
from 01.10.1991 (three months after the last date of extension of time
for completion of work i.e. 30.06.1991) till the date of the award and this
contradiction in the award is apparent on the face of the award and
cannot be reconciled in any manner. Such conflict on the face of the
award certainly calls for interference under limited jurisdiction even
under section 34 and now under section 37 of the Act of 1996 but is
certainly not a ground to set aside the entire award. The award of interest
under this head (claim no. 3B) being clearly severable, is accordingly
set-aside.
Thus, award of claim under claim no. 3B is interfered only on the
point of interest awarded till the date of the award and is accordingly
decided in favour of the state and against the claimant only to this
extent.
ii. Claim no. 4C – Excavation of ordinary rock with/without blasting of
27,235.356 m3 and its disposal beyond 2.0 km after 16th R/A bill and
balance payment of ordinary rock with blasting of 99,781.56 m3
paid at Reduced Rate as per MB No. 119 P/41 in 16 th R/A bill
including admissible Price Adjustment thereon.
The learned Arbitrator allowed the aforesaid entire modified claim No.
4C vide paragraph-65 onwards which was to the tune of
Rs.21,54,781.63. The learned Arbitrator, while allowing the claim under
claim no. 4C, recorded that as per the 16th R/A Bill which was paid to
the claimant, for a total quantity of 99,781.56 m3 of removal of ordinary
rock, with or without blasting, payment was made at the rate of
62
Rs.38/m3 instead of agreement rate of Rs.40/m3 and consequently, the
claimant added Rs.2/m3 for 99,781.56 m3 of excavation which comes to
Rs.1,99,563.12. Further, the total amount of claim for unpaid quantity of
27,235.356 m3 of excavation and its disposal up to 2 km @ Rs.40/m3
was allowed. The amount was quantified as Rs.19,15,390.54. Price
adjustment on labour component in terms of Clause 58 of General
Conditions of Contract was also allowed to the extent of Rs.2,39,391.09
and the total amount claimed under Claim No. 4(C) was computed to
Rs.21,54,781.63 as claimed by the claimant. The finding in paragraph 72
of the award is as follows:-
“72. Based on records, I am of considered view that the 17th and so
called final bill prepared by the respondents cannot be accepted. Also,
the bill submitted vide letter no. 264 dtd. 31/05/2002 from P/67-72 of
Annexure C-6 by the Claimant based on section measurement
amounting to Rs.21,54,781.64 as per details given herewith is allowed.
For excavation in ordinary rock with/without Rs.10,89,414.24
blasting 27,235.356 m3 x Rs. 40.00/m3
Disposal beyond 2 km.
27,235.356 m3 x Rs.23.00 /m3 Rs. 6,26,413.19
Rs.17,15,827.43
Previous quantity of 99,781.56 m3 x Rs.2/- per Rs. 1,99,563.12
m3
{earlier paid at reduced rate Rs.(40 - 38)=2}
Rs.19,15,390.55
Price Adjustment for Labour component (+) Rs.2,39,391.09
Rs.21,54,781.64
I award Rs.21,54,781.64 in favour of the Claimant to be paid by the
Respondents under this claim.”
Although the computation of price adjustment has not been given in the
award, but the computation of the modified claim under this head reveals
that the same has been computed on the labour component in the same
manner and taking the same variables as that of computation for claim
no. 3B taking into account the value of work done.
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
63
under the limited scope for interference under section 34 and now
under section 37 of the Act of 1996.
iii. Claim no. 5D was on account of the amount which was deducted prior
to grant of extension of time and was not paid even after sanction of
extension of time. This related to the amount deducted from 14th, 15th
and 16th O/A Bills amounting to Rs.77,310/-. The learned Arbitrator
recorded that the extension of time was sanctioned by the Chief Engineer
first up to 30.06.1989, next upto 30.06.1990 and finally up to 30.06.1991
and therefore, the claimant was entitled for payment of Rs.77,310.00
deducted for want of extension of time (EOT) on 23.09.1989,
16.12.1989 and 28.12.1989 for which the extension of time was granted
on 29.05.1991 up to 30.06.1991.
