Madhok Construction Co. (P) Ltd. vs Union Of India
1998 Latest Caselaw 42 Del

ORDER

C.M. Nayar, J.

1. This judgment will dispose of the objections filed by the respondent Union of India (I.A.No.6257/91) under Sections 16, 30 and 33 of the Indian Arbitration Act 1940 to the Award dated 14th December, 1990 as rendered by Shri N.H.Chandwani. The claimant as well as the respondent had entered into a contract vide agreement No.8/EE/CDXI II/83-84. The said agreement contained an arbitration clause (Clause 25) for settlement of disputes between the parties which reads as follows:-

"CLAUSE 25. Settlement of disputes by Arbitration Except where otherwise provided in the contract all questions and disputes relating to the meaning of the specifications, designs drawings and instructions herein before mentioned and as to the quality of workmanship or materials used on the work or as to any other question, claim, right matter or thing whatsoever, in any way arising out of or relating to the contract designs drawings, specifications, estimates, instructions, orders or these conditions or otherwise concerning the works or the execution or failure to execute the same whether arising during the progress of the work or after the completion or abandonment thereof shall be referred to the sole arbitration of the person appointed by the Chief Engineer Central Public Works Department, in charge of the work at the time of dispute or if there be no Chief Engineer, the administrative head of the said Central Public Works Department at the time of such appointment. It will be no objection to any such appointment that the arbitrator so appointed is a Government servant, that he has to deal with the matters to which the contract relates and that in the course of his duties as Government servant he had expressed views on all or any of the matters in dispute or difference. The arbitrator to whom the matter is originally referred being transferred or vacating his office or being unable to act for any reason, such Chief Engineer or administrative head as aforesaid at the time of such transfer, vacation of office or inability to act, shall appoint another person to act as arbitrator in accordance with the terms of the contract. Such person shall be entitled to proceed with the reference from the stage at which it was left by his predecessor. It is also a term of this contract that no person other than a person appointed by such Chief Engineer or administrative head of the CPWD, as aforesaid should act as arbitrator and, if for any reason that is not possible, the matter is not to be referred to arbitration at all. In all cases where the amount of the claim in dispute is Rs. 50,000/-(Rupees Fifty Thousand) and above, the arbitrator will give reason for the award.

Subject as aforesaid the provisions of the Arbitration Act, 1940 or any statutory modification or reenactment thereof and the rules made thereunder and for the time being in force shall apply to the arbitration proceeding under this clause. It is also a term of the contract that the party invoking arbitration shall specify the dispute or disputes to be referred to arbitration under this clause together with the amount or amounts claimed in respect of each such dispute.

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 Government that the bill is ready for payment, the claim(s) of the contractor(s) will be deemed to have been waived and absolutely barred and the Government shall be discharged and released of all liabilities under the contract in respect of those claims.

The arbitrator(s) may from time to time with the consent of the parties enlarge the time for making and publishing the award."

2. The petitioner had moved this Court by filing a petition under Section 20 of the Arbitration Act i.e. Suit No.2722/87 for appointment of an arbitrator to adjudicate the disputes which had arisen between the parties. The disputes in that suit are referred to in Schedule-A which reads as follows:-

"1. Whether the defendant is entitled to invoke clause 3 and/or 13 of the contract in order to determine/rescind/for close the said contract in the facts and circumstances of the case.

2. Whether the plaintiff has suffered loss or damages on account of lack of decision on the part of the defendant for years.

3. Whether the plaintiff is entitled to complete the work including extra and substituted items of work in the terms of the contract. If so to what effect?

4. Whether the defendant is entitled to call fresh tenders for the work already entrusted to the plaintiff and covered by the contract in question.

