Andhra Pradesh High Court - Amravati
Rastriya Ispat Nigam Limited vs Radha Madhav Engg Enterprises on 22 September, 2021
THE HON'BLE SRI JUSTICE A.V.SESHA SAI
AND
THE HON'BLE MS JUSTICE J.UMADEVI
COM.CA No.11 OF 2019
JUDGMENT:
(per AVSS,J.)
Challenge in the present Commercial Court Appeal is to
the order and decree dated 16.08.2019 passed by the Court
of the Special Judge for trial and disposal of the Commercial
Disputes, Visakhapatnam, in CAOP No.38 of 2017 (Old AAP
No.306 of 2017). The petitioner in the said CAOP No.38 of
2017 is the appellant in the instant appeal. The appellant
herein filed the said CAOP No.38 of 2017 before the Special
Court under Section 34 of the Arbitration and Conciliation
Act, 1996, praying to set aside the Award dated 15.12.2016
passed by the Arbitral Tribunal (respondents 2 to 4 herein)
on the claims made by respondent No.1 herein and the
counter claims of the appellant herein.
2. Briefly stated, the facts and circumstances,
leading to filing of the present Commercial Court Appeal, are
as under:-
The appellant herein, i.e., Rashtriya Ispat Nigam
Limited, Visakhapatnam Steel Plant, floated a tender for
structural steel plant works for Sinter Plant No.3 and in the
said process, respondent No.1 herein emerged as the
successful tenderer and the appellant herein awarded the
contract in favour of respondent No.1 and issued letter of
acceptance on 05.04.2007. An agreement was also entered
into on 02.05.2007 and the contract value being
Rs.3,49,00,000/-, including all taxes and duties, but
excluding service tax. The initial period of contract was 13
months from the date of letter of acceptance and the said
period came to an end on 28.04.2008. The appellant herein
granted extension for six times up to 30.06.2010.
Subsequently, a portion of the work was withdrawn by
respondent No.1 and the same was awarded in favour of
M/s. Hindustan Steel Works Construction Limited on
05.08.2010 by undertaking tender process. For the balance
work of the 1st respondent herein, the appellant herein
extended the period up to 31.08.2010 and respondent No.1
herein requested further extension till 31.10.2010 by way of
a letter dated 07.09.2010, which was declined by the
appellant herein, vide letter dated 08.09.2010. Thereafter,
vide notice dated 14.12.2010, the appellant herein informed
respondent No.1 that the contract stood terminated by efflux
of time and instructed respondent No.1 to vacate the site.
On 15.06.2012, respondent No.1 herein did put forth claims
worth Rs.5.45 crores and the appellant herein gave a reply on
09.07.2012, turning down the same except the final bill
amount and certain extra items. Thereafter, the issues
landed before the Arbitral Tribunal and respondent No.1
herein laid claims for a total sum of Rs.5.45 crores.
3. Before the Arbitral Tribunal, respondent No.1
herein made 15 claims, whereas the appellant herein made
six counter claims. The Arbitral Tribunal, vide Award dated
15.12.2016, granted amount under 12 claims and disallowed
three claims laid by respondent No.1 and allowed one
counter claim and rejected five counter claims made by the
appellant herein out of six counter claims. Assailing the said
Award, to the extent the same went against the appellant, the
appellant herein, by invoking the provisions of Section 34 of
the Arbitration and Conciliation Act, 1996, filed CAOP No.38
of 2017 on the file of the Court of the Special Judge for trial
and disposal of the Commercial Disputes, Visakhapatnam.
Learned Special Judge, by way of an order and decree dated
16.08.2019, dismissed the CAOP No.38 of 2017, confirming
the Award dated 15.12.2016 rendered by the Arbitral
Tribunal.
4. In the above background, challenging the validity
and legal sustainability of the said order and decree dated
16.08.2019, the present Commercial Court Appeal came to
be preferred.
5. Heard Sri V.Ravinder Rao, learned Senior
Counsel, representing Sri W.B.Srinivas, learned counsel for
the appellant and S/Sri P.V.Krishnaiah and M.Ramdas,
learned counsel for respondent No.1, apart from perusing the
entire material available on record.
6. Submissions/Contentions of Sri V.Ravinder
Rao, learned Senior Counsel:
(1) The order passed by the learned Special Judge,
confirming the award of the Arbitral Tribunal is highly
erroneous, without jurisdiction, contrary to law, weight of
evidence and probabilities of the case and opposed to the
very spirit and object of the provisions of the Indian Contract
Act, 1872, the Arbitration and Conciliation Act, 1996 (for
short, 'the Act, 1996') and the Micro, Small and Medium
Enterprises Development Act, 2006 (for short, 'MSMED Act').
(2) The order impugned is full of assumptions and
presumptions and in total disregard of the documentary
evidence available on record and the basic principles of law.
(3) The claims made by respondent No.1 are beyond the
terms and conditions of the contract, more particularly,
Clauses 17.2 and 18 of the General Conditions of Contract.
(4) The Arbitral Tribunal has no jurisdiction to award
interest by invoking the provisions of the MSMED Act and
the claimant ought to have approached the appropriate
forum for the said relief, if so advised, by raising a dispute
before the Facilitation Council under Sections 15 to 18 of the
MSMED Act, 2006.
(5) The reasoning given by the Tribunal that the
appellant committed breach of contract is highly perverse as
the claimant himself breached the contract by not completing
the work within the extended period.
(6) The appellant herein did not commit any breach of
contract, as such, respondent No.1 herein would not be
entitled for any compensation.
(7) The appellant herein terminated the contract as per
the terms and conditions of the contract, as such, the
termination of the contract cannot be faulted, and the Award,
on the basis of the findings arrived at, contra is neither
sustainable nor tenable in the eye of law.
(8) The Tribunal granted claims 5 and 8 in violation of
the terms and conditions of the contract and substantive law
and the same are not permissible in view of Clauses 23.1 and
18.5.1 of the General Conditions of Contract read with
Clause-15 of the Special Conditions of Contract.
(9) As per Clause 15.3 of the Special Conditions of
Contract, if the delay is not attributable to the contractor, the
contractor is entitled for price variation only and not for
damages as per Clauses 23.1 and 18.5.1 of the General
Conditions of Contract read with Annexure-4.
(10) The Tribunal ought not to have awarded Claims 5
and 8 in view of Section 28(3) of the Act, 1996 and the
phrase compensation as stipulated in Section 28(3) of the
Act, 1996, is required to be treated as liquidated damages.
(11) The judgment of the Hon'ble Supreme Court in
Associate Builders Vs. Delhi Development Authority 1 cannot
be made applicable for claiming claims 5 and 8, since the
clauses akin to clause 18.5.1 of the General Conditions of
Contract was not there in the said reported case.
(12) All extensions were granted without liquidated
damages, which the contractor already claimed under Claim
No.1 in the form of release of due payment of final bill
(Rs.75,26,745-91 ps), labour escalation bill (Rs.9,16,194-15
ps), POL escalation bill (Rs.35,383-65 ps) and material
escalation bill (Rs.16,38,044-72 ps), as such, the contractor
is not entitled to claims 5 and 8 separately.
(13) Vide letters dated 20.04.2009 and 15.03.2010,
contractor sought the extension and asked for price
escalation but not damages, but, for the first time, before the
Arbitral Tribunal, the contractor asked for damages. Price
variation is in the form of liquidated damages, as such, grant
of claims 5 and 8 is nothing but duplication and the said
claims are in the nature of general damages and are not
(2015) 3 SCC 49
permissible in view of Clause 18.5.1 of the General
Conditions of Contract.
(14) According to Section 74 of the Indian Contract Act,
1872 contractor is only entitled for reasonable compensation,
i.e., price variation, already covered under claim No.1, as
such, the claimant is not entitled for amount covered by
claims 5 and 8 and the price variation needs to be treated as
liquidated damages.
In support of his submissions and contentions, as
regards claims 5 and 8, learned Senior Counsel takes the
support of the following judgments of the Hon'ble Supreme
Court:
(1) Mahanagar Telephone Nigam Limited Vs. Tata
Communications Limited2;
(2) Kailash Nath Associates Vs. Delhi Development
Authority and another3;
(3) Bharat Sanchar Nigam Limited Vs. Reliance
Communication Limited4;
(4) Union of India Vs. Raman Iron Foundry5;
(5) Fateh Chand Vs. Balkishan Dass6;
(2019) 5 SCC 341
(2015) 4 SCC 136
(2011) 1 SCC 394
(1974) 2 SCC 231
AIR 1963 SC 1405
(15) According to the learned Senior Counsel, claims 4
and 7 are excepted matters in view of Clause 21.3 of the
General Conditions of Contract, as such, these claims are not
tenable.
(16) Proviso to Clause 21.3 of the General Conditions of
Contract mandates the contractor to make claim for extra
works within 30 days to the Engineer supported by
documents, but in the instant case, contractor made a claim
for extra works, i.e., under Claim No.4 on 05.01.2012,
though the contract was terminated on 31.08.2010, i.e., 1½
years after termination of the contract, i.e., during the
contractual period, the contractor did not raise the claim.
But however, the Executive Engineer allowed the claims 2, 4
to 10, but disallowed the claims 1, 3, 11 and 12, which are
set out under claim No.4. Since the claims 4 and 7 are the
accepted matters, they are not tenable and the Arbitral
Tribunal has no jurisdiction under Clause 28 of the General
Conditions of Contract.
In support of his contentions on claims 4 and 7, learned
Senior Counsel places reliance on the judgment of the
Hon'ble Supreme Court in M/s. Mitra Guha Builders (India)
Company Vs. Oil and Natural Gas Corporation Limited7 (Paras
16 to 29).
(2020) 3 SCC 222
(17) On Claim No.13, it is contended that as per Clause
9.3 of the General Conditions of Contract, the contractor is
not entitled for the said claim and it would not be open for
the contractor to claim anything under this head.
(18) On Claim No.14, it is contended by the learned
Senior Counsel that in view of Clause 28.4 of General
Conditions of Contract, the Arbitral Tribunal has no
jurisdiction to award interest.
(19) Arbitral Tribunal is the creature of the statute, and
while exercising jurisdiction under the Act, 1996, the Arbitral
Tribunal erred in awarding interest as per the MSMED Act,
2006.
In support of his contentions on claim No.14, learned
Senior Counsel places reliance on the following judgments:
(1) In Union of India v. Ambica Construction8 ;
(2) In Sri Chittaranjan Maity v. Union of India9 ;
(20) The Arbitral Tribunal is prohibited under Section
31(7) (a) of the Act, 1996 read with Clause 28.4 of the
General Conditions of Contract. Once the Arbitral Tribunal
is barred under Section 31(7) (a) of the Act, 1996, read with
Clause 28.4 of the General Conditions of Contract, the
Arbitral Tribunal cannot fall back on the provisions of the
(2016) 6 SCC 36
(2017) 9 SCC 611
MSMED Act, 2006 and the said provision of law will not
confer jurisdiction on the Arbitral Tribunal to award interest,
and Sections 18 and 24 of the MSMED Act, 2006, would not
come to the aid of the appellant herein.
(21) Alternatively, it is the submission of Sri V.Ravinder
Rao, learned Senior Counsel that the benefit of Section 15 of
the MSMED Act, 2006, is available only to the goods supplied
by the contractors and the services rendered to the buyer,
but not for contractual works.
(22) The violation of the orders of the Constitutional
Courts are required to be treated as the decisions taken
against the public policy (Referring Associate Builders Vs.
Delhi Development Authority's case reported in (2015) 3 SCC
49).
7. Submissions and contentions of S/Sri
P.V.Krishnaiah and M.Ramdas, learned counsel for
respondents:
(1) The Award passed by the learned Arbitral Tribunal
and the order passed by the learned Special Judge under
Section 34 of the Act, 1996, are strictly in accordance with
the provisions of the said legislation and that there are no
errors, nor there exists any infirmities, in the impugned order
of the learned Special Judge, as such, the same does not
warrant any interference of this Court under Section 37 of
the Arbitration and Conciliation Act, 1996.
(2) The jurisdiction of the Courts is limited only to the
extent of the grounds set out in sub-section (2) of Section 34
of the Act, 1996 and in the instant case, there are no such
grounds existing.
(3) Award of the Arbitral Tribunal cannot be impeached
unless the same is contrary to the provisions of the Act,
1996, and the terms of the contract and the said
contingencies are conspicuously absent in the case on hand.
(4) At no point of time, respondent No.1-contractor
failed in fulfilling the obligations and the delay in executing
the contractual work was due to the attitude of the appellant
and not due to the conduct of respondent No.1-contractor.
(5) The grounds now sought to be pressed into service
by the learned counsel for the appellant were neither raised
before the Arbitral Tribunal nor before the Special Court nor
before this Court in the Memorandum of Grounds of Appeal,
as such, the same do not warrant any consideration by this
Court.
(6) The findings of the team of Arbitrators, in the
absence of any person with judicial knowledge, are not fatal
to the Award in view of law laid down by the Hon'ble
Supreme Court and in the instant case, the First Arbitrator
was appointed by the contractor and second Arbitrator by the
appellant, who in turn jointly elected the third Arbitrator.
Learned counsel takes the support of the following
judgments in support of the submissions:
(1) Municipal Corporation of Delhi Vs. M/s. Jagan Nath
Ashok Kumar and another10
(2) P.R.Shah, Shares and Stock Brokers Private Limited
Vs. B.H.H.Securities Private Limited and others11
(7) In the absence of any fault on the part of any
contractor, the prohibition contained in Clause 19.1 cannot
be applied for denying the claims 5 and 8.
(8) The decision in Kailash Nath Associates Vs. Delhi
Development Authority and another (3 supra) is applicable
only in the cases where there is breach of contract and since
there is no breach of contract committed by the contractor,
the said decision cannot be made applicable.
(9) Learned counsel places reliance on a decision in
Associate Builders Vs. Delhi Development Authority case (1
supra), to sustain the Award on claims 5 and 8.
(10) The contention as regards the liquidated damages
was not raised before all the lower fora nor raised in the
Memorandum of Grounds of Appeal in the present appeal, as
(1987) 4 SCC 497
(2012) 1 SCC 594
such, the same cannot be raised now orally for the first time
during the course of arguments.
(11) As per the appellant, claims 5 and 8 are also
contrary to law, but the same cannot be sustained and when
there is a delay on the part of the appellant, clause 18.4 of
the General Conditions of Contract would not come to the
rescue of the appellant herein. Learned counsel places
reliance on the judgment in Central Bank of India Vs.
Virudhunagar Steel Rolling Mills Limited and others12.
(12) In view of Clause 17.1 of the Special Conditions of
Contract and Clause 26.3 of the General Conditions of
Contract, contentions of the learned counsel for the appellant
as regards claims 4 and 7 are not sustainable and he relies
on a decision of the Hon'ble Supreme Court in Kalpraj
Dharamshi and another Vs. Kotak Investment Advisors Ltd.,
and another13.
(13) The contention of the learned counsel for the
appellant as regards the claim-14 cannot be sustained in
view of the law laid down by the Bombay in M/s. Steel
Authority of India Ltd., and another Vs. Micro, Small
Enterprise Facilitation Council, through Joint Director of
Industries, Nagpur Region, Nagpur14.
(2015) 16 SCC 207
2021 SCC Online SC 204
AIR 2012 Bombay HC 178
Both the learned counsel have filed written arguments
also.
8. In the above background, now, the issues which
this Court is called upon to answer in the present
Commercial Court Appeal are:-
(1) Whether the order of the learned Special Judge,
confirming the award passed by the Arbitral Tribunal is in
accordance with the provisions of the Arbitration and
Conciliation Act, 1996, the Indian Contract, 1872 and the
Micro, Small and Medium Enterprises Development Act,
2006 and whether the contentions of the learned counsel
for the appellant as regards claims 5 and 8 are
sustainable and tenable?
(2) Whether the findings of the learned Arbitral Tribunal,
as confirmed by the learned Special Judge, on claims 4
and 7 warrant any interference of this Court under
Section 37 of the Arbitration and Conciliation Act, 1996?
(3) Whether the Arbitral Tribunal is justified in granting
relief covered by claim No.13 ?
(4) Whether the Arbitral Tribunal and the Special Judge
are justified in granting interest to the respondent-
contractor on claim No.14 in view of the conditions of
contract and Whether the Tribunal and the Special Court
are justified in invoking the provisions of the Micro, Small
and Medium Enterprises Development Act, 2006?
9. Anterior to the process of examining, analyzing
and adjudicating various issues that have cropped up in the
present Commercial Court Appeal, it may be highly essential
and apposite to refer to the provisions of Section 34 of the
Arbitration and Conciliation Act, 1996, which read as follows:
" 34. Application for setting aside arbitral award.
1. Recourse to a Court against an arbitral award may
be made only by an application for setting aside such
award in accordance with sub-section (2) and
subsection (3).