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.
iv. Claim no. 6E and 7 were totally for price adjustment and were
introduced for the first time in the modified claim.
v. Claim no. 6 E – Claim for amount of admissible Price Adjustment on
the value of work done for Rs.7,73,093/- in 14th, 15th and 16th R/A
bills.
The learned Arbitrator recorded the payment of 14th, 15th and 16th bills
on 23.09.1989, 16.12.1989 and 28.12.1989 respectively and the total
amount paid was recorded as Rs.7,73,093/- and it was further recorded
that the price adjustment was not paid. The learned Arbitrator also
observed that the price adjustment was being allowed on the basis of
data given by the claimant and agreed by the State amounting to total of
Rs. 96,623.43 which was further recorded to be on the labour
component.
This Court finds that the computation of price adjustment on account of
labour component was in the same manner and taking the same variables
as that of computation for claim no. 3B and 4C taking into account the
value of work done.
64
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.
vi. Claim No. 7 related to Price Adjustment on account of materials
component (2% of total work) and POL component (8% of total
work) which was not paid right from 1st to 16th R/A Bills. Claimed
amount was Rs. 2,53,928/- as per the modified claim.
The learned Arbitrator while considering Claim No. 7 recorded that in
absence of price index figures for calculating price adjustment, same
price index adopted in case of Labour was claimed by the claimant
which was accepted. The learned Arbitrator awarded Price Adjustment
and partly allowed the claim to the extent of Rs. 2,08,983.00. This Court
finds that while granting price adjustment on account of materials
component (2% of total work) and POL component (8% of total work)
under claim no.7 using the parameters of labour component, the learned
arbitrator has ex-facie travelled beyond the contract in as much as the
components which go into the formula for calculation of price
adjustment on labour component are totally different from that for
material component and POL component as prescribed under clause 58
of the General Conditions of Contract. The fact remains that the claim
for price adjustment on account of material component and POL
component was never raised at the time of raising and payment of on
account bills right from 1st to 16th on account bill and when the claimant
raised the claim on these counts, it did not produce the required
data/figures for computing the claim and submitted that in absence of
required figure/data of price index figure for calculating price adjustment
of material and POL, same price index, as was adopted for calculation
of price adjustment for Labour component, be adopted. This court finds
that this was accepted by the learned Arbitrator on mere asking of the
claimant as mentioned above without realizing that such a course would
be beyond the contract. Accepting such submissions and proceeding to
assess the price adjustment for material and POL on the basis of a
component which is alien to the formula prescribed for calculation of
65
price adjustment for material and POL was beyond the terms of the
contract, perverse, patently illegal and shocking on the face of the award
and called for interference while deciding the case under section 34 of
the Act of 1996. In fact, the learned commercial court has upheld the
entire award by observing that there is no scope for re-appreciating the
evidences without considering that the learned Arbitrator has travelled
beyond the terms of the contract while making the award under claim
no.7.
In view of the aforesaid findings, the award of price adjustment for
material and POL under claim no. 7 calls for interference under
section 37 of the Act of 1996. Accordingly, the award under claim no. 7
is set aside being clearly severable from the rest of the award.
Delay damages
20. Under the heading of ‘Delay Damages’, the learned Arbitrator allowed the
claim under claim nos. A1, A3 and A4. Under each head, the claim was partly
allowed as projected in the aforesaid chart. The learned Arbitrator analysed the
various claims of delay damages under paragraph-84 of the award in different
sub-paragraphs.
i. Claim no. A1 was relating to overhead losses for underutilised and
unutilised overhead.
ii. Claim no. A3 was on account of “loss due to profit not earned at
appropriate time”. This claim has been given up by the learned
counsel for the claimant during the course of argument.
iii. Claim no. A4 was relating to loss due to underutilised and
unutilised tools, plant and machineries.
21. Claim under A3 having been given up, what remains for
consideration are claim nos. A-1 and A-4.
22. 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 nos. A-1 and
A-4.
