M/S Bajaj Electricals Ltd. vs Power Grid Corpn. Of India Ltd.
2008 Latest Caselaw 1571 Del

*     IN THE HIGH COURT OF DELHI AT NEW DELHI


+     CS (OS) No.1476A/1999 & IA No.1125/2008

                                            Reserved on    : 14.08.2008
                                              Announced on : 08.09.2008


M/s Bajaj Electricals Ltd.                             ...... Plaintiff

                     Through : Mr. S.B. Upadhaya, Sr. Advocate with Ms. Anisha
                     Upadhaya, Ms. Shubhra Goyal, Advocates

                                versus


Power Grid Corpn. Of India Ltd.                       ..... Defendant

                     Through : Mr. Atul Varma with Ms. Suman Dutta,
                     Advocates


CORAM:

Mr. Justice S. Ravindra Bhat


1.    Whether reporters of local papers may be         Yes
      allowed to see the judgment?

2.    To be referred to the Reporter or not?           Yes

3.    Whether the judgment should be reported          Yes
      in the Digest?


Mr. Justice S. Ravindra Bhat


1.    In these proceedings, the request to make an award of the arbitral

tribunal, appointed by the parties, rule of court has been made. In the award,

dated 31-5-1999, a majority of two arbitrators had found in favour of the

CS (OS) 1476A/1999                                                        Page 1
 claimant plaintiff (hereafter called "the contractor"). In the minority award of

Shri S.K. Sinha, the claims of the contractor were rejected. The defendant/

Respondent (hereafter "Corporation") assails the findings, in an application,

under Sections 30/33 of the Arbitration Act, 1940 ("the Act"), being IA

9419/1999.

2. The brief facts necessary for a decision in these proceedings are that

the National Thermal Power Corporation (NTPC, the predecessor of the

Corporation) had, in 1985, invited tenders for the supply and erection of

station lighting package; the contractor submitted its offer on 26th July 1985,

which, after evaluation, was found to be the lowest. The contractor was

awarded the work on 10th April 1986, concerning Station Lighting Package for

400 KV Durgapur Substation. Clause 2.0 of the contract spelt out the intent

and scope of work; Clause 2.5, which has some relevance in this dispute,

read as follows:

" 2.5: Notwithstanding the classification of the total scope of work under this award into two portions, the contract is awarded to you on single source responsibility basis and breach in any portion or part of the Contract shall be construed as breach of the entire contract.

The scope of work shall include all such items and works which although not specifically mentioned in the bid documents and/or in your proposal but are needed to make the equipment system complete unless otherwise specifically excluded under exclusion in our bid documents."

According to Clause 4, the agreed consideration for the contracted work was

Rs. 34,52,510, divided into the supply portion of Rs. 27,89,116/08 and Rs.

6,63,394/56.

CS (OS) 1476A/1999 Page 2

3. Clause 37.01 stipulated that no alteration, amendment, etc., (to the

contract) could be made by the contractor, except as directed by the

Engineer, in writing. The Engineer, however, had power (subject to other

terms) during execution of the contract, by notice in writing, to instruct the

Contractor to make such variation in the contract without prejudice to the

contract. Clause 37.04 provided as follows:

"37.04 If any Variation in the works, results in reduction of Contract Price, the parties shall agree in writing, so to the extent of any change in the price before the Contractor proceeds with the change."

Clause 37.06 stated that:

" Notwithstanding anything stated above in this clause, the Engineer shall have the full power to instruct the Contractor, in writing, during the execution of the Contract, to vary to quantities of the items or groups of items in accordance with the provisions of clause entitled „Change of Quality‟ in section INB of this volume I. The Contractor shall carry out such variations and be bound by the same conditions, as though the said variations occurred in the contract documents. However, the Contract Price shall be adjusted at the rates and the prices provided for the original quantities in the Contract."

