Tarapore & Company, Madras vs Union Of India & Others
1999 Latest Caselaw 1071 Del

ORDER

Dalveer Bhandari, J.

1. The Union of India through Ministry of External Affairs invited tenders for the construction of chancery and residential building for the Indian High Commission at Colombo, Sri Lanka. The petitioner, M/s. Tarapore & Co.'s tender was ultimately accepted and work was awarded to the petitioner. The petitioner hereinafter called as the Claimant and the respondent U.O.I. as objector. Subsequently, a dispute arose between the parties which according to the terms of the contract were referred to the arbitration of a retired Chief Justice of the High Court and to two retired Chief Engineers of the CPWD under the Arbitration Act of 1940. The award was published on 4.6.1997. The objections to the award have been filed by the Union of India.

2. In the award the reasons for delay in completion of the project have been discussed at length and out of the total delay of 25 months, delay of 16 months has been attributed to the Union of India. The remaining delay has not been specifically attributed to the Claimant but in the award it is mentioned that ethnic violence was prevalent during that period in Sri Lanka. The relevant passage of the award reads as under :-

For our purpose it would be suffice to mention that the ethnic violence during the relevant period in Colombo was not to the extent as to seriously hinder the project or delay its execution for long period. In this regard it may be noticed that the claimant had been earlier constructing another large project connected with Taj Samundra Hotel which was coming up in Colombo and for that purpose their staff including technical staff had been posted in Ceylon for considerable period shortly before the present project was taken up. It would therefore, be safe to conclude that the claimants were fully aware of the conditions in Sri Lanka and were confident of their ability to undertake the project successfully inspite of the un-settled condition prevailing in ceylon (Sri Lanka) at the relevant time. While submitting their tender, they must have taken the situation in Sri Lanka into account and would have also covered for this situation while quoting their tender bid.

3. The learned counsel for the Union of India submitted that this delay of 9 months must be attributed to the Claimant whereas the learned counsel for the Claimant submitted that this delay has occurred because of ethnic violence prevalent in Colombo and this delay has not been attributed to the Claimant in the award.

4. In the said contract, the stipulated day of completion was 14th September, 1985, but actually the project was completed on 31st October, 1987 leading to a delay of about 25 months and 17 days. According to the Union of India, the reason for delay was the contractor's incompetence in managing the work, whereas, according to the Arbitrators, the Union of India was responsible for 16 months delay. Regarding the remaining delay of 9 (nine) months. Objectors submitted that the Arbitrators have been greatly influenced by the fact of levying of SL Rs. 100/- penalty by the Government of India (while acting under Clause 47 of the contract which stipulates levying of liquidated damages).

5. Only a token sum of Rs. 100/- as liquidated damages has been imposed against what could have been a maximum of 5% of the contract value, which cones to roughly about Rs. 22 lakhs.

6. The Union of india's counter claims have been rejected by the Arbitrators. It is mentioned in the objections that the delay of 16 months attributed to the Union of India is illegal and perverse because the Arbitrators court not have added up the various periods. These could, if, at all be true, run only concurrently unless, otherwise, was shown on the record. Therefore, a serious legal misconduct was committed by the Arbitrators. The method of calculation of delay has also vitiated the other findings given on several claims and counter claims. It is further submitted by the UOT stated that no logical method has been adopted in giving the award.

7. It is also submitted that against the total claim of Rs. 30,85,520/-(Claim No.1) a part of the claim for SL Rs. 22,66,573/- is on account of the reduced labour output caused due to ethnic disturbances, was rejected on the ground that the Union of India is in no way responsible for the difficult working conditions prevalent at that time in Sri Lanka. Another part of Claim No. 1 for SL Rs. 1,86,947.12 for transportation expenses of contractor's staff to India and back during the disturbed conditions in Colombo was also not found justifiable in view of Union of India's arguments against it. The Arbitrators, however, found merit in the Claimant's claim towards the expenses of lodging of their staff in secured Indian hotels. This part of the award is perverse and is against the conclusions drawn by the Arbitrators themselves in preceding paras of the award and in this view of the matter, the award is liable to be set aside. The Arbitrators came to the conclusion that no claim can be put on the Union of India, on account of the ethnic violences. Further the Claimant was already working at many other projects in Sri Lanka around the same time. Hence, in awarding this amount the Arbitrators have committed a legal misconduct. In reply to this the Claimant submitted that the Arbitrators were justified in granting claim in favour of the Claimant with regard to claim No. 1. The Claimant submitted that the Union of India's objections to claim No.1 are totally devoid of any merit.