66
23. Claim no. A1 was relating to idle and under-utilised over heads for
which the claim was for an amount of Rs.63,90,563.00. 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.9,75,658.00 per month.
The claimant computed the period and claimed that the job remained idle for
135 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.
24. Some of the salient points with regard to the work have been recorded in
paragraph 85 of the award as under: –
1 Date of Agreement 24/9/1987
2 Stipulated date of completion 23/12/1988
3 Total work done excluding price 1,82,85,301.00
Adjustment
4 Original cost of work as per Agreement 1,46,34,879.20
5 Period of completion 15 months up to
23/12/88
6 Cost of work done excluding PA upto Rs. 1,21,03,208/-
stipulated date of completion (1,28,17,795-7,14,577)
7 Cost of work done up to the date of Rs. 1,82,85,301/-
suspension up to 30/6/91
8 Work load as per contract Rs. 9,75,758/- per
month (1,46,34,879/15)
9 Total period of work done 45 months (24/9/87 to
30/6/91)
10 Total period on job
i) Total period 176 months (24/9/87-
23/5/2002)
ii) Period of suspension 131 months (July’91 to
May’02)
11 Effective Period on job 19 months- changed
later on to 16 months
based on actual work
done. Amount of total
67
work done reduced
means effective period
reduced.
12 Underutilised period 26 months (45-19)
13 i. Idle period on suspension 131 months (7/91 to
5/2002
ii. Total period on job including
active period + underutilised + 176 months (24/9/87 to
idle 23/5/2002)
14 Total Amt of work done till date of Rs. 1,82,85,301/-
suspension without price adjustment
15 Amt of work done beyond 23/12/88 till Rs. 61,82,093/-
date of suspension without Price
Adjustment
16 Period of work done 45 months
17 Expected work would have been done by
30/4/89 of (1,82,85,301- 1,46,34,879 =
36,50,422/-
18 Amt of work done beyond contracted Rs. 61,82,093/-
period
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.”
25. The learned Arbitrator recorded the underutilised and unutilised period of
work in paragraph 92 and finally in 94 of the Award as under: –
92. The work was executed for 45 months from 24.09.87 to 30.06.1991
(the last date of extension of time). The effective utilisation of Claimants’
resources was only for 16 months keeping 29 months of underutilisation
of resources. So, out of (176-16) 160 months, there were site activities for
29 months and 86 months were unutilised period of Claimants’ resources
at site attributable to Respondents and the remaining 45 months were due
to concurrent delay when both the parties were in dormant state.
94………………. In final analysis based on records, scrutiny of bills,
correspondences and after hearing the parties, following is the breakup of
176 months of stay at site:-
1 Effective utilisation of Claimant’s 16 months
resources
2 Delay attributable to Respondents with 29 months
full idle resources of claimants68
3 Delay attributable to Respondents with 86 months
skeletal or fractional of resources other
than the idle Equipment and
Machineries.
4 Concurrent delay when both the parties 45 months
were in dormant state (No compensable
delay to either party)Although the claimant claimed under-utilised period as 25 months but the
learned Arbitrator has considered the under-utilised period as 29 months
without any explanation. This has resulted in grant of more relief than
claimed for under-utilised period, both under claim nos. A-1 and A-4.
Modified claim Awarded
overhead loss was @10% for 25 overhead loss was @8% for 29
months when partial work was going months when partial work was going
on and @ 3% for 135 months the on and @ 2% for 86 months the
period when no work was going on at period when no work was going on at
the site which comes to Rs.63,90,563/- the site which comes to Rs.
(Rs. 97,565.86 x 25 + Rs. 29,269.75 x 39,39,000/- (Rs. 78,000/- x 29 + Rs.
135). 19,500/- x 86).
26. 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)
27. 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 expenses;
Entertainment and publicity;
Housing, medical and other welfare facilities;
69
Legal expenses;
Contingencies;
Consultation fee, audit charges and other hidden expenses.
28. 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 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.”