4. The NTPC deemed it necessary to lay cables, i.e 3 core x 10 sq. mm &

4 core x 10 sq. mm 415V armoured AL PVC cables. The contractor agreed to

this, which was recorded in Minutes of Meeting between parties, dated 5-4-

1987. The work progressed and on 21st January, 1988 the second Running

Account (RA) bill was prepared which recorded that 5775.7 metres of 2Cx

10sq.mm cables laying and termination @ Rs. 65 per sq. metre, less 4%

rebate was supplied; the bill was passed, and amounts paid on 11-2-1988.

The entire work was completed and the material reconciliation statement

CS (OS) 1476A/1999 Page 3 was jointly prepared and signed by the parties, on 12-4-1988. NTPC took

over the work, on 31st May, 1988. In the meanwhile, the contractor had

requested, through letter dated 14-4-1988 for release of payments in respect

of 4C x 10 sq. mm cable. The parties also exchanged correspondence,

whereby the contractor asked for payments against work including supply of

3C and 4C x 10 sq.mm cables, at rates at least equivalent to what was

agreed to be paid in respect of 2C cables. On 2-8-1988 NTPC proposed an

amendment to the contract revising the quantity of work, both in respect of

the supply and erection parts of the contract. The total amount of

consideration was reduced from Rs. 34,52,510/64 to Rs. 29, 94,640/-. The

contractor expressed disagreement and did not consent to this change, and

communicated this intention through its letter dated 24th September, 1988. It

also mentioned, inter alia, that several outstanding amounts were payable to

it, under the contract, and that the NTPC had not finalized the cost of 4C x 10

sq. mm cables supplied.

5. The NTPC, in its letter dated 28th October, 1988, expressed its

assurance that it would look into the matter, and finalize it so that payment

could be released - to the contractor, at the earliest. Thereafter, on 18/19 th

April, 1989, the NTPC proposed yet another amendment ("the second

amendment") to the contract, whereby it reduced the contract price to Rs.

27, 59, 963.40. This amendment "fixed" the rates for items, such as laying

and terminating 415 V 4C x 10 sq. mm AL PVC armoured cable (Rs. 55,272);

laying and terminating 415 V 3C x 10 sq. mm AL PVC armoured cable (Rs.

CS (OS) 1476A/1999 Page 4 5,103/-); laying of 2C x 10 sq. mm AL PVC armoured cable in existing cable

trench panels, etc (Rs.33, 348.70); One end termination of 2C x 10 sq. mm

AL PVC armoured cable in existing cable trench panels, etc (Rs. 5126.40).

Besides these, the NTPC proposed recovery from the bills of the contractor.

This amendment was also not accepted by the contractor.

6. The parties to the contract attempted to resolve their differences; a

series of meetings were held for that purpose, including those held on 27-7-

1989; and letters exchanged between them. On 3-4-1993, the NTPC's

contracts and liabilities, in regard to the agreement in question, were taken

over by the corporation. Thereafter, on 13th April, 1993, the corporation and

the contractor held a meeting, where it became apparent that the former

was insisting on acceptance, by the contractor, of the two amendments,

proposed by it to the original contract. The contractor approached this court,

under Section 20, for filing the arbitration agreement. That petition was

disposed on 19th July, 1996; arbitrator nominees of each party were

appointed, and the said arbitrators appointed an umpire/ third arbitrator.

7. In the arbitral proceedings, a majority of two arbitrators held in favour

of the contractor, allowing his claims and directing refund of amounts

withheld by the corporation. The third arbitrator, however rejected the claims

and reference, holding, inter alia, that the demands were time barred.

8. Mr. S. B. Upadhyay, learned senior counsel, submitted that the

impugned award is unsustainable in law. It was urged that the arbitrators

CS (OS) 1476A/1999 Page 5 overlooked the fact that the dispute in this case was excepted as the

decision of the competent official, i.e the Engineer was final. Therefore, on a

proper application of the law laid down in Vishwanath Sood -vs- Union of

India AIR 1989 SC 952, it has to be held that the arbitrators lacked

jurisdiction in adjudicating upon the claims made by the contractor.

