JUDGMENT Badar Durrez Ahmed, J.
1. This suit pertains to the award dated 30.01.2000 made by the sole Arbitrator. This suit has been filed under Section 14 and 17 of the Arbitration Act, 1940 (hereinafter referred to as 'the said Act'). IA No.639/2002 has been filed by the respondent objecting, under sections 30, 33, 16, 15 and 17 of the said Act, to the said award dated 30.01.2000 passed by the sole Arbitrator in the arbitration proceedings between the petitioner and the respondent. By way of this application, the respondent has prayed for the setting aside of the said award dated 30.01.2000 under Sections 30 and 33 of the said Act inasmuch as it is contended that the Arbitrator has acted contrary to the documents on record and has gone beyond the Terms of Contract and letter of reference and has misconducted the arbitral proceedings.
2. The respondent [Bharat Heavy Electricals Limited (BHEL)] had invited tenders in respect of the design, engineering, manufacturing, testing, supply, erection, commissioning of fuel oil system and miscellaneous tanks for the thermal power station at Khaperkheda, Maharashtra. The petitioner was one of the tenderers. The bids were opened on 24.06.1986. The petitioner being the successful tenderer was issued the Letter of Intent on 23.03.1987 and the formal Purchase Order on 20.07.1987. The scope of work was set out in clause 1 of the said Purchase Order. Clause 2.0 pertains to price and it was clearly indicated that the firm price for the entire scope of work shall be Rs.2,69,62, 256/-. Clause 3.0 (Nature of Prices) of the Purchase Order also made it clear that prices shall be firm till the satisfactory execution of the order / contract, in full in all respects. Clauses 4.0 and 5.0 are relevant for deciding the present objections and, therefore, they are reproduced in their entirety:-
4.0 DELIVERY The completion of supply, erection and testing, commissioning of with all accessories shall be as under:-
i) DM storage tanks to be erected and commissioned by 28.2.1988.
ii) Fuel oil system and other misc. tank by 26.5.88.
5.0 LIQUIDATED DAMAGES 5.1 In case of delays liquidated damages shall be leviable separately on supply portion as well as on erection and commissioning as follows:-
5.1.1 For delay in supplies liquidated damages leviable shall be @ 1/2 % of supply value per week of delay subject to a max. of 10% of supply value.
5.1.2 For delay in erection and commissioning, liquidated damages leviable shall be @ 1/2 % per week of erection and commissioning portion subject to a maximum of 10 % of the contract value for supply as well as erection and commissioning.
Please note that total liquidated damages on account of delay as above shall be limited to a maximum of 10 % of the contract value for supply as well as erection and commissioning.
5.2 Construction Schedule Please furnish a milestone linked billing schedule. If contractor fails to achieve any milestone indicated in the bar chart, the Contractor shall be levied penalty @ 1/2 % per week's delay, subject to a maximum of 10% of the milestone value.
However, please note that if overall commissioning schedule is maintained, the amount of penalty deducted if any shall be reimbursed. Total liability towards liquidated damages and milestone penalty shall be limited to 10% of the order value.
3. The work was ultimately completed on 19.01.1993. Disputes arose between the parties which were referred to arbitration and the sole Arbitrator made the impugned award dated 30.01.2000. The petitioner preferred its claim under five heads Along with interest and the amounts as awarded by the Arbitrator are indicated in the following table:-
SI.No. DESCRIPTION OF CLAIM AMOUNT CLAIMED BY
PETITIONER AMOUNT AWARDED BY THE ARBITRAtor
1. Amount claimed on account of successful
completion, of the contrac 942638.70 5,34,073.00
2. Claimant on Account of extra works 64,25,044.35 7,71,821.00
3. Re-Rubber Lining of DM Tanks 6,21,333.00 3,10,666.00
4. Amount claimed on account of Loss occasioned
due to non-placement of the order of
the spare parts. 10,00,000.00 50,000.00
5. Business Loss 25,00,000.00 Nil
6. Interest claimed @ 18% --
12% simple interest over a sum of Rs.7,71,821.00 from 18.12.95 to 31.01.2000 plus 12% simple interest on Rs.15,67,463.00 from the date of award till the whole of the amount is received or till the award, is made rule of the Court whichever event occur.