8. Regarding Claim No. 2 the Claimant has claimed SL Rs. 1,71,375/- and the Arbitrators awarded SL Rs. 1,08,300/-. According to the Union of India, the award of Claim No. 2 is contrary to the terms of the contract and amounts to misconduct on the part of the Arbitrators. In the reply, it is mentioned that the objections raised are misconceived and are liable to be rejected.

9. Regarding Claim No. 3 the Union of India submitted that the Arbitrators upheld the Claimant's submission that there was an error in their quotation for Item No. 9.03 to be plausible and gave relief to the Claimant. The Union of India submitted that the Claimant could not be given benefit as this was a contract signed with full knowledge by the Claimant. In the reply, it is mentioned that the objections against claim No. 3 are misconceived and are liable to be rejected.

10. The claims of the Claimant pertaining to Claim Nos. 4,6,7 & 9, 10 and 11 were rejected.

11. Regarding Claim No. 5 pertaining to bricks. The Claimant submitted that he had used best available bricks and claimed Rs. 2,25,206/-. In reply to objection to Claim No. 5, it was submitted that the Claimant had to use the bricks of the strength of 35 Kg/cm2, according to the terms of the agreement but in fact the Claimant used the bricks of the strength of 10 kg/cm2. According to the respondent-Union of India the Arbitrators were not justified in decreeing the claim of Rs. 1,80,165/- whereas accordingly to the Claimant the Arbitrators were justified in granting this claim to the Claimant.

12. Regarding claim No. 8, the Arbitrators were in agreement with the Claimant that the Claimant had to do extra work of re-excavating the earth, which got settled due to prolonged period before backfilling. According to the objector U.O.I. this part of the award is questionable as the extra work on this account should have been borne by the Claimant as per contract. There was no delay on the part of the Union of India. The Claimant submitted that there was delay on the part of the Union of India and the claim has been rightly decreed.

13. Claims No. 12 to 16 are overlapping and are based on the alleged damages suffered on account of delay in execution of the project. In Claim No. 12 damages have been claimed on account of cost of overheads during extended period of completion of work and in Claim No. 15 the Claimant's claim is towards the cost of blocked capital during extended period. According to the Union of India the Arbitrators were not justified in granting both Claims No. 12 and 15, whereas according to the Claimant both these claims are separate and the Claimant was legitimately entitled to these claims.

14. The objector-Union of India submitted that calculations of Rs. 17,38,872/- pertaining to Claim No. 12 were made on the assumption that the overheads constitute 5% of the contract value and are spread over the period of contract. The Arbitrators have accordingly calculated the claim as follows :-

Rs. 4,34,71,800 x 16/20 x 5/100 = Rs. 17,38,872/-.

15. According to the Union of India, the formula adopted by the Arbitrators is incorrect. The learned counsel for the Union of India, Mr. Rakesh Tikku submitted that Rs. 4,34,71,800 indicate the contract value, 16 indicates the months for which the work was delayed on account of hindrances attributable to the respondent/U.O.I. 20 indicates the number of months during which the contract was to be originally completed, and 5/100 indicates 5% overheads charges, as assumed by the Arbitrators. According to the Union of India, out of the total delay of 25 months, the Arbitrators attributed 16 months to the respondent/ U.O.I. and 9 months to the Claimant. It therefore, follows that the work of Rs. 4,34,71, 800/-, which was targeted for completion in 20 months, was in fact completed in 29 months on account of the mismanagement and lapses on the part of the Claimant. Having accepted that the delay on 9 months is attributable to the Claimant, the Arbitrators should have made the calculations for the overheads as follows:-

Rs. 4,34,71,800 x 16/29 x 5/100 = Rs. 11,99,222/-.

According to the UOI, obviously there is an error on the part of the Arbitrators in computing the amount of the claim and the award is liable to be set-aside.

16. Mr. Tikku submitted that same principle of quantification will be applicable while considering the Claims No. 13 to 16. It is submitted that by applying 20 months multiplier, the Arbitrators committed legal misconduct and they had to take multiplier of 29 months which would substantially reduce the alleged liability. In reply to the objections regarding Claim Nos. 13 to 16, the Claimant submitted that the Claimant was entitled to claim the damages under various heads. Mr. Jagdeep Kishore, learned counsel appearing for the Claimant submitted that when delay in completion of the whole project results, a contractor usually suffers:

(i) Off site Overheads;

(ii) Loss of profit earning capacity;

(iii) Increase of cost in On site Overheads;

(iv) Increase in the cost of labour and materials;

(v) Lower productivity from contractor's plant and labour i.e. idling."