5. Whether the defendant is entitled to employ another contract or agency to carry out the work covered by the contract.

6. To what amount of damages is the plaintiff entitled.

7. To what other amounts including interest is the plaintiff entitled."

3. C.L.Chaudhry, J., by Order dated August 9, 1998, allowed the petition and held that the disputes falling within the ambit of arbitration agreement. The operative portion of the Order reads as under:-

"Notice of this petition was given to the respondents. They have filed the reply. I have perused the reply. I do not think any triable issue arises in this case. The claims have been denied on merits. The disputes do fall within the ambit of arbitration agreement. It is within the jurisdiction of the Arbitrator to decide the disputes between the parties. Accordingly I allow this petition, and direct the respondents to file the arbitration agreement in court and refer the disputes mentioned in Schedule `A' to the petition for adjudication to the Arbitrator. I direct the Chief Engineer, C.P.W.D., New Delhi to appoint the sole arbitrator for adjudication of the disputes mentioned in schedule `A' to the petition within 2 months from the date of receipt of this order. The petition is disposed of. The parties are left to bear their own costs."

4. The arbitrator rendered his award on 14th December, 1990 wherein the following claims were considered:-

"Claim No.1:

Whether the defendant (ie UOI) is entitled to invoke clause 3 and/or 13 of the contract in order to determine/rescind/for close the said contract in the facts and circumstances of the case?

Claim No.2:

Whether the Plaintiff has suffered loss or damages on account of lack of decision on the part of the defendant for years?

Claim No.3:

Whether the Plaintiff is entitled to complete the work including extra and substituted items of work in the terms of the contract. If so to what effect.

Claim No.4:

Whether the defendant is entitled to call fresh tenders for the work already entrusted to the Plaintiff and covered by the contract in question?

Claim No.5:

Whether the defendant is entitled to employ another contract or agency to carry out the work covered by the contract?

Claim No.6:

To what amount of damages is the plaintiff entitled?

Claim No.7:

To what other amounts including interest is the plaintiff entitled?"

5. The basic question about the delay in commencement and execution of the work was examined and the learned arbitrator assessed the evidence on record in detail which may be reproduced as under:-

"The date of commencement of work was 22.3.84 with stipulated date of completion of 21-9-85 but the work was actually not completed and the contract was closed on 10-1-89(R-1). As per the terms of the agreement the site for the execution of the work was available and the respondents while accepting the tender of the claimants on 12-3-84 asked the claimants to start the work at once. Under clause 2 of the agreement the claimant was bound to execute the work with due diligence and also show proportionate progress of work failing which the claimants were liable to levy of compensation for an amount to be determined by the SE under the provision of the Clause 2 of the agreement. The SE did not levy any compensation under Clause 2 of the agreement. If the execution of the work was delayed due to claimant's defaults as alleged by the UOI then the SE under terms of Clause 2 of the agreement would have action on or around the stipulated date of completion of 21-9-85. This was not done, even uptill the expiry of the currency of contract. Also respondents did not take any action under Clause 3 of the contract to complete the work at risk and cost of the claimants. Also under terms of Clause 11 of the Contract the respondents was bound to give all necessary drawings, designs and decisions as required for the completion of work and the same were to be given within reasonable time to the claimants so as to enable the claimants to complete the work within the stipulated date of completion i.e. by 21-9-85. From the correspondence exchanged by both the parties, it is seen that there were number of hold ups and hindrances in the execution of work. Under terms of agreement (page 142 of agreement), the electric connection for construction purposes was to be recommended by the Union of India, however, the claimants failed to get electric connection till 28-4-84(Exht.C-38,C-37), as the respondents had not got the Building Plan revalidated from NDMC. The respondents admitted this delay in getting electric connection for the claimants in their letter dated 2-5-84(Exht.C-36). The claimants could not execute the work of R of strong room due to non provision of steel plates required to be inserted in the R walls by respondent's other agencies(C-40, C-59). Similarly, even though steel reinforcement for R slab at first floor level was laid by the claimants but the R work could not be done for want of decisions pertaining to false ceiling and shortage of cement non provision of electrical conduits and suspenders for A.C. ducts by the respondents (C-34, C-41, C-67). The claimant's labour was also sitting idle resulting in financial losses to the claimants as the claimant could not do the concreting of the slabs for want of decisions from the respondents(C-66). The respondents also delayed the supply of complete foundation drawings to the claimants (C-35) and also failed to hand over complete unhindered site to the claimants(C-33). From perusal of the minutes of the site meetings held jointly(C-68, C-69, C-22), it is seen that uptill July, 1985 a large number of decisions pertaining to A.C.Ducts, false ceiling, flooring, over head tank, fixing details of railing in Kota stone and details of stone Jalli, details of work at all corner points and around window openings etc. were still awaited from the respondents to be supplied to the claimants. Decision regarding work pertaining to flooring was badly delayed as is obvious from various exhibits which are C-22, C-16, C-47, C-71. The respondents also delayed the supply of sanitary and water supply drawings to the claimants which delayed the execution of work by the claimants (Exht.C-64, C-51 etc.). Similarly, the work was actually delayed due to non completion of work pertaining to provision of A.C.ducts and their supports which was to be got executed by the respondents through other agencies(C-28, C-26, C-8, C-9,C-63, C-23). There was also shortage of cement due to which the execution of concreting work by the claimants got delayed (C-20, C-52, C-67 etc.). The claimant's work was also slowed down due to interference from the security staff of the respondents (C-73, C-74, C-46, C-58). It is pertinent to note that even long after the expiry of the stipulated date of completion on 21-9-85 several decisions were still required to be given by the respondents (Exht.C-51, C-53 etc.). In this connection, relevant extract of Exht.C-51 dated 24-4-88 is given as below:

"However, we may point out to you that you have not supplied the following to us:-

(i) Design for engraving in Stone facing work, to enable us to quote our rates.

(ii) Design for Stone Facing & monumental work above floor 2 level including fixation of rates for this work.

(iii) Substitution of Rain Water pipes with HCI pipes.

(iv) Drawings for water supply.

(v) You are aware that Surkhi is not available in Delhi and best quality of Lime has not met with your approval, item is still to be substituted by you.

Moreover Grading of roof can only be done after you have decided to and the overhead R tank is completed. We understand that you are inviting tenders for this item of work. Kindly take action in this regard early."

6. The conclusions on the assessment of the above was stated in the following words:-

"It is thus amply clear that the respondents were in breach of contract and I hold that the delay in completion of work was solely on account of breach of contract by the respondents. The claimants had indicated to the respondents sufferance of losses and claims for damages due to breach of contract by the respondents through their various letters which are Exht.C-24, C-23, C- 21, C-71, C-72, C-43, C-48, C-55, C-51, C-52, C-53."

7. The learned arbitrator examined the provisions of Clause 13 of the contract as it was contended by the respondent Union of India that this clause bars the claims of the petitioner claimant. This clause may be reproduced as follows:-

"No compensation for alteration in or reconstruction of work to be carried out.

CLAUSE 13. If at any time after the commencement of the work the President of India shall for any reason whatsoever not require the whole thereof as specified in the tender to be carried out the Engineer-in Charge shall give notice in writing of the fact to the contractor who shall have no claim to any payment of compensation whatsoever on account of any profit or advantage which he might have derived from the execution of the work in full, but which he did not derive in consequence of the full amount of the work not having been carried out, neither shall he have any claim for compensation by reason of any alterations having been made in the original specifications, drawings, designs and instructions which shall involve any curtailment of the work as originally contemplated.

Provided that the contractor shall be paid the charges on the cartage only of materials actually and bona fide brought to the site, of the work by the contractor and rendered surplus as a result of the abandonment or curtailment of the work or any portion thereof and then taken back by the contractor, provided however, that the Engineer-in-Charge shall have in all such cases the option of taking over all or any such materials at their purchase price or at local current rates whichever may be less."

