National Thermal Power ... vs Wig Brothers Builders And ...
2009 Latest Caselaw 1438 Del

*    IN THE HIGH COURT OF DELHI AT NEW DELHI



+                OMP NO. 16/2003




                    Reserved on      : November 14, 2008

 Date of Decision : April 17, 2009




National Thermal Power Corporation Ltd.             .....Appellant

Through :   Mr. R.P. Bhat, Sr. Advocate, with

Mr. Chirag M. Shroff, Advocate.




Versus




Wig Brothers Builders and Engineers Ltd.          .....Respondent

Through :   Mr. P.V. Kapoor, Sr. Advocate, with

Mr. Jeevesh Nagrath, Advocate.
 CORAM:

HON'BLE MR. JUSTICE MUKUL MUDGAL


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

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

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


                   JUDGMENT

: MUKUL MUDGAL,J.

1. These are objections filed under Section 34 of the Arbitration and Conciliation

Act, 1996 (hereinafter referred to as 'the Act') read with Sections 12, 13, 16, 18, 28(3)

and 31 of the Act by the petitioner-National Thermal Power Corporation (for short

'NTPC') against the Awards of the Arbitral Tribunal dated 13th September, 1999 and

25th June, 2002.

2. The disputes between the parties arose from a lump sum contract for 4 Cooling

Towers of reinforced cement concrete 120 Metres high along with RCC basin for collection of cooled water and arrangement of RCC channels and AC Pipes provided

horizontally for sprinkling of hot water through nozzles over layers of PVC serrated

sheets, for the purpose of cooling of hot water from 43 Degree C. to 32 Degree C.

through natural draft created in the towers. However, the supply of hot water and

distribution of cold water from the basin was outside the scope of the contract.

3. The contract, inter-alia, provided for foreign collaborators and their design for

structural and thermal attributes of the Cooling Towers, for supply of cement and steel

free of cost by NTPC, for variation in the quantity of such cement and steel on certain

prescribed consideration and for recovery from the contractor for excess consumption of

cement and steel, for price adjustment of materials, labour and fuel linked with price

indices, for foreign exchange rate protection and other usual conditions found in

building and engineering contracts.

4. A completion schedule was stipulated for making ready the cooling towers. A

schedule was also fixed for carrying out the trial operation within a specific period fixed

separately for each tower and completion of miscellaneous works was fixed after two

weeks thereafter. A Performance Guarantee (hereinafter referred to as the 'PG') test

was also one of such terms. A provision was made in the contract for Bank Guarantee for 10% of the contract sum for non-recoverable initial advance and 5% progressive

payment for the stages of trial run and commissioning. The validity period for the

various guarantees was stipulated in the contract. The performance guarantee was to be

valid till the expiry of the guarantee period of one year after trial operation and 90 days

thereafter. The guarantee for initial advance was to be valid till 90 days after trial

operation, and that for progressive payments for trial run and commissioning till after

completion of the PG Test. A further provision in the contract provided that the cooling

towers were to be taken over by NTPC after completion of all the tests. Provisions were

also made for force majeure and extension of time. Levy of liquidated damages for

delay in completion as well as in shortfall in achieving the stipulated temperature of 32

Degree C. was also prescribed.

5. The case of the respondent/claimant set up before the Arbitrator was that: -

a. The bid of the respondent contractor M/s. Wig Brothers (Builders & Engineers)

Limited was accepted by NTPC on 07th November, 1988 for the lump sum of

Rs.13,63,22,750.00. A performance guarantee bond was submitted by the contractor as

per the contract requirement valid for a stipulated period of one year after trial operation

+ 90 days and keeping to the initial prescribed schedule this bond was valid up to 30th June, 1993 as specifically mentioned in the letter of award of the contract.

b. The last of the four cooling towers was handed over to NTPC on 10th July, 1995.

Apparently, on 25th July, 1996 the respondent-contractor submitted its pre-final bill for

an amount of Rs.26,05,21,598. NTPC, by its letter dated 9th August, 1996 denied

payment of the said bill and that resulted in a dispute between the parties. NTPC once

again communicated its refusal to clear the pre-final bill to the Respondent by letter

dated 16th August, 1996.

c. The respondent by its letter dated 11th November, 1997 invoked the arbitration

clause and since, according to the respondent, no Engineer had been appointed by the

petitioner in terms of Clause 3 of the Contract, the respondent called upon the petitioner

to appoint its Arbitrator within 60 days from the receipt of the said notice. The

respondent also made a request to the President of the Institute of Engineers to appoint

the third Arbitrator in terms of the Arbitration Agreement contained in the Contract. By

the said letter the respondent made it clear that the reference of disputes to arbitration

was not confined to those contained in pre-final bill.

d. The petitioner by its letter dated 29th December, 1997 informed the respondent that its letter dated 16th August, 1996 was a decision of the Engineer appointed under

the Contract and since more than 30 days had lapsed from such date the decision of the

Engineer had become final and binding and there was no dispute which could be

referred for arbitration in terms of the Contract. The petitioner thus declined to appoint

its nominee arbitrator.

e. The respondent by its letter dated 9th January, 1998 disputed the stand taken by

the petitioner and once again called upon the petitioner to appoint the arbitrator. By a

separate letter dated 9th January, 1998 the respondent appointed Shri A.P. Paracer,

Additional Director General (Retd.), CPWD as its nominee arbitrator and once again

requested the petitioner and the President, Institution of Engineers to appoint their

nominee arbitrators.

f. The President, Institution of Engineers appointed Shri P.P. Dharwadker, Former

Chairman and Managing Director, NBCC as the third arbitrator. Since, the petitioner

had not appointed its nominee arbitrator, even after the expiry of 150 days, the

respondent by its letter dated 31st March, 1998 requested the President of the Institution

of Engineers to nominate an arbitrator on behalf of the Petitioner in accordance with the arbitration agreement.

g. The Petitioner by its letter dated 13th April, 1998 claimed, that while it had no

objection for the appointment of arbitrator on the request of the respondent as contained

in its letter dated 31st March, 1998, it was objecting to the appointment of arbitrator on

the ground that there was no arbitrable dispute as the decision of the Engineer had

become final.

h. On the request of the respondent, the President of the Institution of Engineers by

his letter dated 6th May, 1998 appointed Shri Balbir Singh, Former Director General,

CPWD as the nominee arbitrator on behalf of the petitioner.

i. On 10th June, 1998 the petitioner filed an application under Sections 12 and 13 of

the Arbitration and Conciliation Act, 1996 ('the Act') before the Arbitral Tribunal

challenging its constitution on several grounds. The Arbitral Tribunal rejected the said

application on 18th August, 1998. The petitioner challenged the said decision of the

Arbitral Tribunal before this Court under Section 34 of the Act. That challenge was also

dismissed on 17th September, 2001. A further appeal to the Division Bench of this

Court was also dismissed on 18th January, 2002. Thereafter, the Petitioner participated in the proceedings of the Arbitral Tribunal, under protest.

6. It appears that at the 6th hearing of the Arbitral Tribunal held on 3rd February,

1999, the petitioner again questioned the jurisdiction of the Arbitral Tribunal averring

as under: -

"i. If claims (Part-I) were a dispute, they were first required to be referred

to the Engineer and only thereafter the arbitration clause could be invoked.

Since there was no dispute regarding claims (Part-I) and arbitration was

never sought on these claims, there could be no reference for arbitration. In

the absence of any reference the Tribunal had no jurisdiction to adjudicate in

respect of these claims.

ii. The reference commenced only on 11th November, 1997 and this was

clear from the Claimants' letter dated 11th November, 1997 invoking

arbitration clause in respect of disputes resulting from the non-acceptance of

the pre-final bill by the NTPC. This reference made no mention of release

of Bank Guarantees and consequently claims were beyond the jurisdiction of

the Tribunal.

iii) The issues regarding release of Bank Guarantees to be adjudicated upon by the Tribunal are the same as those pending before the Court. The

matter was, therefore, sub-judice and the Tribunal had no authority to

proceed with the same."

7. By its order dated 13th September, 1999 the Arbitral Tribunal rejected the said

objections.

8. On 25th June, 2002 the Arbitral Tribunal rendered a unanimous Award awarding

the Respondent a sum of Rs.4,75,41,411/-. The Arbitral Tribunal observed that in case

the net amount awarded is paid within 30 days of the Award no future interest would be

payable but if the petitioner failed to do so, the net amount awarded shall carry an

interest of 18% per annum up to the date of actual payment by the petitioner. The

Arbitral Tribunal awarded a sum of Rs.6,36,450/- in favour of the Petitioner. However,

having regard to the fact that the Petitioner had already taken a credit of Rs.3,76,950/- in

the final bill and the fact that the Arbitral Tribunal reduced the final bill by a sum of

Rs.2,00,000/- only a sum of Rs.59,500/- was awarded to the petitioner.

9. The petitioner questioned the said award under Section 34 of the Act on several

grounds. The award has been challenged separately under Sections 12, 13, 16, 18, 28(3)

and 31 of the Act. However, finally the petitioner's Senior counsel, Sh. R.P. Bhat raised the following as the main grounds of challenge: -

a. The appointment and constitution of the Arbitral Tribunal was illegal as it was not

in accordance with the agreement between the parties;

b. The PG Test was not done by the respondent which entitled the petitioner to

deduct a sum of Rs.65,00,000/-. It was immaterial as to why the PG Test was not done.

The conclusion of the Arbitral Tribunal that an adjustment of Rs.6,00,000/- is to be

given for non-conductance of the PG Test is without any basis;

c. The Arbitral Tribunal has awarded claims forming part of the pre-final bill even

though some of them had not been included and claimed in the final bill; and

d. In the meetings held between the parties on 10th September, 1993, 13th

September, 1993 and 28th September, 1993, certain disputes had been settled and the

parties had agreed that no claim would be made by either of them in respect of such

disputes. Despite this the respondent made a claim in respect of those disputes that had

been settled and the Arbitral Tribunal has wrongly adjudicated and allowed such claims

of the respondent.