2. An arbitral award may be set aside by the Court
only if-
a. the party making the application furnishes proof
that-
i. a party was under some incapacity, or
ii. the arbitration agreement is not valid under the
law to which the parties have subjected it or, failing
any indication thereon, under the law for the time
being in force; or
iii. the party making the application was not given
proper notice of the appointment of an arbitrator or of
the arbitral proceedings or was otherwise unable to
present his case; or
iv. the arbitral award deals with a dispute not
contemplated by or not falling within the terms of the
submission to arbitration, or it contains decisions on
matters beyond the scope of the submission to
arbitration:
Provided that, if the decisions on matters
submitted to arbitration can be separated from those
not so submitted, only that part of the arbitral award
which contains decisions on matters not submitted to
arbitration may be set aside; or
v. the composition of the arbitral tribunal or the
arbitral procedure was not in accordance with the
agreement of the parties, unless such agreement was
in conflict with a provision of this Part from which the
parties cannot derogate, or, failing such agreement,
was not in accordance with this Part; or
b. the Court finds that-
i. the subject-matter of the dispute is not capable of
settlement by arbitration under the law for the time
being in force, or
ii. the arbitral award is in conflict with the public
policy of India.
[(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.]
(3) An application for setting aside may not be made
after three months have elapsed from the date on
which the party making that application had received
the arbitral award or, if a request had been made
under section 33, from the date on which that request
had been disposed of by the arbitral tribunal: Provided
that if the Court is satisfied that the applicant was
prevented by sufficient cause from making the
application within the said period of three months it
may entertain the application within a further period of
thirty days, but not thereafter.
(4) On receipt of an application under sub-section (1),
the Court may, where it is appropriate and it is so
requested by a party, adjourn the proceedings for a
period of time determined by it in order to give the
arbitral tribunal an opportunity to resume the arbitral
proceedings or to take such other action as in the
opinion of arbitral tribunal will eliminate the grounds
for setting aside the arbitral award.
(5) An application under this section shall be filed by a
party only after issuing a prior notice to the other party
and such application shall be accompanied by an
affidavit by the applicant endorsing compliance with
the said requirement.
(6) An application under this section shall be disposed
of expeditiously, and in any event, within a period of
one year from the date on which the notice referred to
in sub-section (5) is served upon the other party.]"
10. It is very much lucid and candid from a reading of
the above provisions of law that the application for setting
aside an arbitral award is maintainable only in the
contingencies stipulated under Section 34(2)(a) (i to v) and
Section 34(2)(b) and Section 34(2A) and Section 34(3) of the
Act, 1996. The issues in the instant Commercial Court
Appeal are required to be examined, analyzed and resolved
within the parameters of the above said provisions of law.
11. Respondent No.1 herein filed a claim statement,
claiming as many as 15 claims and the particulars of the
same including the amounts awarded by the Arbitral
Tribunal, vide Award dated 15.12.2016 are as follows:-
Amount Amount Whether
Sl.No. Claim claimed awarded interest
Rs. Ps. Rs. Ps. granted
1. Release of final bill,
Labour wages,
1,01,16,368-43 96,66,136-00 Granted
PQL, material
escalation
2. Refund of amount
deducted towards
2,17,653-00 2,17,018-00 Granted
payment of
labourers
3. Release of
Performance
guarantee bond
submitted by the
34,90,000-00 34,90,000-00 Not granted
Claimant in lieu of
security deposit
under provision of
SSI
4. Payment towards
expenditure in
1,19,30,185-73 79,27,943-00 Granted
executing 12 Nos.
of extra items
5. Delay in issue of
drawings, materials
68,25,022-00 40,95,013-00 Granted
and non-
availability of fronts
6. Change in Rejected the
96,84,406-00 Not granted
specification claim
7. Fixing of higher
BOQ rates for the 44,00,714-48 23,30,236-00 Granted
additional scope of
work for JH44A to
JH49A
8. Revision of bill of
quantities (BOQ)
rates to increase all
input costs for the 54,83,000-00 36,49,047-00 Granted
period beyond
original schedule
date of completion.
9. Semi Fabrication of
steel structures 8,93,279-00 6,14,457-00 Granted
lying at the site
10. Collection,
transportation,
stocking, etc., of 15,29,545-00 13,33,247-00 Granted
steel drawn from
VSP.
11. Additional
expenditure met by
engaging higher
capacity traitors 30 5,08,000-00 4,16,000-00 Granted
TON instead of
originally engaged
20 Ton
12. Additional
Claim rejected
expenditure for
25,62,500-00 by Arbitral Not granted
engaging heavy
Tribunal
cranes
13. Additional
expenditure for
4,15,000-00 3,81,800-00 Granted
development of
fabrication site
14. Payment of interest @ 20.25% at
as per Government monthly rates
norms from time to i.e., 3 times of
time SSI (MSME) Banks rate of
units as all the 6.75% as
claims from the published by
As per MSMED
date of eligibility till RBI on --
Act, 2006
the actual date of 09.12.2016
payment as per the vide Annexure
MSMED Act, 2006. 8 at Page 207
in line with
MSMED Act,
2006.
15. Costs Rejected by
26,20,068-00 --
Tribunal
Total 5,80,55,719-64 3,41,20,897-00
12. Appellant herein raised six counter claims and out
of which the Arbitral Tribunal allowed counter claim No.4
and disallowed counter claim Nos.1, 2, 3, 5 and 6 on the
ground of limitation and the particulars of the same are as
follows:
Amount Amount Whether
Sl.No. Claim claimed awarded interest
Rs. Ps. Rs. Ps. granted
1. Rist and costs 1,97,65,552-30 Rejected --
2. Recovery of amount
of failure of RMEE
95,96,585-68 Rejected --
to account for the
steel
3. Cost incurred for
returning the
5,75,335-00 Rejected --
surplus steel, cut
pieces and scrap
4. Crane hire
91,725-00 91,725-00 --
purchases
5. Charges for power
15,28,340-00 Rejected --
consumption
6. Recovery of il.
2,19,361-00 Rejected --
building cess
7. Total 3,17,76,641-55 4,91,725-00
13. As against the Award passed by the learned
Arbitral Tribunal on 15.12.2016, the appellant herein
preferred CAOP No.38 of 2017 on the file of the Court of the
Special Judge, and the Special Judge, by way of the
questioned order and decree dated 16.08.2019, dismissed
CAOP No.38 of 2017, confirming the Award passed by the
Arbitral Tribunal.
14. Though the present appeal came to be preferred
against the entire Award, as confirmed by the learned Special
Judge, learned Senior Counsel, Sri V.Ravinder Rao, during
the course of arguments, mainly confined and advanced
arguments on claims 4, 5, 7, 8, 13 and 14 only and did not
press the appeal in respect of the other claims and the
counter claims. Therefore, this Court deems it appropriate to
deal with the said claims only.
15. Findings on Claims 5 and 8:
Claims 5 and 8 are as follows:
Claim No.5: Compensation for breach of contract such
as non-issue of drawings, materials and non-availability of
fronts, etc. by the respondent, resulting in the time of
completion getting extended. The claim is on account of
compensation of loss of profits and over-heads on the
balance works as on 29.04.2008; claim amount:
Rs.68,25,022/- + Service Tax + interest.
Claim No.8: Revision of rates of the BOQ (Bill of
Quantities) due to increase in all input costs for the period
beyond the original schedule date of completion till the
claimant was allowed to execute the work (i.e. from
29.04.2008 to 31.08.2010). Claim amount Rs.54,83,040/-
(+) service tax (+) interest as applicable to SSI Units.
Against the amounts so claimed, the Arbitral Tribunal,
vide Award dated 15.12.2016, granted Rs.40,95,013/- +
service tax of Rs.6,14,252/- and Rs.36,49,047/- + service tax
of Rs.5,47,357/- + interest, respectively, against the claim
Nos. 5 and 8.
16. While attacking the grant of claims 5 and 8,
learned Senior Counsel for the appellant, Sri V.Ravinder Rao,
maintains that having allowed claim No.1, which pertains to
release of final bill, labour wage escalation, POL escalation
and material escalation, the Arbitral Tribunal grossly erred in
granting claims 5 and 8 and the same tantamounts to
duplication in granting the reliefs. It is the further
submission of learned Senior Counsel that the Tribunal
totally ignored clauses 18.5.1, 21.1, 21.3 and 23.1 of the
General Conditions of Contract, while awarding the claims
and also condition No.15 of the Special Conditions of
Contract and Annexure-4 thereof. In this context, it may be
apt to extract the said conditions of contract.
17. Clause 18.5.1 of the General Conditions of
Contract reads thus:
Extension of time for Completion: Should
the quantum of extra or additional work of any kind
or other special circumstances of any kind
whatsoever which may occur be such as fairly
entitle the Contractor to an extension of time for the
completion of the Work, the Engineer shall decide
the amount of such extension. However the
Engineer is not bound to take into account any
extra or additional work or other special
circumstances, unless the Contractor has within
thirty (30) days after such work has been
commenced or such circumstances have arisen or
as soon thereafter as is practicable but not later
than thirty (30) days delivered to the Engineer full
and detailed particulars of any claim for extension
of time to which he may consider himself entitled in
order that such claim may be investigated at that
time. In my case, the Contractor shall not be
entitled to Revision of Price, any compensation or
damages on account of such extension of
completion period."
18. Clause 21.0 deals with alterations, additions and
omissions and the same read as infra:
"Clause 21.1: Variations: The
Engineer/Consultant shall have the right to make
any variations of the form, quality or quantity of
the Work or any part thereof that may in his
opinion be necessary/required for the
completeness of the Work and for any other
reasons which in his opinion be
desirable/required, he shall have right to order
the Contractor to do any of this following:-
a) increase or decrease the quantity of any work/
works included in the Contract.
b) omit any such work/works.
c) change the character or quality or kind of any
such work/works.
d) change the levels, lines, position and
dimensions of any part the work/works.
e) execute additional work of any kind necessary
for the completion of the work/works.
and no such variation shall in any way vitiate or
invalidate the Contract but the value of all such
variations shall be taken into account in
ascertaining the amount of the Contract Price and
adjustment of time for completion, if required.
Clause 21.2 : Orders for variations to be in
writing: No such variation shall be made by the
Contractor without an order in writing of the
Engineer/Consultant. Provided that no order in
writing shall be required for increase or decrease
in the quantity of any work where such increase
or decrease is not the result of any order given
order this Clause, but is the result of the
quantities exceeding or being less than those
stated in the Bill of Quantities.
Provided also that if for any reason, the Engineer/
Consultant shall consider it desirable to give any
such order, verbally, the Contractor shall comply
with such order and confirmation by the
Contractor in writing of such verbal order given
by Engineer / Consultant shall be deemed to be
an order in writing subject to Clause No.5.3
hereof."
19. Clause 23.1 of the General Conditions of Contract
reads as follows:
"Clause 23.1: Prices or the Rates for the Work
stipulated in the Contract, shall remain firm and
binding during the Contract Period subject to the
variations stipulated in the Special Conditions of
the Contract."
20. Clause 15.0 of the General Conditions of Contract
reads as under:
"Clause 15.0: Price Variation:
Clause 15.1: The price variation on accepted
rates of the Bill of Quantities will be permissible
to the extent given in Annexure-4 enclosed. The
rates quoted by the Tenderer shall be inclusive of
all taxes, levies, duties, etc., but exclusive of
Service tax and Education Cess thereon prevailing
on the date of opening of Envelop-2.
Clause 15.2 : During tenure of the Contract, if
any new taxes, duties/levies, etc., are imposed or
tax rates undergo changes as notified by the Govt.
and become applicable to the subject works, the
same shall be reimbursed by the Employer on
production of documentary evidence in respect of
payment of the same. Benefits accruing to the
Contractor on account of withdrawal/reduction in
any existing taxes and duties, the same shall be
passed on to the Employer.
Clause 15.3 : The variations due to 15.1 and
15.2 above shall not be permissible during the
extended period of contract, if the delay is
attributable to the Contractor."
21. Annexure-4 of the Special Conditions of Contract
which deals with Price Variation Formula reads as follows:
"ANNEXURE-4
(As per Clause No.15.0 of Special Conditions of
Contract)
PRICE VARIATION FORMULA
The following clause relating to variation in wages
shall be applicable. No other claim on account of any
other variation either statutory or otherwise shall be
applicable.
(CLARIFICATION: In case of revision of rates of
materials, wages & POL prices with effect from any
date in a month say March, 2006. The work done
with effect from subsequent month (i.e., April, 2006)
only will qualify for price variation as per the above
formula.)
1.0. PRICE VARIATION DUE TO LABOUR:
1.1 Price variation on account of wages for fabrication of
steel structures/pipe work:
For every rupee per month of 208 hours by which the
wage structure of minimum rates workers varied
from the base month as a result of Government
action (direct or indirect), adjudication (legislative or
otherwise), the selling price, exclusive of escalation
claims shall be adjusted by Rs.2.0 (Rupees two only)
per tonne and such adjustment shall be applied to
such selling prices in respect of structures inspected
and accepted after the first day of the subsequent
month of such wage revision.
i) For the purpose of this order, the base date shall
be the date of opening of the Envelope-2.
For the purpose of this clause the wage structure of
minimum rated workers shall be defined as
comprising:
1) Average of minimum rates of monthly wages of
skilled, semi-skilled & un-
skilled workers applicable for the area of work
as notified by the Commissioner of Labour,
Andhra Pradesh, Hyderabad published in the
Andhra Pradesh Gazette.
2) Leave with pay.
3)Provident Fund
4) Employees State Insurance Contribution.
1.2 Escalation for erection in the composite rate of
fabrication and erection:
For the purpose of calculating the price variation for
erection work, the erection cost component in the
awarded composite rates of fabrication and erection
shall be taken as 30% of the relevant items. Against
this 30% value, representing the erection cost, the
labour component in the erection cost shall be taken
as 40%. On this basis, the payable/deductible price
variation towards erection shall be computed as per
the following formula:
V = W x 0.40 x 0.3 (X-X0)
XO
Where
V = Escalation or de-escalation payable or
deductable.
W = Value of the work done based on the
accepted composite rates of the Bill of Quantities for
the period for which variation is applicable.
RASHTRIYA ISPAT NIGAM LIMITED
X = Average of revised minimum rates of
wages of skilled, semi-skilled and un-skilled workers
applicable for the area of site of work as per
minimum rates of wages as notified by Commissioner
of Labour, Andhra Pradesh, Hyderabad, published in
the Andhra Pradesh Gazette for the period under
consideration.
ХО = Average of minimum rates of wages of
skilled, semi-skilled and unskilled workers on the
base date (.e., the date of opening of the Envelope-2)
applicable for the area of site of work as per
minimum rates of wages as notified by Commissioner
of Labour, Andhra Pradesh, Hyderabad, published in
the Andhra Pradesh Gazette.
1.3 Labour escalation on Erection/Installation
(without cost of materials) (excluding pure painting
works).
For calculating escalation for erection/installation
rates excluding cost of materials and fabrication, the
following formula shall be applicable:
V = 0.40 x W x (X - XO)
XO
The notations here will be same as given at Clause
No. 1.2
1.4 Labour escalation for items of pure painting:
For calculating labour escalation for items of pure
painting works, the following formula shall be
applied:
V = 0.15 x W x (X - XO)
XO
The notations here will be same as given at Clause
No. 1.2
2.0 PRICE VARIATION FOR ALL OTHER ITEMS OF
THE WORK (excluding the items at Clause Nos. 1.1
to 1.4).
For calculating labour escalation for all other items
(excluding the cost of materials), the following
formula shall be applied.
V = 0.4xwx (X-XO)
XO
The notations here will be same as given at Clause
No. 1.2
3.0 PRICE VARIATON DUE TO MATERIALS:
Formula as below shall be applicable during the
contract period. The payment or deduction on
account of variation shall be claimed in January and
July of every year for the preceding periods of si:
months and also on completion of contract along
with necessary details/documents to the satisfaction
of the Engineer. The contractor shall submit the
detailed documents even if there is variation or not.
3.1 Amount payable/deductible due to variation
(inclusive of pure painting
items) in the price of consumables like
electrodes, industrial gases, paint etc. and also
the cost of material to be supplied by the party
shall be determined on the basis of the
following formula:
V = 0.40 x W (X-XO)
ХО
Where
V = the amount payable/deductible due
to variation in the prices
X = all commodity whole sale price index
for the month under reference.
XO = all commodity whole sale price index
as on the date of opening of the Envelope-2.
W = gross value of the work done at
contract rates for all items for the period for which
the variation is applicable. The variation will be
applicable for the quantities measured one (1) month
after the date of effect of the revised rates and the
above variation in prices shall be applicable only
during the contract period.
NOTE: The wholesale price index for all commodities
shall be based on average of month Bulletins
published by RBI.
3.2 Price variation due to change in POL prices
shall be applicable as per formula given below:
V = 0.04 x W (X-XO)
XO
V = Escalation of de-escalation (variation)
payable or deductable.
W = Gross value of the work done at
contract rates for all items for the period for which the
variation is applicable.
X = Revised rate of Ordinary High Speed
Diesel Oil per litre as fixed by Public Sector Oil
Company applicable for the area of site of work for
the period under considerations.
ХО = Rate of Ordinary High Speed Diesel
Oil per litre as fixed by Public Sector Oil Company
applicable for the area of site of work on the base date
(i.e., the date of opening of Envelope-2).
0.04 = is assumed to be the POL content of
contract rates.