29. 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
10% for under-utilised and 3% for unutilised period. The claimant also
advanced their arguments before the learned arbitrator on the basis of
Hudson’s and Eichley’s formula. The award was also made on percentage
basis , that is, 8% for under utilised period and 2% for unutilised period by
taking monthly value of allocation of work calculated by dividing agreement
value of contract by period of 15 months . 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% profits
and 10% overheads as estimates. Even the loss of profit was calculated and
awarded on 10% basis without any evidence of actual losses but the claim on
account of loss of profit has been given up by the claimant during the course of
hearing of this case as discussed above. The findings of the learned arbitrator
with regards to the overhead losses are as under: –
70
“95. Looking at lean 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 document brought before the Forum and also as admitted to be
the practice in Government method of preparation of estimate. Accordingly,
considering the anticipated work load of Rs.9.75 lacs per month (contract
value Rs.146.34 lacs with time of completion of 15 months), the overhead as
it would be Rs.0.78 lacs per month @8%.
96. As explained above, for underutilised period of 29 months against the
claimed idle period of 157 months, I award a sum of Rs.22,62,000/-
@Rs.0.78 lac. per month. In addition, overhead loss @Rs.19,500/- per
month @2% only is admitted for period of 86 months when no site work was
executed but extended Head Office overhead and Skeletal site office
remained for which the awarded amount is 86 months x Rs.19,500/- i.e.
Rs.16,77,000/-. For remaining period of 45 months, no compensation is
awarded. Total compensation awarded under this claim comes to
Rs.22,62,000 + 16,77,000 = Rs.39,39,000/-, I award a sum of
Rs.39,39,000/- against sub claim No. A1.”
30. 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.
31. 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
71
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
such a course and is not even a possible view which could have been taken by
the learned Arbitrator.
32. It is further not in dispute that out of agreement value of Rs.
1,46,34,879.20, the claimant received an amount of Rs. 1,35,90,888/- upto 16th
R.A. Bill on 28.12.1989 having balance amount of work of Rs. 10,43,991/- and
the claim allowed on account of losses due to overhead expenses for
underutilised and unutilised period is to the extent of Rs. 39,39,000/- out of
modified claim of Rs. 63,90,563.00.
33. 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,72
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. 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 only73
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
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 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.
74
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
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.”
34. 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.
35. In the present case also 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 15 months and the learned
Arbitrator has also allowed the claim on percentage basis @8% per month for
period of under-utilisation taken as 29 months and @2% per month for
unutilised period taken as 86 months.
36. 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
75
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
quantum of work, whereas in the present case the claim of loss of profit has
been given up. This Court is of the considered view that giving up of the claim
on account of loss of profit at this stage has no bearing in the matter as loss on
account of overheads are totally different from loss of profit. This Court also
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 from 24.09.1989 to
30.06.1991 on percentage basis that too without any evidence of actual
Overhead expenses and without any evidence to the extent of utilisation/ non-
utilisation.
37. 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 15 months (24.09.1987 to 23.12.1988) and not the extended period of work,
that is, 45 months (24.09.1987 to 30.06.1991) and has awarded damages on
percentage basis as follows: –
29 months of under-utilised period 8% per month as mentioned above
from 24.09.1989 to
30.06.1991(extended date of
completion of contract work)
86 months of unutilised period i.e. @ 2% per month as mentioned
from 01.07.1991 to 31.08.1998 [the above.
date on which the claimant refused to
complete the work at the contractual
rate]
38. 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
76
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.
39. The findings of the learned Arbitrator are at paragraphs-99 to 101, which
read as follows: –
“99. SUB CLAIM NO. A4 (Loss due to underutilised Tools, Plants and
Machineries)
In respect of Sub Claim A4, the same computation of idle period as in
case of Claim A1 would be held valid and is held valid.
It will not be out of reference to mention here that the Arbitral
Proceeding of Agreement No. 3/SMC/88-89 is also being conducted by
the same Arbitrator although nothing has been submitted by the
Respondent in this regard, it was imperative on my part to take into
consideration of the losses claimed on account of underutilised Tools &
Plant in agreement No. 3/SMC/88-89 while deciding their claim of
Agreement No. 1/SMC/87-88.