10. In proceedings to adjudicate the challenge to the award under Section 34, the

Court has to bear in mind that it does not sit as a appeal court that has the jurisdiction to revisit the evidence and the arguments advanced before the arbitrator and then substitute

its own views with those of the arbitrators. The Court will not set aside a decision of an

Arbitral Tribunal merely for the reason that had it heard the matter in the first instance it

would have come to a different conclusion or that the view it would have taken could

have been a better view. So long as the view of the Arbitral Tribunal is a plausible view,

the court will not interfere with the Award merely because it feels that the view of the

court may have been different than the one taken by the Arbitral Tribunal. The

jurisdiction of this Court is confined to the four corners of the Arbitration Act, in

particular the provisions of Section 34, for determining whether an Arbitration Award is

liable to be set aside or not. In this respect reference may be made, inter alia to the law

laid down in the following decisions: - (i) (1987) 4 SCC 497 - [Municipal Corporation

of Delhi vs. Jagan Nath Ashok Kumar & Anr.]; (ii) 2002 (97) DLT 902 - [DDA vs.

Sahdev Brothers & Anr.]; (iii) 2006 (1) AD Delhi 431 - [Union of India vs. Suchita

Steels (India); (iv) 2004 (8) AD Delhi 1 - [Devika Mehra vs. Ameeta Mehra].

11. It is true that an Arbitral Award that is opposed to the public policy of India will

be liable to be set aside as held by the Hon'ble Supreme Court in the case of Oil &

Natural Gas Corporation Ltd. vs. Saw Pipes Ltd. 2003(5) SCC 705. Relying upon the said judgment of the Supreme Court, a Division Bench of this Court has in the case

of Gian Chand Totu vs. Subhash Chand Kathuria delivered in FAO(OS) No. 1 of

2004 held that:

"In our view, the pivotal principle laid down by the Hon'ble Supreme Court

-------- while defining the scope for interference with awards on the grounds of public policy is that the award can be set aside if it is patently illegal but the illegality must go to the root of the matter and if the illegalities are of trivial nature it cannot be held that the award is against public policy. It was further held the award can also be set aside if it was so unfair and unreasonable so as to shock the conscience of the Court.

(emphasis supplied)"

12. This Court, therefore, is required to assess the challenge made by the petitioner on

the touchstone of the legal position enumerated above.

13. The case as set up by the petitioner with respect to challenge under Sections 11

and 16 is as under: -

i. The challenge to the Award under Sections 11 and 16 is founded on

the ground that since the conditions precedent for the appointment of arbitrators had not

been fulfilled, the Institution of Engineers did not have the power or authority under the

Contract to proceed with the appointment of any arbitrator let alone the nominee

arbitrator on behalf of the Petitioner as also the third arbitrator. According to the

petitioner, in order that a dispute could be referred to arbitration, the Contract contemplated that at first the dispute would have to be referred to an "Engineer" in terms

of clause 26 of the Contract. That once the Engineer rendered his decision it would

become final and binding unless it was questioned by the party aggrieved by carrying

the dispute to arbitration in terms of clause 27 of the Contract. In substance the

petitioner questions the award on the ground that the composition of the Arbitral

Tribunal was not in accordance with the agreement between the parties.

ii. In support of its contentions the petitioner submitted that in this case

the respondent had lodged its claim with the Engineer that was rejected by the Engineer

by his letter dated 16th August, 1996. The said decision of the Engineer became final

and binding between the parties since, the respondent did not initiate arbitration within

the period of 30 days contemplated by clause 27 of the Contract. That once the period

of 30 days stipulated in clause 27 of the contract had expired, the respondent lost its

right to seek reference of the dispute to arbitration. According to the petitioner, once the

stipulated period had expired there remained no arbitrable dispute between the parties

that could be referred to arbitration. That in these circumstances when the respondent

itself had lost the right to commence arbitration, the Institution of Engineers could not

proceed to appoint arbitrators at the behest of the respondent/claimant.

iii. Clauses 26 and 27 of the Contract in question read as under: -

"26. SETTLEMENT OF DISPUTE

26.1 Except as otherwise specifically provided in the Contract all disputes concerning questions of fact arising under the Contract in the first instance shall be decided by the engineer, whose decision shall be final to the parties hereto.

26.2 Any dispute or difference including those considered as such by only one of the parties arising out of or in connection with the Contract shall be to the extent possible settled amicably between the parties.

26.3 If amicable settlement cannot be reached then all disputed issues shall be settled by arbitration as provided in clause 27 below.

27. ARBITRATION

27.1 If any dispute or difference of any kind whatsoever shall arise between the Owner and the contractor, arising out of the contract for the performance of the Works whether during the progress of the works or after its completion or whether before or after the termination, abandonment or breach of the Contract, it shall, in the first place, be referred to and settled by the engineer, who, within a period of thirty (30) days after being requested by either party to do so, shall given written note of his decision to the owner and the contractor.

27.2 Save as hereinafter provided such decision in respect of every matter so referred shall be final and binding upon the parties until the completion of the entire works under the contract and shall forthwith be given effect to by the contractor who shall comply with all such decisions with all due diligence, whether he or the owner requires arbitration as hereinafter provided or not.

27.3 If after the Engineer has given written notice of his decision to the parties, no claim to arbitration has been communicated to him by either party within thirty (30) days from the receipt of such notice, the said decision shall become final and binding on the parties.

27.4 In the event of the Engineer failing to notify his decision as aforesaid within thirty (30) days after being requested as aforesaid, or in the event of either the owner or the contractor being dissatisfied with any such decision, or within thirty (30) days after the expiry of the first mentioned period of thirty (30) days, as the case may be, either party may require that the matters in dispute be referred to arbitration as hereinafter provided.

27.5 all disputes or differences in respect of which the decision, if any of the Engineer has not become final or binding as aforesaid, shall be settled by arbitration in the manner hereinafter provided.

27.6.1 In the event of the Contractor being an Indian party, that is to say a citizen and/or a permanent resident of India, a firm or a company duly registered or incorporated in India, the arbitration shall be conducted by three arbitrators one each to be nominated by the contractor and the owner and the third to be name by the President of the Institution of Engineers, India. If either of the parties fails to appoint its arbitrator within 60 (sixty) days after receipt of a notice from the other party invoking the Arbitration clause, the President of the Institution of Engineers, India shall have the power at the request of either of the parties, to appoint the arbitrator. A certified copy of the order of the said President making such an appointment shall be furnished to both the parties.

27.6.2 The arbitration shall be conducted in accordance with the provisions of the Indian Arbitration Act, 1940 or any statutory modification thereof. The venue of arbitration shall be New Delhi, India.

27.7. ......

27.9 The arbitrator shall have full powers to review and/or revise any decision, opinion, directions, certification or valuation of the Engineer in consonance with the Contract, and neither party shall be limited in the proceedings before such arbitrators to the evidence or arguments put before the Engineer for the purposes of obtaining the said decision."

iv. In the alternative the petitioner further submitted that, if, as per the

case set up by the respondent, the petitioner had not appointed an Engineer in terms of

clause 3 of the contract, it was incumbent upon them to first call upon the petitioner to appoint the Engineer and thereafter refer the dispute to him. That in the absence of the

respondent having followed that procedure, the dispute could not be referred to

arbitration directly.

14. In response to this plea, counsel for the respondent firstly submitted that the

contention of the petitioner that the respondent had made a claim before the engineer is

factually incorrect because the petitioner had never appointed an Engineer in accordance

with the contract and no such contractual entity existed in fact. According to the

respondent, it had submitted its pre-final bill to the petitioner (and not to the Engineer)

on 25th July, 1996 and it was that pre-final bill that was rejected by the petitioner by its

letter of 9th August, 1996 as also by the letter of 16th August, 1996. The respondent

further submitted that if the petitioner itself had failed and/or refused to appoint an

Engineer in terms of the Contract, it was no part of the respondent's duty to persuade the

petitioner to appoint one so that the respondent could then refer their dispute to him.

The respondent submitted that since there was no Engineer nominated by the petitioner,

the respondent was well within its right within the contract to refer their dispute directly

to the arbitrators.

15. A perusal of the letter of 9th August, 1996 shows that it is a letter written by the

Petitioner's officer, one Mr. A.K. Saxena, Manager (Township) which simply says "On

our scrutiny, it has been observed that the bill in question is not tenable as per contract".

16. There is, however, a second letter of 16th August, 1996 that the petitioner claims

was the decision of the Engineer under clause 26 of the Contract. It is noteworthy that

the letter of 16th August, 1996, though signed by a different person, is in fact a repetition

of the letter of 9th August, 1996.

17. The learned counsel for the respondent submitted that under no circumstance

could the letter dated 16th August, 1996 be regarded as a decision of the Engineer for the

following reasons: -

a. No engineer in terms of clause 3 of the Contract had ever been appointed in

writing and no intimation of such appointment had ever been given to the respondent;

b. The letter dated 16th August, 1996 was nothing but a mere reproduction of the

petitioner's letter dated 9th August, 1996 which contained neither any discussion nor any

reasons as to why the claimant's pre-final was being rejected as 'not tenable';

c. The letter dated 16th August, 1996, gave no indication whatsoever that it was a decision of the Engineer. The gentleman who signed the letter, one Mr. Nikhil Kumar,

signed it in his capacity as "MGR. CCD/INF" and the letter is written on the petitioner's

letterhead. The expression "Engineer" is significantly absent from the said letter.

d. That in order for the Engineer to render his decision, the dispute should have been

referred to him to enable him to invite respective submissions of the parties and apply

his mind thereto. Since, no reference of any dispute had been made to the Engineer

(since none had been appointed), the plea of the said letter dated 16th August, 1996

being his decision cannot be accepted.

e. That in fact even the petitioner had admitted that the letters dated 9th August, 1996

and 16th August, 1996 were really the decisions of the petitioner and not of the

Engineer. In this connection the respondent placed reliance on the petitioner's letter

dated 9th January, 1998 wherein the petitioner had stated, "Regarding your pre-final bill

amounting the same had already been examined/checked by us. On our scrutiny it was

found that the bill in question is not tenable and the same was to be conveyed to M/s

Wig Bros vide our letter ref. no. 08/NCPP/TW/853 dt.9.8.96 and 08/NCPP/INF/10761

dt. 16.8.96."