CLARIFICATION:
i) In case of revision of rates of Ordinary High
Speed Diesel Oil with effect from anydate in
a month, say March, 2006, the work done
with effect from the first day ofsubsequent
month (i.e., 15 April, 2006) only will qualify
for price variation as per the above formula.
ii) In case of more than one revision in the rate of
Ordinary High Speed Diesel Oil, in a month,
the latest revision in the rates shall be
considered for payment of escalation."
22. In this context, it may be apt to refer to the
observations of the Arbitral Tribunal while dealing with claim
No.5. The Tribunal, on the basis of the material available
came to a conclusion that the RINL/appellant herein did not
provide any fronts till 28.04.2008 for erection of fabricated
structures thereby committed breach of contract and the
Tribunal also took into consideration Section 73 of the Indian
Contract Act, 1872 which reads as follows:
"73. Compensation for loss or damage caused
by breach of contract.--When a contract has been
broken, the party who suffers by such breach is
entitled to receive, from the party who has broken the
contract, compensation for any loss or damage caused
to him thereby, which naturally arose in the usual
course of things from such breach, or which the
parties knew, when they made the contract, to be likely
to result from the breach of it. Such compensation is
not to be given for any remote and indirect loss or
damage sustained by reason of the breach.
COMPENSATION FOR FAILURE TO DISCHARGE
OBLIGATION RESEMBLING THOSE CREATED BY
CONTRACT- When an obligation resembling those
created by contract has been incurred and has not
been discharged, any person injured by the failure to
discharge it, is entitled to receive the same
compensation from the party in default, as if such
person had contracted to discharge it and had broken
his contract.
Explanation: In estimating the loss or damage,
arising from a breach of contract, the means which
existed of remedying the inconvenience caused by the
non-performance of the contract must be taken into
account."
It is very much manifest from a reading of the above
provision of law that when there is a breach of contract, the
party who commits such breach, shall compensate the
person who suffers by such breach by way of paying
compensation for any loss or damage caused.
23. The Tribunal also took into account the letters of
the claimant dated 16.04.2008 and 26.04.2008 and found
that the extension of time granted to the claimant was
without liquidated damages and with escalations. The
Tribunal also found that respondent No.1-contractor, at no
point of time, was responsible for the delays and all the
delays were attributable only to the appellant herein. The
Special Court also while placing reliance on the decision of
the Hon'ble Supreme Court in P.M.Paul Vs. Union of India15,
eventually held in respect of claim No.5 that there was
nothing to discredit the findings of the Arbitral Tribunal on
claim No.5. In view of the said cogent and convincing
reasons assigned by the learned Arbitral Tribunal, as
confirmed by the Special Judge, this Court does not find any
valid reasons to disturb the findings recorded on claim No.5
by the Special Judge. It is also significant to note, as
pointed out by the learned counsel for the 1st respondent
herein, that RINL/appellant herein did not plead specifically
either before the Arbitral Tribunal or before the Special Court
or before this Court in the Memorandum of Grounds of
Appeal in the present appeal, in the manner now sought to
be projected during the course of arguments.
24. Coming to Claim No.8 -- Which pertains to
revision of BOQ rates under the period beyond the original
schedule of compensation, the claimant laid a claim of
Rs.54,83,040/- on the ground that during the currency of
the contract, all input costs went up considerably including
costs of labour and overhead charges. The Tribunal recorded
a finding that had the Visakhapatnam Steel Plant come
forward in fulfilling their obligations, the project might have
been completed by the claimant in time and the present
(1989) 1 SCC 368
situation could have been averted. The appellant herein
contended before the Arbitral Tribunal that due to
inadequate mobilization of the resources by the claimant, the
contract could not be completed within the agreed period.
After taking into account all the contentions including
clauses 18.4 and 28.1 and contention that these claims are
excepted matters, the Tribunal turned down the contentions
of the appellant on the ground that the breach was solely
attributable to the appellant and eventually found that the
Visakhapatnam Steel Plant had to compensate when it
committed breach of contract. The learned Special Judge by
placing reliance on the judgments of the Hon'ble Supreme
Court in Associate Builders Vs. Delhi Development Authority
(1 supra), Oil and Natural Gas Corporation Limited Vs. Saw
Pipes Limited reported in AIR 2003 SC 2629 and J.K.Cold
Tyres Retreads Vs. Union of India and another reported in
2015(1) ALD 532, declined to interfere with the Award of the
Arbitral Tribunal. Therefore, this Court does not find any
valid reason to disturb the finding recorded by the Arbitral
Tribunal and the Special Judge on Claim No.8 also.
25. In this context, it may be appropriate to refer to
the judgments cited by the learned Advocates. In the case of
Mahanagar Telephone Nigam Limited Vs. Tata
Communications Limited (2 supra), the Hon'ble Apex Court, at
paragraphs 11 to 13, held in the following manner.
"11. In Kailash Nath Associates v. DDA, (2015) 4 SCC
136, after considering the case law on Section 74, this
Court held:
"43. On a conspectus of the above authorities, the law on
compensation for breach of contract under Section 74 can
be stated to be as follows:
43.1. Where a sum is named in a contract as a liquidated
amount payable by way of damages, the party
complaining of a breach can receive as reasonable
compensation such liquidated amount only if it is a
genuine pre-estimate of damages fixed by both parties
and found to be such by the court. In other cases, where
a sum is named in a contract as a liquidated amount
payable by way of damages, only reasonable
compensation can be awarded not exceeding the amount
so stated. Similarly, in cases where the amount fixed is in
the nature of penalty, only reasonable compensation can
be awarded not exceeding the penalty so stated. In both
cases, the liquidated amount or penalty is the upper limit
beyond which the court cannot grant reasonable
compensation.
43.2. Reasonable compensation will be fixed on well-
known principles that are applicable to the law of
contract, which are to be found inter alia in Section 73 of
the Contract Act.
43.3. Since Section 74 awards reasonable compensation
for damage or loss caused by a breach of contract,
damage or loss caused is a sine qua non for the
applicability of the section.
43.4. The section applies whether a person is a plaintiff or
a defendant in a suit.
43.5. The sum spoken of may already be paid or be
payable in future.
43.6. The expression "whether or not actual damage or
loss is proved to have been caused thereby" means that
where it is possible to prove actual damage or loss, such
proof is not dispensed with. It is only in cases where
damage or loss is difficult or impossible to prove that the
liquidated amount named in the contract, if a genuine
pre-estimate of damage or loss, can be awarded."
12. In the present case, clauses 16.2 to 16.4 are
relevant, and are set out as under:
"16.2 (a) FOR DELIVERY OF STORES:
Should the supplier fail to deliver the store/services or
any consignment thereof within the period prescribed for
delivery, the purchaser shall be entitled to recover 0.5% of
the value of the delayed supply for each week of delay or
part thereof for a period up to 10 (TEN) weeks and
thereafter at the rate of 0.7% of the value of the delayed
supply for each week of delay or part thereof for another
TEN weeks of delay. In the case of package supply where
the delayed portion of the supply materially hampers
installation and commissioning of the systems, L/D
charges shall be levied as above on the total value of the
concerned package of the Purchase Order. However, when
supply is made within 21 days of QA clearance in the
extended delivery period, the consignee may accept the
stores and in such cases the LD shall be levied upto the
date of QA clearance.
16.2 (b) FOR INSTALLATION & COMMISSIONING Should
the supplier fail to install and commission the project
within the stipulated time the purchaser shall be entitled
to recover 0.5% of the value of the purchase order for
each week of delay or part thereof for a period upto 10
(TEN) weeks and thereafter @ 0.7% of the value of
purchase order for each week of delay or part thereof for
another 10 (TEN) weeks of delay. In cases, where the
delay affects installation/commissioning of part of
the project and part of the equipment is already in
commercial use, then in such cases, LD shall be levied on
the affected part of the project.
16.2 (c). The Liquidated Damages, as per Clause 16.2
(a) and 16.2 (b) above shall be limited to a maximum of
12%, even in case the DP extension is given beyond 20
weeks.
16.3. Provisions contained in Clause 16.2(a) shall not be
applicable for durations (periods) which attract L.D.
against clause 16.2(b) above.
16.4. Quantum of liquidated damages assessed and levied
by the purchaser shall be final and not challengeable by
the supplier."
13. As has been correctly held by the impugned
judgment, a maximum of 12% can be levied as liquidated
damages under the contract, which sum would amount to
a sum of INR 25 lakh. Since this clause governs the
relations between the parties, obviously, a higher figure,
contractually speaking, cannot be awarded as liquidated
damages, which are to be considered as final and not
challengeable by the supplier. This being the case, the
appellant can claim only this sum. Anything claimed
above this sum would have to be refunded to the
respondent."
In case of Kailash Nath Associates Vs. Delhi
Development Authority and another (3 supra), the Hon'ble
Supreme Court ruled as follows : (paragraphs 31 to 43)
"31. Section 74 as it originally stood read thus:
"When a contract has been broken, if a sum is named in
the contract as the amount to be paid in case of such
breach, the party complaining of the breach is entitled,
whether or not actual damage or loss is proved to have
been caused thereby, to receive from the party who has
broken the contract reasonable compensation not
exceeding the amount so named."
32. By an amendment made in 1899, the Section was
amended to read: "74. Compensation for breach of
contract where penalty stipulated for.- When a contract
has been broken, if a sum is named in the contract as the
amount to be paid in case of such breach, or if the
contract contains any other stipulation by way of penalty,
the party complaining of the breach is entitled, whether or
not actual damage or loss is proved to have been caused
thereby, to receive from the party who has broken the
contract reasonable compensation not exceeding the
amount so named or, as the case may be, the penalty
stipulated for.
Explanation.-A stipulation for increased interest from the
date of default may be a stipulation by way of penalty.
Exception.-When any person enters into any bail-bond,
recognizance or other instrument of the same nature, or,
under the provisions of any law, or under the orders of
the Central Government or of any State Government,
gives any bond for the performance of any public duty or
act in which the public are interested, he shall be liable,
upon breach of any condition of any such instrument, to
pay the whole sum mentioned therein.
Explanation.-A person who enters into a contract with
Government does not necessarily thereby undertake any
public duty, or promise to do an act in which the public
are interested."
33. Section 74 occurs in Chapter 6 of the Indian Contract
Act, 1872 which reads "Of the consequences of breach of
contract". It is in fact sandwiched between Sections
73 and 75 which deal with compensation for loss or
damage caused by breach of contract and compensation
for damage which a party may sustain through non-
fulfillment of a contract after such party rightfully
rescinds such contract. It is important to note that
like Sections 73 and 75, compensation is payable for
breach of contract under Section 74 only where damage
or loss is caused by such breach.
34. In Fateh Chand v. Balkishan Das, 1964 SCR (1) 515,
this Court held: "The section is clearly an attempt to
eliminate the somewhat elaborate refinements made
under the English common law in distinguishing between
stipulations providing for payment of liquidated damages
and stipulations in the nature of penalty. Under the
common law a genuine pre-estimate of damages by
mutual agreement is regarded as a stipulation naming
liquidated damages and binding between the parties: a
stipulation in a contract in terrorem is a penalty and the
Court refuses to enforce it, awarding to the aggrieved
party only reasonable compensation. The Indian
Legislature has sought to cut across the web of rules and
presumptions under the English common law, by
enacting a uniform principle applicable to all stipulations
naming amounts to be paid in case of breach, and
stipulations by way of penalty.
....
Section 74 of the Indian Contract Act deals with the
measure of damages in two classes of cases (i) where the
contract names a sum to be paid in case of breach and (ii)
where the contract contains any other stipulation by way
of penalty. We are in the present case not concerned to
decide whether a covenant of forfeiture of deposit for due
performance of a contract falls within the first class. The
measure of damages in the case of breach of a stipulation
by way of penalty is by Section 74 reasonable
compensation not exceeding the penalty stipulated for. In
assessing damages the Court has, subject to the limit of
the penalty stipulated, jurisdiction to award such
compensation as it deems reasonable having regard to all
the circumstances of the case. Jurisdiction of the Court to
award compensation in case of breach of contract is
unqualified except as to the maximum stipulated; but
compensation has to be reasonable, and that imposes
upon the Court duty to award compensation according to
settled principles. The section undoubtedly says that the
aggrieved party is entitled to receive compensation from
the party who has broken the contract, whether or not
actual damage or loss is proved to have been caused by
the breach. Thereby it merely dispenses with proof of
"actual loss or damages"; it does not justify the award of
compensation when in consequence of the breach no legal
injury at all has resulted, because compensation for
breach of contract can be awarded to make good loss or
damage which naturally arose in the usual course of
things, or which the parties knew when they made the
contract, to be likely to result from the breach."(At page
526, 527) Section 74 declares the law as to liability upon
breach of contract where compensation is by agreement of
the parties pre-determined, or where there is a stipulation
by way of penalty. But the application of the enactment is
not restricted to cases where the aggrieved party claims
relief as a plaintiff. The section does not confer a special
benefit upon any party; it merely declares the law that
notwithstanding any term in the contract predetermining
damages or providing for forfeiture of any property by way
of penalty, the court will award to the party aggrieved only
reasonable compensation not exceeding the amount
named or penalty stipulated. The jurisdiction of the court
is not determined by the accidental circumstance of the
party in default being a plaintiff or a defendant in a suit.
Use of the expression "to receive from the party who has
broken the contract" does not predicate that the
jurisdiction of the court to adjust amounts which have
been paid by the party in default cannot be exercised in
dealing with the claim of the party complaining of breach
of contract. The court has to adjudge in every case
reasonable compensation to which the plaintiff is entitled
from the defendant on breach of the contract. Such
compensation has to be ascertained having regard to the
conditions existing on the date of the breach."(At page
530)
35. Similarly, in Maula Bux v. Union of India (UOI), 1970
(1) SCR 928, it was held:
"Forfeiture of earnest money under a contract for sale of
property- movable or immovable-if the amount is
reasonable, does not fall within Section 74. That has been
decided in several cases :Kunwar Chiranjit Singh v. Har
Swarup, A.I.R.1926 P.C.1; Roshan Lal v. The Delhi Cloth
and General Mills Company Ltd., Delhi, I.L.R. All.166;
Muhammad Habibullah v. Muhammad Shafi, I.L.R. All.
324; Bishan Chand v. Radha Kishan Das, I.D. 19 All. 49.
These cases are easily explained, for forfeiture of a
reasonable amount paid as earnest money does not
amount to imposing a penalty. But if forfeiture is of the
nature of penalty, Section 74 applies. Where under the
terms of the contract the party in breach has undertaken
to pay a sum of money or to forfeit a sum of money which
he has already paid to the party complaining of a breach
of contract, the undertaking is of the nature of a penalty.
Counsel for the Union, however, urged that in the present
case Rs. 10,000/- in respect of the potato contract and
Rs. 8,500 in respect of the poultry contract were genuine
pre-estimates of damages which the Union was likely to
suffer as a result of breach of contract, and the plaintiff
was not entitled to any relief against forfeiture. Reliance in
support of this contention was placed upon the
expression (used in Section 74 of the Contract Act), "the
party complaining of the breach is entitled, whether or not
actual damage or loss is proved to have been caused
thereby, to receive from the party who has broken the
contract reasonable compensation". It is true that in every
case of breach of contract the person aggrieved by the
breach is not required to prove actual loss or damage
suffered by him before he can claim a decree, and the
Court is competent to award reasonable compensation in
case of breach even if no actual damage is proved to have
been suffered in consequence of the breach of contract.
But the expression "whether or not actual damage or loss
is proved to have been caused thereby" is intended to
cover different classes of contracts which come before the
Courts. In case of breach of some contracts it may be
impossible for the Court to assess compensation arising
from breach, while in other cases compensation can be
calculated in accordance with established rules. Where
the Court is unable to assess the compensation, the sum
named by the parties if it be regarded as a genuine pre-
estimate may be taken into consideration as the measure
of reasonable compensation, but not if the sum named is
in the nature of a penalty. Where loss in terms of money
can be determined, the party claiming compensation must
prove the loss suffered by him.
In the present case, it was possible for the Government of
India to lead evidence to prove the rates at which
potatoes, poultry, eggs and fish were purchased by them
when the plaintiff failed to deliver "regularly and fully" the
quantities stipulated under the terms of the contracts and
after the contracts were terminated. They could have
proved the rates at which they had to be purchased and
also the other incidental charges incurred by them in
procuring the goods contracted for. But no such attempt
was made."(At page 933,934)
36. In Shree Hanuman Cotton Mills and Anr. v. Tata
Aircraft Limited, 1970 (3) SCR 127 it was held:
"From a review of the decisions cited above, the following
principles emerge regarding "earnest":
(1) It must be given at the moment at which the contract
is concluded.
(2) It represents a guarantee that the contract will be
fulfilled or, in other words, 'earnest' is given to bind the
contract.
(3) It is part of the purchase price when the transaction is
carried out.
(4) It is forfeited when the transaction falls through by
reason of the default or failure of the purchaser.
