Bombay High Court
The Union Of India vs M/S. C.M. Gandhi & Co on 20 October, 2012
Bench: Anoop V.Mohta
1 arbp215.03
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
ARBITRATION PETITION NO. 215 OF 2003
The Union of India, through
Director General, Naval Project (MB),
having their office at Accommodation
Complex, Shahid Bhagat Singh,
Road, Mumbai-400 023. .. Petitioner
V/s.
M/s. C.M. Gandhi & Co.
having their office at Aashirwad
Building, 16, 4th Floor,
Plot No. 48-A, Next to Vithoba
Temple, Sion (West),
Mumbai-400 022. .. Respondent.
Ms. S. V. Bharucha with Ms. Nisha Valani for the Petitioner.
Mr. Simil Purohit with Mr. Rohan Cama, Mr. Gauraj Shah and
Mr. Namish Joshi i/by Vimadalal & Co. for the Respondent.
CORAM : ANOOP V. MOHTA, J.
RESERVED ON : 17 SEPTEMBER 2012.
PRONOUNCED ON : 20 OCTOBER 2012.
JUDGMENT :-
The Petitioner-Director General, Naval Project (MB),
through the Union of India has challenged award dated 24
December 2002, passed by the sole Arbitrator appointed under
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the Arbitration agreement between the parties. There is no
counter Petition/ challenge to the award by the Respondent
(Original Claimant).
2 The basic dates and events are as under.
On 9 June 1996, the Petitioner issued a Tender under
contract No. DGNP (MB)/04 of 97-98 for provision of Mast
Testing Facility at Naval Dockyard, Mumbai. On 23 September
1996, the Respondent submitted their tender for the said work.
On 6 May 1997, after obtaining some clarifications and due
negotiations, the Petitioner issued the work order for an amount
of Rs.1,04,56,327/- in favour of the Respondent. The date of
commencement of Phase-I as per work order No.1, 9 August
1997, was extended to 15 November 1997.
3 The date of commencement of Phase-II as per work order
No.1 was 9 August 1997, and the completion date was 8 August
1998 i.e. 12 months. This date was extended to 15 February
1999. On 18 December 1997, the Petitioner's by a letter issued
a Completion Certificate for Phase-I for having completed the
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same on 15 November 1997. On 15 February 1999, complied
the phase II. On 5 March 1999, the Petitioner by their letter
issued a Certificate of Completion stating therein that the work
has been completed satisfactorily. On 8 March 1999, pre-final
Bill and final bill submitted by the Respondent.
4 On 30 October 1999, a letter addressed by the Respondent
to the Petitioner raising claims on account of delays,
obstructions, hindrances and breach of contract committed by
the Petitioner. On 9 December 1999, letter addressed by the
Petitioner to the Respondent denying the aforesaid claims of the
Respondent. On 2 March 2000, notice addressed by Respondent
to the Petitioner invoking the Arbitration proceedings and
calling upon them to appoint a Sole Arbitrator as per condition
No. 70 of IAFW-2249 to settle the disputes/differences.
5 On 31 October 2001, Arbitration Application No. 197 of
2001 for an appointment of Arbitrator under Section 11 of the
Arbitration and Conciliation Act, 1996 (for short, the Arbitration
Act), preferred by the Respondent before this Court. On 15
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February 2002, by a reasoned order and after considering the
objections of the Petitioner, appointed an Arbitrator. On 8 May
2002, Government of India, Ministry of Defence appointed
Brigadier R.B. Singh, from the Union of India Panel of Learned
Arbitrator, as the sole Arbitrator.
6 On 9 July 2002, the statement of facts and claims filed by
the Respondent before the Sole Arbitrator. On 12 August 2002,
pleadings in defence of the Petitioner. On 17 August 2002,
Respondent statement of defence. On 29 August 2002, the
Petitioner's rejoinder in reply to the Respondent pleading in
defence. On 17 September 2002, the Respondent sur-rejoinder
in reply to counter claim raised by the Petitioner in its rejoinder.
On 24 December 2002, the learned Arbitrator passed the
detailed Arbitration Award for Rs. 22,21,476/-.
7 On 30 December 2002, the Respondent demanded the
claim amount from the Petitioner as per the Arbitration Award.