The claimant have stated in their original Claim (C1) at P/18 that the
collective rental value of hire charges amount to Rs.12,37,600/- per
month and total claim amount under this sub claim (A4) has been
indicated as Rs.20,04,91,200/-.
But in modified claim (C16), this has been modified and the Annual
Rental Value has been mentioned Rs.45,26,160/- per year i.e.
Rs.3,77,180/- per month based on details furnished in Annexure-C10 at
P/17.
The Respondent in their written statement in para-13 have submitted that
the claimants are not entitled for a sum of Rs.20,04,91,200.- on account
of rental value of underutilised/unutilised Tools, Plants, Machineries at
site. They have admitted that some Tools, Plants, Machineries were
deployed at the site of work by the claimants but the Claimants are not at
all entitled for the above amount after expiry of the Extended time of
Completion (30.06.91).
100. The Respondents have not authenticated the entire list of Plants
and Machineries as listed by the claimants in Annex 7 and Annex 10.
Moreover, the same Plants Equipment and Machineries bearing the same
registration no. have been mentioned in the list of Machineries enclosed
in their another Agreement i.e. Agreement No. 3/SMC/88-89 in Annexure
C7. Arbitration for which is also being conducted by me. The period of
work in both the agreements is common from 17.1.89 to 30.6.91. In view
of above fact, it may be assumed that only 50% of the Plants, Equipment
and Machineries have been utilised under the work related to Agreement
No. 1/SMC/87-88 during this period and hence, the rental value of plants
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and machineries under this agreement will come down to Rs.1,88,590/-
per month. But, looking at the long period of idle stay at least 15% of
rental value will have to be reduced for major repairs and depreciation
etc. and hence, the rental value will be reduced by 15%. So, Rental value
of idle Plant and Machineries is being takes as Rs.1,60,301/- per month.
101. Further, from the perusal of work done by claimants at the end
of last date of extension of time (30.06.91), it is evident that
approximately 25% of total work as per Agreement was left out to be
done. Hence, it was imperative from the doctrine of mitigation of losses
to keep maximum one third of the P/E plant and Machineries if at all
they were kept at site to complete the balance work and hence, the rental
value of Plant and Machineries kept beyond 30.06.91 may be assumed
and taken 1/3rd of Rs.1,60,301/- per month i.e. Rs.53,434/- per month or
Rs.53,400 per month only.”
40. 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.
41. 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. 1,60,301/-
per month. The learned Arbitrator recorded that since till the last date of
extension of time (30.06.1991) 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
machines beyond the last date of extension of time (30.06.1991) and thus
assumed to be 1/3rd of Rs. 1,60,301/- per month i.e. Rs. 53,434/- per month.
42. 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
78
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.
43. This Court is of the view that the award on account of under-utilised and
un-utilised overheads, loss of profits and expenditure on account of under-
utilised and un-utilised plant and machinery is shockingly disproportionate as
the balance value of work to be performed was Rs. 10,43,991/- till the date of
payment made under 16th 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). If the amount of award
under the head regarding work performed is taken into consideration, the total
work performed till the last date of extended period is much more than the
agreement value of work as fully explained above. The award on account of
delay damages under head A-1, A-3 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-3 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.
44. This Court finds that although the learned Commercial Court has recorded
that after the receipt of 16th RA Bill the balance work left to be completed by
the claimant was to the extent of Rs. 10,43,991/- 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
79
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.
45. Accordingly, the award of losses/ damages under the claim nos. A-1, A-3
and A-4 being clearly severable from rest of the award are set-aside. It is
reiterated that the claimant has given up the claim in connection with loss of
profit (A-3) during the course of arguments.
Counter claim of the State.
46. 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 are entitled to recover a sum of Rs. 62,83,715/- with interest from the due
date from the claimant. The issue no. 5 has been dealt with by the learned
Arbitrator from paragraph 56 till 58 and also in paragraph 112 of the award.