4. On other hand, the respondent (BHEL) made the claims under three heads Along with interest and the amounts awarded by the Arbitrator are as indicated in the following table:-
BHEL'S CLAIM SI. No. Description of Claim Amount claimed
by BHEL AMOUNT AWARDED BY
THE ARBITRAtor
01. LD (Liquidated Damages) 26,96,225.60 Nil
02. Financing cost for payment released
to Sub-Vendors of the petitioner 3,50,000.00 50,000
03. Letter of Credit (LC) Extension charges 53,236.00 Nil
30,99,461.60 50,000.00 04
Interest Nil
5. I shall take up each of the claims separately hereunder:-
5.1 Petitioner's Claim No.1. As would be apparent from the aforesaid table, the petitioner had claimed Rs.9,42,638.70 from the respondent as being due upon successful completion of the contract. Upon examining the award, I find that this claim has been dealt with in detail by the Arbitrator. As many as 9 items under this claim have been examined in the context of the letter dated 14.04.1995 issued by the petitioner in respect of the correspondence exchanged between the petitioner and the respondent on this subject, i.e., the final bill amount. After examining all these items in detail, the learned Arbitrator has come to the conclusion that the respondent was entitled to deduct a total sum of Rs.3,87,735.00 from the petitioner on account of overheads against Rs.6,33,591.00 claimed by them (respondent) under letter dated 14.04.1995. The Arbitrator came to the conclusion that in addition to the above, the respondent could also recover a sum of Rs.20,830.00 from the petitioner towards other claims under the same letter dated 14.04.1995. Therefore, the Arbitrator came to the conclusion that the total sum recoverable by BHEL towards their dues, including over heads would be Rs.4,08,565.00 as against Rs.8,51,278.24 claimed by them in their letter of 14.04.1995. This being the case, the amount claimed by the petitioner would have to be adjusted by deducting this sum of Rs.4,08,565.00 there from. Accordingly, the Arbitrator passed an award with reference to claim No.1 of the petitioner in favor of the petitioner in the sum of Rs.5,34,073.00 after adjusting Rs.4,08,565.00 from their claim of Rs.9,42,638.00 under the said claim No.1. The balance of the claim was rejected. As I have mentioned above, the Arbitrator has, upon a detailed examination of each of the items and sub-items falling under this claim, come to the aforesaid conclusion. The counsel for the respondent was unable to come up with a plausible reason for interfering with the conclusion and reasoning adopted by the Arbitrator in respect of the petitioner's claim No.1. Therefore, no interference is called for insofar as this claim is concerned.
5.2 Petitioner's Claim No.2. Under this head, the petitioner has claimed Rs.64,25,055.35 from the respondent on account of extra work done by them at the site. As indicated by the Arbitrator in the award itself, this claim comprises of two components. One relates to compensation for overstay at the site and the other represents the extra cost for filling DM Water, damages to transformer, statutory variation, supply of valves, etc. not covered by the contract. The claim in respect of the alleged overstay at the site was to the extent of Rs.30 lakhs, the balance being for the extra cost for filling DM water, etc. Insofar as the question of overstay at the site was concerned, the Arbitrator has rejected the petitioner's claim holding that both the parties were responsible for the delay in the following words:-
Both responsible for the delay. Given the complexity of the entire case and the innumerable letters exchanged between them in quick succession accusing each other of flagrant violation of the terms of the Contract, the veracity of their mutual recrimination and incrimination cannot be dismissed as entirely baseless and therefore irrelevant. They are good enough to disarm the other but no one can be completely decimated. At best they are mutually destructive. This is particularly so when their performance was mutually complimentary. There is overwhelming evidence to prove that both committed breach of Contract. In these circumstances it is quite an uphill task to pin point precisely whether it was BHEL or Beebcon who contributed more for the ultimate delay.
In the circumstances I am unable to hold BHEL alone responsible for the alleged over stay by Beebcon at the site. There can therefore be no question of compensation on that score.