18. The counsel for the respondent further contended that since no Engineer had ever

been appointed by the Petitioner, the respondent had no option but to initiate arbitration

directly. The respondent submitted that in these circumstances the limitation of 30 days

provided by clause 27 of the contract was of no consequence inasmuch as there being no

decision of the Engineer, there was no starting point for such a limitation. In the

alternative, the learned counsel further contended that limitations such as the one

provided in clause 27 of the Contract would be void in terms of Section 28(b) of the

Contract Act. In this regard the respondent placed reliance on two judgments of this

Court i.e. M/s. Hindustan Construction Corporation v/s. Delhi Development

Authority - reported as - 1999 (77) DLT 165 and M/s. Naresh Kumar Gupta vs. The

Vice Chairman/Engineer Member DDA & Ors. - reported as - 2003 (2) AD Delhi 628.

19. In the circumstances, the respondent submitted that the refusal of the petitioner to

appoint an arbitrator was contrary to the procedure agreed to in the contract and the

Institution of Engineers was well within its authority not only to appoint the nominee

arbitrator on behalf of the petitioner (since, despite opportunity they failed to appoint

one) but also to appoint the third arbitrator. Thus, the respondent submitted that the

composition of the Arbitral Tribunal was entirely in accordance with the agreed procedure and the Institution of Engineers committed no error as averred by the

petitioner.

20. The Arbitral Tribunal held that the petitioner produced no evidence to establish

that they had appointed an Engineer in writing under clause 3 of the Contract. Since

there was no Engineer formally appointed under clause 3.4 of the Contract there was no

question of referring disputes to the Engineer. The Arbitral Tribunal was also of the

view that the letter dated 16th August, 1996 was a rejection of the respondent's bill by

the petitioner itself and could not be termed as the Engineer's decision on the disputes.

That in the absence of an existence of an Engineer in terms of the Contract and there

being no Engineer's decision, the rejection by the petitioner by its letter dated 16th

August, 1996 had no relevance for reckoning any limitation period for invoking

arbitration. This in my view is a finding of fact not amenable to challenge under Section

34. Even otherwise I am satisfied that the conclusions of the arbitral tribunal are

correct. In fact, the counsel for the petitioner was unable to point out any order

appointing the Engineer contemplated by clause 27. All that is pointed out are two

letters dated 9th and 16th August, 1996 and these letters did not even claim to be on behalf of the Engineer and thus, it could not be said that any Engineer as per clause had

been appointed by the petitioner. The only reference to an Engineer is in the letter dated

29th December, 2007 averring for the first time that the letter dated 16th August, 1996

was, in fact, an Engineer's letter as per clauses 26 and 27. Significantly, this was well

after the invocation of arbitration by the respondent on 11th November, 2007 and thus,

is of no avail to the petitioner.

21. The Arbitral Tribunal was further of the view that even assuming that the letter

dated 16th August 1996 constituted a decision of the Engineer, the limitation of 30 days

imposed by clause 27 of the contract was void in view of Section 28 of the Contract

Act.

22. In my opinion the petitioner's challenge to the award under Sections 11 and 16 of

the Act must fail. I find no infirmity with the reasoning of the Arbitral Tribunal on this

account. In my opinion, in view of the clear finding of fact that the petitioner never

appointed any Engineer in terms of clause 3.4 of the Contract, the question of the letter

dated 16th August, 1996 being regarded as a decision of the Engineer under clause 26 of

the Contract cannot and does not arise. The fact that there was no Engineer also supports the respondent's contention that no dispute was ever referred to the Engineer

for his decision. Facts on record in fact clearly reveal that the respondent had only

submitted its pre-final bill (as distinct from submission of a claim) to the petitioner

which was rejected by the petitioner twice i.e. once by the letter of 9th August, 1996 and

then by its letter dated 16th August, 1996. The process of decision making, to say the

least, involves some inter-action between the decision-making authority and the parties

to the dispute. In the present case, neither was the respondent ever invited to make a

claim and nor did it submit any to the non-existent Engineer and nor was there any

interaction between the petitioner, the respondent and the alleged Engineer. I also agree

with the view of the Arbitral Tribunal that the stipulation of 30 days contained in clause

26 of the contract was contrary to S.28(1) of the Indian Contract Act.

23. That being the case, the respondent had no choice but to directly take its dispute to

arbitration. In these circumstances, the limitation of 30 days provided by clause 27

cannot be reckoned from the letter dated 16th August, 1996. While I am in respectful

agreement with the judgments of this court cited by the learned counsel for the

respondent namely, M/s. Hindustan Construction Corporation vs. Delhi Development Authority - reported as - 1999 (77) DLT 165 and M/s. Naresh Kumar Gupta vs. The

Vice Chairman/Engineer Member DDA & Ors. - reported as - 2003 (2) AD Delhi 628,

I am of the view that as no Engineer contemplated by clause 26 had been appointed, it is

unnecessary to consider this finding or the applicability of the above decisions.

24. However, the fact of the matter is that there was no Engineer appointed by the

petitioner and therefore, the question of first inviting his decision and then taking the

dispute to arbitration did not arise.

25. Consequently, where an arbitration clause contemplates that a dispute should first

be referred to an Engineer for his decision, and it is only thereafter, it can be carried to

arbitration, what is the recourse open to a contractor for resolution of its disputes if the

owner does not appoint an Engineer which it is obliged to do under the Contract? This

question came up for decision of this Court in the case of M/s. Petron Civil

Engineering Limited vs. M/s. DLF Industries & Ors. reported in 2000 (II) RAJ 438

(Del.) in which this Court held: -

"if it's the contention of the respondents that the matter had to be first referred to the "Engineer" for decision, it was obligatory on their part to have such a person continue to be appointed so as to have the matter referred to him for decision. That having not been done, there was no need of the matter being first referred to a person who was not even in existence at the relevant time for his decision."

"...because there was no "Engineer-in-charge" or "Engineer" available at site to whom the matter could be referred for decision, the disputes are required to be referred to an arbitrator..."

26. I am in respectful agreement with the view expressed in the said case. This case

also supports the further proposition that it was not the duty or the obligation of the

respondent to have written to the petitioner to appoint an Engineer. If, as the

respondents contend, that the dispute had to be first referred to an Engineer, it was

obligatory on the petitioner's part to have appointed such a person. The petitioner was

also required to, but did not, communicate any such appointment to the respondent prior

to 29th December, 2007. That not having been done there was no need for the dispute

to be first referred to a non-existent entity. I am also of the opinion that one party to an

arbitration agreement cannot by his own act or omission prevent the other from having

its disputes resolved by arbitration. The fact is that the parties had entered into an

arbitration agreement that contemplated one step to be resorted by the parties before

carrying the dispute to arbitration. That step was that the Engineer (to be appointed by

the petitioner) would first try to resolve the disputes between the parties. Now, if the

petitioner fails/refuses or neglects to appoint an Engineer it cannot be heard to contend

that the arbitration agreement itself is frustrated and that the respondent cannot resort to arbitration directly. The intention of the parties was to have their disputes resolved

eventually by arbitration. In the absence of the availability of the Engineer, the rest of

the agreement must be given effect to, as that would be consistent with the intention of

the parties. This interpretation is in accordance with the well accepted principle of

interpretation of documents that the intention of the parties, to the extent possible, must

be given effect to and each and every term of the contract must be implemented. The

contention of the petitioner would mean that they by their own act would render the

whole of clause 27 of the contract nugatory and meaningless. Such a contention is

completely unacceptable. The intention of the parties was clearly to seek the resolution

of disputes by arbitration though through the route (as per clause 26) of the Engineer.

However, the non-appointment of an Engineer by the petitioner could in no manner

undo the intent in the agreement to resolve disputes by arbitration.

27. I may also notice that the contention of the petitioner that if there was no Engineer

appointed by the petitioner it was incumbent on the Respondent to have one appointed

by the Petitioner, is a self contradictory plea inasmuch their stand and the sheet anchor

of their challenge is that there was an Engineer and that the 16th August 1995 letter was

a decision of the Engineer. It is apparent that in its desire to prevent the Respondent from making its claim the petitioner came up with the plea of treating the 16th August

1995 letter as a "decision" of the "Engineer", even though it wasn't one, and thereafter,

faced with the situation that they had actually not appointed an Engineer in terms of

clause 3 of the Contract, the Petitioner, as an after thought, came up with the plea that if

such was the case then, the Respondent ought to have requested for the appointment of

an Engineer. The issue as to whether an Engineer had been appointed or not is a

question of fact and not one of law. The Arbitral Tribunal has given a categorical

finding of fact that no Engineer had been appointed. It is not open to this Court to

reappreciate that finding of fact. I, therefore, reiterate my finding that in such

circumstances, reference of the dispute directly to arbitration was perfectly valid and

legal and I am in complete agreement with the findings of the Arbitral Tribunal on this

issue.

28. In response to the contention of the Petitioner that since it had taken a stand before

the Institution of Engineers that there was no arbitrable dispute, they had no authority to

appoint any arbitrator, leave alone two (one as the presiding arbitrator and the other as

the Petitioner's nominee arbitrator), learned counsel for the respondent contended as

follows:

a. The arbitration agreement contained the entire mechanism for the

appointment of the arbitrators. One arbitrator each was to be appointed by the

Petitioner and the Respondent and the third/presiding arbitrator was to be

appointed by the President, Institution of Engineers. In the event of either the

Petitioner or the respondent failing to appoint its nominee arbitrator, within 60

days from the date of the request by the other part, the arbitration agreement

itself provided that the nominee arbitrator on behalf of such defaulting party

was also to be appointed by the President, Institution of Engineers;

b. The President, Institution of Engineers was only an appointing authority.

He had only to appoint the arbitrators in terms of the arbitration agreement and

had no further role to play. The Petitioner, despite the Respondent's request

dated 11th November, 1997, did not appoint the arbitrator within 60 days and

till as late as 31st March, 1998. Therefore, in terms of the arbitration

agreement, the Petitioner had lost its right to appoint its nominee arbitrator.