(5) Unless there is anything to the contrary in the terms of
the contract, on default committed by the buyer, the seller
is entitled to forfeit the earnest" (At page 139) "The
learned Attorney General very strongly urged that the
pleas covered by the second contention of the appellant
had never been raised in the pleadings nor in the
contentions urged before the High Court. The question of
the quantum of earnest deposit which was forfeited being
unreasonable or the forfeiture being by way of penalty,
were never raised by the appellants. The Attorney General
also pointed out that as noted by the High Court the
appellants led no evidence at all and, after abandoning
the various pleas taken in the plaint, the only question
pressed before the High Court was that the deposit was
not by way of earnest and hence the amount could not be
forfeited. Unless the appellants had pleaded and
established that there was unreasonableness attached to
the amount required to be deposited under the contract or
that the clause regarding forfeiture amounted to a
stipulation by way of a penalty, the respondents had no
opportunity to satisfy the Court that no question of
unreasonableness or the stipulation being by way of
penalty arises. He further urged that the question of
unreasonableness or otherwise regarding earnest money
does not at all arise when it is forfeited according to the
terms of the contract.
In our opinion the learned Attorney General is well
founded in his contention that the appellants raised no
such contentions covered by the second point, noted
above. It is therefore unnecessary for us to go into the
question as to whether the amount deposited by the
appellants, in this case, by way of earnest and forfeited as
such, can be considered to be reasonable or not. We
express no opinion on the question as to whether the
element of unreasonableness can ever be considered
regarding the forfeiture of an amount deposited by way of
earnest and if so what are the necessary factors to be
taken into account in considering the reasonableness or
otherwise of the amount deposited by way of earnest. If
the appellants were contesting the claim on any such
grounds, they should have laid the foundation for the
same by raising appropriate pleas and also led proper
evidence regarding the same, so that the respondents
would have had an opportunity of meeting such a
claim."(At page 142)
37. And finally in ONGC Ltd. v. Saw Pipes Ltd., (2003) 5
SCC 705, it was held:
"64. It is apparent from the aforesaid reasoning recorded
by the Arbitral Tribunal that it failed to consider Sections
73 and 74 of the Indian Contract Act and the ratio laid
down in Fateh Chand case [AIR 1963 SC 140: (1964) 1
SCR 515 at p. 526] wherein it is specifically held that
jurisdiction of the court to award compensation in case of
breach of contract is unqualified except as to the
maximum stipulated; and compensation has to be
reasonable. Under Section 73, when a contract has been
broken, the party who suffers by such breach is entitled
to receive compensation for any loss caused to him which
the parties knew when they made the contract to be likely
to result from the breach of it. This section is to be read
with Section 74, which deals with penalty stipulated in
the contract, inter alia (relevant for the present case)
provides that when a contract has been broken, if a sum
is named in the contract as the amount to be paid in case
of such breach, the party complaining of breach is
entitled, whether or not actual loss is proved to have been
caused, thereby to receive from the party who has broken
the contract reasonable compensation not exceeding the
amount so named. Section 74 emphasizes that in case of
breach of contract, the party complaining of the breach is
entitled to receive reasonable compensation whether or
not actual loss is proved to have been caused by such
breach. Therefore, the emphasis is on reasonable
compensation. If the compensation named in the contract
is by way of penalty, consideration would be different and
the party is only entitled to reasonable compensation for
the loss suffered. But if the compensation named in the
contract for such breach is genuine pre-estimate of loss
which the parties knew when they made the contract to
be likely to result from the breach of it, there is no
question of proving such loss or such party is not
required to lead evidence to prove actual loss suffered by
him.
67........In our view, in such a contract, it would be
difficult to prove exact loss or damage which the parties
suffer because of the breach thereof. In such a situation,
if the parties have pre-estimated such loss after clear
understanding, it would be totally unjustified to arrive at
the conclusion that the party who has committed breach
of the contract is not liable to pay compensation. It would
be against the specific provisions of Sections 73 and 74 of
the Indian Contract Act. There was nothing on record that
compensation contemplated by the parties was in any way
unreasonable. It has been specifically mentioned that it
was an agreed genuine pre- estimate of damages duly
agreed by the parties. It was also mentioned that the
liquidated damages are not by way of penalty. It was also
provided in the contract that such damages are to be
recovered by the purchaser from the bills for payment of
the cost of material submitted by the contractor. No
evidence is led by the claimant to establish that the
stipulated condition was by way of penalty or the
compensation contemplated was, in any way,
unreasonable. There was no reason for the Tribunal not to
rely upon the clear and unambiguous terms of agreement
stipulating pre-estimate damages because of delay in
supply of goods. Further, while extending the time for
delivery of the goods, the respondent was informed that it
would be required to pay stipulated damages.
68. From the aforesaid discussions, it can be held that:
(1) Terms of the contract are required to be taken into
consideration before arriving at the conclusion whether
the party claiming damages is entitled to the same.
(2) If the terms are clear and unambiguous stipulating the
liquidated damages in case of the breach of the contract
unless it is held that such estimate of
damages/compensation is unreasonable or is by way of
penalty, party who has committed the breach is required
to pay such compensation and that is what is provided
in Section 73 of the Contract Act.
(3) Section 74 is to be read along with Section 73 and,
therefore, in every case of breach of contract, the person
aggrieved by the breach is not required to prove actual
loss or damage suffered by him before he can claim a
decree. The court is competent to award reasonable
compensation in case of breach even if no actual damage
is proved to have been suffered in consequence of the
breach of a contract.
(4) In some contracts, it would be impossible for the court
to assess the compensation arising from breach and if the
compensation contemplated is not by way of penalty or
unreasonable, the court can award the same if it is
genuine pre-estimate by the parties as the measure of
reasonable compensation."
38. It will be seen that when it comes to forfeiture of
earnest money, in Fateh Chand's case, counsel for the
appellant conceded on facts that Rs.1,000/- deposited as
earnest money could be forfeited. (See: 1964 (1) SCR Page
515 at 525 and 531).
39. Shree Hanuman Cotton Mills & Another which was so
heavily relied by the Division Bench again was a case
where the appellants conceded that they committed
breach of contract. Further, the respondents also pleaded
that the appellants had to pay them a sum of Rs.42,499/-
for loss and damage sustained by them. (See: 1970 (3)
SCR 127 at Page 132). This being the fact situation, only
two questions were argued before the Supreme Court: (1)
that the amount paid by the plaintiff is not earnest money
and (2) that forfeiture of earnest money can be legal only if
the amount is considered reasonable. (at page 133). Both
questions were answered against the appellant. In
deciding question two against the appellant, this Court
held:-
"But, as we have already mentioned, we do not propose to
go into those aspects in the case on hand. As mentioned
earlier, the appellants never raised any contention that
the forfeiture of the amount amounted to a penalty or that
the amount forfeited is so large that the forfeiture is bad
in law. Nor have they raised any contention that the
amount of deposit is so unreasonable and therefore
forfeiture of the entire amount is not justified. The
decision in Maula Bux's [1970]1SCR928 had no occasion
to consider the question of reasonableness or otherwise of
the earnest deposit being forfeited. Because, from the said
judgment it is clear that this Court did not agree with the
view of the High Court that the deposits made, and which
were under consideration, were paid as earnest money. It
is under those circumstances that this Court proceeded to
consider the applicability of Section 74 of the Contract
Act. (At page 143)"
40. From the above, it is clear that this Court held that
Maula Bux's case was not, on facts, a case that related to
earnest money. Consequently, the observation in Maula
Bux that forfeiture of earnest money under a contract if
reasonable does not fall within Section 74, and would fall
within Section 74 only if earnest money is considered a
penalty is not on a matter that directly arose for decision
in that case. The law laid down by a Bench of 5 Judges in
Fateh Chand's case is that all stipulations naming
amounts to be paid in case of breach would be covered
by Section 74. This is because Section 74 cuts across the
rules of the English Common Law by enacting a uniform
principle that would apply to all amounts to be paid in
case of breach, whether they are in the nature of penalty
or otherwise. It must not be forgotten that as has been
stated above, forfeiture of earnest money on the facts in
Fateh Chand's case was conceded. In the circumstances,
it would therefore be correct to say that as earnest money
is an amount to be paid in case of breach of contract and
named in the contract as such, it would necessarily be
covered by Section 74.
41. It must, however, be pointed out that in cases where a
public auction is held, forfeiture of earnest money may
take place even before an agreement is reached, as DDA is
to accept the bid only after the earnest money is paid. In
the present case, under the terms and conditions of
auction, the highest bid (along with which earnest money
has to be paid) may well have been rejected. In such
cases, Section 74 may not be attracted on its plain
language because it applies only "when a contract has
been broken".
42. In the present case, forfeiture of earnest money took
place long after an agreement had been reached. It is
obvious that the amount sought to be forfeited on the
facts of the present case is sought to be forfeited without
any loss being shown. In fact it has been shown that far
from suffering any loss, DDA has received a much higher
amount on re-auction of the same plot of land.
43. On a conspectus of the above authorities, the law on
compensation for breach of contract under Section 74 can
be stated to be as follows:- Where a sum is named in a
contract as a liquidated amount payable by way of
damages, the party complaining of a breach can receive as
reasonable compensation such liquidated amount only if
it is a genuine pre-estimate of damages fixed by both
parties and found to be such by the Court. In other cases,
where a sum is named in a contract as a liquidated
amount payable by way of damages, only reasonable
compensation can be awarded not exceeding the amount
so stated. Similarly, in cases where the amount fixed is in
the nature of penalty, only reasonable compensation can
be awarded not exceeding the penalty so stated. In both
cases, the liquidated amount or penalty is the upper limit
beyond which the Court cannot grant reasonable
compensation.
Reasonable compensation will be fixed on well known
principles that are applicable to the law of contract, which
are to be found inter alia in Section 73 of the Contract
Act.
Since Section 74 awards reasonable compensation for
damage or loss caused by a breach of contract, damage or
loss caused is a sine qua non for the applicability of the
Section.
The Section applies whether a person is a plaintiff or a
defendant in a suit.
The sum spoken of may already be paid or be payable in
future.
The expression "whether or not actual damage or loss is
proved to have been caused thereby" means that where it
is possible to prove actual damage or loss, such proof is
not dispensed with. It is only in cases where damage or
loss is difficult or impossible to prove that the liquidated
amount named in the contract, if a genuine pre-estimate
of damage or loss, can be awarded.
Section 74 will apply to cases of forfeiture of earnest
money under a contract. Where, however, forfeiture takes
place under the terms and conditions of a public auction
before agreement is reached, Section 74 would have no
application."
In case of Bharat Sanchar Nigam Limited Vs. Reliance
Communication Limited (4 supra), the Hon'ble Supreme Court
held as under: (paragraph 53)
"53. Lastly, it may be noted that liquidated damages
serve the useful purpose of avoiding litigation and
promoting commercial certainty and, therefore, the court
should not be astute to categorize as penalties the clauses
described as liquidated damages. This principle is
relevant to regulatory regimes. It is important to bear in
mind that while categorizing damages as "penal" or
"liquidated damages", one must keep in mind the concept
of pricing of these contracts and the level playing field
provided to the operators because it is on costing and
pricing that the loss to BSNL is measured and, therefore,
all calls during the relevant period have to be seen. [See
Communications Law in India by Vikram Raghavan at
page 639]. Since clause 6.4.6 represents pre-estimate of
reasonable compensation, Section 74 of the Contract Act
is not violated. Thus, it is not necessary to discuss
various judgments of this Court under Section 74 of the
Contract Act."
In the case of Union of India Vs. Raman Iron Foundry
(5 supra), the Hon'ble Supreme Court held as under:
(Para 11).
"11. The language used in the body of cl. 18 also
supports the view that it is with recovery of sums
presently due and payable by the ,contractor to the
purchaser that this clause deals. It may be noted that cl.
18 does not lay down the substantive rights and
obligations of the parties under the contract. It is merely
intended to provide a mode of recovery of ' a claim for
payment of a sum of money arising out of or under the
contract". It, therefore, postulates a claim for a sum which
is due and payable, that is. presently recoverable and may
be recovered by the mode therein provided. it is difficult to
believe that the contracting parties could have intended
that even though a sum is not due and payable by the
contractor to the purchaser under the contract, the
purchaser should be entitled to recover it. It is important
to note that cl. 18 does not -create a lien on other sums
due to the contractor or give to the purchaser a right to
retain such sums until his claim against the contractor is
satisfied.If merely a right of lien or retention were given to
secure payment of a claim, then even if the claim were for
a sum not presently due and payable, the provision
perhaps would not have been so startling ,or unusual.
But here the right given to the purchaser under. cl. 18 is
a right to recover the amount of his claim by
appropriating other sums due to the contractor and, on
the, interpretation of the appellant, this can be done even
if the claim is for a sum which is not due or payable in
praesenti and the purchaser is otherwise not entitled to
recover it. That would indeed be a highly extra-ordinary
result which we would be loathe to reach in the absence
of clear and compelling language. This interpretation, if
accepted, would mean that as soon as a claim is made by
the purchaser, it would immediately become recoverable
and the purchaser would be entitled to sell off the
securities of the contractor and appropriate the sale
proceeds in or towards satisfaction of such claim and in
case that is insufficient, recover the balance by
appropriating other sums due to the contractor and if
there is even then a shortfall, recover it personally from
the contractor, for the last words of cl. 18 provide that
"the contractor shall on demand pay to the purchaser the
balance remaining due". And this consequence would
ensue even if the claim is for a sum which the -contractor
is under no existing obligation to pay or which is not
presently payable or is disputed as regards the existence
of liability or its quantum. A mere making of a claim by
the purchaser would impose a liability on the contractor
to pay it. That surely could -not have been the intention of
the contracting parties. It would be more consonant with
reason and good sense to take the view, which, as pointed
out above, is plainly and indubitably supported by the
language used by the contracting parties, that cl. Is does
no more than merely provide an additional mode of
recovery to the purchaser, and the purchaser is entitled to
exercise the right conferred, under that clause only where
there is a claim for a sum which is presently due and
payable by the contractor."
In Fateh Chand Vs. Balkishan Dass (6 supra), the
Hon'ble Supreme Court held as under: (Paras 10 and 15).
"10. Section 74 of the Indian Contract Act deals with the
measure of damages in two classes of cases
(i) where the contract names a sum to be paid in case of
breach and `ii) where the contract contains any other
stipulation by way of penalty. We are in the present case
not concerned to decide whether a covenant of forfeiture
of deposit for due performance of a contract falls within
the first class. The measure of damages in the case of
breach of a stipulation by way of penalty is by s.
74 reasonable compensation not exceeding the penalty
stipulated for. In assessing damages the Court has,
subject to the limit of the penalty stipulated, jurisdiction
to award such compensation as it deems reasonable
having regard to all the circumstances of tile case.
jurisdiction of the Court to award compensation in case of
breach of contract is unqualified except as to the
maximum stipulated; but compensation has to be
reasonable, and that imposes upon the Court duty to
award compensation according, to settled principles. The
section undoubtedly says that the aggrieved party is
entitled to receive compensation from the party who has
broken the contract, whether or not actual damage or loss
is proved to have been caused by the breach. Thereby it
merely dispenses with proof of "actual loss or damages"; t
does not justify the award of compensation when in
consequence of the breach no legal injury at all has
resulted, because compensation for breach of contract
can be awarded to make good loss or damage which
naturally arose in the usual course of things, or which the
parties knew when they made the contract, to be likely to
result from the breach.
...
15. Section 74 declares the law as to liability upon breach
of contract where compensation is by agreement of the
parties predetermined, or where there is a stipulation by
way of penalty. But the application of the enactment is
not restricted to cases where the aggrieved party claims
relief' as a plaintiff. The section does not confer a special
benefit upon any party; it merely declares the law that
notwithstanding any term in the contract predetermining
damages or providing for forfeiture of any property by way
of penalty, the court will award to the party aggrieved only
reasonable compensation not exceeding the amount
named or penalty stipulated. The jurisdiction of the court,
is not determined by the accidental circumstance of the
party in default being a plaintiff or a defendant in a suit.
Use of the expression "to receive from the party who has
broken the contract" does not predicate that the
jurisdiction of the court to adjust amounts which have
been paid by the party in default cannot be exercised in
dealing with the claim of the party complaining of breach
of contract. The court has to adjudge in every case
reasonable compensation to which the plaintiff is entitled
from the defendant on breach of the contract. Such
compensation has to be ascertained having regard to the
conditions existing on the date of the breach."
26. In the considered opinion of this Court, the
amounts awarded under claims 5 and 8, having regard to the
reasons assigned by the learned Arbitral Tribunal and the
Special Judge, by any stretch of imagination, cannot be
termed to be unreasonable. The contention advanced by
the learned counsel for the appellant that since the Arbitral
Tribunal awarded amounts under claim No.1 in the form of
price variation, the Tribunal ought not to have granted the
reliefs under claims 5 and 8, cannot be sustained in the eye
of law, having regard to the language of the provisions of
Sections 73 and 74 of the Indian Contract Act, 1872.
Therefore, the judgments sought to be pressed into service by
the leaned counsel for the appellant would not render any
assistance to the appellant herein in view of the facts and
circumstances of the case.