5.3 As regards the extra cost, the Arbitrator has, upon a detailed consideration of the various items mentioned in the claim under this head allowed only a sum of Rs.7,71,821.00 as against a claim of approximately Rs.3 lakhs. This amount of 7,71,821.00 has been allowed to the petitioner towards the value of valves and other items supplied by them which were admittedly extra. Therefore, the Arbitrator has allowed a sum of only Rs.7,71,821.00 against the entire claim of Rs.64,25,055.35 and that too on the basis of value of valves and other items supplied by the petitioner to the respondent which were admittedly extra. In view of the specific admission recorded in the award, the learned counsel for the respondent was unable to controvert this finding and, therefore, I feel that no interference is called for with respect to the finding under the petitioner's claim No.2 as contained in the impugned award.
5.4 Petitioner's Claim No.3 This claim refers to the re-rubber lining of DM Tanks. Under this claim, the petitioner has claimed a sum of Rs.6,21,333.00 on the ground that the said amount has been wrongfully recovered by the respondent from their bills on account of damages caused to the rubber lining to the DM Tanks. According to the petitioner, the damage was due to the respondent's negligence. The Arbitrator considered the arguments of the petitioner and the respondent as well as the reports of the experts with regard to the rubber lining. He noted that there were two conflicting reports emanating from the technical experts relating to the cause of damage to the rubber lining and, therefore, no conclusive finding could be arrived at on the basis of the opinions of the experts. The learned counsel for the respondent drew my attention to page 945 (internal page 23 of the award) wherein the letters dated 19.10.1989 and 12.12.1989 sent by the petitioner to the respondent are discussed. It appears that the Arbitrator came to the conclusion on the basis of these letters that the petitioner had not disputed their liability for damage to the rubber lining. All that they had sought by the said letters was that the adjustment for the same should not be done by the respondent against the pending bills but be set off against the retention money or the settlement of the insurance claims. In other words, the liability as such for the damage to the rubber lining was more or less accepted by the petitioner and they merely requested for a different mode of adjustment for the cost of the same. The Arbitrator also held that these letters were given voluntarily. According to the learned counsel for the respondent, having so held, the Arbitrator ought not to have awarded any sum under this claim in favor of the petitioner. The learned counsel for the petitioner, however, pointed out that while the Arbitrator found that the petitioner was liable under this head for the damages to the rubber lining of the DM Tanks, the matter did not stop here inasmuch as the Arbitrator found that the respondent was also not blameless. It is in this context pointed out that the Arbitrator, as would be apparent from internal page 25 of the award, found it difficult to precisely and conclusively conclude as to whether it was the petitioner or the respondent who was wholly responsible for the damage to the rubber lining of the said DM Tanks. He also came to the conclusion that the records unmistakably show that both the parties had contributed to the damages and it is in this context that the Arbitrator held that both the parties must share the blame equally and, therefore, instead of allowing the petitioner's claim of Rs.6,21,333.00, he found that the petitioner would be entitled to receive only 1/2 of the said amount and accordingly, awarded a sum of Rs.3,10,666/- in favor of the petitioner and against the respondent.
5.5 Upon a consideration of the facts and circumstances and the arguments advanced by the parties, I find that the Arbitrator, upon a detailed examination, has come to the conclusion that both the parties were equally liable for the damage caused to the rubber lining of the DM Tanks. In the wake of such a finding, the Arbitrator cannot be faulted in splitting the liability in half insofar as both the parties are concerned. Therefore, the conclusion arrived at by the Arbitrator insofar as this claim is concerned, cannot also be faulted.
5.6 Petitioner's Claim No.4. The petitioner under this head claimed a sum of Rs.10 lakhs as loss on account of the respondent's failure to place the order of supply of the spares and maintenance tools. Insofar as this claim is concerned, the learned counsel for the respondent straightway drew my attention to the finding of the Arbitrator wherein the Arbitrator has recorded as under (at pages 939-940):-
This submission without anything more to substantiate could hardly be enough to justify their claim of damages to the tune of Rs.10 lakhs. Such a claim to say the least is shocking. Shocking because Beebcon has failed to lead any evidence much less credible evidence to substantiate their huge claims.