8. It was held that clause 13 has obvious application only in situations where the work is restricted and the same is not to be carried out at all at a later date through any other agency and the operative findings as recorded in this regard may be referred to as below:-

"The operative part of clause 13 is that if the President of India for any reason whatsoever does not require the whole there of as specified in the tender to be carried out then the Engineer-in-Charge shall give notice in writing of this fact to the contractor, then the claimant would not be entitled to any compensation due to alterations in or restrictions of the work to be carried out. This clause obviously does not allow the UOI to make alterations and restrictions in the work and then get these carried out through some other agencies. The Clause 13 has obvious application only in situations where the work is restricted and the same is not to be carried out at all at a later date through any other agency. The words of Clause 13 must be so interpreted as to make a harmonious reading with the provision laid therein. After careful perusal of the Clause 13 of the agreement it is clear that the UOI was not entitled to use the powers under Clause 13 of the agreement, to omit the work from the present contract in order to give it to another contractor to do the same. Thus, under terms of Clause 13 of the contract the UOI had power to omit work which was not required to be done genuinely at all. However, the UOI cannot exercise such powers under this Clause with a view to have the work carried out by someone else. In the instance matter the respondents (i.e.EE) on 19-11-87 (Exht.R-2) invoked the provisions of Clause 13 of the contract agreement and withdrew the items pertaining to mosaic flooring and skirting(agreement items 10.7 and 10.8) and also withdrew the agreement items of false ceiling with item of wood work in frames(agreement items 8.2 and 11.13). The claimant had strongly protested the unilateral withdrawal of agreement items from the scope of the present contract vide their letter dated 26.11.87(C-4)..............

The claimants reiterated their stand about wrong action of U.O.I., of the withdrawal of profitable items from the scope of their work and getting these executed through other agencies and the claimants claimed losses and compensation through their various letters addressed to the respondents which are Exhts. C- 49, C-50, C-52, C-53, C-55. I have gone through the correspondence exchanged by both the parties in this regard and I find that action of respondents under their letter dated 19-11-87(R-2) in invoking the provisions of clause 13 of the contract was patently wrong and illegal and hence not justified."

9. The learned arbitrator after recording the findings as stated above then proceeded to examine each claim on merits. In respect of Claims 2,3,4 and 5 the following findings were recorded on assessment of facts and circumstances of the case:

(a) the claimants had suffered losses/damages on account of breach of the contract by the respondents;

(b) Union of India was not entitled to invoke the provisions of clause 13 of the contract by deleting certain items of the contract and getting those executed through another contract with changed specifications. The effect of this and the losses suffered by the claimants are dealt with in claim No.6.

With regard to claim Nos.6 and 7 the Arbitrator concluded as below:

"(i) The claimants have claimed a sum of Rs.5,85,024.66 on account of overheads, as per Annexure `A' to statement of claims. Under terms of the agreement the claimants was bound to keep the services of engineer and other essential staff during the extended period. I consider that this part of claim is payable for Rs.3,80,000/- only.

(ii) The claimants have claimed a sum of Rs.26,45,322.00 on account of idle machinery and plant etc. as per Annexure 'B' to the statement of claims. From facts and circumstances of the matter and evidence adduced, it is clear that the claimants T&P etc. remained idle during the extended period of execution of work for which claimants had also made the claim. Considering all aspects of the matter and mitigation of the losses by the claimants, I am of the opinion that this part of the claim is payable for minimum of Rs.3,05,000.00 only.

(iii) The claimants have claimed a sum of Rs.59,590.00 on account of infructuous expenditure to keep the bank guarantee alive as per Annexure 'C' to the statement of claims. From facts of the matter, I find that this part of the claim is not justified.

(iv) The claimants have claimed a sum of Rs.29,060.00 as infructuous expenses on electric consumption as per Annexure 'D' to the statement of claims. From facts and circumstances of the matter, I am of the opinion that this part of the claim is not justified.

(v) The claimants have claimed a sum of Rs.15,66,239.60 on account of loss of profit due to illegal invocation of clause 13 as per Annexure 'E'., supported by details in Appendix-1 to the rejoinder dt.13-2-90. After considering all the aspects of the matter and facts and circumstances of the matter, I am of the opinion that this part of the claim is payable for Rs.1,85,000/- only.

(vi) The claimants have claimed a sum of Rs.50,000/- on account of arbitration expenses. Both parties to bear own costs.

Thus in the net result a sum of Rs.8,70,000/- is payable to the claimants under this claim.