On 6 May 2003, the Execution Application No. 298 of 2003 filed
by the Respondent to implement Award dated 24 December
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2002. On 28 March 2003, the present Petition was filed by the
Petitioner. On 16 June 2003, it was dismissed for default. On
12 August 2003, the Petition restored subject to cost of
Rs.1000/-. On 25 September 2003, the Amendment Application
filed by the Petitioner was allowed. On 18 November 2003, the
Petition was admitted. The Petition listed for final hearing.
Heard accordingly.
8 The contract was for design and provision of Mast Testing
Facility at Naval Dockyard at Mumbai executed on 6 May 1997.
The period of completion of the contract was for 15 months
which was extended by consent. The Claimant-Respondent
submitted final bill on 8 March, 1999 as the Phase-I was
completed on 15 November 1997 and Phase-II was on 15
February 1999. There is no dispute that the contract governed
by the general conditions of contract. The relevant clauses are
conditions 11,65 and 70. As per condition 11 which deals with
time, delay and extension, it is specifically provided that "no
claim in respect of compensation or otherwise, howsoever
arising, as a result of extensions granted under condition (A)
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and (B) shall be admitted." There is nothing on record to show
that time was extended under the condition (A) and (B). There
is no dispute that time was the essence of contract. As per
clause 65, "no further claims shall be made by the contractor
after submission of the final bill and these shall be deemed to
have been waived and extinguished. The Arbitrator was under
obligation to pass award within 6 months and/or within the
extended time.
9 The Petitioner, therefore, challenged the grant of claim
Nos. 7(A) and (B) and 8. The full charges were also claimed of
Claim Nos. 1, 2, 4 and 5, as the same were partly allowed. No
evidence was led by the parties except the documents on record.
The final bill was submitted of 8 March 1999, the cheque was
sent on 1 February 2002, which was not accepted nor encashed.
The payment was admittedly not made within reasonable time,
though the demand was raised with supporting material.
10 The learned Arbitrator has awarded payment of final bill,
(Claim No.1), as the Petitioner agreed to pay final bill for
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amount of Rs. 3,26,213.52/-. For non payment of Star Rate
No.12., (Claim No. 2-A), the amount is awarded at Rs.
13,538.42/-. The Arbitrator has awarded Rs.2250/- for non-
payment of overhead, establishment (Claim No. 2-B). The
Arbitrator referring to the conditions that "the quantities of
various items as given in Schedule 'A' Part II are provisional and
may vary according to approved design and site conditions" and
therefore, has awarded Rs. 66,058.31 in view of admitted
increase cost of piling of depth beyond 16 meters. (Claim No. 2-
C). The Arbitrator has granted compensation for additional
bank guarantee, as the final bill could not paid by the Petitioner
in time. Therefore, claimed renewal charges of bank guarantee
from 5 November 1998 (Claim No.4). The learned Arbitrator
ultimately has granted bank charges from 9 September 1999
and partially granted Rs.42,000/-. The Contractor-Respondent
claimed compensation for delay in payment of Running Account
Receipts. (Claim No.5). The learned Arbitrator after holding
that there was delay of more than 37 months and therefore, has
granted only Rs.6,000/- though claim was of Rs. 1,35,649.57/-.
The learned Arbitrator, not granted any compensation for
8 arbp215.03
revision of rates for the work executed beyond the original
period of contract and also not granted for Deviation Order
(Claim Nos. 6 and 3).
11 The basic challenge raised by the Petitioner with regard to
the compensation for loss of idle staff and machinery and idle
labours and workers (Claim No. 7-A and 7-B) and compensation
towards loss of profits and overheads due to prolongation of
contract period (Claim No. 8). The supporting reasons are as
under:-
"33.9.5. The Union of India admitted that there was delay in
clearing site, giving decision for diversion of sewer and water
supply lines etc. They however argued that at all points of time,
contractor had some work in hand and he could continue with
other items of work. It was their contention that contract
carried a clause for payment of escalation which compensated
him for variation in prices of materials, fuel and wages of
labours. U.O.I. argued that contract provided for grant of
extension of time, which had been duly approved by the DGNP.
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33.9.6 All the above mentioned reasons have had a
contribution to make in causing this prolongation of 6 months 7
days. As the reasons unfold themselves, it is clearly evident that
majority of these were such that lied at the door-steps of DGNP.