The claim of rupees ten lakhs is equal to the value of the spare parts not delivered by Beecon. This figure is apparently based on a pure hypothesis and conjecture. They have no place in the matter of awarding damages.
No compensation if loss due to breach not proved ...The legal position emerging from the analysis being as clear as crystal, the huge and patently exaggerated claim of Rs.10 lakhs cannot form the basis for award of damages. This claim simply deserves to be rejected without any hesitation whatsoever.
5.7 The learned counsel for the respondent pointed out that despite the clear findings noted above, the Arbitrator has awarded nominal damages to the tune of Rs.50,000/- considering the same to be just and equitable. He submitted that in view of the clear and categorical finding whereby the claim of the petitioner was found to be untenable for complete lack of evidence, the said amount of Rs.50,000/- ought not to have been awarded. The learned counsel for the petitioner, however, submitted that the amount of Rs.50,000/- that was awarded by the Arbitrator was merely by way of nominal damages which the Arbitrator considered to be just and equitable. However, he was unable to explain as to on what basis the sum of Rs.50,000/- was quantified.
5.8 After considering the arguments advanced by the counsel for the parties, I tend to agree with the submissions made by the learned counsel for the respondents that once the Arbitrator had concluded that there was complete lack of evidence, then no amount should have been awarded as damages under this head and, accordingly, the finding of the Arbitrator under this head, i.e., claim No.4 deserves to be set aside.
5.9 Petitioner's Claim No.5. The claim of business loss of Rs.25 lakhs has been denied in toto by the learned Arbitrator and, therefore, the respondent has not preferred any objection in respect of this claim.
5.10 Interest. As regards the award of interest by the Arbitrator as indicated in para para No.3 above, the learned counsel for the respondent submitted that no interest at all could be awarded. He based this submission of his on clause 6.9.6 of the Instructions to Bidders and General Terms and Conditions of the Contract and clause 4.7 of the General Conditions of the Contract for erection, commissioning of plant / equipment. He relied upon several decisions, namely:-
i) D.S.A. Engineers (Bombay) v. Housing and Urban Dev. Corporation (HUDCO): 2004 (2) Arb LR 33 (Delhi;
ii) Secretary, Irrigation Department, Government of Orissa and Ors. v. G.C. Roy: ;
iii) State of Orissa v. B.N. Agarwalla etc.: ;
iv) Kaushnuma Begum (Smt) and Ors. v. New India Assurance Co. Ltd. And Ors. ;
v) Bharat Coking Coal Ltd v. Annapurna Construction: ;
vi) Oil and Natural Gas Corporation Ltd. v. Saw Pipes Ltd.: .
The aforesaid clause 6.9.6 reads as under:- 6.9.6 No interest shall be payable by Purchaser on security deposit or on any money due to the Seller by Purchaser. And the said clause 4.7 reads as under:-
4.7 RETURN OF SECURITY DEPOSIT If the Contractor duly performs and completes the contract in all respect to the entire satisfaction of the purchaser and presents an absolute. No Demand Certificate in the prescribed form and returns properties belonging to the Purchaser handed over, lent or hired by him for carrying on the said work, half the amount of security deposit will be released to the Contractor after deducting all costs of expenses or other amounts that are to be paid to the Purchaser under this or other contracts entered into with the Contractor. Balance half the amount of security deposit will be released only after satisfactory completion of maintenance period.
No interest shall be payable by the Purchaser on Earnest Money Security Deposit/or on any on money due to the Contractor by the Purchaser.