Following the procedure prescribed in the arbitration agreement, the

Respondent by its letter dated 31st March, 1998 requested the President, Institution of Engineers to appoint the 2nd Arbitrator on behalf of the

petitioner. The petitioner had also admitted in its letter dated 11/13th April,

1998 that the President, Institution of Engineers had the right to appoint the 2nd

Arbitrator on behalf of the Petitioner. The President, Institution of Engineers

had to appoint the 3rd or the presiding arbitrator and the arbitrator on behalf of

the party who had failed to appoint its arbitrator. It was not for him to decide

the question of the existence of the disputes. The existence or otherwise

maintainability of the disputes was to be decided by the Arbitral Tribunal

under Section 16 of the Arbitration Act;

c. That since the arbitration agreement itself provided a complete

mechanism for the appointment of the arbitrators; there was no need for the

Respondent to approach the Court under Section 11 of the Arbitration &

Conciliation Act, 1996 for such appointments. He relied upon Section 11(6) of

the Arbitration Act in support of his plea.

29. Section 11(6) of the Arbitration Act provides, thus:

"(6) Where, under an appointment procedure agreed upon by the parties,-

a.    A party fails to act as required under that procedure; or
 b.    The parties, or the two appointment arbitrators, fail to reach an agreement expected of them under
that procedure; or

c. A person, including an institution, fails to perform any function entrusted to him or it under that procedure,

a party may request the Chief Justice or any person or institution designated by him to take the necessary measure, unless the agreement on the appointment procedure provides other means for securing the appointment."

30. In the present case, the arbitration agreement provided that in the event of either

party, i.e. the Petitioner or the Respondent, failing to appoint its nominee arbitrator

within 60 days from being called upon to do so, by the other party, the nominee

arbitrator on behalf of such party shall be appointed by the President, Institution of

Engineers. The Petitioner also admits this. The Petitioner, in its letter dated 11/13th

April, 1998 admits that the President, Institution of Engineers could appoint the

arbitrator as requested by the Respondent, in its letter dated 31st March 1998 but it could

not do so as there were no disputes. The Petitioner thus did not object to the power but

only objected to the exercise thereof. The Respondent could have approached this Court

under Section 11 of the Arbitration Act only, if the President, Institution of Engineers

failed to appoint the arbitrator. Since, the President, Institution of Engineers appointed the 3rd Arbitrator as also the nominee arbitrator on behalf of the Petitioner, in terms of

the arbitration agreement, the occasion for the Respondent to approach this Court did not

arise. In fact, the Respondent could not have approached this Court under Section 11 of

the Arbitration Act unless it had requested the President, Institution of Engineers to

appoint the arbitrator, and such request had been declined or not acted upon.

31. The President, Institution of Engineers was only an appointing authority. He was

not vested with any power to adjudicate the existence of the disputes. In the plain

language of the arbitration agreement, the occasion for him to exercise the power of

appointing the 3rd arbitrator was a request from either party; and for the 2nd Arbitrator it

was the failure on the part of either party to appoint its nominee arbitrator within 60 days

from being called upon by the other party to appoint its arbitrator. He appointed the 3rd

Arbitrator on the request of the Respondent and, since the petitioner failed to appoint its

nominee arbitrator within 60 days from being called upon to do so by the Respondent,

he appointed the nominee arbitrator on behalf of the Petitioner also. It is settled law,

which needs no reiteration that, an appointing authority, which is not a Court, is not to

perform any adjudicatory functions. It has but one role and that is to make the appointment and all contentious issues, including those in respect of the existence of

disputes, have to be decided by the Arbitral Tribunal under Section 16 of the Arbitration

Act. Therefore, the contention of the Petitioner that the Institution of Engineers ought

not to have appointed the arbitrators is rejected. The view taken by the Arbitral Tribunal

in their order dated 18th August, 1998 that the President, Institution of Engineers was

not required to consider the merits of the respective claims at the time of appointing the

arbitrators and that the arbitrators were appointed in accordance with the arbitration

agreement, is in my opinion the correct view and requires no interference from this

Court.

32. The appointment of the Arbitral Tribunal was thus legal, valid and in terms of the

agreement between the parties.

33. The learned senior counsel Mr. R.P. Bhat on behalf of the petitioner, has

contended that in terms of Section 12 of the Arbitration Act when the Arbitrators were

approached for their appointment, they were required to disclose in writing that no

circumstances existed that were likely to give rise to justifiable doubts as to their

independence or impartiality. That since, the arbitrators did not make any such

declaration, the Award deserves to be set-aside under Sections 12 and 13 of the Arbitration Act. He further submits that the Arbitrators acted with a bias against the

petitioner as it had challenged the constitution of the Arbitral Tribunal. It is submitted

by Mr. Bhat that the Arbitral Tribunal, since it directed the release of the Bank

Guarantees, acted with malice towards the petitioner and the proceedings, if perused,

would show that the Arbitral Tribunal acted with bias against the petitioner and the

petitioner was not given a fair hearing and treatment. According to the petitioner it was

meted out unjust, and improper treatment and that the bias of the Arbitral Tribunal

against it can be inferred from the fact that as against the claims of the Petitioner

amounting to Rs.44 crores only a sum of Rs.59,000/- was awarded in its favour. It is

also submitted that the proceedings if perused do not reflect the correct state of affairs as

an unfair advantage was given to the respondent.

34. The petitioner has also questioned the submission of statement of claim by the

respondent in two parts. It is also submitted on behalf of the petitioner that the arbitral

tribunal proceeded on the basis that the claims of the respondent nomenclatured as

"Part-I Undisputed Claims" were undisputed, which showed legal bias on their part.

The whole approach, according to the petitioner, of the Arbitral Tribunal was erroneous

in law, patently illegal and contrary to well known principles in law. The Arbitral Tribunal, as submitted by Mr. Bhat Ld. Senior Counsel, did not follow any set

procedures and recorded only those facts, which were convenient to the respondent or to

them and deliberately omitted the submissions, statements and contentions of the

petitioner. This, according to him has resulted in gross miscarriage of justice.

35. Mr. P.V. Kapur, learned Senior Counsel, on behalf of the respondent has

submitted that the respondent had filed its statement of facts/claims and for the sake of

convenience, the respondent had divided the statement of facts into two parts i.e. Part-I

and Part-II, and filed them separately. The basis for dividing the statements of facts/the

claims into two parts was as follows: -

(i) Those claims payment for which was to be made by the petitioner to the

respondent strictly in terms of the contract for the work done by the respondent and

accepted by the petitioner without any dispute were nomenclatured as Part-I of the

statement of facts or undisputed claims, as according to the respondent there should not

have been any dispute about the said claims and which also included the bank

guarantees;

(ii) Part-II of the statement of facts/claim consisted of those claims of the respondent

in respect of extra items/work etc. that the respondent had to carry out for the completion of the contract and the loss/damage that the respondent had to suffer on

account of non-cooperation by the petitioner, the delay caused by the petitioner due to

such non-cooperation and the breaches committed by the petitioner; and

(iii) Since, the respondent was praying for the passing of an interim award in respect

of the claims which were the subject matter of Part-I, it wanted that the claims in Part-I,

should be adjudicated first and therefore the same were submitted in two parts.

The Arbitral Tribunal, however, did not pass separate awards but it passed a

composite award in respect of both Part-I and Part-II claims.

36. The respondent had by its letter dated 31st August, 1998 submitted the statement

of facts in respect of Part I of its claims and on 26th October, 1998 the respondent

submitted the statement of facts in respect of Part II of its claim. Reply was filed by the

petitioner on 30th December, 1998, separately to Part I and Part II. Therefore, when the

petitioner filed its reply both Part I and Part II of the statement of facts had already been

filed by the respondent.

37. Mr. P.V. Kapur, the learned counsel for the respondent further submitted as under:

-

a. That there was/is no prohibition in law in submitting the statement of claim in two

parts and none has been averred by the petitioner. Furthermore, in terms of Section

19(3) of the Arbitration Act, the Arbitral Tribunal was at liberty to conduct the

proceedings in such manner as it deemed appropriate, without being bound by strict

rules of procedure. Neither before the Arbitral Tribunal nor before this Hon'ble Court,

did the petitioner ever allege that any prejudice was caused to it on account of

submission of the claim in two parts by the respondent. Further, the allegation of the

petitioner that the Arbitral Tribunal considered those claims of the respondent in part-I,

nomenclatured as "undisputed" as undisputed and proceeded to pass an award as if the

same were undisputed is totally misconceived, because the Arbitral Tribunal has passed

a reasoned Award in respect of all the claims, including those which were filed as part-I,

after considering the evidence and hearing the parties.

b. That an Arbitral award can be challenged under Sections 12 and 13 of the

Arbitration Act only if such a challenge had first been made before the Arbitral

Tribunal. He submits that thus the petitioner became aware of the constitution of the

Arbitral Tribunal on 6th May, 1998. The petitioner had 15 days, in terms of Section

13(2) of the Arbitration Act to challenge the constitution of the Arbitral Tribunal but the petitioner filed the application under Section 12 of the Arbitration Act only on 10th june,

1998 i.e. after 35 days. He submits that there was a waiver by the petitioner under

Section 4 of the Arbitration Act, of its right to raise a challenge under Section 12 of the

Arbitration Act and further, in view of Section 13 (2) of the Arbitration Act, the

petitioner could not have challenged the constitution of the Arbitral Tribunal after the

expiry of 15 days after becoming aware of its constitution. The Arbitral Award,

according to him, cannot therefore be challenged under Section 12 of the Arbitration

Act.

c. That besides making allegations the petitioner has not set out any circumstances

by which it can be shown that the Arbitral tribunal acted in a biased manner. He submits

that not all claims of the respondent were allowed and not all claims of the petitioner

were rejected, and merely because the claims of the respondent were allowed and those

of the petitioner rejected does not by itself constitute bias or is indicative thereof. He

further submits that the submission of the petitioner that the arbitrators when they were

approached, were required to disclose in writing that there are no circumstances which

are likely to give rise to justifiable doubts as to their independence is contrary to the

plain language of Section 12 of the Arbitration Act. According to him, a disclosure is required to be made or given by the Arbitral Tribunal only when there exist grounds,

which can give rise to justifiable doubts about the independence or impartiality of the

arbitrators. In other words, if no such grounds exist no disclosure is required.

d. That a challenge under Section 12 of the Arbitration Act can be made only on the

grounds mentioned in the said section and on no other grounds. This is clear from the

language of Section 12(3) of the Arbitration Act. The petitioner, according to him, in its

belated and time barred application under Section 12 of the Arbitration Act, raised the

following grounds: -

a. The manner that the Arbitral Tribunal has been constituted gives rise to justifiable

doubts about its impartiality;

b. None of the arbitrators had disclosed in writing the requisite circumstances as to

their independence and impartiality.

c. The composition of the Arbitral Tribunal and the procedure followed in its

composition is not in accordance with the terms of the agreement between the parties.