The U.O.I. reference to certain letters, mentioned in paras
above, also revealed delays on the part of DGNP. These letters,
in no way, come to the rescue of their arguments. For whatever
be the compulsions with them, they could have eschewed the
delays and mitigated their consequential effects. Perusal of the
documentary evidence reveals that DGNP did not expedite on
many issues which did cause hindrance and delay in progressing
of activities connected with execution of this contract. The next
question to be decided is if all the reasons, as stated in para
above, fall under condition 11(A) and (B) of IAFW-2249 for
which consequential risks are that of the contractor under its
condition 11(C). My answer is clearly "No" as majority of these
reasons do not even remotely correspond to what is agreed
under the said Conditions 11(A) and (B). Therefore, the
immunity available to government would have to be limited to
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that portion of 6 months and 7 days delay the reasons for which
actually fell within the purview of conditions 11(A) and (B).
For this purpose, I have analysed the reasons and their time
effect on completion of contract. On doing so, I find that a
period of not more than three months (out of 6 months 7 days)
could be made to fall under condition 11(A) of IAFW-2249.
Balance 3 months delay is for reasons other than those listed in
condition 11(A) and therefore condition 11(C) of IAFW-2249 is
not attracted for this period of 3 months. The U.O.I. shall
therefore have to accept the liability for consequential effects of
this delay of 3 months caused at DGNP's hands. DGNP cannot
first be the cause for the delays and then argue to bail
themselves out proclaiming shelter under condition 11(C).
They cannot be the judge of their own actions. The facts have
to be unearthed and for this, one can only rely on material
evidence that emerges from the correspondence/letters between
the parties during the relevant period. I have done so. Having
decided on the proportion of responsibility for DGNP/U.O.I., the
next aspect is to decide on the measure of damage caused and
compensation therefore.
11 arbp215.03
33.9.7. For the hire charges claimed by contractor he had
furnished proof by way of paid vouchers and argued that this
was evidence of his machinery T & P and staff remained idle for
3 months. This part of his claim is therefore sustained to the
extent mentioned above and expenses for it works out to
Rs.1,70,700.00 for the effective period of 3 months.
33.9.8.
Second part of contractor's claim is for idle labour
and workers. Contractor has claimed labour component as 25%
of work done and amounting to Rs.28,15,901.20. He then
argued that this meant monthly labour cost as Rs.1,87,726.75
(i.e. Rs.28,15,901.00 divided by 15). contractor's case is that
he had deployed labour worth Rs.11,70,100.83 for additional
period of 6 months 7 days as a loss. U.O.I. denied the claim
arguing that there was no idle labour and that the labour
deployed by contractor was just sufficient for the work. I have
already concluded above that prolongation of contract was for
effective period of 3 months and was at the hands of DGNP.
Contractor's claim for idle labour and workers for this much
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period is justified and accordingly it is sustained for
Rs.5,63,180.00. I therefore award an amount of Rs.1,70,700.00
for Claim No. 7(A) and Rs.5,63,180.00 for Claim No. 7(B),
totalling to Rs.7,33,880.00."
And thereby awarded total sum of Rs.7,33,880/- for Claim
Nos. 7-A and 7-B.
So far as claim No. 8 is concerned, the following reasons
are given -
"33.10.1. I concluded period of prolongation as 3 months in
para 33.9.6 above. Contractor has claimed 17.5% as loss of
profit and overheads of his turnover. Contract value is
Rs.1,04,56,327.00 to be completed in 15 months. Monthly
turnover works out to Rs.6,97,088.46. Contractor's claim
towards loss of profit and overheads per month works out to
Rs.1,04,563.26 (Rs. 6,97,088.46x15%). Considering delay
period of prolongation as stated above for 3 months, I award
Rs.3,13,689.80 for Claim No.8."
The learned Arbitrator, thereby awarded a sum of
13 arbp215.03
Rs.313689.80. The reasons are well within the frame work of
law and the record for the following reasons and so also the
award.
13 The basic submission raised that the Arbitrator was
appointed on the application filed by the Respondent on 15
February 2002 and thereby directed the Arbitrator to proceed
expeditiously to resolve the dispute. The liberty was also
granted to the Respondent-claimant to raise the claims before
the Arbitrator and to the Petitioner to file counter-claim. The
parties accordingly filed their claims and the counter-claims.