6. On the other hand, the learned counsel for the petitioner stated that the petitioner was clearly entitled to interest as would be clear upon a reading of clause 25 of the Instructions to Bidders and General Terms and Conditions of the Contract and, in particular, clauses 25.1 and 25.2 which read as under:-
25.0 WITH-HOLDING AND LIEN IN RESPECT OF SUM CLAIMED 25.1 Whenever any claim or claims for payments of a sum of money arises out of or under the contract against the seller, the Purchaser shall be entitled to withhold and-also have a lien to retain such sum or sums in whole or sums in part from the security, if any, deposited by the seller and for the purpose aforesaid, the Purchaser shall be entitled to withhold the said cash security deposit or the security, if any, furnished as the case may be and also have a lien over the same pending finalisation or adjudication of any such claim. In the event of the security being insufficient to cover the claimed amount or amounts or if no security has been taken from the seller, the Purchaser shall be entitled to withhold and have a lien to retain to the extent of such claimed amount or amounts referred to from any sum or sums found payable or which at any time thereafter may become payable to the seller under the same contract or any other contract with the Purchaser or any other person contracting, pending finalisation or adjudication of any such claim.
It is an agreed term of the contract that the sum of money so with-held or retained under the lien referred to above by the Purchaser will be kept with- held or retained as such by the Purchaser till the claim arising out of or under the contract is determined by the arbitrator (if the contract is governed by the arbitration clause) or by the competent court, prescribed as the case may be and that the seller will have no claim for interest or damages whatsoever on any account in respect of such withholding or retention under the lien referred to and duly notified as such to the Seller. For the purpose of this clause, where the seller is partnership firm or a limited company, the Purchaser shall be entitled to withhold and also have a lien to retain towards such claimed amount or amounts in whole or in part from any sum found payable to any partner / limited company as the case may be, whether in his individual capacity or otherwise.
25.2 It is an agreed term of the contract that the sum of money so withheld or retained under this clause by Purchaser which will be kept withheld or retained as such by the Purchaser or till his claim arising out of in the same contract or any other contract is either mutually settled or determined by the arbitrator if the contract is governed by arbitration clause or by the competent court, hereinafter, provided, as the case may be, and that the seller shall have no claim for interest or damages whatsoever on this account of or any other ground in respect of any sum of money with held or retained under this clause and duly notified as such to the seller.
Reading the said clauses, the learned counsel for the petitioner submitted that it would appear that the petitioner would not be entitled to any interest in respect of retention money, but this did not extend to other money or other liabilities. He submitted that the Arbitrator has not awarded any interest in connection with retention money and, therefore, it is clear that the award of interest would not be hit by the aforesaid clause. He further submitted that clause 6.9.6 pointed out by the learned counsel for the respondent is part of the clause 6.9.0 which refers to security deposit and, therefore, it clearly implies that the petitioner would not be entitled to interest on the security deposit amount under the said clause. But, as the Arbitrator has not awarded any interest on security deposit, the same cannot be negated by reading this clause. He referred to the decision of the Supreme Court in the case of State of Orissa v. B.N. Aggarwalla: in support of his proposition that no interest being payable on retention money, did not ipso facto mean that no interest would be payable on the claim. He wanted to refer to a Division Bench decision of this court in the case of Bharat Heavy Electricals Ltd. v. Globe Hi Fabs Ltd: (DB), but the learned counsel for the respondent immediately pointed out that this judgment has been stayed by the Supreme Court in SLP No.1926/2005.
7. The decision of a learned single Judge of this court in the case of DSA Engineers (supra) clearly holds that if the terms of the contract expressly stipulate that no interest would be payable, then the Arbitrator would not get the jurisdiction or right to award interest notwithstanding the provisions of Interest Act. The learned single Judge further held that power to grant interest by the Arbitrator emanates from the statutory provisions, but the same is always subject to the agreement between the parties. This view of the learned single Judge was based upon a consideration of the decisions of the Supreme Court in the case of Secretary, Irrigation Department (supra) and State of Orissa v. B.N. Aggarwal (supra). The learned Judge in DSA Engineers (supra) was considering the following clause:-
Clause 20.1 No interest shall be payable on any money due to the contractor against the earnest money, security deposit, interim or final bills or any other payments due under this contract.
Interpreting this clause to be a complete bar for the grant of interest, in view of the ratio of the aforesaid decisions of the Supreme Court, the learned Judge set aside the claim of interest awarded by the Arbitrator in that case.