That these are not grounds on which the composition of the Arbitral Tribunal can

be questioned under Section 12(3) of the Arbitration Act. Therefore, he submits that the

application made by the petitioner under Section 12 of the Arbitration Act, was rightly rejected by the Arbitral Tribunal, by its order dated 18th August, 1998. He further

submits, that the petitioner before this Court cannot urge the grounds which had not

been first raised before the Arbitral Tribunal.

38. The relevant sections of the Arbitration Act are as under:-

"4. Waiver of right to object.--A party who knows that--

(a) any provision of this Part from which the parties may derogate, or

(b) any requirement under the arbitration agreement,

has not been complied with and yet proceeds with the arbitration without stating his objection to such non-compliance without undue delay or, if a time-limit is provided for stating that objection, within that period of time, shall be deemed to have waived his right to so object.

12. Grounds for challenge.--(1) When a person is approached in connection with his possible appointment as an arbitrator, he shall disclose in writing any circumstances likely to give rise to justifiable doubts as to his independence or impartiality.

(2) An arbitrator, from the time of his appointment and throughout the arbitral proceedings, shall, without delay, disclose to the parties in writing any circumstances referred to in sub-section (1) unless they have already been informed of them by him.

(3) An arbitrator may be challenged only if--

(a) Circumstances exist that give rise to justifiable doubts as to his independence or impartiality; or

(b) he does not possess the qualifications agreed to by the parties.

(4) A party may challenge an arbitrator appointed by him, or in whose appointment he has participated, only for reasons of which he becomes aware after the appointment has been made.

13. Challenge procedure.--(1) Subject to sub-section (4), the parties are free to agree on a procedure for challenging an arbitrator.

(2) Failing any agreement referred to in sub-section (1), a party who intends to challenge an arbitrator shall, within fifteen days after becoming aware of the constitution of the arbitral tribunal or after becoming aware of any circumstances referred to in sub-section (3) of Section 12, send a written statement of the reasons for the challenge to the arbitral tribunal.

(3) Unless the arbitrator challenged under sub-section (2) withdraws from his office or the other party agrees to the challenge, the arbitral tribunal shall decide on the challenge.

(4) If a challenge under any procedure agreed upon by the parties or under the procedure under sub- section (2) is not successful, the arbitral tribunal shall continue the arbitral proceedings and make an arbitral award.

(5) Where an arbitral award is made under sub-section (4), the party challenging the arbitrator may make an application for setting aside such an arbitral award in accordance with Section 34.

(6) Where an arbitral award is set aside on an application made under sub-section (5), the Court may decide as to whether the arbitrator who is challenged is entitled to any fees."

39. In my view, the petitioner became aware of the constitution of the arbitral tribunal

on 6th May 1998 or soon thereafter, but in any event before 19th May 1998 when the

Petitioner wrote to the President, Institution of Engineers stating that the appointment of

all the three arbitrtaors was illegal and incorrect. The petitioner sent a letter dated 10th

June 1998 to the Arbitral Tribunal, which the petitioner has stated were the objections

under Sections 12 and 13 of the Arbitration Act. Clearly,the said objections were filed after the expiry of more than 15 days, from the date when the petitioner became aware

of the constitution of the Arbitral Tribunal. Since, the petitioner had not filed the

objections within 15 days from the date of becoming aware of the constitution of the

Arbitral Tribunal, the petitioner had in terms of Section 4 of the Arbitration Act waived

its right to file the same.

40. I am also unable to agree with the submission of Mr. Bhat that when the

arbitrators were appointed they had to disclose in writing that no grounds exist that

would give rise to justifiable doubts about their independence or impartiality. Section

12 (1) of the Arbitration Act provides that disclosure has to be given by the arbitrators

only if there exist grounds which would give rise to justifiable doubts about his

independence or impartiality. The Arbitration Act does not provide that when no such

ground exists, the arbitrator has to give a written declaration in the negative that no such

grounds exist. The interpretation suggested by Mr. Bhat would amount to rewriting

Section 12 and cannot be accepted.

41. Section 12(3) of the Arbitration Act sets out the grounds on which a challenge can

be made to the arbitrator or the Arbitral Tribunal. Under Section 12(3) of the

Arbitration Act, a challenge can be made only if one or both of the two grounds set out in the said section has been fulfilled. In the application filed by the petitioner, before the

Arbitral Tribunal, under Sections 12 and 13 of the Arbitration Act, the grounds raised by

the petitioner were that it had justifiable doubts about the independence of the Arbitral

Tribunal in view of the manner in which it was constituted. The words "justifiable

doubts as to the independence or impartiality" in themselves do not confer any right. A

mere reproduction of the said words does not give rise to any justifiable doubts about the

independence or impartiality of the Arbitral Tribunal, but such bias or partiality has to

be shown from the records with reference to specific instances. This Court is unable to

comprehend as to how can the manner, in which the arbitral tribunal had been

constituted, in itself gave rise to any justifiable doubts about the independence and

impartiality of the arbitral tribunal. None of the grounds raised by the petitioner in its

application under Sections 12 and 13 of the Arbitration Act, were permissible in view of

the phraseology of Section 12 (3) of the Arbitration Act and the said application was

therefore, rightly rejected by the Arbitral Tribunal.

42. It was further submitted on behalf of the respondent that the grounds of challenge

raised by the petitioner in the present petition, under Sections 12 and 13, were not raised

by the petitioner before the Arbitral Tribunal and the same cannot therefore, be entertained by this Court. I am of the view that the petitioner had to first raise its

objections before the Arbitral Tribunal in a timely fashion and if the Arbitral Tribunal

rejects its submissions, the petitioner at the stage of challenging the Arbitral Award, if it

so chooses, could also raise the grounds that it had raised before the Arbitral Tribunal

under Section 12 of the Arbitration Act. However, if the petitioner did not or failed to

raise an objection before the Arbitral Tribunal, then in view of Section 4 of the

Arbitration Act, the petitioner is deemed to have waived such objection and it cannot, at

the time of filing a petition under Section 34 of the Arbitration Act, raise the same. All

the objections raised by the petitioner for the first time in the present petition, deserve to

be rejected on this ground alone. Even otherwise, I am unable to agree with the

submission of Mr. Bhat that since, the claims of the respondent have been allowed and

those of the petitioner have been rejected and the bank guarantees were directed to be

released the bias entertained by the Arbitral Tribunal was evident. If the submission of

Mr. Bhat is accepted, every arbitral proceeding and award will become illegal and void

on the ground of bias as in the final decision the claims and contentions of one party are

accepted and those of the other party are rejected. Under no circumstances can the

rejection of the claims or allowing the claims of the other party by itself lead to an inference of bias or partiality. Before an award is set-aside on the ground of bias or

impartiality on the part of the Arbitral Tribunal, the party alleging the same has to show

and prove the circumstances and facts that clearly demonstrate such bias. Arbitral

Awards cannot be interfered with lightly on the mere allegation of bias or partiality. In

the present case, besides vague allegations, no such specific instance has been set out or

indeed proved. The respondent had stated that in the arbitration proceedings spread over

a period of 4 years the Arbitral Tribunal held 66 hearings out of which 39 hearings were

dedicated exclusively for the submissions and arguments of the petitioner. There is no

denial of this plea by the petitioner. This in itself shows that more than 50% time was

taken by the petitioner and the petitioner therefore cannot complain of denial of a fair

opportunity and hearing. The submission that the petitioner was not given a fair and

proper hearing and that its submissions and contentions were not recorded is also

without any merit. No specific instances has been given, in the petitioner, as to which

submission of the petitioner was not noted and in which manner the Arbitral Tribunal

acted in a partial manner towards the respondent. Even during arguments my attention

was not drawn to any instance or fact, on the record, that would show that the Arbitral

Tribunal was not independent or that it acted in a partial manner towards the respondent with bias against the petitioner.

43. The contention of the petitioner that the award is vitiated on the ground of bias is

therefore, rejected.

44. As to the submission of Mr. Bhat regarding the award being vitiated on the ground

of submission of statement of claim in two parts, my view is that the said contention also

has no merit and deserves to be rejected for the reasons stated hereinafter.

45. Section 19 of the Arbitration Act, provides, thus: -

"19. Determination of rules of procedure.--(1) The arbitral tribunal shall not be bound by the Code of Civil Procedure, 1908 (V of 1908) or the Indian Evidence Act, 1872 (1 of 1872).

(2) Subject to this Part, the parties are free to agree on the procedure to be followed by the arbitral tribunal in conducting its proceedings. (3) Failing any agreement referred to in sub-section (2), the arbitral tribunal may, subject to this Part, conduct the proceedings in the manner it considers appropriate.

(4) The power of the arbitral tribunal under sub-section (3) includes the power to determine the admissibility, relevance, materiality and weight of any evidence."

46. A reading of sub-section (3) of Section 19 shows that the legislature has left it to

the Arbitral Tribunal to conduct the proceedings in the manner it considers appropriate,

if there is no agreement to the contrary between the parties. The petitioner has not been

able to draw my attention to any agreement between the parties in respect of the

procedure for the conductance of the proceedings by the Arbitral Tribunal. Thus, the Arbitral Tribunal was free to conduct the proceedings in the manner it considered

appropriate and fair.

