S.M. Mehta & Co. vs National Industries Dev. ...
2001 Latest Caselaw 1637 Del

JUDGMENT

J.D. Kapoor, J.

1. There is an error in the order dated 27th August, 1999 in respect of the word "Interim" appearing in the order preceding to the word "Award". There is no interim award. As such the word "interim" appearing in the order in hereby deleted.

2. Vide order dated 27th August, 1999 the suit in respect of claims 1,2,3,4 and 8 awarded by the Arbitrator was decreed. The instant objections are only in respect of claims 5, 6 and 7.

3. Petitioner was awarded the work of construction of Navodaya Vidyalaya, Parbhani, Dist. Basmatnagar (Maharashtra). In the said order the petitioner was required to construct the following buildings:

1. Workshop- 2 Units.

2. Dining hall- 4 Units.

3. Kitchen hall- 2 Units.

4. Multipurpose hall- 1 Unit.

5. Temporary structures for bath and latrine- 1 Unit.

4. The contract/project awarded to the petitioner was for Rs. 28,23,997.86.

5. Claim No.5 is towards the damages for nonrefund of cash security deposit beyond the first one lakh against bank guarantee. The objection of the respondent before the Arbitrator was that the claimants did not use the provision of non-deduction of security deposit from running bills in lieu of bank guarantee as soon as the cash deduction on account of security deposit exceeded Rs.1 lakh and therefore they are within their right to accept or reject the bank guarantee.

6. The perusal of the award shows that the respondent had deducted Rs.2,00,319/- in cash from running bills as security deposit up to 8/91. As per the contract, Rs.1 lakh was to be retained in cash and the remaining could be in the form of bank guarantee. However, the petitioner deposited a bank guarantee for Rs.1.25 lakhs on 10.9.91 and asked for a refund of Rs.1.00,319/- in lieu of the bank guarantee so that the same can be ploughed back into the work to complete the same. Instead of refunding the part security in cash as prayed for, the respondents also kept the bank guarantee with them, which they ultimately returned on 18.9.92. Similarly a second bank guarantee for Rs.1.25 lakhs for the same reason was returned on 31.12.92. It was observed by the Arbitrator that had the respondents refunded the part cash security deposit, t he claimants would have utilized it on works or got interest @ 24% had they lent it out.

7. According to the respondent, the Arbitrator has correctly interpreted clause 2.10 and various other clauses of the contract which according to him stipulated that after the amount of security deposit reached the limit of Rs.1,00,000, the contractor might lodge with the company bank guarantee by nationalised bank for the balance amount of the security deposit. Thus according to the respondent the claimants did not use the option being exercised by the petitioner the company was bound to non-deduction of balance security deposited from the running account bills of the petitioner. However, this contention did not find favor with the arbitrator that the aforesaid clause doe not place any bar in exercising the option at later point of time nor is there any provision in the contract for refunding already deducted security deposit amount against the bank guarantee.

8. As it is settled principle that even if there are two possible interpretation of the clause and even if the arbitrator interprets it erroneously still the court should be reluctant to interfere with the award. However, in this case the arbitrator happens to be a Retired Director General of the CPWD and is conversant with t he operation of Clause 2.10 in practical terms. Even otherwise the arbitrator has awarded only 18,000/- to the petitioner against its claim of Rs.66,000/-. The Arbitrator was right in observing that instead of refunding the part security in cash as prayed by the respondent, t he respondent kept the bank guarantee with him which they ultimately returned on 18.9.92 and 31.12.92 respectively and had the respondent refunded the part security deposit, the claimants would have utilised it on works or got interest @ 24 per cent.

9. Apart from this, the arbitrator has also observed and rightly so that the return of the bank guarantee after a lapse of 15 months has even otherwise not been sufficiently explained by the respondent.

10. As regards the claim 6 which is towards compensation due to delayed reimbursement of work contract tax, the arbitrator has awarded only Rs.2500/- to the petitioner. Admittedly the work contract tax was paid by the petitioner/claimant and as per contract they asked for reimbursement of the same sometime in August, 1990 for Rs.27,502/-. however, the same was reimbursed only on 25.6.91 after a delay of ten months. The arbitrator has awarded the interest for a period permissible under the contract. The respondent was obliged to reimburse the same as and when asked for.

Claim No.7 is with regard to the interest awarded by the arbitrator. It is contended that the arbitrator has not furnished any reason for the award of interest.

11. It is now settled law that the arbitrator has the power to award the interest unless there is a specific prohibition in the contract in this regard.

12. Further according to the respondent, clause 23 pertaining to reimbursement of sales/turnover tax on works contract was inadvertently allowed to remain in the contract and is void ab initio.

13. Respondent relied upon clause No.7 of the of the instructions to tenders and clause 3.7.2 of general conditions of contract executed between the parties. the petitioner had agreed to execute the works at the price quoted which was labour, equipment, transport including all the royalties, taxes duties including sales and turnover taxes. As is apparent from the award the petitioner was claiming under this claim only compensation by way of interest for delayed reimbursement of the amount and not on account of work contract tax.

14. Since the petitioner had made payment of tax of the works the same was required to be reimbursed by the respondent on his demand.

15. Award does not suffer from the vice of legal, factual or any other kind of error or misconduct and is hereby accepted. Objections have no merit and are dismissed.

16. Award is made rule of the Court. Suit is decreed for Rs.7,19,026 with pendentelite and future interest @ 18% till realisation.