9. It was next contended that the award is unsupportable in law, since the

majority of arbitrators rejected the corporation's contention about the

contractor's claims being time barred. Counsel urged that the claim for

money arose in 1988; the contractor raised a dispute and approached the

court in 1994, for appointment of arbitrator. In such circumstances, the

award should not have allowed the claims. Learned counsel submitted that

the dispute, if considered to be with reference to the Minutes of Meeting of

July, 1989 was clearly time barred. It was also urged that the disputes first

arose on 28th August, 1989 when the parties disagreed in regard to the

amounts, payable to the contractor. Thus, applying Article 137 of the

Schedule to the Limitation Act, the disputes were clearly time barred and

could not have been entertained. Reliance was placed upon the decision

reported as S. Rajan -vs- State of Kerala 1992 (2) Arb LR. 281 and J. C.

Budhraja vs. Chairman, Orissa Mining Corporation Ltd 2008-(1)-Arb.LR 238. It

was submitted that there was no acknowledgement of liability as

contemplated by Section 18 of the Limitation Act.

CS (OS) 1476A/1999 Page 6

10. It was submitted that the award discloses a patent illegality in regard

to the merits, as the arbitrators concluded, without any materials that the

amendments could not be given effect to. The Engineer, it was submitted,

could amend the specifications; the power concededly existed in the

agreement. He exercised that power; the contractor could not have

therefore, contrary to the contract, made a grievance on this aspect, since

additional work, forming part of the contract, could be executed. The

contractor did not challenge the exercise of such power, nor could have done

so. Therefore, after being satisfied that the work done was of a particular

quality, the quantities were indicated. Counsel urged that the contractual

rate of Rs. 65/- was applicable only to the work of laying of 2C cables which

conformed to the original scope of work. The amendments provided for rates

of the work which did not fall in the original scope, but were executed by the

contractor. It was further urged that the original contractual rate of Rs. 65/-

could not apply to overground laying of 2C cables as that rate applied to

buried underground cable laying. In overlooking these aspects, and allowing

the contractor's claim the award discloses a patent error of law; it is also

contrary to contract between the parties.

11. Learned counsel relied on the decision reported as Mcdermott

International Inc. V. Burn Standard Co. Ltd. & Ors. 2006 (2) Arb.LR. 498, to

say that the award discloses errors which can be considered as patent

illegalities, warranting interdiction by the court. Counsel submitted further

that the award of Rs. 7,50,000/- as costs even while the contractor had

CS (OS) 1476A/1999 Page 7 claimed only Rs. 3 lakhs was unreasonable. it was not preceded by any

discussion on this aspect. It was also urged that the rate of interest awarded

is too high, in any case, and cannot be sustained.

12. The contractor's contention is that a look at the relevant conditions in

the contract would show that the disputes ultimately decided in arbitration

were not "excepted" matters. The further contention was that the reason

why the corporation withheld amounts was the variation in the agreement,

after execution of the contract. The contractor's version here is that there

was no question of any decision by the Engineer; he unilaterally changed the

quantities, through the amendments. When the contractor expressed

disagreement, the corporation kept postponing any final decision, and after

holding a series of meetings, surreptitiously prepared a so called final bill,

which was furnished for the first time to it, in 1993. In these circumstances,

the disputes raised were not "excepted" from arbitration.

13. The contractor's counsel urged that the claims in arbitration were not

time barred, because the final bill itself was not prepared, and the

amendments proposed were a subject of dispute. Eventually, when the

corporation declined to accede to its (the contractor's) position, the latter

approached this court under Section 20 of the old Act, and sought for

reference, which was allowed in 1996. Counsel relied on the judgment

reported in Major I. S. Rekhi vs. DDA (1988) 2 SCC 338 for the proposition

CS (OS) 1476A/1999 Page 8 that the cause of action to approach for arbitration did not arise till the final

bill was prepared.

14. It was next urged that under Clause 37.04, if any variation in the

contractual rates resulted in reduction of consideration, the Engineer could

not impose it without consent of the contractor. It was contended that in this

case, 4C x 10 sq. mm cable and other items, for which no rates were fixed,

the corporation was bound to pay consideration - an issue which remained

outstanding after the supply of the goods and services. Instead of fixing

reasonable cost, for the supplies and services, which could have had co-

relation to the agreed rates, the corporation reduced rates, unilaterally,

twice over. The award merely held that the contractor was entitled to

amounts for such supplies and services.