27. Coming to the judgments cited by the learned
counsel for the 1st respondent-Contractor, in the case of
Associate Builders Vs. Delhi Development Authority (1 supra),
the Hon'ble Apex Court at paragraphs 2, 7 to 10, 12, 57 to
62, held as follows:
"2. The appellant herein was awarded a certain construction
work contract by the DDA vide a letter of award dated 14th
May, 1992. DDA was building a colony consisting of 7,000
houses in Trilok Puri in the trans-Yamuna area. 168 Middle
Income Group houses and 56 Lower Income Group houses,
Grade-A Pocket- B (balance work) was awarded for the
tendered amount of Rs.87,66,678/-. The contract was to be
completed in 9 months. Admittedly, it was ultimately
completed only in 34 months, the contractor completing 166
Middle Income Group houses and 36 Lower Income Group
houses. The total value of work that was done amounted to
Rs.62,84,845/-. As many as 15 claims were made by the
contractor and the High Court of Delhi appointed one Shri
K.D. Bali to arbitrate the present dispute.
...
7. The Arbitrator by a reasoned award dated 23rd May,
2005 held that the entire delay of 25 months in the
execution of the project was thanks to the DDA, none of this
delay being attributable to the contractor. The learned
Arbitrator found:
"That all the above four claims are inter linked being related
to the overhead expenses and therefore dealt together.
That the date of commencement of work was 24.5.92 and
the period for completion was 9 months and therefore, the
disputed date of completion was 23.2.93 but the work could
be actually completed on 28.3.95.
That there was delay of 25 months in completion of the work
beyond the stipulated date of completion.
That the Claimants urged that there had been various
delays in the execution of work due to the lapses and
defaults of the Respondents from the very commencement of
work. The progress was held up time and again and the
claimants therefore, as back as 17.2.93 advised the
Respondents (C-9 page 167) that the Claimants are not
interested to execute the work beyond the stipulated date of
completion and therefore, their contract be finalized on the
stipulated date of completion as the Claimants shall be
exposed to incur heavy expenditure in overheads for
maintaining establishment watch and ward and tools and
plants and other shuttering material but the Respondents
did not refute. The chief reasons for delay are highlighted
below:-
I) Delay in supply of structural and architectural drawings.
II) That out of 9 Blocks 2 blocks are abnormally delayed as
the site of the said 21 blocks was made available in
piecemeal which stretched till 26.2.94 whereas the
stipulated completion was 23.2.93.
III) Delay in laying the conduit by the electrical agency
resulting in delay in casting of RCC slab and plastering work
besides development work. The said hindrance was removed
lastly on 28.3.95.
IV) Abnormal delay in making availability of the alignment
sketch for electrical cables.
V) Inordinate delay in supply of stipulated material such as
cement, steel and pipes.
VI) Delay in decision of finishing work in kitchen and bath
rooms.
VII) There was inordinate delay in making availability of
colour scheme.
VIII) That the Respondents also abnormally delayed the
supply of door shutters which were to be supplied by the
Respondents. The same were supplied as late as 8.11.94.
IX) Inordinate delay in writing in the electrical conduits
resulting in delay in completion of finishing work.
X) Suspension of work by the Respondents for the period
17.1.94 to 25.2.94 and from 7.8.94 to 22.3.95 because of
non-removal of hindrances.
XI) Delayed payment due to non-sanction of Administrative
Approval and Expenditure Sanction.
That all the delays as set out had been duly recorded 733 to
739 and M.A.S. register pages from 747 to 768 as
highlighted by the Claimants. The Claimants also relied
upon certain documents of MAS Register supplied by the
Respondents.
That the Claimants further stated that the Claimants had
also filed reasons for delay and hold up of the work various
defaults of the Respondents in Annexure pages 740 to 746.
The Claimants also highlighted the correspondence made by
the Claimants with Respondents.
That the Claimants further stated that the said hindrances
were avoidable but the Respondents did not take timely
steps.
That the Claimants also referred the contents of the letter
dated 10.7.95 (page 885) wherein it was observed that the
Superintending Engineer appreciated the working of the
Claimants and also observed that there was no fault of the
contractor and they have successfully completed the work.
The Claimants further stated that, they had incurred heavy
expenditure on overheads of the lapses and default of the
Respondents.
As against this the Respondents stated that there was poor
planning of the claimants and also contended that since the
compensation has been levied under Clause 2 of the
agreement therefore, claim of the claimants deserves to be
rejected.
That on record it is conclusively proved that the
Respondents committed breach of contract as they failed to
discharge their obligations in time resulting in prolongations
did not deny the deployment of the tools and plants and
machinery at site besides watch and ward during the
prolongation."
8. It is important to note that before the Division Bench,
the learned counsel for the DDA conceded that this being a
pure finding of fact, he would not be challenging it before
the Division Bench.
9. Of the total claim of Rs.37.28 lakhs, the learned
Arbitrator awarded an amount of Rs.23.39 lakhs. Further,
the learned Arbitrator has laboriously gone through all the
evidence and answered each claim giving reasons for the
same.
10. By a judgment dated 3rd April, 2006, the learned Single
Judge of the High Court of Delhi dismissed the objections of
the DDA and upheld the award. In an appeal filed
under Section 37 of the Arbitration Act, vide the impugned
judgment dated 8th February, 2012, a Division Bench of the
High Court of Delhi set aside the judgment of the Single
Judge on claims 9, 10, 11 and 15, and negatived these
claims in toto. Further, claims 12 and 13 were scaled down
doing "rough and ready justice". Resultantly, the awarded
amount of Rs.7,20,000/- was scaled down to Rs.
5,57,137.50/-.
...
12. Mr. Amarendra Sharan, learned Senior Advocate
appearing on behalf of the DDA has relied strongly on clause
10C and clause 22 to support the judgment of the Division
bench and has further argued that there has been
duplication so far as certain claims are concerned. He
argued that an award in the teeth of clause 10C and clause
22 would be a jurisdictional error which would vitiate the
award.
...
57. We come now to the arguments of Mr. Sharan in
support of the Division Bench judgment. The learned
counsel strongly relied on clause 10C and clause 22. These
two clauses are set out as below:
Clause 10C of the agreement reads as follows:
"If during the progress of the works, the price of any
material incorporated in the works, (not being a material
supplied from the Engineer- in-Charge's stores in
accordance with Clause 10 hereof and/or wages of labour
increases as direct result of the coming into force of any
fresh law, or statutory rule or order (but not due to any
changes in sales tax) and such increase exceed ten per cent
of the price and/or wages prevailing at the time of receipt of
the tender for the work, and contractor thereupon
necessarily and properly pays in respect of the material
(incorporated in the work) such increased price and/or in
respect of labour engaged on the execution of the work such
increased wages, then the amount of the contract shall
accordingly be varied provided always that any increase so
payable is not, in the opinion of the Superintending
Engineer (whose decision shall be final and binding)
attributable to delay in execution of the contract within the
control of the contractor. Provided, however, no
reimbursements shall be made if the increase is not more
than 10% of the said prices/wages and if so the
reimbursements shall be made only on the excess over 10%
and provided further that any such increase shall not be
payable if such increase has become operative after the
contract or extended date of completion of the work in
question.
If during the progress of the works, the price of any material
incorporated in the works (not being a material supplied
from the Engineer- in-Charge's stores in accordance with
Clause 10 hereof) and/or wages of labour is decreased as a
direct result of the coming into force of any fresh law or
statutory rule or order (but not due to any changes in sales
tax) and such decrease exceeds ten per cent of the prices
and/or wages prevailing at the time of receipt of the tender
for the work, Delhi Development Authority shall in respect of
materials incorporated in the work (not being materials
supplied from the Engineer-in-Charge's stores in accordance
with Clause 10 hereof) and/or labour engaged on the
execution of the work after the date of coming into force of
such law, statutory rule or order be entitled to deduct from
the dues of the contractor such amount as shall be
equivalent of difference between the prices of materials and/
or wages as they prevailed at the time of receipt of tender for
the work minus ten per cent thereof and the prices of
materials and/ or wages of labour on the coming into force
of such law, statutory rule or order.
The contractor shall for the purpose of this condition keep
such books of account and other documents as are
necessary to show the amount of any increase claimed or
reduction available and shall allow inspection of the same by
a duly authorised representative of Delhi Development
Authority and further shall, at the request of the Engineer-
in-Charge furnish, verified in such a manner as the
Engineer-in-Charge may require. Any document, so kept
and such other information as the Engineer-in-Charge may
require.
The contractor shall, within a reasonable time of his
becoming aware of any alteration in the prices of any such
materials and/ or wages of labour give notice thereof to the
Engineer-in- Charge stating that the same is given in
pursuance to the condition together with all information
relating thereto which he may be in a position to supply."
Clause 22 reads as follows:
"All sums payable by way of compensations under any of
these conditions shall be, considered as reasonable
compensation to be applied to this use of Delhi Development
Authority without reference to the actual loss or damage
sustained, and whether or not any damage shall have been
sustained.
Specifications and Conditions:
1. The contractor must get acquainted with the proposed
site for the works and study specifications and conditions
carefully before tendering. The work shall be executed as per
programme approved by the Engineer-in-Charge. If part of
site is not available for any reasons or there is some
unavoidable delay in supply of materials stipulated by the
Departments, the programme of construction shall be
modified accordingly and the contractor shall have no claim
for any extras or compensation on this account."
58. Clause 10C concerns itself with the price of material
incorporated in the works or wage or labour increases. It
has been seen that claims 9, 10 and 11 have nothing to do
with either of the aforesaid subjects. In seeking to apply this
clause to claim 15, the simple answer is that this clause will
not apply when a claim for damages is made. Further, the
Arbitrator considered this clause in detail and only awarded
amounts under this clause in excess of 10 percent as
required by the clause when it came to awarding amounts
under claims 2, 3 and 4, which fell within the ambit of
clause 10C. The DDA in the appeal before the Division
Bench correctly gave up any challenge to these claims as
has been recorded in paragraph 4 of the order under appeal.
59. The Arbitrator has dealt with this clause in detail and
has construed and applied the same correctly while dealing
with claims 2, 3 and 4 and has obviously not applied the
said clause to claims 9, 10, 11 and 15 as no occasion for
applying the same arose. The award cannot be faulted on
this ground.
60. Also, so far as clause 22 is concerned, the DDA did not
raise any argument based on this clause before the learned
Arbitrator. However, it must in fairness be stated that it was
argued before the learned Single Judge. In para 15 of his
judgment, the learned Judge sets the clause out and then
follows a judgment of the High Court of Delhi in Kochhar
Construction Works v. DDA & Anr., (1998) 2 Arb. LR 209.
Apart from the fact that a learned Single Judge of the same
court is bound by a previous judgment of a Single Judge,
the conclusion of the learned Single Judge that if the
appellant is at fault and the contract is prolonged for an
inordinate period of time, it cannot be said that the
respondents cannot be compensated for the same is correct.
Besides, this point was not urged before the Division Bench
and must be taken to be given up. Mr. Sharan cited Harsha
Constructions v. Union of India & Ors., (2014) 9 SCC 246 to
say that in respect of excepted matters, no arbitration is
possible, and that this being a jurisdictional point, he
should be allowed to raise it before us. Unfortunately for Mr.
Sharan, the clause does not operate automatically. It only
operates if an objection is taken stating that part of the site
is not available for any reason. Nowhere has the DDA stated
which part of the site is not available for any reason.
Further, the learned Single Judge's reason for rejecting an
argument based on this clause also commends itself to us
as the object of this clause is that no claim for extras should
be granted only if there is an unavoidable delay. We have
seen that the delay was entirely avoidable and caused solely
by the DDA itself.
61. One more point needs to be noted. An argument was
made before the learned Single Judge that there has been a
duplication of claims awarded. The learned Judge dealt with
this argument as follows:
"18. Learned counsel for the petitioner in respect of ground
P, once again makes a reference to the issue that there is
overlapping of the claim. I am unable to accept the
submission made by the learned counsel. The consequence
of delay may have more than one ramifications including the
cost of material the supervision required at the site, the
inability of the contractor to utilise the manpower at some
other place, the inability of the contractor to make, profits
from some other contract by utilisation of the same
resources. All these aspects are liable to be considered. The
Arbitrator has considered the claims separately and has
dealt with, claims 9, 10, 11 & 15 together. Claims 12 & 13
have been thereafter dealt with on the same principles since
it was found that it was not the respondent, who was
responsible for the delay for a period of 25 months beyond
the stipulated condition of 9 months.
There is thus no question of overlapping in different heads
and the grievance of the petitioner is rejected."
62. The Single Judge is clearly right. We have gone through
all the 15 claims supplied to us and we find that none of
these claims are in fact overlapping. They are all contained
under separate heads. This argument, therefore, must also
fail.
The law laid down in Central Bank of India Vs.
Virudhunagar Steel Rolling Mills Limited and others (10
supra), in the considered opinion of this Court, is squarely
applicable to the case on hand.
28. Findings on Claims 4 and 7: Respondent No.1
claimed under claim No.4, a sum of Rs.1,19,30,185-75 ps
plus service tax and interest and respondent No.1 claimed
the said amount towards expenditure met by him in
executing 12 number of extra items. Under claim No.7 i.e.
fixation of higher BOQ rates for the additional scope of work
entrusted to the claimant for JH 44A to JH 49A and making
payment thereof, respondent No.1 herein claimed a sum of
Rs.44,00,714.48 ps. Against claim No.4, the Arbitral
Tribunal granted Rs.79,27,943/- + service tax and interest,
and against claim No.7, the Arbitral Tribunal granted
Rs.23,33,236/- + service tax and interest.
29. The principal contention advanced by the learned
counsel for the appellant as regards these claims is, in view
of clause 21.3 of the General Conditions of Contract, these
claims are excepted matters, as such, the contractor is not
entitled for the said claims and the Arbitral Tribunal has no
jurisdiction to entertain these claims for arbitration under
Clause 28 of the General Conditions of Contract. In this
context, it may be appropriate to refer to clause 21.0 of the
Special Conditions of Contract, which reads as under:
"EXCEPTED MATTERS :
In the above clauses, wherever it is mentioned
that the decision/instructions/opinions of the
Engineer/Employer will be final/binding and are
conclusive, these will also be treated as excepted
matters as defined in General Conditions of
Contract."
The Tribunal, while dealing with these claims,
categorically found that having breached the contract, it
would not be open for the appellant herein to take the plea of
the excepted matters. Learned Special Judge, by placing
reliance on the judgment of the Hon'ble Supreme Court in Mc
Dermott International INC Vs. Burn Standard Co. Ltd., and
others reported in (2006) 11 SCC 181 and Hind Construction
Contractors by its Sole Proprietor Bhikamchand Mulchand Jain
(Dead) by LRs. Vs. State of Maharashtra reported in AIR 1979
Supreme Court 720, also turned down the plea of the
appellant Company, as regards the plea of the excepted
matters. Clause 26.3 of the General Conditions of Contract
reads as follows:
"Clause 26.3 : Valuation at the date of
termination of Contract: The Engineer shall as
soon as may be practicable after any such entry
and expulsion by the Employer fix and determine
ex-party or by or after reference to the parties or
after such investigation or enquiries as he may
think fit to make or institute and shall certify
what amount (if any) had at the time of such
entry and expulsion been reasonably earned by
or would reasonably accrue to the Contractor in
respect of work then actually done by him under
the Contract and what was the value of any
unused or partially used materials, any
Constructional plant and Temporary works
which have been deemed to become the property
of the Employer Under Clause No.9.29 herein
above upon the Site."
30. In support of his contentions and submissions,
learned Senior Counsel appearing for the appellant seeks to
place reliance on the judgment of the Hon'ble Apex Court in
the case of M/s. Mitra Guha Builders (India) Company Vs. Oil
and Natural Gas Corporation Limited (7 supra). In the said
judgment, paragraphs 16 to 29 read as under:
"16. In order to appreciate the claim of ONGC in levying
the damages in terms of Clause 2, it is necessary to refer
to Clause 2 of the agreement which reads as under:-
"Clause 2: Compensation for Delay The time allowed for
carrying out the work as entered in the tender shall be
strictly observed by the contractor and shall be deemed to
be the essence of the contract on the part of the
contractor and shall be reckoned from the 15th day after
the date on which the order to commence the work is
issued to the contractor. The work shall throughout the
stipulated period of the contract be proceeded with all due
diligence and the contractor shall pay compensation on
amount equal to ½ % per week as the Superintending
Engineer (whose decision in writing shall be final) may
decide on the amount of the contract, value of the whole
work as shown in the agreement, for every week that the
work remains uncommenced, or unfinished, after the
proper dates. After further to ensure good progress during
the execution of the work, the contractor shall be bound
in all cases in which the time allowed for any work
exceeds, one month (save the special jobs) to complete
one-eighth of the work, before one-fourth of the whole
time allowed under the contract has elapsed and three-
eights of the work, before one-half of such time has
elapsed, and three-fourth of such time has elapsed.