Therefore, having once the parties filed the claim and counter-
claim, pursuant to the order passed by the Court to settle the
disputes, therefore, in the present facts and circumstances, the
claim so raised by the Respondent cannot be faulted with. The
Arbitrator, therefore, in view of the order, bound to adjudicate
the claims so raised by the parties.
14 The Apex Court in Ravindra Kumar Gupta and Co. Vs.
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Union of India 1 maintained the award as in that case also there
was delay attributable to the employer Union of India. The
similar clause was read and referred in the matter and also the
similar submissions referring to the grant of compensation
towards loss of profit, escalation overhead charges, on the
ground of employers delay, if any.
I have already in Union of India Vs. M/s. Suraj
Infrastructures Pvt. Ltd., 2 maintaining similar types of award of
compensation on the ground of delay on the part of employer
and observed as under:-
"26 The Apex Court in J.G. Engineers Private
Limited Vs. Union of India & Anr. 3 , referring to
Section 34 read with the provisions of Contract Act
observed as under:-
"Once it is held that the issues relating to who
committed breach and who was responsible for
delay were arbitrable, the findings of the
arbitrator that the contractor was not
responsible for the delay and that the
termination of contract is illegal are not open
to challenge."
1 (2010) 1 SCC 409
2 Arbitration Petition No. 324 of 2009, dated 17 September 2012
3 (2011) 5 SCC 758
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In the result, the escalation price so awarded on the
basis of delay and consequential termination of
contract by the employer upheld.
16 The Arbitrator has power to award the interest unless
specifically agreed otherwise. There is no such clause pointed
out in the present case. The grant of interest, therefore, covered
by the provisions of Arbitration Act and the judgments.
17 The strong reliance is placed by the learned counsel
appearing for the Petitioner on Oil and Natural Gas
Commission Vs. Macqreqor-Navire Port Equipment and Ors. 4
referring to Section 74 of the Contract Act, 1872 read with the
provisions thereof and also the Interest Act, 1978.
18 So far as the counter-claim is concerned, there is no
material supplied and/or reasons given by the Petitioner to
claim the cost of reference. The cost of recovery for defects in
work was rejected for want of details and supporting material
and ultimately awarded Rs.9,902/- towards claim of defects in
4 2002(1) Bom. C.R. 278
16 arbp215.03
the work. I am inclined to grant 9% p.a. simple interest as not
awarded by the Arbitrator on the amount towards the counter
claim No.2, from the date of the award. The claim and counter
claim with interest, need to be adjusted accordingly.
19 So far as interest is concerned as mentioned in para
33.11.8, I am inclined to reduce the rate of simple interest from
12 % per annum to 9% per annum, in view of Krishna Bhagya
Jala Nigam Ltd. Vs. G. Harischandra Reddy & Anr. 5
20 So far as the future interest is concerned, I am restricting
the same also to 9% per annum simple interest, instead of 15 %
per annum as awarded. The aspect of pendency of present
Arbitration Petition for various reasons, is also relevant factor in
reducing the rate of interest. The future rate of interest, as the
award is of dated 24 December 2002 and the Petition was heard
for the facts referred above in the year 2012, the Petitioner
should not only be asked to suffer rate of interest because of
pendency of the litigation.
5 2007 AIR SCW 527
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21 The Respondent is entitled for the interest on the ground
of compensation/damages so awarded on the ground of delay
from the date of award only. So far as delay in payment is
concerned, the interest so awarded needs no interference. The
Arbitrator has awarded the compensation on the ground of
delay, loss of idle staff, machinery, labours and workers and loss
of profit and overhead due to prolongation of contract period.
Therefore, I am inclined to observe that the Respondent
claimant is entitled for the interest on the said amount from the
date of the award and not prior to that. There is no question of
interest on the assessed damage or compensation
retrospectively. It should only from the date of award.
22 Considering the scope and purpose of Section 34 of the
Arbitration Act, as there is no perversity and no illegality in the
reasons and the compensation so awarded is also reasonable
and just and fair based upon the record, the award needs no
interference, except the rate and date of the interest on all
stages as recorded above.
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23 In the result, the following order:-
ORDER
a) The award is maintained, except the rate and
date of interest. The award is modified
accordingly.
b) The Petition is accordingly disposed of in the
above terms.
c) There shall be no order as to costs.
(ANOOP V. MOHTA, J.)