47. Even though, the respondent had filed its statement of claim in two parts and had

nomenclatured part-I of the statement of claim as "undisputed", the Arbitral Tribunal did

not pass the award in respect of the said claims without going into the merits of the

same. The petitioner, has not shown any claim which has been allowed by the Arbitral

Tribunal on the basis that it is in part-I and is nomenclature d as "undisputed" and

therefore, deserves to be allowed. The Arbitral Tribunal has passed a composite award

on merits.

48. It is not for this Court to decide the procedure that should have been adopted by

the Arbitral Tribunal, when the legislature has itself deemed it fit to leave that to the

discretion of the Arbitral Tribunal. Further, I am of the view that no prejudice or

injustice has been caused to the petitioner on account of filing of the statement of claim

in two parts, by the respondent. The Petitioner had filed its reply when both Part-I and

Part-II of the statement of facts had already been filed by the respondent before the

Arbitral Tribunal, and the pleas in the reply have been dealt with by the Arbitral

Tribunal in the Awards. It is found by the Arbitral Tribunal that there a dispute between the parties in respect of the claims made by the respondent in part-I of its claims. The

Arbitral Tribunal noted that the claims which are nomenclatured as "Undisputed" and

had been filed as part-I were a part of the pre-final bill submitted by the respondent

herein, but were not admitted by the petitioner resulting in disputes. Thus, the Arbitral

Tribunal clearly considered and proceeded on the basis that there was a dispute between

the parties even in respect of part-I of the statement of claim was nomenclatured as

"Undisputed". I am consequently unable to agree with the submission of Mr. Bhat that

since part-I of the statement of claim was nomenclatured as "Undisputed" the Arbitral

Tribunal assumed ipso facto that there existed no dispute between the parties in respect

of the same and proceeded to pass the award in respect of the same as it was undisputed

and admitted by the petitioner. Therefore, this objection of the petitioner does not merit

any interference in the award.

49. I, therefore, have no hesitation in rejecting the grounds raised by the petitioner

under Sections 12 and 13 of the Arbitration Act and uphold the decision of the Arbitral

Tribunal dismissing the petitioner's application under Section 12 and 13 of the

Arbitration Act.

50. The grounds raised by the petitioner under Section 16 of the Arbitration Act are a rehash of those raised by it under Section 11 of the Arbitration Act namely, that the

decision of the "Engineer" had become final and binding as the respondent had not

invoked arbitration with 30 days from the date of such decision and therefore, there was

no question or the appointment of the arbitrators or the constitution of the Arbitral

Tribunal; and if no "Engineer" was appointed the arbitration proceedings could not have

been initiated, the decision of the "Engineer" being condition precedent to the

invocation of arbitration. I have already held that the arbitration proceedings had been

correctly invoked and the appointment and composition of the Arbitral Tribunal was

legal, valid and in terms of the agreement between the parties. The order dated 18th

August, 1998 passed by the Arbitral Tribunal does not therefore suffer from any

illegality or infirmity. The view taken by the Arbitral Tribunal is consequently justified

and I affirm the reasoning of the order dated 18th August, 1998. The grounds raised by

the petitioner under Section 16 of the Arbitration Act are thus, without any merit and are

therefore, rejected.

51. It is submitted by Mr. R.P. Bhat, learned Senior Counsel on behalf of the

petitioner relying on Section 18 of the Act, that the parties were not treated equally. He

submits that the Arbitral Tribunal; did not follow the principles of natural justice; showed bias towards the respondents; and that they did not act impartially. He further

submits that the conduct of the nominee arbitrator of the Respondent shows that he acted

as a convenor only in the interests of the respondent. The representatives of the

petitioner, he submits, were abused, insulted and given unfair treatment. The minutes of

the meetings were not correctly recorded and only those factors which were convenient

to the arbitrators or to the respondent were recorded. He further submits that the

Arbitral Tribunal also did not take cognizance of the documents that were produced.

Many other similar allegations have been made on behalf of the petitioner to buttress its

stand that the awards are vitiated and should therefore, be set aside. These pleas were

disputed by Shri Kapur as being unsubstantiated and vague.

52. General allegations, in my view, without any specific instances, have been made

by the petitioner. No particulars have been given as to how the Arbitral Tribunal did not

follow the principles of natural justice, in what manner was the Arbitral Tribunal biased

towards the respondents and which specific instance would demonstrate such bias. The

petitioner has also not specified or brought to the notice of this Court as to which

minutes of the meeting were incorrectly recorded or which document was produced but

was ignored by the Arbitral Tribunal. In my view, arbitral awards cannot be open to challenge merely on the basis of such general and bald allegations. To permit a party to

assail awards on such general allegations, would result in a situation where every

unsuccessful party would question the award by raising such sweeping allegations

without furnishing particulars and then leave it to this court to investigate the same. An

arbitral award can be questioned only on the grounds mentioned in the Arbitration Act.

These grounds have to be specifically set out and pleaded. Merely making a general

statement like 'documents were not considered by the arbitral tribunal' is not a ground

on which an arbitral award should be set aside by the court. A party making such

allegations has to show, from the records, that what was the document, when was it

filed, what was its relevance, what would be the impact of the document had it been

considered and how the non-consideration of the said document has rendered the award

patently illegal. This not having been done, the objection raised by the petitioner under

Section 18 of the Act is accordingly bereft of any merit and is accordingly, rejected.

53. Mr. Bhat, learned Sr. counsel further urged on behalf of the petitioner citing

S.28(3) of the Act that an arbitral tribunal, being the creature of the contract, cannot

declare any of the provisions of the contract as null and void and they have to act as per

the terms of the contract.

Mr. Kapur relied upon Section 16 (1) (b) of the Arbitration Act, which provides that:

"16(1) (b) a decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause"

Relying upon the said provision, Mr. Kapur for the respondent submitted that the

arbitral tribunal has the power to declare/decide whether the contract or any part thereof

is null and/or void. Therefore, the Arbitral Tribunal has not acted without jurisdiction or

contrary to law. In my view there is merit in the plea of Mr. Kapur as S.16 makes it

clear since the contract itself could be declared null and void, it was clearly open to the

Arbitral Tribunal to declare a part of the contract to be null and void.

54. He further submitted that the arbitral tribunal could not have assumed jurisdiction

and that the arbitral tribunal has committed a grave error by holding that clause 26 of the

contract, to the extent that it provides that if arbitration is not initiated within 30 days

from the date of the decision of the Engineer, the party shall lose its right to initiate

arbitration, was null and void. According to him, the arbitral tribunal has decided the

dispute de-hors the terms of the contract.

55. The petitioner's counsel further urged that it was not open to the Arbitral Tribunal to speculate and arrive at a finding that the performance guarantee tests are deemed to

have been performed, when they were not and it was immaterial as to why they were not

done. The Arbitral Tribunal could not have come to the conclusion that conductance of

the performance guarantee tests (PG tests) was neither possible, nor technically

dependable and making the price adjustment was the only way to sort out the matter

instead of keeping it pending indefinitely. This, he submits was not within the

jurisdiction of the arbitral tribunal. Further, that no expert opinion was also taken on

this issue. If any expert's opinion had been taken it would have been demonstrated that

the PG Tests could have been performed at any time. It is submitted that even a minor

deviation in specifications would result in a serious calamity. That since the respondent

did not perform the PG tests that entitled the petitioner to deduct a sum of

Rs.65,00,000/- in terms of the contract, it was immaterial as to why the PG Test was not

done. The conclusion of the Arbitral Tribunal that an adjustment of Rs.6,00,000/- is to

be given for non-conductance of the PG Test is without any basis. Even the price

adjustment for not conducting the PG tests was done without asking anything from the

petitioner and on the basis of the rebate given by the respondent, which was never

agreed to by the petitioner. The price adjustment of Rs.6,00,000/- given by the respondent was erroneous and without any basis. It had never been agreed to by the

Petitioner and even then the Arbitral Tribunal accepted the said price adjustment as

correct, even though the contract provided that 5% of the contract value i.e.

Rs.65,00,000/- was to be deducted from the payments to be made to the respondent for

the non-conductance of the PG tests. This deduction being contractual could not have

been denied to the petitioner but the Arbitral Tribunal did not consider this aspect at all.

According to him, the Arbitral Tribunal was obsessed with the fact that the trial

operations had been completed and the cooling towers were commissioned and were

functioning. The fact that the cooling tower had been commissioned and were

functioning would not exonerate the respondent from its obligation of conducting the PG

Tests and if the petitioner was not co-operating in the conductance of the PG test, the

remedy lay elsewhere.

56. That insofar as the issue of PG Tests is concerned, the allegation of the petitioner

that no expert evidence was led or no expert evidence was led or no expert opinion was

taken is totally misconceived as the arbitrators were themselves experts in the field of

construction. Nothing precluded the petitioner from leading expert evidence or citing

an expert opinion but it chose not to do so. Therefore, at this stage the petitioner cannot raise an objection on this ground. Further, it is not obligatory for the Arbitral Tribunal

to call for expert evidence and particularly in the present case where the Arbitrators

were themselves experts in the field. That clause 14, particularly clause 14.3 of the

General Terms & Conditions of the contract provided for the conductance of P&G

Tests. In terms of clause 14.3, the PG tests were to be commenced within 2 months

from the date of successful completion of trial operations and any extension of time

beyond the two months could only be by mutual consent of both the parties. The PG

tests were required to be commenced within two months from the successful completion

of trial operation, because the guaranteed performance was to be seen at the time of

commissioning of the cooling towers, and not after prolonged commercial use as, after

the cooling towers are put to commercial use, their performance would depend upon a

number of factors including clogging of air passages due to dust & dust particles and

formation of fungus and algae in the passages and proper maintenance, upkeep, use etc.