47. It was the specific case of the State as recorded in paragraph 57 of the
award itself that a sum of Rs. 1,35,90,888.00 was paid to the claimant upto 16 th
RA bill but the cost of work done as per final bill, i.e. the 17 th Bill was
evaluated to be of Rs. 73,07,173.00 only and hence a sum of Rs. 62,83,715/-
was recoverable from the claimant. The learned Arbitrator recorded that the
State failed to substantiate the recovery and under what circumstances such a
huge amount was paid in excess of the work done. The learned arbitrator also
observed that the State failed to justify the correctness of measurements
recorded in the 17th bill, the so-called final bill.
48. On consideration of the entire materials, the learned Arbitrator recorded as
many as 6 reasons to reject the counter-claim based on so-called 17th final bill.
They are as under:
“(i) All on account bills have been recorded on the basis of section
measurement and no correspondence regarding excess payment
was made with the contractor or departmental Engineers upto 16th
R/A bill.
(ii) The so called final measurement of work (17th final bill) was
recorded in MB in May 2002 after stoppage of work for almost 12
years without associating the claimant in final measurement. The
claimants have not accepted the final measurement and have not
signed the final measurement.
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(iii) The basis of measurement for the work done by the claimant
has been completely changed while measuring the work in 17th and
so called final bill. Upto 16th R/A bill, work was being measured on
the basis of balance work done by claimant as per level of
excavation left out by previous contractor but in the so called 17th
and final bill, total work done by previous contractor and the
claimant (Himanchal Const. Co. Pvt. Ltd) has been measured
together and work done by previous contractor has been deducted
to arrive at quantity done by the claimant (Himanchal Const. Co.
Pvt. Ltd) but, no such method was adopted upto 16th R/A bill. As a
result of this, a total quantity of excavation (in all categories of
soil) of 2,47,835.517 M3 has been reduced to 1,81,238.147 M3.
(iv) A huge quantity of siltation during 12 monsoon period from
1991 to 2002 and also during the period between stoppage of work
by previous contractor and Himanchal Const. Co. Pvt. Ltd in 1987,
cannot be denied which has not been taken into consideration,
leading to the difference in quantities of excavation of 16th R/A bill
and so called 17th final bill.
(v) From the perusal of 16th & 17th bill, it is also clear that a total
quantity of 2,41,779.079 m3 of excavation was paid upto 16th R/A
bill for disposal of excavated material beyond 160M but all these
items have been deleted in 17th and final bill. From the perusal of
records mentioned in MB no.119p/43. It is clear that sanction for
extra lead has been accorded by Chief Engineer (SMP) vide his
order no. 1466 dated 27.05.1989 and Superintending Engineer’s
No. 1185 dated 07.12.1989 on the recommendation of field officers:
Vide MB No. 119p/43 as mentioned in payment of 16th R/A bill.
(vi) The Chief Engineer (SMP) under his order No. 1916 dated
06.10.1998 (based on Deptt’s letter No.04.09.1998) authorized a
team of Engineers comprising of three Executive Engineers, two
assistant Engineers and concerned Junior Engineers to take final
measurement. They were required to sign the measurement. But
from the perusal of final bill on MB No. 39 p/5, it is evident that
only two Junior Engineers and one Assistant Engineer have signed
the measurement. The bill indicating an amount of (-)
Rs.62,83,715.00 has neither been signed nor passed by the
Executive Engineer concerned.”
49. The learned Arbitrator has also held in paragraph 58 of the award that
after analyzing the method adopted for taking final measurement the State’s
version of final bill was not based on any standard practice of taking the final
measurement nor it seemed feasible to refute claimant’s bill considering the
method used which lacked reasonable accuracy. The learned Arbitrator also
recorded that no final bill seemed to have been prepared. The learned
Arbitrator recorded that the proposed recovery was without any evidence or
81
data and ultimately recorded that the excess payment claimed to the tune of Rs.
62,83,715/- was not substantiated and could not be proved as the very basis of
the measurement made by the State was not acceptable.