15. Counsel submitted that the majority award of the arbitrators contains

reasons, which are sound in law and premised on available materials. On

application of settled principles guiding the court as to scope of judicial

intervention under Sections 30 and 33 of the Act, it has to be concluded that

there was no infirmity with the findings or the approach of the arbitrator,

calling for interference. Reliance was placed on the decisions of the Supreme

Court in Associated Engineering Co -vs- Govt of Andhra Pradesh AIR 1992 SC

232, and Rajasthan State Mines And Minerals Ltd. -vs- Eastern Engineering

Enterprises & Anr 1999 (3) Arb LR. 350. It was contended that even if the

Arbitrator commits an error of fact or law in reaching his conclusion on the

CS (OS) 1476A/1999 Page 9 disputed question submitted for his adjudication, the Court cannot interfere,

unless it is palpably capricious or manifestly erroneous.

16. The scope of a court's power interfere with an arbitration award, under

the Act has been repeatedly emphasized, by a string of decisions, starting

with Union of India -vs- A.L. Ralia Ram AIR 1963 SC 1685 down to the recent

decision in Food Corporation of India -vs- Chandu Construction 2007 (4) SCC

697. It has been ruled, thus that "misconduct" does not imply moral lapse or

perversity in findings, but to something unreasonable which would fall

outside the jurisdiction of the arbitrator. It has been further held that the

standard to be applied while considering whether the award is vitiated by

misconduct is irrationality, caprice, arbitrariness by the arbitrator, or acting

beyond the terms of the agreement (See Bhagwati Oxygen Ltd. -vs-

Hindustan Copper Ltd. 2005(6) SCC 462; Rajasthan State Mines and Minerals

Ltd. v. Eastern Engineering Enterprises and Another, (1999) 9 SCC 283). It

has been held in addition, (U.P. State Electricity Board v. Searsole Chemcials

Ltd. (2001) 3 SCC 397), that where the arbitrator had applied his mind to the

pleadings, considered the evidence adduced before him and passed an

award, the Court could not interfere by reappraising the matter as if it were

an appeal. Another test, indicated by the Supreme Court - Chandu

Construction(supra) and Bharat Coking Coal Ltd. v. M/s. Annapurna

Construction, (2003) 8 SCC 154,) is that where the arbitrator travels beyond

the contract, he acts in excess of jurisdiction, in which case, the award

becomes vulnerable and can be questioned in an appropriate Court.

CS (OS) 1476A/1999 Page 10

17. In the present case, the issue whether disputes were arbitrable, hinges

around interpretation of Clause 37.05, which is as follows:

" 37.05 In all the above cases, in the event of a disagreement as to the reasonableness of the sum, the decision of the Engineer shall prevail."

The other stipulation is Clause 33.3 which says that:

" The Engineer‟s decision and the filing of written objection thereto shall be a condition precedent to the right to request arbitration. It is the intent of the agreement that there shall be no delay in the execution of the works and the decision of the Engineers as rendered shall be promptly observed."

18. The decision in Vishwanath Sood and later, Food Corporation of India

vs. Sreekanth Transport (1999) 4 SCC 491 are authorities on what constitute

"excepted matters". In Vishwanath Sood, the condition read as follows:

"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 essence of the contract on the part of the contractor and shall be reckoned from the fifteenth day after the date on which the order to commence the work is issued to the contractor. The work shall through out the stipulated period of the contract be proceeded with all due diligence and the contractor shall pay as compensation an amount equal to one percent, or such smaller amount as the Superintending Engineer (whose decision in writing shall be final) may decide on the amount of the estimated cost of the whole work as shown in the tender for every day that the work remains uncommenced, or unfinished, after proper dates. And 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 for special jobs to complete one-eight of the whole of the work before one-fourth of the whole time allowed under the contract has elapsed; three-eighth of the work, before one-half of such time has elapsed, and three fourth of the work, before 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

CS (OS) 1476A/1999 Page 11 with this condition, he shall be liable to pay as compensation and amount equal to one per cent or such smaller amount as the Superintending Engineer (whose decision in writing shall be final) may decide on the said estimated cost of the whole for every day that the due quantity of work remains incomplete; provided always that the entire amount of compensation to be paid under the provision of this clause shall not exceed 10 per cent, on the estimated cost of the work as shown in the tender."