17. The Claimant also submitted that the objection raised by the objector-U.O.I. that calculation should have been done on the basis of 29 months being the dividing factor instead of 20 months is devoid of any merit. According to the UOI, the entire basis of calculations by the Arbitrator, is incorrect because 9 months delay has not been attributed to the Claimant. This argument was not advanced before the Arbitrators and nor was it pleaded in the objection petition and the U.O.I. cannot be permitted to take new argument at this stage.

18. Regarding Claim No. 18, the Union of India submitted that waterproofing system was required to be given in the terrace. Admittedly it was shown that leakages had developed. This was not possible unless and until there was a defect either in the material and/or in the workmanship, unless it could have been shown that there was a positive act of unnatural user of the terrace by the respondent-U.O.I. which was not shown in the instant case. Putting up of flower pots, TV Antenna and a pole for hoisting the flag cannot be treated as unnatural or extra-ordinary use of the terrace. Consequently no claim could have been awarded against the respondent under this head and therefore, to that extent the Arbitrators have committed legal misconduct. The Claimant submitted in reply to this objection that the Union of India damaged the water-proofing system by puncturing the terrace either in the course of fixing flag poles, TV Antenna, or while placing 15 heavy flower pots on the terrace. The objection regarding grant of Claim No. 18, in this regard to the Claimant is unjustified.

19. The Union of India also had to put up their staff for a much longer period by hiring a building. The interest is awarded where there is a deliberate violation on the part of the erring party. The respondent equally suffered by the delay of the project. Hence, granting of interest under these facts and circumstances was not equitable and there was no legal justification merely on account of the fact that interest was so claimed. Even otherwise granting of such heavy interest @ 18% during the relevant, time was against the normal transaction and this was not even the lending rate of the banks as no evidence was led to that effect. In any case 18% interest ordered was highly excessive and exorbitant.

20. The objector-U.O.I. also submitted that allowing the Claim No. 19 with respect to the bank charges on the bank guarantee was also a miscondut. The bank guarantee was required to be given by the Claimant in view of the failure of the water proofing system and therefore, anything incurred, that was not recoverable from the Union of India. The Claimant submitted that there was no obligation to keep the bank guarantee alive for a period of three years after the expiry of the maintenance period and the Arbitrators rightly granted the claim in favour of the Claimant and the objections of the Union of India are devoid of any merit.

21. Learned counsel for the Union of India, Mr. Tikku submitted that the Arbitrators erred in rejecting the counter claims in assuming that merely on account of the fact that there was a provision for levying liquidated damages, on further damages would have been claimed even if they have suffered. The Arbitrators have committed a legal misconduct in not appreciating that they were required to go into the question of actual damages rather than brushing aside the issue by referring to the imposition of Rs. 100 as penalty under the liquidated damages. He submitted that by providing clause 47 relating to liquidated damages, the respondent's right to recover actual damages did not disappear and there was no requirement of any specific provision in that regard. It is further submitted that if the reasonings of the Arbitrators are taken to be correct and then applying the principle in reverse gear Claim Nos. 1 to 18 could not have been entertained by the Arbitrators as there was no provision for claiming the damages by the Claimant.

22. The Claimant submitted that the construction of chancery building was a commercial transaction for the contractor. There was a delay of 16 months on behalf of the Union of India. The Claimant referred to State of Orissa Vs. B. N. Agarwalla, in which a general principle has been laid down that a person deprived of the use of money to which he is legitimately entitled has a right to be compensated for the depravation, call it by any name interest, compensation or damages. According to the Claimant grant of 18% interest is reasonable in as much as the Bank lending rate for cash credit/over draft facility during the relevant period-ranged between 20% and 24% between 1987 and 1995. Rates have now been reduced. He also submitted that the Arbitration & Conciliation Act 1996 prescribed interest @ 18% per annum as a mandatory provision and the Arbitrators could even award higher rates of interest. According to the Claimant, there was no infirmity or illegality in the grant of such interest.

23. He submitted that counter claim No. 2 is inter linked with claim No. 18 of the petition. The Claimant submitted that the counter claim has been rightly rejected because there was no delay or breach of any obligation on the part of the Claimant. Secondly, the claim was remote and the damages do not directly arise from the contract. Thirdly, the nature of claim was not contemplated between the parties. Forthly, the contract provided for imposition of liquidated damages and the Union of India could have indemnified itself by imposing such damages, which is the only form provided in the contract. He submitted that since the reasons have been given, this Court will not go into the matters whether correct conclusions have been drawn or not. The Claimant submitted that the claim of the U.O.I. was also barred by time in as much as no such claim was raised between 1987 and 1992 and it was only when the written statement/reply to the claim of the Claimant was filed that these two counter claims were also filed by the Union of India. According to the Claimant, the objections to the award are devoid of any merit and deserve to be dismissed.