The German collaborators of the respondent i.e. M/s. Heitkamp, with whom the

respondent had collaborated with the structural design and construction for the cooling

towers, and M/s. Balcke Durr, with whom the respondent had collaborated for thermal

design, were jointly responsible for the performance guarantee. The PVC fill (a component used in the construction of cooling towers through which hot water passes

from top to bottom and air passes from bottom to top) was to be procured by the

respondent on the approval of M/s. Balcke Durr. M/s. Balcke Durr had approved a

German company M/s. Munters Euroform for manufacturing and supply of PVC fill.

M/s. Munters Euroform supplied PVC fill for two cooling towers. However,

subsequently, the petitioner directed that the respondent should procure PVC fill

manufactured by an Indian company i.e. M/s. Munters India Ltd. Since, the PVC fill

was being procured from India, M/s. Balcke Durr, refused to come for and perform the

PG Tests. The petitioner then approved M/s. Stup Consultants for carrying out the PG

tests. However, when the engineers and scientists of M/s. Stup Consultants reached the

site to conduct the PG Tests, the petitioner did not permit them to perform the PG tests

on the ground that the thermometers were not calibrated. The petitioner was requested

by the representatives of the respondent and M/s. Stup Consultants (who had come all

the way from Bombay) that they should be permitted to carry out the tests and note the

results, subject to the calibration of the thermometers by the petitioner, which could be

done later. However, the petitioner did not permit them to conduct the tests, though in

terms of clause 14.3.3 of the General Conditions of contract, the tests were to be conducted with the instrumentation and equipment available subject to them being

calibrated by the Engineer. Thus, the petitioner acted contrary to the terms of the

contract. The respondent then requested the petitioner that they (the respondent) should

be permitted to carry out the tests in order to record/check the performance of the

cooling towers and even this request also, though acceptable as per British Standard

(BS) 4485, was declined by the petitioner. Existing input and output parameters i.e. the

temperature of the water at the time of entering and exiting from the cooling towers,

including the load of the unit connected with the cooling tower was also neither made

available to the petitioner or produced by the petitioner before the Arbitral Tribunal and

the petitioner also did not permit the respondent or its consultant to note the same. M/s.

Stup consultants had informed the respondent, that the petitioner had prevented them

from carrying out the tests due to some extraneous reasons. The PG tests could have

been done only with the cooperation of the petitioner upon the petitioner making the

cooling towers available. For making the cooling towers available for the PG tests the

petitioner would have had to shut down the plant. Further the tests could have been

carried out only in ambient weather i.e. when the humidity, temperature etc. was within

the prescribed parameters. The petitioner did not make the towers available for conducting the PG tests, this it did not do, as it did not want to shut down the operations

of the plant, which by that time were in full commercial use. The conducting of PG tests

was a contract based on reciprocal promises inasmuch as that at first the petitioner was

to make the cooling towers available for the tests and thereafter the tests were to be

conducted. Since, the petitioner did not make the towers available for the tests, in terms

of Section 54 of the Indian Contract Act, the respondent was not bound to conduct the

PG tests. That in view of the above facts it is clear that the petitioner had prevented the

respondent from performing the PG tests and therefore, in terms of Section 53 of the

Indian Contract Act, the respondent was not bound to perform the PG tests. It is

submitted that had the petitioner been serious about conducting the PG tests, it would

not have prevented the tests from being conducted and would have permitted the

respondent and M/s. Stup Consultants to carry out the tests and could have calibrated the

equipment later. In fact, the petitioner was never serious about getting the PG tests

done, the non-conducting of the PG tests was being used by the petitioner as a ploy to

delay making payments to respondents. Though clause 19.00 of the General Conditions

of Contract provides that in case, the respondent failed to complete any part of the work

then, the petitioner was free to get the same completed by engaging the services of any other contractor and the expenses incurred by the petitioner towards the same would be

deducted from the amount payable by the petitioner to the respondent, under the

contract, the petitioner did not get the said tests conducted by any other agency also.

This he submits clearly, shows that the petitioner itself was not serious about and did not

want the PG tests to be conducted, as it would entail the shutting down of the plaint

which was in full commercial use. That the petitioner had by its letter dated 26th

August, 1996 requested M/s. Fluid Control Research Institute, to do the PG tests and had

also informed them that the cooling towers had been operating at a plant load factor of

95.25% and that all four cooling towers were in continuous operations. However, the

petitioner had not submitted the report of the tests done by the said M/s. Fluid Control

Research Institute. The only inference that could be drawn from the conduct of the

petitioner is that either the tests were successful or the petitioner was not serious about

them as the same were not mandatory.

57. Mr. Bhat further submitted that the Arbitral Tribunal did not address the real,

genuine issues arising from the contract and travelled much beyond the provisions of the

contract. The arbitral tribunal directed the bank guarantees to become inoperative on the

date of the award and directed their release, which was a breach of the order passed by this court in pending proceedings. The Arbitral Tribunal could not have passed an

award in respect of the bank guarantees when the suit in respect of the same was

pending before this court.

58. It was submitted by Shri Kapur that the respondent had invoked arbitration by its

letter dated 11th November, 1997 wherein, it was clearly stated that:

"May it kindly be noted that the pre-final bill referred to above does not in any way restrict or limit the scope of reference to the arbitration. Claims preferred in the pre-final bill as augumented, amended/modified till the time of submission of the statement of case by either party to the arbitration shall comprise the reference to arbitration."

The reference to arbitration was, therefore, neither limited nor confined to the

pre-final bill only. The bank guarantees had been given by the respondent to the

petitioner, under the contract which contained an arbitration agreement. The

arbitration proceedings had been initiated by invoking the said arbitration

agreement. Since, the dispute between the parties in respect of the bank guarantees

was a dispute under the said contract, the same was an arbitrable dispute and had

been rightly referred to arbitration. The Arbitral Tribunal had by its order dated

13th September, 1999 held that the dispute with respect to bank guarantees was a dispute under the said contract, the same was an arbitrable dispute and had been

rightly referred to arbitration. The Arbitral Tribunal by its order dated 13th

September, 1999 held that the dispute with respect to bank guarantees was an

arbitrable dispute, and as per Section 8 (3) of the Act, even if the suit was pending,

the Arbitral Tribunal was competent to pass an award in respect of the dispute

pertaining to the bank guarantees. The dispute in respect of bank guarantees was

rightly and legally referred to arbitration by the respondent. The respondent had

given the bank guarantees to the petitioner in terms of the contract between the

parties. The petitioner by its letter dated 20th June 1996, called upon the bank,

which had given the said guarantees to either extend the same or to encash the

same. Due to this conditional invocation, the respondent filed a suit bearing

no.1736 of 1996 before this Court, praying therein, inter-alia for declaration and

injunction that the petitioner could not invoke the said bank guarantees. In the said

suit the petitioner had filed its written statement, taking a preliminary objection, as

under: -

"10. It is respectfully, submitted that the plaintiff itself has admitted in paragraph 12 of the plaint that the contract between the parties in terms of clause 27 of the general Terms and Conditions of the Contract provides for the settlement of the disputes by arbitration and since the subject matter of the present suit, as admitted by the plaintiff in paragraph 9 is the bank guarantee, the plaintiff cannot seek the adjudication of disputes and differences which are to be resolved as per the arbitration clause, mentioned in the contract entered into between the plaintiff and defendant no.2. The disputes and differences which are required to be adjudicated as per clause 27 of the General Terms & Conditions of the contract have to be referred to the arbitration and the same cannot be the subject matter of the present suit."

Thus, the petitioner had itself admitted in the said suit, before this Court, that the

dispute in respect of the bank guarantees was an arbitrable dispute. In the said suit, the

respondent had filed an application bearing I.A. No. 6419 of 1999, praying therein,

inter-alia, that this court should direct/clarify that the disputes and issues concerning the

bank guarantees in the suit and those raised concerning the bank guarantees by the

respondent before the arbitral tribunal can be adjudicated by the arbitral tribunal in the

pending arbitration proceedings. On the said application, this Court by its order dated

23rd July, 2001 after noting that the Arbitral Tribunal had already been constituted and

the proceedings before it are halfway through, dismissed the said application with the

observation that the respondent was at liberty to initiate any action under the Arbitration

Act, as and when the same becomes available to it. Thus, clearly under Section 8 (2) of the Act, the Arbitral Tribunal was free to pass an award in respect of the dispute

regarding the bank guarantees. That since, the dispute in respect of release of bank

guarantees was an arbitrable dispute the Arbitral Tribunal rightly adjudicated upon the

same and declared that the bank guarantees should be released. After the passing of the

Arbitral Award dated 25th June, 2002, the respondent filed an application in the said

suit, seeking permission of this Court to withdraw the same. This court, by its order

dated 23rd August, 2002 permitted the respondent to withdraw the said bank guarantees.

The petitioner had filed a written statement in the said suit admitting that the subject

matter of the present suit i.e. the bank guarantees had to be resolved by arbitration in

accordance with clause 27 of the contract and also sought reference of the disputes to

arbitration.

I am of the view that in the said suit the respondent filed an application to clearly

pray that the dispute in respect of bank guarantees can be adjudicated by the arbitral

tribunal in the pending arbitration proceedings. This Court by its order dated 23.7.2001

noted that the Arbitral Tribunal had already been constituted and the proceedings before

it had started and gave liberty to the respondent to initiate any action available under the

Act, and with these observations and liberty dismissed the said application. The suit was withdrawn on the passing of the Awards. There was, thus, no restriction on or order of

the court by which the Arbitral Tribunal was precluded from adjudicating and deciding

the dispute in respect of the bank guarantees. Since, the bank guarantees were given

under the contract, which contained an arbitration agreement that applied, even as per

the petitioner, to the bank guarantees, there is no error of jurisdiction in adjudication of

disputes in respect of the Bank Guarantees by the Arbitral Tribunal.

59. Mr. Kapur also submitted as under: -

(a) To buttress the plea that the PG tests were not mandatory the respondent relied

upon the minutes of meetings dated 10th September, 1993, 13th September, 1993 and

28th September, 1993, wherein the petitioner had agreed that in case of non-conductance

of PG tests, it would accept a rebate of approximately Rs.1,50,000/- per tower. The

petitioner had agreed for non-conductance of the PG tests for 3 cooling towers because it

was fully satisfied with the performance of the cooling tower already handed over, of

which along the PG test was to be conducted. However, the petitioner did not permit PG

tests on even one tower.