In claim No.7, the claimants have claimed interest at 18% p.a. as per Annexure 'F' to statement of claims. From facts of the matter only future interest at the rate of 14% per annum is payable to the claimants w.e.f. date of award."

10. The learned counsel for the petitioner claimant has vehemently argued that the arbitrator has considered the claims by appreciation of evidence and on the basis of the material as placed on record and no interference is called for in the present proceedings. The learned counsel for the respondent Union of India has not been able to assail the findings on cogent grounds for awards as rendered in respect of claims as referred to above except the findings of the arbitrator in respect of the claims on account of loss of profit due to illegal invocation of clause 13 for the amount of Rs.1,85,000/- which has been awarded.

11. Reference is made to Annexure-R1 which was a memorandum of understanding entered into between the parties and particularly to paragraphs )i),(ii) and (iv) which read as follows:-

"(i) That the said contract shall be closed on 10.1.1989 and the said contractor shall stop the work at the stage where it is on 9.1.1989 and shall not perform any part of the remaining unexecuted work as on 10.1.1989 (hereinafter to be referred to as the "Remaining work").

(ii) That this closure shall have no financial implications as regards the remaining work on either side. In other words, none of the parties shall have any claim whatsoever in respect of or pertaining to remaining work, each other.

(iv) That the rights of the parties for the work already executed as well as in relation to the goods or material if any issued for execution of the work and security etc. shall be governed under the conditions of the above contract. For all purposes of this contract, the aforesaid date, viz., 10.1.1989 shall be the date of closure of the contract."

12. At this stage it may be relevant to refer to paragraph (iii) as well to deal with the contention of the learned counsel for the respondent:-

"(iii) That this Memorandum of Undertaking shall in no way have any effect on the matters already pending before the Arbitrator and/or Court and work already executed upto the said date i.e. 9.1.1989."

13. The memorandum of understanding as arrived at between the parties on January 10, 1989 will have no application as clause (iii) clearly specifies that matters already pending before the Arbitrator and/or Court and work already executed upto the said date i.e. January 9, 1989 will not be effected by that memorandum. The claimant had earlier approached this Court by moving a petition under Section 20 of the Indian Arbitration Act for nominating and appointment of an abrbitrator wherein disputes were specified in Schedule 'A' annexed to the petition. It is, therefore, clear that when the Memorandum of Understanding was entered into between the parties the disputes had already been raised by the petitionerclaimant and these could not be superseded. The contention is, accordingly, without any force and is liable to be rejected.

14. The contention that clause 13 will bar the award in favour of the petitioner claimant is equally without force as the reading of this clause which has already been enumerated hereinabove will establish that it will only be applicable "if at any time after the commencement of the work the President of India shall for any reason whatsoever not require the whole or all as specified in the tender to be carried out the Engineer in charge shall give notice in writing of the fact to the contractor who shall have no claim to payment of any compensation whatsoever." The assessment of this clause by the learned arbitrator that this will have application only in situation where the work is restricted and the same is not to be carried out at all at a later date through any other agency cannot be faulted as there cannot be any other interpretation which will be just, reasonable and harmonious. The assessment of loss of profit to the extent of Rs. 1,85,000/- as granted by the learned arbitrator seems just, fair and reasonable though no reasons have been assigned for arriving at this figure. The petitioner claimant had claimed a sum of Rs. 15,66,239.60 as loss of profit on the basis of 20% of a sum of Rs.78,31,198.18 as value of contract allotted to another agency after withholding the work from the claimant. The Supreme Court in M/s A.T.Brij Paul Singh and Bros. Vs. State of Gujarat has accepted the mode of assessing the amount under this head in the flowing manner:-

"What would be the measure of profit would depend upon facts and circumstances of each case. But that there shall be a reasonable expectation of profit is implicit in a works contract and its loss has to be compensated by way of damages if the other party to the contract is guilty of breach of contract cannot be gainsaid. In this case we have the additional reason for rejecting the contention that for the same type of work, the work site being in the vicinity of each other and for identical type of work between the same parties, a Division Bench of the same High Court has accepted 15% of the value of the balance of the works contract would not be an unreasonable measure of damages for loss of profit. We are therefore, of the opinion that the High Court was in error in wholly rejecting the claim under this head."