8. The decision of the Supreme Court in Bharat Coking Coal Ltd (supra) Oil and Natural Gas Corporation Ltd (supra) are on the point that if the Arbitrator travels beyond the terms of the contract, then the award is liable to be set aside. These decisions were cited by the learned counsel for the respondent to submit that no interest was payable under the Terms of the Contract and inasmuch as the Arbitrator has awarded interest on the claim, he has travelled beyond the contract between the parties and, therefore, to this extent the award is liable to be set aside.
9. After considering the aforesaid decisions and the submissions made by the counsel for the parties, it becomes clear that the crux of the matter is the interpretation that is required to be placed on the clauses referred to by the learned counsel for the parties. The said clause 6.9.6, although it falls under the head Security Deposit (6.9.0), is quite categorical when it says that no interest shall be payable by Purchaser on Security Deposit or on any money due to the Seller by the Purchaser. Therefore, the question of no interest being payable is not limited to the Security Deposit alone but extends to any money due to the Seller by the Purchaser. A plain reading of this clause would mean that if any money is found due and payable from the respondent to the petitioner, the petitioner would not be entitled to any interest thereon. A similar sentiment is expressed in the said clause 4.7 and, therefore, I feel that there is an express bar in the Terms of the Contract between the parties for the grant of interest on only money due and payable by the respondent to the petitioner.
10. The argument of the learned counsel for the petitioner that clause 6.9.6 has a reference only to the Security Deposit and not other payments or dues is not tenable. The reference to the said clauses 25.1 and 25.2 with regard to retention money does not help the petitioner. The said clauses state that when money is so retained, the Seller (i.e., the petitioner in this case) will have no claim for interest or damages on account of such withholding or retention. These clauses, in fact, support the contention of the learned counsel for the respondent that the petitioner would not be entitled to any interest on any amount due from the respondent to the petitioner and the said point has been expressly extended to retention money withheld also. Therefore, upon a consideration of the aforesaid clauses, it becomes clear that the terms of the contract between the petitioner and the respondent expressly stipulate that no interest would be payable by the respondent to the petitioner. This being the case in view of the aforesaid decisions of the Supreme Court as well as that of the Delhi High Court in DSA Engineers (supra), it becomes clear that the Arbitrator did not have jurisdiction to award any interest and, therefore, insofar as and to the extent that the Arbitrator has awarded interest in favor of the petitioner and against the respondent, the award has to be set aside.
11. The only other aspect which was agitated by the learned counsel for the respondent was that the respondent's claim of liquidated damages to the extent of Rs.26,96,225.60 has been rejected in its entirety by the Arbitrator. It was his contention that when there was a specific clause for liquidated damages which permitted a claim for quantification of the same, the damages ought to have been allowed. The learned counsel for the respondent relied on the decision of the Supreme Court in the case of Oil and Natural Gas Corporation Ltd (supra) for the proposition that if liquidated damages are mentioned in the agreement, then there is no need to prove actual loss. However, considering the argument of the learned counsel for the petitioner, I find that we need not go into the question of whether liquidated damages ought to be awarded even if actual loss is not proved. This is so because the Arbitrator in respect of this claim for liquidated damages has come to the conclusion (as recorded at page 46 of the award) that both the parties were responsible for the delay and that, therefore, it could not be said with certainty as to which party was responsible for the project delay and it is under these circumstances that the Arbitrator was unable to hold the petitioner being solely responsible for the alleged delay. It is in this context that he concluded that therefore, there was no question of any award of liquidated damages in favor of the respondent. Although other considerations have also been taken into account for the refusal to grant the respondent's claim for liquidated damages, I feel that this ground in itself is sufficient to uphold the conclusion arrived at by the learned Arbitrator. Therefore, this part of the award inasmuch as the respondents claim for liquidated damages has been negated by the Arbitrator cannot be set aside.
12. Accordingly, in view of the aforesaid discussion, the objections filed by the respondent stand disposed of by upholding the award except in respect of the petitioner's claim No.4 and the award of interest in favor of the petitioner. The award, therefore, stands confirmed in all other respects. The award as modified be made a rule of the court. The petitioner shall be entitled to future interest @ 9% per annum till the date of payment of the award amount as modified above. The objection application as well as the suit stand disposed of.