The terms of Clause 2 unambiguously envisioned that the determination of

compensation for the delay in execution of the work was only by the

Superintending Engineer and specifically mentions that the decision of the

Superintending Engineer "in writing shall be final." In this case, the

conditions concerned, i.e. Clauses 37.05 and 33.3 do not invest finality of a

similar kind. The latter merely outlines a mechanism for submission to

arbitration; the former states that the views of the Executive Engineer about

the price would prevail. Yet, these do not preclude submission of the dispute,

arising from disagreement to arbitration. Moreover, in the facts of this case,

the corporation was unable to show when, and what was the decision,

rendered by the said official, became final, and precluded arbitration. The

Engineer proposed amendments, after completion of contract; which were

never agreed to; the parties thereafter kept negotiating, and concededly

recorded minutes of meeting. The record does not reflect any final decision

by the Engineer, of the kind argued by the corporation, which inhibited

reference to arbitration. Therefore, it is held that the award does not disclose

any infirmity vis-à-vis findings concerning arbitrability of the disputes. They

were not "excepted" matters.

CS (OS) 1476A/1999 Page 12

19. Next, the issue of limitation. Here, the corporation argues that the

contractor's claims were time barred, since the earliest point in time, when it

was possible to refer the disputes, was in 1989; the court was approached in

1994. The contractor, on the other hand, counters by saying that the

question of downward revision of cost, contrary to agreement, was being

negotiated for a long time; eventually, on 13th April, 1993, the corporation

indicated its final opinion that the rates proposed through the two

amendments were not being revised. Till that time, the contractor could not

have visualized that a dispute would arise; it is also urged that the final bill

was furnished to the contractor in that meeting of 13th April, 1993, after

which reference was sought, by approaching the court under Section 20.

20. The corporation had relied on the ruling in J.C. Budhiraja (supra), where

no doubt it was held that if a party merely says, without admitting liability,

that it would examine the claim or the accounts, it may not amount to

acknowledgement and that an acknowledgement of liability is one which

consciously admits a party's liability to pay or admit his intention to pay the

debt. Yet, the facts of this case are different here. The final bill was made

sometime in 1992; the minutes of meeting show that there was no

agreement on the question of cost of the services, or the variations

indicated, in 1989, till the corporation expressed disinclination, finally on 13th

April, 1993. In such a case, the ruling of the Supreme Court in Major I. S.

Rekhi is apt. In that case, the contention about lack of arbitrable dispute, in

the absence of a final bill was upheld, in the following words:

CS (OS) 1476A/1999 Page 13 "...But in order to be entitled to ask for a reference under Section 20 of the Act there must not only be an entitlement to money but there must be a difference or dispute. It is true that on completion of the work, a right to get payment would normally arise but where the final bills as in this case have not been prepared as appears from the record and when the assertion of the claim was made on February 28, 1983 and there was non payment, the cause of action arose from that date, that is to say, February 28, 1983. It is also true that a party cannot postpone the accrual of cause of action by writing reminders or sending reminders but, where the bill had not been finally prepared, the claim made by a claimant is the accrual of the cause of action. A dispute arises where there is a claim and a denial and repudiation of the claim. The existence of dispute is essential for appointment of an Arbitrator under Section 8 or a reference under Section 20 of the Act. There should be dispute and there can only be a dispute when a claim is asserted by one party and denial by the other on whatever grounds. Mere failure or inaction to pay does not lead to the inference of the existence of dispute. Dispute entails a positive element and assertion of denial, not merely inaction to accede to a claim or a request. Whether in a particular case a dispute has arisen or not has to be found out from the facts and circumstances of the case."