15. Therefore, in view of the above no infirmity can be found in respect of this claim as well.

16. The arbitrator has dealt with the claims and considered the documents on record and referred to the details of the claims as made in Annexures A, B, C and D respectively which were filed with the statement of claims by the petitioner/claimant. The detailed reference is made to the documents on record by the learned arbitrator and it will not be open for this Court to reassess the evidence and arrive at contrary findings when the conclusions as recorded by the arbitrator could be supported by the material and evidence on record. Law is well established that even if giving the reasons are held to be obligatory, it is not obligatory for the arbitrator to give detailed judgment though in the present case detailed reasons have been assigned for arriving at findings which are supported by the documents on record. Reference in this context may be made to the judgment of the Supreme Court as reported in Gujarat Water Supply & Sewerage Board Vs. Unique Erectors(Gujarat) (P) Ltd., and another , 'Goa, Daman & Diu Housing Board v. Ramakant V.P.Darvotkar' , and Indian Oil Corporation Ltd. Vs. Indian Carbon Ltd. 1998 Vol.(Eight) Arbitration Law Reporter 394.

Paragraph 9 of the judgment in Gujarat Water Supply & Sewerage Board (supra) reads as follows:-

"9. The scope and extent of examination by the Court of the award made by an arbitrator has been laid down in various decisions. It has to be noted that there is a tread in modern times that reasons should be stated in the award though the question whether the reasons are necessary in ordinary arbitration awards between the parties is pending adjudication by the Constitution Bench of this Court. Even, however, if it be held that it is obligatory for the arbitrator to state reasons, it is not obligatory to give any detailed judgment. An award of arbitrator should be read reasonably as a whole to find out the implication and the meaning thereof. Short intelligible indications of the grounds should be discernible to find out the mind of the arbitrator for his action even if it be enjoined that in all cases of award by an arbitrator reasons have to be stated. The reasons should not only be intelligible but should also deal either expressly or impliedly with the substantial points that have been raised. Even in a case where the arbitrator has to state reasons, the sufficiency of the reasons depends upon the facts and the circumstances of the case. The Court, however, does not sit in appeal over the award and review the reasons. The Court can set aside the award only if it is apparent from the award that there is no evidence to support the conclusion or if the award is based upon any legal proposition which is erroneous. See the observations of this Court in Indian Oil Corporation Ltd. v. Indian Carbon Ltd. ."

17. Paragraph 10 of the judgment in Indian Oil Corporation Ltd. (supra) may be reproduced as under:-

"10.The purpose of section 12 of the English Tribunal and Inquiries act which required the statutory tribunal to furnish a statement of the reasons if requested to do so before it gave its decision was to enable a person whose property or whose interests were affected to know if the decision was against him what the reasons were Justice R.S.Bachawat in his Law of Arbitration, First Edition 1983, pages 320 and 321 states that the provision was read as meaning that proper and adequate reasons must be given. The reasons that are set out must be reasons which will not only be intelligible but also deal with the substantial points that have been raised. When the arbitration clause required the arbitrator to give a reasons and the arbitrator does give his reasons in the award, the sufficiency of the reasons depend upon the facts of the particular case. He is not bound to give detailed reasons. The Court does not sit in appeal over the award and review the reasons. The Court can set aside the award only if it is apparent from the award that there is no evidence to support the conclusions or if the award is based upon any legal proposition which is erroneous."

18. The position of law is, therefore, well established that this Court will not sit in appeal and examine the correctness of the Award after the arbitrator has looked into the evidence and arrive at conclusions which he thought were just, fair and equitable. The arbitrator has analysed the same and rendered his award on the basis as has been firmly settled by the Courts.

19. For the aforesaid reasons the objections filed by the respondent are dismissed and the Award dated 14th December, 1990 is made rule of the Court and decree in terms thereof shall be drawn. The petitioner claimant shall also be entitled to simple interest at the rate of 12% p.a. from the date of decree till realisation. There will be no order as to costs.