24. Learned counsel for the Union of India Mr. Tikku submitted that imposition of interest over interest was a legal misconduct on the part of the Arbitrators. Such a power exists only in the Court and that too if the facts and circumstances justify so. In the instant case, the Arbitrators granted Rs. 35,15,874/- as damages and granted Rs. 44,40,480/- as interest on that amount. The Arbitrators have also awarded costs of Rs. 1 lac. The Arbitrators directed that the total amount of Rs. 82,56,344/- further carrying interest @ form the date of award till the date of payment.

25. Learned counsel placed reliance on Union of India Vs. Jain Associates & Anr., and M/s. Hind Builders Vs. Union of India, in support of his submissions.

26. Mr. Jagdeep Kishore, learned counsel appearing for the Claimant placed reliance on number of judgments of this court in support of his contentions that it is a settled position of law that the reasonableness of the reasons given by the Arbitrators are not open to challenge and he placed reliance on judgment of this Court in R.N. Khanna & Ors. Vs. International Airport Authority of India & Ors., 1995 I AD (Delhi) 85. Mr. Jagdeep Kishore also relied on following judgments which were relied in R.N. Khanna's case (supra).

27. In M/s. Hindustan Tea Co. Vs. M/s.K. Shashi Kant & Co. & Anr., their Lordships of the Supreme Court have observed that the Arbitrator is made the final arbiter on the disputes between the parties and the award is not liable to be set aside on the ground that the arbitrator had reached a wrong conclusion or it failed to appreciate the fact.

28. In M/s. Sudarsan Trading Co. Vs. The Govt. of Kerala & Anr., their Lordships of the Supreme Court observed that reasonableness of the reasons given by the Arbitrator cannot be challenged and even appraisement of evidence by the Arbitrator is never a matter which the Court should question. When parties have selected their own forum, the deciding forum must be conceded the power of appraisement of evidence and the Arbitrator is the sole judge of the quality as well as quantity of the evidence and it would be not for the Court to take up for itself the task of being a judge on the evidence before the Arbitrator.

29. Similarly in Firm Madan Lal Roshan Lal Mahajan Vs. Hukum Chand Mills Ltd., Indore , their Lordships of the Supreme Court observed that the award, both on facts and law is final and the Court cannot review the award and correct any mistakes in its adjudication unless an objection to the legality of the award is an error, apparent on the face of the record.

30. In Puri Construction Private Ltd. Vs. Union of India the Supreme Court has taken the view that the Court cannot sit in an appeal and examine the correctness of the award.

31. In the Constitution Bench judgment of the Supreme Court in Goa, Daman & Diu Housing Board Vs. Ramakant V. P. Darvotkar, their Lordships observed that award shows that the Arbitrator has considered all specific issues raised by the parties and recorded findings by him after giving reasons. In that event it cannot be said that the arbitrator had misconducted himself. Similarly in the instant case the arbitrator has given a reasoned award and given cogent reasons for accepting and rejecting each claim. Therefore, in these facts and circumstances, it is not open for any party to urge that the arbitrator has misconducted in any manner.

32. In Hind Builders Vs. UOI , their Lordships have held that there are certain clauses of contract on which two views are possible and the arbitrators acting upon particular interpretation. The interference by the Court by adopting its own interpretation is not permissible in the arbitration proceedings.

33. I have carefully considered the rival contentions of the parties and perused the judgments cited at the bar.

34. In view of the settled position of law, it would not be appropriate to interfere with the various findings arrived at by the learned Arbitrators.

The findings of the Arbitrators on various issues are accordingly upheld. However, the findings of the Arbitrators on the question of interest cannot be sustained either on the facts and circumstances of this case or in view of the settled position of law.

35. On the facts and circumstances of this case the Arbitrators were not justified in granting interest over interest and that too at an exorbitant rate of 18%.

36. On consideration of the totality of the facts and circumstances and while keeping in view the law as crystallised by the Supreme Court in my considered opinion the Claimant is legitimately entitled to interest at the rate of 12% from 15th October 1990 till the payment is made by the Union of India. To this extent the award is modified.

37. The award is made the rule of the Court with the modification as indicated on the aspect of the interest. The Registry is directed to prepare the decree accordingly. The suit and all applications are accordingly disposed of.

38. In the peculiar facts and circumstances the parties are directed to bear their own costs.