The above ruling has been followed in Pandit Munshi Ram & Associates (Pvt.)

Ltd.,V. Delhi Development Authority & Anr., 2002 (Supp) Arb. LR 659 -DEL; it

has also been approved in J. C. Budhraja. In Hari Shankar Singhania & Others

V. Gaur Hari Singhania 2006 (2) Arb.LR. 1 (SC), following Rekhi it was held

that:

"In the instant case, correspondence was not merely in the nature of reminders but also instruments to resolve the matter and amicably negotiate. Therefore, when the negotiations were taking place between the parties by way of various letters written by both parties the right to apply can be said to accrue when it becomes necessary to apply, that is to say when a dispute in fact arose. Furthermore, the respondent did not ever dispute the claim of the appellants."

21. Having regard to the above position in law, it is held that the claims in

this case were not time barred, since the final bill was prepared in 1992, and

CS (OS) 1476A/1999 Page 14 the disagreement which was referred to arbitration, took place on 13th April,

1993. The award therefore, does not show any jurisdictional infirmity, calling

for interference by this court.

22. As far as the merits are concerned, the court does not discern any

scope for holding that the award discloses any perversity in approach,

caprice, or unreasonableness. The majority award is a fairly reasoned

document. It has dealt with each contention raised by the parties, who had

submitted written notes of arguments, besides voluminous documents. The

substratum of reasoning is that the amendments were made after

performance of the contract; they reduced the amounts agreed, unilaterally.

The corporation's actions were held to be beyond the scope of the contract,

since Clause 37.04 visualized consensual change, particularly in reduction of

the value of the contract. The contractor here was asked to perform jobs

which were unspelt in the contract and yet, by two amendments, the value

was progressively reduced. The arbitrators, not unreasonably, held that this

was unjustified. This court is of opinion that no error of law, or fact, or

infirmity in the approach of the arbitrators, can be discerned here. The court

cannot fault the award, merely because it can arrive at contrary findings, on

a different process of reasoning; such conclusions would amount to

impermissible appellate review, clearly beyond the scope of Sections 30 and

33.

CS (OS) 1476A/1999 Page 15

23. As far as the grievance of the corporation regarding costs are

concerned, the court is of opinion that the approach of the arbitrators cannot

be supported. The contractor had claimed Rs. 3 lakh towards cost of

arbitrator. The additional amount of Rs. 5 lakhs appears to have been

claimed during the course of submissions, and finds mention in Volume D-1.

The addition is towards counsel's fee; there is no discussion or supportive

material by the majority award, on this head. The award, grants Rs.

7,50,000/- cannot therefore, be sustained; it is set aside, to the extent it

exceeds Rs. 3,00,000/-.

24. The majority award grants Rs. 4,05,212/60 to the claimant, for the

erection portion, and Rs. 1,79,029/41 for the supply portion (aggregating Rs.

5,84,242/01). After adjusting recoveries, the amount admissible was held to

be Rs. 5,55,419/27. An amount of Rs. 1,48,564/- towards refund was also

allowed. The award allowed 18% interest p.a compounded annually, on the

sums granted; a specific amount was also indicated in the award. Such

interest, for the entire period, in the opinion of the court, is unsupportable,

having regard to bankers depressed prime lending rates in the mid 1990's. In

the circumstances, the court hereby modifies the interest to 15% simple

interest, from 1-6-1988 to 31-5-1993 and thereafter, from 1-6-1993 till

award, and future interest, till payment at 10% per annum, (simple interest).

25. In view of the above reasons, IA 1476-A/1999 has to partly succeed.

The costs, to the extent it is in excess of Rs. 3,00,000/- is set aside. The

CS (OS) 1476A/1999 Page 16 award of interest too, is modified, to the extent indicated in the preceding

paragraph. The award is made rule of court, in these terms; the suit and

application are decreed accordingly. No costs.

DATE: 8th September, 2008                           S. RAVINDRA BHAT, J




CS (OS) 1476A/1999                                                    Page 17