50. Further, in paragraph 112 of the award the learned Arbitrator recorded that
the State did not lodge any formal counter-claim but had simply mentioned in
paragraph 8 of the written statement that a sum of Rs. 62,83,715/- was paid in
excess upto 16th RA bill and was recoverable from the claimant. The learned
Arbitrator referred to the detailed reasons which have been assigned while
deciding issue no. 5 and recorded that while discussing the issue with both the
parties during arguments , the learned counsel for the State had also agreed that
there was no basis for reducing the quantitates and the amount mentioned in
16th R.A. bill in the alleged 17th final bill as the final bill was neither signed by
the Executive Engineer in charge of the division nor was signed by the
members of the authorized group especially named by the Chief Engineer vide
his letter no.1916 dated 06.10.1998.
51. It has also been recorded by the learned Arbitrator that during the course
of arguments the State was asked to produce witness in support of their
counter-claim but the State did not wish to produce any witness in support of
recovery of the amount mentioned in their statement of claim.
52. The learned Arbitrator further recorded that while analyzing the process of
preparation of actual bill by the State, it had come to light:
(a) The level (not sectional) in the alleged final bill has been
taken on the existing level of silt after 12 years of stoppage of work
left out in 1991 and no effort was made to ascertain the pre-level
and consequently, the quantum of silt and debris deposited during
1991 to 2002 monsoons have not been taken into consideration
while taking the alleged final measurement.
(b) The quantities of disposal of excavated materials paid
after sanction of lead chart by competent authorities were
completely deleted in the alleged final bill resulting in reduction in
amount, and
(c) The basis and method of measurement followed upto 16 th
RA bill was completely changed in the alleged final bill.
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53. It has also been recorded by the learned Arbitrator that earlier the
measurement of excavation work used to be taken with reference to the pre-
level existing at the time of allotment of work to the claimant, but in 17 th
alleged final bill it was linked to work done by the contractor who executed the
work prior to the claimant and the work done by the claimant was worked out
on the basis of total work done by both the contractors and deducting the work
done by the previous contractor from total work done, which was not the
practice in preparation of on account bills and therefore, the measurements
made in 17th final bill was held to be not acceptable.
54. The learned Arbitrator also held that the method adopted for taking final
measurement and denying the amount of payment made upto 16th R.A. bill was
against the set process of measurement and rejected the claim of
recovery/counter-claim.
55. 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.
56. 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 17 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.
57. The learned Arbitrator having considered the materials on record to reject
the counter-claim of the State seeking refund of Rs. 62,83,715/- based on so-
called measurement being 17th 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.
83
58. 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 price adjustment on material and POL under claim no.7;
award of interest till date of award with respect to claim no. 3B and award on
account of delay damages under claim nos. A-1, A-3 and A-4 are set-aside. The
rest of the award being clearly severable is sustained. The summary is as
follows: –
Claim Heads Decision of this Court
3B- Partly set-aside to the extent
Amount held up for disposal of 16,020.0 m3 it relates to interest on this
of excavated material as per MB No. 90 component till the date of
p/31 as per 7th R/A bill paid on 25.03.1988 the award being inconsistent
admissible Price Adjustment and interest. with the operative portion of
the award.
th
4C- Claim for work done after 16 RA Bill. No interference in the
award.
5D- Deduction prior to extension of time No interference in the
which became payable after grant of award.
extension of time with respect to 14th, 15th
and 16th RA Bill dated 22.09.1989,
16.12.1989 and 26.12.1989.
6E -Price Adjustment on 14th, 15th and 16th No interference in the
RA Bill on total of Rs. 7,73,093/-. award.
7 -Claim for Price Adjustment on account of Set-aside.
material component (2% of total work) and Ex-facie the formula applied
POL component (8% of total work) which is contrary to the terms of
have not been paid from 1st to 16th R/A bills the contract.
as per Modified claim at P/7
Each on Rs. 1,82,85,301/-
A-1 Set-aside
Overhead losses for underutilised and
unutilised overhead
A-3 Set-aside
Loss due to profit not earned at appropriate claim given up by the
time: claimant
A-4 Set-aside
Loss due to under-utilised and un-utilised
84
tools, plant and machineries.
Counter claim No interference in the award
refusing to allow counter
claim
59. This appeal is partly allowed to the aforesaid extent.
60. 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
85