However, for special jobs if a time schedule has been
submitted by the contractor and the same has been
accepted by the Engineer-in-Charge, the Contractor shall
comply with the said time schedule. In the event of the
contractor failing to comply with this condition, he shall
be liable to pay as compensation an amount equal to ½ %
per week as the Superintending Engineer (whose decision
in writing shall be final) may decide on the said contract
value if the whole work for every week that the due
quantity of works remains incomplete provided always
that the entire amount of compensation to be paid under
the provisions of the clause shall not exceed ten per cent
(10%) of the tendered cost of the work as shown in the
tender." [Emphasis added]
17. A reading of Clause 2 makes it clear that the
Superintending Engineer has been conferred with not only
a right to levy compensation; but it also provides a
mechanism for determination of the liability/quantum of
compensation. The very Clause 2 itself would show that
such a decision taken by the Superintending Engineer
shall be final. The finality clause in the contract in terms
of Clause 2 makes the intention of the parties very clear
that there cannot be any further dispute on the said issue
between the parties; much less before the arbitrator.
18. Clause 25 of the agreement - Settlement of disputes
by Arbitration, reads as under:-
"Clause 25 - Settlement of disputes by Arbitration If any
dispute, difference, question or disagreement shall, at any
time, hereafter arises between the parties hereto or the
respective representatives or assigns in connection with or
arising out of the contract, or in respect of meaning of
specifications, design, drawings, estimates, scheduled,
annexures, orders, instructions, the construction,
interpretation of this agreement, application of provisions
thereof or anything hereunder containing or arising
hereunder or as to rights, liabilities or duties of the said
parties hereunder or arising hereunder any matter
whatsoever incidental to this contract or otherwise
concerning the works of execution or failure to execute
the same whether during the progress of work or
stipulated/extended period or before or after the
completion or abandonment thereof shall be referred to
the sole arbitration of the person appointed by a Director
of ONGC Ltd. at the time of dispute. There will be no
objection to any such appointment that the arbitrator so
appointed is an employee of ONGC Ltd. or that he had to
deal with the matters to which the contract relates and
that in the course of this duties as ONGC Ltd. employees,
lie had expressed views on all or any of the matters in
dispute or difference. If the arbitrator to whom the matter
is originally referred dies or refuses to act or resigns for
any reason from the position of arbitrator, it shall be
lawful for the Director of ONGC Ltd. to appoint another
person to act as arbitrator in the manner aforesaid. Such
person shall be entitled to proceed with the reference from
the stage at which it was left by his predecessor if both
the parties consent to this effect, failing which the
arbitrator will be entitled to proceed de-novo. ...........
It is also a term of the contract that if the contractor(s)
do/does not make any demand for arbitration in respect
of any claim(s) in writing within 90 days of receiving the
intimation from the corporation that the bill is ready for
payment, the claim of the contractor(s) will be deemed to
have been waived and absolutely barred and the
Corporation shall be discharged and released of all
liabilities under the contract in respect of these claims.
The decision of the Superintending Engineer regarding
the quantum of reduction as well as his justification in
respect of reduced rates for sub-standard work, which
may be decided to be accepted, will be final and would not
be open to arbitration. ...........". [Emphasis added]
19. The intention of the parties to exclude some of the
decisions of the Superintending Engineer from the
purview of arbitration is clearly seen from the abovesaid
clause. Claim No.6 made by the appellant is to declare
that the penalty imposed by ONGC under Clause 2 was
illegal and unwarranted and the amount withheld by
ONGC was payable to the appellant. The very prayer to
declare the amount levied by the Superintending Engineer
as illegal is against the tenor of the terms of the contract
(Clause 2) between the parties. By virtue of the finality
clause in the contract, any decision taken by the
Superintending Engineer in levying compensation cannot
be referred to an arbitrator. The parties have consciously
agreed to have finality to the decision of the
Superintending Engineer and the same cannot be
frustrated by challenging the same as illegal. Any other
meaning to the finality clause in the contract and allowing
further adjudication by another authority would make the
agreed Clause 2 and Clause 25 of the agreement
meaningless and redundant.
20. As held by the Division Bench of the High Court,
whether there was delay in completion of work and the
levy of liquated damages, could not have been determined
by the arbitrator. Vide letters dated 08.12.1999,
09.12.1999, 17.12.1999, 11.02.2000 and 17.04.2000,
ONGC called upon the respondent/contractor to remove
the defects failing which it would get the defects remedied
at his cost. According to ONGC, the completion time was
extended without prejudice to the right of ONGC to
recover compensation in accordance with Clause 2 of the
agreement. The contention of ONGC is that by the letter
dated 15.05.2001, the contractor was put on notice that
in exercise of the power conferred on the Superintending
Engineer under Clause 2, the contractor is liable to pay
10% of the contract value by way of compensation. The
contractor was informed by the said letter dated
15.05.2001 that the compensation is levied on him for the
period of 39 weeks at half per cent per week subject to
maximum of 10% of the contract value and that the
actual amount of compensation shall be worked out on
checking the final bill and the same shall be recovered by
ONGC from the final bill. By the subsequent letter dated
25.05.2001, the claimant was informed that the final bill
is ready and the claimant was required to reconcile the
final bill after adjusting the compensation.
21. A reading of the other terms of the contract would
further indicate that under Clauses 13 and 14 of the
agreement, the parties have agreed for payment of
compensation and non-payment of compensation in
certain situations. Significantly, Clauses 13 and 14 of the
agreement do not have any finality clause which indicates
that any dispute arising out of such clauses may be a
dispute referable to arbitration. However, in respect of
levy of compensation for the delay, Clause 2 of the
agreement specifically makes the decision of the
Superintending Engineer, final. The entire contract
between the parties and the terms thereon have to be read
as a whole to decide the rights and liabilities of the parties
arising out of the contract. In claim No.6, the contractor
has sought for declaration "that the penalty under Clause
2 imposed by ONGC was illegal and unwarranted and the
amount withheld by ONGC was payable to the contractor
with interest @ 24%". Claim No.6 sought for by the
contractor is clearly in violation of Clause 2 of the
agreement between the parties, in and by which, the
parties have agreed that the decision taken by the
Superintending Engineer levying compensation shall be
final. The finality clause in the contract cannot therefore
be frustrated by calling upon the arbitrator to decide on
the correctness of levy of compensation by the
Superintending Engineer.
22. While considering similar contractual provisions viz.
Clause 2 of the agreement as in the present case,
in Vishwanath Sood v. Union of India and Another (1989)
1 SCC 657, the Supreme Court held as under:-
"8. ......... As we see it, clause 2 contains a complete
machinery for determination of the compensation which
can be claimed by the Government on the ground of delay
on the part of the contractor in completing the contract as
per the time schedule agreed to between the parties. The
decision of the Superintending Engineer, it seems to us, is
in the nature of a considered decision which he has to
arrive at after considering the various mitigating
circumstances that may be pleaded by the contractor or
his plea that he is not liable to pay compensation at all
under this clause. In our opinion the question regarding
the amount of compensation leviable under clause 2 has
to be decided only by the Superintending Engineer and no
one else.
9. ........After referring to certain judicial decisions
regarding the meaning of the word "final" in various
statutes, the Division Bench concluded that the finality
cannot be construed as excluding the jurisdiction of the
arbitrator under Clause 25. We are unable to accept this
view. Clause 25 which is the arbitration clause starts with
an opening phrase excluding certain matters and disputes
from arbitration and these are matters or disputes in
respect of which provision has been made elsewhere or
otherwise in the contract. These words in our opinion can
have reference only to provisions such as the one in
parenthesis in clause 2 by which certain types of
determinations are left to the administrative authorities
concerned. If that be not so, the words "except where
otherwise provided in the contract" would become
meaningless. We are therefore inclined to hold that the
opening part of clause 25 clearly excludes matters like
those mentioned in clause 2 in respect of which any
dispute is left to be decided by a higher official of the
Department. Our conclusion, therefore, is that the
question of awarding compensation under clause 2 is
outside the purview of the arbitrator and that the
compensation, determined under clause 2 either by the
Engineer-in-charge or on further reference by the
Superintending Engineer will not be capable of being
called in question before the arbitrator.
10. ....... But we should like to make it clear that our
decision regarding non-arbitrability is only on the
question of any compensation which the Government
might claim in terms of Clause 2 of the contract. We have
already pointed out that this is a penalty clause
introduced under the contract to ensure that the time
schedule is strictly adhered to. It is something which the
Engineer-in-charge enforces from time to time when he
finds that the contractor is being recalcitrant, in order to
ensure speedy and proper observance of the terms of the
contract. This is not an undefined power. The amount of
compensation is strictly limited to a maximum of 10 per
cent and with a wide margin of discretion to the
Superintending Engineer, who might not only reduce the
percentage but who, we think, can even reduce it to nil, if
the circumstances so warrant. It is this power that is kept
outside the scope of arbitration. We would like to clarify
that this decision of ours will not have any application to
the claims, if any, for loss or damage which it may be
open to the Government to lay against the contractor, not
in terms of clause 2 but under the general law or under
the Contract Act. As we have pointed out at the very
outset so far as this case is concerned the claim of the
Government has obviously proceeded in terms of clause 2
and that is the way in which both the learned Single
Judge as well as the Division Bench have also approached
the question. Reading clauses 2 and 25 together we think
that the conclusion is irresistible that the amount of
compensation chargeable under clause 2 is a matter
which has to be adjudicated in accordance with that
clause and which cannot be referred to arbitration under
clause 25". [Underlining added]
23. The ratio of the above decision squarely applies to the
present case. Once the parties have decided that certain
matters are to be decided by the Superintending Engineer
and his decision would be final, the same cannot be the
subject matter of arbitration.
24. In this regard, reliance was also placed upon Food
Corporation of India v. Sreekanth Transport (1999) 4 SCC
491 wherein, the Supreme Court interpreted Clause 12 of
the agreement thereon. Clause 12 of the agreement in
Food Corporation of India reads as under:-
"The decisions of the Senior Regional Manager regarding
such failure of the contractors and their liability for the
losses etc. suffered by the Corporation shall be final and
binding on the contractors....".
25. While interpreting the clause on 'excepted matters', in
Food Corporation of India, the Supreme Court held as
under:- "3. "Excepted matters" obviously, as the parties
agreed, do not require any further adjudication since the
agreement itself provides a named adjudicator --
concurrence to the same obviously is presumed by reason
of the unequivocal acceptance of the terms of the contract
by the parties and this is where the courts have been
found out lacking in their jurisdiction to entertain an
application for reference to arbitration as regards the
disputes arising therefrom and it has been the consistent
view that in the event of the claims arising within the
ambit of excepted matters, the question of assumption of
jurisdiction of any arbitrator either with or without the
intervention of the court would not arise. The parties
themselves have decided to have the same adjudicated by
a particular officer in regard to these matters; what these
exceptions are however are questions of fact and usually
mentioned in the contract documents and form part of the
agreement and as such there is no ambiguity in
the matter of adjudication of these specialised matters
and being termed in the agreement as the excepted
matters.
........
9. ......... The Food Corporation, therefore, as a matter of
fact desired an adjudication of their claim to the extent of
Rs 1,89,775 together with interest at the rate of 18 per
cent per annum from the civil court rather than relying on
the adjudicatory process available in the contract itself
through their own Senior Regional Manager. The
agreement as noticed above expressly provides that the
adjudication shall be effected by the Senior Regional
Manager and by no other authority and the decision, it
has been recorded in the agreement, of the Senior
Regional Manager would be final and binding on the
parties.....".
26. In the present case, the parties themselves have
agreed that the decision of the Superintending Engineer
in levying compensation is final and the same is an
"excepted matter" and the determination shall be only by
the Superintending Engineer and the correctness of his
decision cannot be called in question in the arbitration
proceedings and the remedy if any, will arise in the
ordinary course of law.
27. The learned counsel for the appellant has relied
upon Bharat Sanchar Nigam Limited and another v.
Motorola India (P) Ltd. (2009) 2 SCC 337 and by referring
to Clause 16(2) in the concerned agreement submitted
that for quantification of liquidated damages, first of all,
there has to be a delay and for ascertaining as to who was
responsible for the delay, such an issue will be within
the jurisdiction of the arbitrator. The learned ASG
however, submitted that in the present case, Clause 2 of
the agreement is not only a mechanism for quantification
of liquidated damages, but Clause 2 also makes the
contractor liable for payment of the same and in terms of
Clause 2 of the agreement, the decision of the
Superintending Engineer is final and the present case is
therefore, distinguishable from BSNL's case.
28. As rightly contended by the learned ASG, in BSNL's
case, Clause 16(2) of the agreement does not create any
kind of liability to pay liquidated damages; but only
provides for entitlement of BSNL to collect the damages in
case of any delay in supply on the part of the supplier
under Clause 16(2). While interpreting Clause 16(2) and
Clause 21 of the contract which was under consideration
in BSNL's case, in paras (23) and (26), the Supreme Court
held as under:-
"23. The question to be decided in this case is whether the
liability of the respondent to pay liquidated damages and
the entitlement of the appellants, to collect the same from
the respondent is an excepted matter for the purpose of
Clause 20.1 of the general conditions of contract. The
High Court has pointed out correctly that the authority of
the purchaser (BSNL) to quantify the liquidated damages
payable by the supplier Motorola arises once it is found
that the supplier is liable to pay the damages claimed.
The decision contemplated under Clause 16.2 of the
agreement is the decision regarding the quantification of
the liquidated damages and not any decision regarding
the fixing of the liability of the supplier. It is necessary as
a condition precedent to find that there has been a delay
on the part of the supplier in discharging his obligation
for delivery under the agreement.
...........
Quantification of liquidated damages may be an excepted
matter as argued by the appellants, under Clause 16.2,
but for the levy of liquidated damages, there has to be a
delay in the first place. In the present case, there is a
clear dispute as to the fact that whether there was any
delay on the part of the respondent. For this reason, it
cannot be accepted that the appointment of the arbitrator
by the High Court was unwarranted in this case. Even if
the quantification was excepted as argued by the
appellants under Clause 16.2, this will only have effect
when the dispute as to the delay is ascertained. Clause
16.2 cannot be treated as an excepted matter because of
the fact that it does not provide for any adjudicatory
process for decision on a question, dispute or difference,
which is the condition precedent to lead to the stage of
quantification of damages."
29. In BSNL's case, Clause 16 provided for entitlement of
the party to recover liquidated damages. In Clause 16(2),
the phrases used "value of delayed quantity" and "for each
week of delay" clearly show that it is necessary to find out
whether there has been delay on the part of the supplier
in discharging his obligation. Thus, in BSNL's case, in
determining whether there is delay or not, a process of
adjudication is envisaged. Per contra, in the present case,
Clause 2 of the agreement is a complete mechanism for
determination of liability. The right to levy damages for
delay is exclusively conferred upon the Superintending
Engineer and Clause 2 of the present agreement is a
complete mechanism for determination of liability and
when such compensation is levied by the Superintending
Engineer, the same is final and binding. The parties have
also consciously agreed that for the delay caused, the
Superintending Engineer shall levy the compensation of
the amount equal to half per cent and the said amount
shall not exceed from 10% of the cost of the work and the
determination by the Superintending Engineer is final and
cannot be the subject matter of arbitration. In claim No.6,
the prayer sought for by the contractor to declare the
compensation levied by the Superintending Engineer as
illegal is contradictory to the agreed terms between the
parties. So far as the liquidated damages determined and
levied, by virtue of Clause 2, is out of the purview of the
arbitration especially in view of the fact that under the
very same clause, the parties have agreed that the
decision of the Superintending Engineer shall be final."
With due respect to the judgment of the Hon'ble Apex
Court, in the contract, which fell for consideration before the
Hon'ble Supreme Court in the above-referred judgment, there
was a clause in the contract which stipulated that the
decision of the Engineer should be final, and in the instant
case, the same is not the contingency even as per clause
No.21.3 of the General Conditions of Contract. Therefore, the
said judgment of the Hon'ble Apex Court would not render
any assistance to the case of the appellant herein.
31. Coming to the judgments relied on, by the learned
counsel for respondent No.1, in J.G.Engineers Private Limited
v. Union of India and another16, the Hon'ble Apex Court, at
paragraphs 18 to 20, 22 to 24, held in the following manner.
"18. Thus what is made final and conclusive by clauses
(2) and (3) of the agreement, is not the decision of any
authority on the issue whether the contractor was
responsible for the delay or the department was
responsible for the delay or on the question whether
termination/rescission is valid or illegal. What is made
final, is the decisions on consequential issues relating to
quantification, if there is no dispute as to who committed
breach. That is, if the contractor admits that he is in
breach, or if the Arbitrator finds that the contractor is in
breach by being responsible for the delay, the decision of
the Superintending Engineer will be final in regard to two
issues. The first is the percentage (whether it should be
1% or less) of the value of the work that is to be levied as
liquidated damages per day. The second is the
determination of the actual excess cost in getting the work
completed through an alternative agency. The decision as
to who is responsible for the delay in execution and who
committed breach is not made subject to any decision of
the respondents or its officers, nor excepted from
arbitration under any provision of the contract.
19. In fact the question whether the other party
committed breach cannot be decided by the party alleging
breach. A contract cannot provide that one party will be
the arbiter to decide whether he committed breach or the
other party committed breach. That question can only be
decided by only an adjudicatory forum, that is, a court or
an Arbitral Tribunal.
20. In State of Karnataka vs. Shree Rameshwara Rice
Mills (1987 (2) SCC 160) this Court held that adjudication
upon the issue relating to a breach of condition of
contract and adjudication of assessing damages arising
out of the breach are two different and distinct concepts
and the right to assess damages arising out of a breach
would not include a right to adjudicate upon as to
whether there was any breach at all. This Court held that
one of the parties to an agreement cannot reserve to
himself the power to adjudicate whether the other party
has committed breach. This court held :
"Even assuming for argument's sake that the terms of
Clause 12 afford scope for being construed as empowering
the officer of the State to decide upon the question of
(2011) 5 SCC 758
breach as well as assess the quantum of damages, we do
not think that adjudication by the other officer regarding
the breach of the contract can be sustained under law
because a party to the agreement cannot be an arbiter in
his own cause. Interests of justice and equity require that
where a party to a contract disputes the committing of
any breach of conditions the adjudication should be by an
independent person or body and not by the other party to
the contract. The position will, however, be different where
there is no dispute or there is consensus between the
contracting parties regarding the breach of conditions. In
such a case the officer of the State, even though a party to
the contract will be well within his rights in assessing the
damages occasioned by the breach in view of the specific
terms of Clause 12. We are, therefore, in agreement with
the view of the Full Bench that the powers of the State
under an agreement entered into by it with a private
person providing for assessment of damages for breach of
conditions and recovery of the damages will stand
confined only to those cases where the breach of
conditions is admitted or it is not disputed."
...
22. In view of the above, the question whether appellant
was responsible or respondents were responsible for the
delay in execution of the work, was arbitrable. The
arbitrator has examined the said issue and has recorded a
categorical finding that the respondents were responsible
for the delay in execution of the work and the contractor
was not responsible. The arbitrator also found that the
respondents were in breach and the termination of
contract was illegal. Therefore, the respondents were not
entitled to levy liquidated damages nor entitled to claim
from the contractor the extra cost (including any
escalation in regard to such extra cost) in getting the work
completed through an alternative agency. Therefore even
though the decision as to the rate of liquidated damages
and the decision as to what was the actual excess cost in
getting the work completed through an alternative agency,
were excepted matters, they were not relevant for deciding
claims 1, 3 and 11, as the right to levy liquidated
damages or claim excess costs would arise only if the
contractor was responsible for the delay and was in
breach.
23. In view of the finding of the arbitrator that the
appellant was not responsible for the delay and that the
respondents were responsible for the delay, the question
of respondents levying liquidated damages or claiming the
excess cost in getting the work completed as damages,
does not arise. Once it is held that the contractor was not
responsible for the delay and the delay occurred only on
account of the omissions and commissions on the part of
the respondents, it follows that provisions which make the
decision of the Superintending Engineer or the Engineer-
in-Charge final and conclusive, will be irrelevant.
Therefore, the Arbitrator would have jurisdiction to try
and decide all the claims of the contractor as also the
claims of the respondents. Consequently, the award of the
Arbitrator on items 1, 3 and 11 has to be upheld and the
conclusion of the High Court that award in respect of
those claims had to be set aside as they related to
excepted matters, cannot be sustained.
Re : Question (ii)
24. The arbitrator had considered and dealt with claims
(1), (2, 4 and 5), (6), (7 and 8), (9) and (11) separately and
distinctly. The High Court found that the award in regard
to items 1, 3, 5 and 11 were liable to be set aside. The
High Court did not find any error in regard to the awards
on claims 2, 4, 6, 7, 8 and 9, but nevertheless chose to set
aside the award in regard to these six items, only on the
ground that in the event of counter claims 1 to 4 were to
be allowed by the arbitrator on reconsideration, the
respondents would have been entitled to adjust the
amounts awarded in regard to claims 2, 4, 6, 7, 8 and 9
towards the amounts that may be awarded in respect of
counter claims 1 to 4; and that as the award on counter
claims 1 to 4 was set aside by it and remanded for fresh
decision, the award in regard to claim Nos. 2, 4, 6, 7, 8
and 9 were also liable to be set aside."
In Bharat Sanchar Nigam Limited & another v. Motorola
India Private Limited17, it is held thus: (paragraphs 5, 9, 18,
23 and 32).
" It is the case of the appellants that the respondent had
failed to complete phase I and phase II of the project
within the schedule as provided in the tender document,
and therefore, liquidated damages were imposed by the
Tamil Nadu Circle of the appellant on 21st of May, 2004
under clause 16.2 of the tender document, quantification
of which was beyond the purview of the arbitration
agreement.
...
The High Court, as noted herein earlier, by the
impugned judgment allowed the arbitration request of the
respondents holding that the imposition of liquidated
damages by the appellant was not an "excepted matter"
and therefore, subject to arbitration. It is this judgment of
the High Court, which is impugned in this appeal, in
respect of which leave has already been granted.
...
(2009) 2 SCC 337
We may keep on record that the appellants alleged that
respondents had not completed phase I and phase II of
the project within the schedule as provided in the tender
document whereupon the appellants had to impose
liquidated damages and invoke clause 16.2 of the tender
document. But the respondents refuted these allegations.
The contention of the respondent in this case was that the
delay, if any, was caused due to the appellant's delay in
supplying necessary inputs to the respondent. So the
respondent contends that it had performed its part of the
contract in time and the blame for delay lies on the
appellant. Thus it is to be noted that there is a dispute
between the parties on the question whether any breach
was committed in this case.
...
The question to be decided in this case is whether the
liability of the respondent to pay Liquidated Damages and
the entitlement of the appellant, to collect the same from
the respondent is an excepted matter for the purpose of
clause 20.1 of the General Conditions of contract. The
High Court has pointed out correctly that the authority of
the purchaser (BSNL) to quantify the Liquidated Damages
payable by the supplier Motorolla arises once it is found
that the supplier is liable to pay the damages claimed.
The decision contemplated under clause 16.2 of the
agreement is the decision regarding the quantification of
the Liquidated Damages and not any decision regarding
the fixing of the liability of the supplier. It is necessary as
a condition precedent to find that there has been a delay
on the part of the supplier in discharging his obligation
for delivery under the agreement.
...
In view of the discussions made hereinabove, we hold that
the disputes raised by the respondents are arbitrable and
not excepted from the scope of arbitration."
32. In view of the above reasons, this Court finds
sufficient force in the submission of the learned counsel for
respondent No.1 that having regard to clause 26.3 of the
General Conditions of Contract, contention of the appellant
that these are excepted matters and there cannot be any
claim for the same in view of clause 21.3 of the General
Conditions of Contract, is not tenable, and it cannot be said
that these claims are excepted matters. Therefore, this
Court is not inclined to interfere with the findings recorded
by the Special Judge and the Arbitral Tribunal in respect of
the claims 4 and 7 in the absence of any patent illegality and
in the absence of necessary requirements and contingencies
as stipulated under Section 34 of the Act, 1996.
33. Finding on Claim No.13:
Claim No.13 reads as follows:
Additional expenditures met by the claimant for
development of fabrication site to the extent possible as the
allotted fabricated site area was slushy pond. Claim
amount: Rs.4,15,000/- (+) service tax and interest.
Against the abovesaid claim, the Arbitral Tribunal
granted Rs.3,81,800/-. The essence of the stance of the
learned Senior Counsel appearing for the appellant as
regards this claim is that in view of Clause 9.3 of the General
Conditions of Contract, respondent No.1 is not entitled for
any amount under this head. In this connection, it would be
apposite to refer to the said clause No.9.3 of the General
Conditions of Contract, which reads as follows:
"Clause No.9.3: Inspection of Site: The
Contractor shall visit, inspect and examine the
Site and its surroundings and shall satisfy
himself before submitting the Tender as to the
various facilities available at the Site for the
receipt storage and custody of the materials, as
to the nature of the ground and sub-soils (as far
as it is practicable) the form and nature of the
Site, the conditions, the quantities and nature
of the work and materials, facilities necessary
for transportation, erection, testing and other
works and the means of access to the Site, the
accommodation and other facilities that may be
required and, in general, shall himself obtain all
necessary information as to the working
conditions, risk, contingencies and other
circumstances which may influence or affect his
Tender. The Tenderer shall note that no claim
on this ground will be admissible."
The learned Arbitral Tribunal, while dealing with this
claim, took into consideration the obligation on the part of
the employer to make available the land, free of charge,
within and/or near the employer's work site for the
contractor to put up stores, site fabrication yard, office, etc.
as required for execution of the contract. The Tribunal also
took into consideration the photographs depicting the site
conditions and found that it was not possible to be used for
keeping the raw material, for carrying out fabrication and
stacking fabricated structures, and found further that
movement of heavy cranes was impossible and it was difficult
event to walk. Having regard to the findings of the learned
Arbitral Tribunal, on factual situations, in the absence of any
patent illegality, this Court is not inclined to meddle with the
Award rendered by the learned Arbitral Tribunal, as
confirmed by the learned Special Judge.
34. Finding on claim No.14: The sum and substance
of the case of the appellant as regards this claim is that in
view of Clause 28.4 of the General Conditions of Contract
read with Section 31(7) (a) of the Arbitration and Conciliation
Act, 1996, the Arbitral Tribunal has no jurisdiction to award
the interest. It is also the submission of the learned counsel
for the appellant that the Arbitral Tribunal grossly erred in
granting interest under the provisions of the MSMED Act,
2006 and the said Act cannot be pressed into service and the
Arbitral Tribunal being creature of the statute i.e. the 1996
Act, it cannot usurp the jurisdiction of the Facilitation
Council as per the MSMED Act, 2006. In this context, it may
be appropriate to refer Clause 28.4 of the General Conditions
of Contract.
"Clause 28.4: No interest shall be awarded by
the Arbitrator in any Arbitration proceedings."
35. In order to adjudicate claim No.14, it would also
be appropriate to refer to the provisions of the Micro, Small
and Medium Enterprises Development Act, 2006. The said
legislation, enacted by the Parliament, came into force on
18.07.2006, and the Parliament brought the said legislation
to provide for facilitating the promotion and development and
enhancing the competitiveness of micro, small and medium
enterprises and the matters connected therewith or
incidental thereto. Section 2(d) and (n) of the Act, 2006
define the terms 'buyer' and 'supplier' and the said provisions
of law read as follows:
"Section 2(d): "Buyer" means whoever buys any goods
or receives any services from a supplier for
consideration.
Section 2(n): "Supplier" means a micro or small
enterprise, which has filed a memorandum with the
authority referred to in sub-section (1) of section 8, and
includes,--
(i) the National Small Industries Corporation, being a
company, registered under the Companies Act, 1956 (1
of 1956);
(ii) the Small Industries Development Corporation of a
State or a Union territory, by whatever name called,
being a company registered under the Companies Act,
1956 (1 of 1956);
(iii) any company, co-operative society, trust or a body,
by whatever name called, registered or constituted
under any law for the time being in force and engaged
in selling goods produced by micro or small enterprises
and rendering services which are provided by such
enterprises;"
Sections 15 to 18 of the said enactment read as under:
"Section 15: Liability of buyer to make payment.--
Where any supplier supplies any goods or renders any
services to any buyer, the buyer shall make payment
therefor on or before the date agreed upon between
him and the supplier in writing or, where there is no
agreement in this behalf, before the appointed day:
Provided that in no case the period agreed upon
between the supplier and the buyer in writing shall
exceed forty-five days from the day of acceptance or the
day of deemed acceptance.
Section 16: Date from which and rate at which
interest is payable.--Where any buyer fails to make
payment of the amount to the supplier, as required
under section 15, the buyer shall, notwithstanding
anything contained in any agreement between the
buyer and the supplier or in any law for the time being
in force, be liable to pay compound interest with
monthly rests to the supplier on that amount from the
appointed day or, as the case may be, from the date
immediately following the date agreed upon, at three
times of the bank rate notified by the Reserve Bank.
Section 17. Recovery of amount due.--For any goods
supplied or services rendered by the supplier, the
buyer shall be liable to pay the amount with interest
thereon as provided under section 16.
Section 18. Reference to Micro and Small
Enterprises Facilitation Council.--
(1) Notwithstanding anything contained in any other
law for the time being in force, any party to a dispute
may, with regard to any amount due under section 17,
make a reference to the Micro and Small Enterprises
Facilitation Council.
(2) On receipt of a reference under sub-section (1), the
Council shall either itself conduct conciliation in the
matter or seek the assistance of any institution or
centre providing alternate dispute resolution services
by making a reference to such an institution or centre,
for conducting conciliation and the provisions of
sections 65 to 81 of the Arbitration and Conciliation
Act, 1996 (26 of 1996) shall apply to such a dispute as
if the conciliation was initiated under Part III of that
Act.
(3) Where the conciliation initiated under sub-section
(2) is not successful and stands terminated without
any settlement between the parties, the Council shall
either itself take up the dispute for arbitration or refer
it to any institution or centre providing alternate
dispute resolution services for such arbitration and the
provisions of the Arbitration and Conciliation Act, 1996
(26 of 1996) shall then apply to the dispute as if the
arbitration was in pursuance of an arbitration
agreement referred to in sub-section (1) of section 7 of
that Act.
(4) Notwithstanding anything contained in any other
law for the time being in force, the Micro and Small
Enterprises Facilitation Council or the centre providing
alternate dispute resolution services shall have
jurisdiction to act as an Arbitrator or Conciliator under
this section in a dispute between the supplier located
within its jurisdiction and a buyer located anywhere in
India.
(5) Every reference made under this section shall be
decided within a period of ninety days from the date of
making such a reference."
Section 24 of the said Act reads as follows:
Section 24. Overriding effect.--The provisions of
sections 15 to 23 shall have effect notwithstanding
anything inconsistent therewith contained in any other
law for the time being in force.
36. While referring to the provisions of Section 16 of
the said Act, it is submitted by the learned counsel for
respondent No.1 that respondent No.1 is entitled for interest
as stipulated under Section 16 of the MSMED Act, 2006, i.e.,
three times of the bank rate. In terms of the said legislation,
the Arbitral Tribunal granted interest in favour of respondent
No.1 herein. To substantiate his submission as regards the
applicability of this enactment, learned counsel for
respondent No.1 places reliance on the judgment of the
Bombay High Court in M/s. Steel Authority of India Ltd., and
another Vs. Micro, Small Enterprise Facilitation Council,
through Joint Director of Industries, Nagpur Region, Nagpur
reported in AIR 2012 Bombay 178. Relevant portion of the
said judgment at paragraph 11, reads as follows:
"11. Having considered the matter, we find
that Section 18 (1) of the Act, in terms allows any
party to a dispute relating to the amount due
under Section 17 i.e. an amount due and payable by
buyer to seller; to approach the facilitation Council. It
is rightly contended by Mrs. Dangre, the learned Addl.
Government Pleader, that there can be variety of
disputes between the parties such as about the date
of acceptance of the goods or the deemed day of
acceptance, about schedule of supplies etc. because
of which a buyer may have a strong objection to the
bills raised by the supplier in which case a buyer
must be considered eligible to approach the Council.
We find that Section 18(1) clearly allows any party to
a dispute namely a buyer and a supplier to make
reference to the Council. However, the question is;
what would be the next step after such a reference is
made, when an arbitration agreement exists between
the parties or not. We find that there is no provision
in the Act, which negates or renders an arbitration
agreement entered into between the parties
ineffective. Moreover, Section 24 of the Act, which is
enacted to give an overriding effect to the provisions
of Section 15 to 23-including section 18, which
provides for forum for resolution of the dispute under
the Act-would not have the effect of negating an
arbitration agreement since that section overrides
only such things that are inconsistent with Section
15 to 23 including Section 18 notwithstanding
anything contained in any other law for the time
being in force. Section 18(3) of the Act in terms
provides that where conciliation before the Council is
not successful, the Council may itself take the
dispute for arbitration or refer it to any institution or
centre providing alternate dispute resolution and that
the provisions of the Arbitration and Conciliation Act,
1996 shall thus apply to the disputes as an
arbitration in pursuance of arbitration agreement
referred to in Section 7 (1) of the Arbitration
and Conciliation Act, 1996. This procedure for
arbitration and conciliation is precisely the procedure
under which all arbitration agreements are dealt with.
We, thus find that it cannot be said that
because Section 18 provides for a forum of arbitration
an independent arbitration agreement entered into
between the parties will cease to have effect. There is
no question of an independent arbitration agreement
ceasing to have any effect because the overriding
clause only overrides things inconsistent therewith
and there is no inconsistency between an arbitration
conducted by the Council under Section 18 and
arbitration conducted under an individual clause
since both are governed by the provision of
the Arbitration Act, 1996."
37. According to the learned Senior Counsel appearing
for the appellant, since the Arbitral Tribunal, in the instant
case, exercised the jurisdiction under the provisions of the
1996 Act, the Tribunal is bound by the terms of the contract
and Sections 37 and 31 (7) (a) of the 1996 Act. It is not in
dispute that as per Clause 28.4 of the General Conditions of
Contract, as referred to, supra, grant of interest by the
Arbitral Tribunal, is prohibited. Section 31(7) (a) of the Act,
1996 reads as follows:
"Section 31 (7) (a): Unless otherwise agreed by the
parties, where and in so far as an arbitral award is for
the payment of money, the arbitral tribunal may
include in the sum for which the award is made
interest, at such rate as it deems reasonable, on the
whole or any part of the money, for the whole or any
part of the period between the date on which the cause
of action arose and the date on which the award is
made."
38. Admittedly, in the instant case, there is a
condition in the form of Clause 28.4 of the General
Conditions of Contract, which bars the grant of interest by
the Arbitral Tribunal. Therefore, this Court finds sufficient
force in the submission of the learned senior counsel
appearing for the appellant that in view of Section 31(7)(a) of
the Act, 1996 read with Clause 28.4 of the General
Conditions of Contract, the Arbitral Tribunal is prohibited
from granting interest. In the considered opinion of this
Court, the provisions of the MSMED Act, 2006, cannot be
made applicable to the arbitration proceedings initiated
under the Arbitration and Conciliation Act, 1996. In the
considered opinion of this Court, the judgment sought to be
relied upon by the learned counsel for respondent No.1 in
M/s. Steel Authority of India Ltd., and another Vs. Micro,
Small Enterprise Facilitation Council, through Joint Director of
Industries, Nagpur Region, Nagpur reported in AIR 2012
Bombay 178 would not render any assistance to respondent
No.1 herein to sustain its stand on claim No.14. In this
context, it may be appropriate to refer to the judgments cited
by the learned Senior Counsel appearing for the appellant.
(a) in Union of India v. Ambica Construction (8 supra),
wherein the Hon'ble Supreme Court held thus: (paragraphs
25 to 28)
"25. A 3-Judge Bench of this Court in Union of India v.
Bright Power Projects (India) Pvt. Ltd. (2015) 9 SCC 695
has considered the provisions contained in section
31(7)(a) of the Arbitration and Conciliation Act, 1996 and
considered the words "unless otherwise agreed by parties"
in the said section and held that the Arbitrator is bound
by the terms of the contract so far as award of interest
from the date of execution to the date of award is
concerned. This Court considered clause 13(3) of the
contract and came to the conclusion that once agreed that
contractor would not claim any interest on the amount to
be paid under the contract, he could not have claimed the
interest. The Arbitrator while awarding interest failed to
consider the provisions of section 31(7)(a) and binding
nature of clause 13(3) of the terms of agreement. With
respect to section 31(7)(a) of the Arbitration & Conciliation
Act, 1996 this Court in Union of India v. Bright Power
Projects (supra) has observed thus :
"18. Section 31(7)(a) of the Act ought to have been read
and interpreted by the Arbitral Tribunal before taking any
decision with regard to awarding interest. The said
section, which has been reproduced hereinabove, gives
more respect to the agreement entered into between the
parties. If the parties to the agreement agree not to pay
interest to each other, the Arbitral Tribunal has no right
to award interest pendente lite." Section 31(7)(a) of the
1996 Act confers power on Arbitrator to award interest
pendente lite, "unless otherwise agreed by parties". Thus,
it is clear from the provisions contained in section
31(7)(a) that the contract between the parties has been
given importance and is binding on the Arbitrator.
Arbitration clause is also required to be looked into while
deciding the power of the Arbitrator and in case there is
any bar contained in the contract on award of interest, it
operates on which items and in the arbitration clause
what are the powers conferred on Arbitrator and whether
bar on award of interest has been confined to certain
period or it relates to pendency of proceedings before
Arbitrator.
26. In Sree Kamatchi Amman Constructions (supra), it
was observed that the words "unless otherwise agreed by
the parties" in section 31 of new Act of 1996 clarify that
Arbitrator is bound by the terms of contract for award of
interest pendente lite. It was also held thus :
"19. Section 31(7) of the new Act by using the words
"unless otherwise agreed by the parties" categorically
clarifies that the Arbitrator is bound by the terms of the
contract insofar as the award of interest from the date of
cause of action to the date of award. Therefore, where the
parties had agreed that no interest shall be payable, the
Arbitral Tribunal cannot award interest between the date
when the cause of action arose to the date of award.
20. We are of the view that the decisions in Engineers-De-
Space-Age (supra) and Madnani (supra) are inapplicable
for yet another reason. In Engineers- De-Space-Age
(supra) and Madnani (supra) the Arbitrator had awarded
interest for the pendente lite period. This Court upheld
the award of such interest under the old Act on the
ground that the Arbitrator had the discretion to decide
whether interest should be awarded or not during the
pendente lite period and he was not bound by the
contractual terms insofar as the interest for the pendente
lite period. But in the instant case the Arbitral Tribunal
has refused to award interest for the pendente lite period.
Where the Arbitral Tribunal has exercised its discretion
and refused award of interest for the period pendente lite,
even if the principles in those two cases were applicable,
the award of the Arbitrator could not be interfered with.
On this ground also the decisions in Engineers-De-Space-
Age (supra) and Madnani (supra) are inapplicable. Be that
as it may."
27. This Court in Union of India v. Krafters Engineering &
Leasing Pvt. Ltd. (2011) 7 SCC 279 has held that by a
provision in the agreement, the jurisdiction of the
Arbitrator to award interest can be excluded. This Court
considered the nature of the claim vis-à-vis the provision
contained in the relevant clause.
28. It is apparent from various decisions referred to above
that in G.C. Roy (supra) Constitution Bench of this Court
has laid down where agreement expressly provides that no
interest pendente lite shall be payable on amount due.
The arbitrator has no power to award interest. In N.C.
Budharaj (supra) a Constitution Bench has observed that
in case there is nothing in the arbitration agreement to
exclude jurisdiction of arbitrator to entertaining claim for
interest, the jurisdiction of arbitrator to consider and
award interest in respect to all periods is subject
to section 29 of the Act. In Hindustan Construction Co.
Ltd. (supra) this Court has followed decision in G.C. Roy
(supra) and laid down that on the basis of principles
of section 34 arbitrator would have the power to award
pendente lite interest also. In B.N. Agarwalla (supra), this
Court has again followed G.C. Roy (supra) and Hindustan
Construction Co. Ltd. (supra) with respect to power of
arbitrator to award pendente lite interest and it was held
that arbitrator has power to award interest. In Harish
Chandra (supra) this Court interpreted the clause 1.9
which provided that no claim for interest or damages will
be entertained by the Government in respect to any
moneys or balances which may be lying with the
Government. It was held that there was no provision
which could be culled out against the contractor not to
claim interest by way of damages before the arbitrator on
the relevant items placed for adjudication. In Ferro
Concrete Construction (P) Ltd. (supra) this Court
considered clause 4 containing a stipulation that no
interest was payable on amount withheld under the
agreement. It was held that clause 4 dealt with rates,
material and workmanship did not bar award of interest
by the arbitrator on claims of the contractor made in the
said case. In Sayeed Ahmed (supra) this Court has
emphasized that award of interest would depend upon
nature of the clause in the agreement. In Bright Power
Projects (India) Pvt. Ltd. (supra) this Court has considered
the expression "unless otherwise agreed by parties"
employed in section 31(7)(a) of the Act of 1996 and laid
down that in case contract bars claim of interest
contractor could not have claimed interest. The provision
of section 31(7)(a) of the Act of 1996 is binding upon the
arbitrator. In Sree Kamatchi Amman Constructions
(supra) similar view has been taken."
(b) In Sri Chittaranjan Maity v. Union of India (9 supra),
it is held as follows: (paragraphs 14 to 20).
"14. The total interest awarded by the Arbitral Tribunal
is Rs.12,44,546/- which includes interest for the pre-
reference period and also pendente lite interest. Section
31(7)(a) of the 1996 Act provides for payment of interest,
as under:
"31(7)(a) - Unless otherwise agreed by the parties, where
and insofar as an arbitral award is for the payment of
money, the arbitral tribunal may include in the sum for
which the award is made interest, at such rate as it
deems reasonable, on the whole or any part of the money,
for the whole or any part of the period between the date
on which the cause of action arose and the date on which
the award is made." In this Section, a specific provision
has been created, whereby if the agreement prohibits
award of interest for the pre-award period (i.e. pre-
reference and pendente lite period), the Arbitrator cannot
award interest for the said period.
15. Admittedly, the GCC, governing the contract between
the parties, contains a clause which bars the payment of
interest, which is as under:
"16(2) - No interest will be payable upon the earnest
money or the security deposit or amounts payable to the
contractor under the contract, but government securities
deposit in terms of sub-clause (1) of this clause will be
repayable (with) interest accrued thereon."
16. Relying on a decision of this Court in M/s. Ambica
Construction vs. Union of India (2017) SCC OnLine SC
678, (C.A.No.410 of 2008, disposed of on 26.04.2017)
learned senior counsel for the appellant submits that
mere bar to award interest on the amounts payable under
the contract would not be sufficient to deny payment on
pendente lite interest. Therefore, the Arbitrator was
justified in awarding the pendente lite interest. However,
it is not clear from M/s. Ambica Construction (supra) as
to whether it was decided under The Arbitration Act, 1940
(for short 'the 1940 Act') or under the 1996 Act. It has
relied on a judgment of Constitution Bench in Secretary,
Irrigation Department, Government of Orissa and Others.
vs. G.C. Roy (1992) 1 SCC 508. This judgment was with
reference to the 1940 Act. In the 1940 Act, there was no
provision which prohibited the Arbitrator from awarding
interest for the pre-reference, pendente lite or post award
period, whereas the 1996 Act contains a specific provision
which says that if the agreement prohibits award of
interest for the pre-award period, the Arbitrator cannot
award interest for the said period. Therefore, the decision
in M/s. Ambica Construction (supra) cannot be made
applicable to the instant case.
17. Learned Additional Solicitor General appearing for the
respondent submits that the position of law for cases
covered under the 1996 Act, i.e. if agreement prohibits
award of interest then the grant of pre-award interest is
impermissible for the Arbitrator, has been reiterated by
this Court in various judgments.
18. In Sayeed Ahmed and Company vs. State of Uttar
Pradesh and Others (2009) 12 SCC 26, this Court noted
that the 1940 Act did not contain any provision relating to
the power of the Arbitrator to award interest. However,
now a specific provision has been created under Section
31(7)(a) of the 1996 Act. As per this Section, if the
agreement bars payment of interest, the Arbitrator cannot
award interest from the date of cause of action till the
date of award. The Court has observed that in regard to
the provision in the 1996 Act, the difference between pre-
reference period and the pendente lite interest has
disappeared insofar as award of interest by the Arbitrator
is concerned. Section 31(7)(a) recognizes only two periods,
i.e. pre-award and post-award period.
19. In Sree Kamatchi Amman Constructions vs. Divisional
Railway Manager (Works), Palghat and Others (2010) 8
SCC 767, this Court was dealing with an identical case
wherein Clause 16 of the GCC of Railways had required
interpretation. This is the same Clause 16(2) of the GCC
prohibiting grant of interest which is also applicable in
the facts of the present case. The Court held that where
the parties had agreed that the interest shall not be
payable, the Arbitral Tribunal cannot award interest
between the date on which the cause of action arose to
the date of the award.
20. In Union of India vs. Bright Power Projects (India)
Private Limited (2015) 9 SCC 695, a three-Judge Bench of
this Court, after referring to the provisions of Section
31(7)(a) of the 1996 Act, held that when the terms of the
agreement had prohibited award of interest, the Arbitrator
could not award interest for the pendente lite period. It
has been held thus:
"10. Thus, it had been specifically understood between
the parties that no interest was to be paid on the earnest
money, security deposit and the amount payable to the
contractor under the contract. So far as payment of
interest on government securities, which had been
deposited by the respondent contractor with the appellant
is concerned, it was specifically stated that the said
amount was to be returned to the contractor along with
interest accrued thereon, but so far as payment of interest
on the amount payable to the contractor under the
contract was concerned, there was a specific term that no
interest was to be paid thereon.
11. When parties to the contract had agreed to the fact
that interest would not be awarded on the amount
payable to the contractor under the contract, in our
opinion, they were bound by their understanding. Having
once agreed that the contractor would not claim any
interest on the amount to be paid under the contract, he
could not have claimed interest either before a civil court
or before an Arbitral Tribunal." Therefore, it is clear that
the appellant is not entitled for any interest on the
amount awarded by the Arbitral Tribunal."
Accordingly, this point as regards claim No.14 is
answered in favour of the appellant and against respondent
No.1.
39. Yet another contention of the learned Senior
Counsel appearing for the appellant is that the Award stands
vitiated as the Tribunal did not have a person with judicial
knowledge. In order to rebut the said contention, learned
counsel for respondent No.1 places reliance on the following
judgments of the Hon'ble Apex Court :
(a) In Municipal Corporation of Delhi v. M/s. Jagannath
Ashok Kumar and another (10 supra), wherein it is held thus:
(paragraphs 4 and 5).
"4. In this case, there was no violation of any principles of
natural justice. It is not a case where the arbitrator has
refused cogent and material factors to be taken into
consideration. The award cannot be said to be vitiated by
non-reception of material or non-consideration of the
relevant aspects of the matter. Appraisement of evidence
by the arbitrator is ordinarily never a matter which the
Court questions and considers. The parties have selected
their own forum and the deciding forum must be
conceded the power of appraisement of the evidence. In
the instant case, there was no evidence of violation of any
principle of natural justice. The Arbitrator in our opinion
is the sole judge of the quality as well as quantity of
evidence and it will not be for this Court to take upon
itself the task of being a judge of the evidence before the
arbitrator. It may be possible that on the same evidence
the Court might have arrived at a different conclusion
than the one arrived at by the arbitrator but that by it self
is no ground in our view for setting aside the award of an
arbitrator.
5. It is familiar learning but requires emphasis
that section 1 of the Evidence Act, 1872 in its rigour is
not intended to apply to proceedings before an arbitrator.
P.B. Mukharji, J. as the learned Chief Justice then was,
expressed the above view in Haji Ebrahim Kassam
Cochinwall v. Nothern Indian oil Industries Ltd., A.I.R.
1951 Calcutta 230 and we are of the opinion that this
represents the correct statement of law on this aspect.
Lord Goddard, C.J. in Mediterranean & Eastern Export
Co. Ltd. v. Fortress Fabrics Ltd., [1948] 2 All E.R. 186
observed at pages 188/189 of the report as follows:
"A man in the trade who is selected for his experience
would be likely to know and indeed to be expected to
know the fluctuations of the market and would have
plenty of means of informing himself or refreshing his
memory on any point on which he might find it necessary
so to do. In this case according to the affidavit of sellers
they did take the point before the Arbitrator that the
Southern African market has slumped. Whether the
buyers contested that statement does not appear but an
experienced Arbitrator would know or have the means of
knowing whether that was so or not and to what extent
and I see no reason why in principle he should be
required to have evidence on this point any more than on
any other question relating to a particular trade. It must
be taken I think that in fixing the amount that he has, he
has acted on his own knowledge and experience. The day
has long gone by when the Courts looked with jealousy on
the jurisdiction of the Arbitrators. The modern tendency is
in my opinion more especially in commercial arbitrations,
to endeavour to uphold Awards of the skilled persons that
the parties themselves have selected to decide the
questions at issue between them. If an Arbitrator has
acted within the terms of his submission and has not
violated any rules of what is so often. called natural
justice the Courts should be slow indeed to set aside his
award.""
(b) In P.R.Shah, Shares and Stock Brokers Private
Limited v. B.H.H. Securities Private Limited & others (11
supra), wherein it is held thus: (paras 22 and 23 )
"22. The appellant contends that the arbitration had used
personal knowledge to decide the matter. Attention was
drawn to the following observation in the award by the
majority :
"Also, it is known fact which is known to the arbitrators
that as per the market practice such kind of transactions
of one Broker takes place with another Broker either in
their own name or in their firm's name or in the name of
different entity which is also owned by the member."
Same way these transactions are done by respondent no.2
(appellant herein) in the name of respondent no.1 (second
respondent herein)."
23. An arbitral tribunal cannot of course make use of
their personal knowledge of the facts of the dispute, which
is not a part of the record, to decide the dispute. But an
arbitral tribunal can certainly use their expert or
technical knowledge or the general knowledge about the
particular trade, in deciding a matter. In fact, that is why
in many arbitrations, persons with technical knowledge,
are appointed as they will be well-versed with the
practices and customs in the respective fields. All that the
arbitrators have referred is the market practice. That
cannot be considered as using some personal knowledge
of facts of a transaction, to decide a dispute."
Therefore, the contention contra advanced by the
learned Senior Counsel appearing for the appellant, cannot
stand for judicial scrutiny and is, accordingly, rejected.
40. For the aforesaid reasons, the COM.CA is partly
allowed, setting aside the Award passed by the Arbitral
Tribunal vide Award dated 15.12.2006, as confirmed in the
order and decree dated 16.08.2019 passed by the Court of
the Special Judge for trial and disposal of the Commercial
Disputes, Visakhapatnam, in CAOP No.38 of 2017 (Old AAP
No.306 of 2017) to the extent of Claim No.14 and in respect
of all other claims, this Appeal is dismissed. No costs.
Miscellaneous Petitions pending, if any, in this case
shall stand closed.
__________________
A.V.SESHA SAI, J
__________________
J.UMADEVI , J.
22.09.2021
Siva/DRK
THE HON'BLE SRI JUSTICE A.V.SESHA SAI
AND
THE HON'BLE MS JUSTICE J.UMADEVI
COMCA No.11 OF 2019
.09.2021
Siva/DRK