(b) That all the four cooling towers have admittedly been taken over by the petitioner.

The dates of completion of the cooling towers are as under: -

              "Cooling tower No.1             22.04.1992
             Cooling tower No.2              26.12.1993
             Cooling tower No.3              20.10.1994
             Cooling tower No.4              10.07.1995"

As per clause 14.3.1 of the General Technical Conditions of Contract the PG tests

were to commence within two months from the completion of the trial operations. Trial

operations as per the contract were to conclude on the 14th day of continuous operations

of the cooling towers, after the same had been handed over to the petitioner. The last

cooling tower was handed over to the petitioner on 10th July, 1995 and that the trial

operation had been conducted. Therefore, the last date for commencing the PG tests for

the last cooling tower was 23rd September, 1995. This was no done, as the petitioner did

not permit the respondent and infact, prevented the respondent from conducting the PG

tests. He submits that therefore, the obligation of the respondent to conduct the PG tests

stood discharged/waived. Thereafter, the said PG tests become incapable of being

performed as considerable time, much in excess of the time stipulated in the contract had

passed and the said tests had not been commenced. The only option was to do the price

adjustment for the PG tests, the cost for which was not set out in the contract, it being a lumpsum contract.

(c) That till date, NTPC has not alleged that the cooling towers have not been

performing as guaranteed. Even in the petition there is not a single averment by the

petitioner that the performance of the cooling towers is unsatisfactory or below the

guaranteed parameters. On the contrary, in the press release dated 11th February, 1998

the petitioner has stated that the power plant recorded a plant load factor of 100.55% and

that the plant also clocked a record monthly generation of 628.42 million units. Thus,

the cooling towers were performing as guaranteed. The fact that the petitioner took over

the cooling towers, commissioned them for commercial operations, has been using the

same for commercial operations for the past 12-15 years, without carrying out the PG

tests; shows that the said tests were not mandatory, because if the PG Tests were

mandatory then the petitioner would not have put the cooling towers to commercial use

for the past 12-15 years.

(d) That the finding of the Arbitral Tribunal that P&G tests cannot be performed and

therefore the petitioner was entitled to price adjustment for the same is unexceptionable.

The Arbitral Tribunal has rightly held that the matter cannot be kept pending

indeterminably and the only resolution would be price adjustment. The petitioner cannot be permitted to benefit from its own wrong by on the one hand preventing the

respondent from performing its part of the contract and on the other hand refusing to

make payments of the amount due to the respondent on the ground of such alleged non-

performance. The petitioner could not have demanded performance by the respondent

of an obligation, which the petitioner had itself prevented the respondent from

performing and/or which the petitioner had because of its breach rendered incapable of

being performed and/or which the petitioner had waived by its conduct.

(e) In respect of the claim of the petitioner that the price adjusted of Rs.6,00,000/- for

non-conductance of the PG Tests, as accepted by the Arbitral Tribunal, was incorrect

and not agreed by the petitioner and that the petition was entitled to a price adjustment

of an amount equivalent to 5% of the contract value i.e. Rs.65,00,000/-, it was urged that

this is not a ground taken by the petitioner in the petition. It is not even a ground in the

petition that the petitioner was entitled to a deduction of Rs.65,00,000/- for the non-

conductance of the PG Tests. Furthermore, this was also not pleaded by the petitioner

either in the reply filed by it before the Arbitral Tribunal or in the counter-claim raised

by it.

(f) That the petitioner cannot be permitted to raise this ground for the first time during oral arguments. In support of this submission, the following judgments have

been relied upon: -

B.S.N. Joshi & Sons Ltd. vs. Nair Coal Services Ltd. & Ors. AIR 2007 SC 437 "38. Before we embark upon the respective contentions made before us on the said issue, we may notice that although the point was urged during the hearing before the High Court, the first respondent in its writ application did not raise any plea in that behalf. The High Court was not correct in allowing the first respondent to raise the said contention...(See Chimajirao Kanhojirao Shirke and Another vs. Oriental Fire & General Insurance Co. Ltd., [(2000) 6 SCC 622, at page 625]"

Delhi Jal Board vs. Vijay Kumar Goel 124 (2005) DLT 712 "2. Learned counsel for the petitioner seeks to urge, rightly so, that the objections as framed do not incorporate specifically the plea regarding the interpretation of escalation clause 10CC. The grounds which have been taken are all on the issue of re-appreciation of evidence, which cannot be gone into in these proceedings. The only other ground is that the Award is contrary to the terms of the Agreement. In this behalf, learned counsel for the petitioner states that this plea should be considered as the plea in respect of interpretation of escalation clause 10CC. In my considered view, this is not possible. If there was a plea to be taken by the petitioner impugning the Award dated 10.03.2005 on the issue of the interpretation of escalation clause 10CC, the plea ought to have been taken specifically."

NTPC vs. SAG 2005 (6) AD Delhi 256 "14. ...He submitted that the parties are bound by their own pleadings which are to be read as a whole and at a later stage of the proceedings, the parties cannot be allowed to travel beyond what was pleaded by them. In support of his submission, he has sought support from a number of decisions of the Apex Court in the case of Udhav Singh vs. Madhav Rao Scindia (1997) 1 SCC 511; Ram Sarup Gupta vs. Bishun Narain Inter College and Ors. (1987) 2 SCC 555 and the Constitution Bench judgment in the case of Bhagwati Prasad vs. Chandrumal laying down a general principle of law that no party should be permitted to travel beyond its pleadings and that all necessary and material facts should be pleaded by the party in support of the case set up by it and that the object and the purpose of pleading is to enable the adversary to know the case it has to meet. It has been further held that pleadings has to be construed as it stands without addition or subtraction of words/or change of its apparent grammatical senses. The intention of the party concerned is to be gathered, primarily, from the tenor and terms of his pleadings taken as a whole."

(g) On this ground alone, the claim of the petitioner deserves to be rejected. That

even otherwise, on merits, there is no provision in the entire contract that 5% of the

contract amount was to be adjusted/deducted by the petitioner in case of non-

conductance of the PG test by the respondent. This plea of the petitioner is not borne

out from any terms of the contract. The contract was a lump-sum contract and the

payments to be made by the petitioner to the respondent were set out in the contract

itself. The contract was not an item-rate contract and therefore, no particular amount was

assigned for conductance of the PG Tests. The manner in which the payments were to

be made in a phased manner i.e. the entire payment to be made by the petitioner to the

respondent was divided into instalments and the instalments were to be paid on the

achievement of milestones. The instalment amounts were not in respect of the work

done only for the milestone achieved but were for the entire contract e.g. the payments

to be made at the time of completion of the PG test were not towards the cost of PG test

but was also for the other work already done. The cost of conducting the P&G tests was

inbuilt in the entire amount to be paid by the petitioner to the respondent. That the total

contract value was Rs.13,63,22,750/- (rupees thirteen crores sixty three lakhs twenty two thousand seven hundred and fifty only). As per clause 13.02.01 (f), of Annexure-III to

the letter of award dated 7th December, 1988 out of the total of sum Rs.4,57,68,450/-

(rupees four crores fifty seven lakhs sixty eight thousand four hundred and fifty only) to

be paid by the petitioner to the respondent towards "Ex-works FOB price of

equipment", 5% (five per cent) of the said amount was to be paid after the completion of

the Performance & Guarantee tests. Further as per clause 13.02.03 (d), of Annexure-III

to the letter of award dated 7th December, 1988, out of the total of sum Rs.16,14,550/-

(rupees sixteen lakhs fourteen thousand five hundred and fifty only) to be paid by the

petitioner to the respondent towards "Erection price component", 5% (five per cent) of

the said amount was to be paid after the completion of the PG tests and as per clause

13.03.00 (b) (xiv), of Annexure-III to the letter of award dated 7th December, 1988, out

of the total of sum Rs.8,33,49,000/- (rupees eight crores thirty three lakhs and forty nine

thousand only) to be paid by the petitioner to the respondent towards Civil and

Structural portion, 5% (five per cent) of the said amount was to be paid after the

completion of the PG tests. The petitioner had no right, contractual or otherwise, to

deduct 5% of the total contract value towards the cost of non-conductance of PG tests. In the meetings that had taken place between the representatives of the petitioner and the

respondent on 10th September, 1993, 13th September, 1993 and 28th September, 1993 it

had been clearly agreed that for non-conductance of PG tests for 3 cooling towers the

petitioner would accept a rebate of Rs.4,45,500/-. Had the tests been mandatory, then

the petitioner would not have agreed to the non-conductance of the PG tests for 3

cooling towers. Since, it was the petitioner, who had prevented the respondent from

conducting the PG tests, the only way to resolve the issue was price adjustment which

was done as per the agreement arrived at between the parties and recorded in the

minutes of meetings dated 10th September, 1993, 13th September, 1993 and 28th

September, 1993. Since the PG test for all four towers could not be conducted, applying

the same rate of rebate i.e. approximately Rs.1,50,000/- for one cooling tower, the

respondent deducted a sum of Rs 6,00,000/- from their bill. This rebate was given

keeping in mind that M/s. Stup Consultants, the consultants engaged by the respondent

to carry out the PG tests had informed the respondent that they would charge a similar

amount for conducting the PG tests. The arbitral tribunal accepted this adjustment as it

was on the basis of the agreement between the petitioner and the respondent. The

allegation of the petitioner that 5% of the contract price i.e. Rs.65,00,000/- was to be deducted due to non-conductance of PG Test is de-hors and contrary to the contract.

60. As to Mr. Bhat's submission that the Tribunal ought to have called for expert

opinion on the issue of performance of P.G. Tests, I am of the view that the Arbitrators

were themselves experts in the field or at least had technical knowledge. It was not for

the Arbitral Tribunal to call for expert evidence when, in their opinion, they did not

require it. However, if the parties wanted to lead expert evidence it was for the parties

to lead the evidence and not for the Arbitral Tribunal to secure it for the parties. It is not

the case of the petitioner that it applied to the Arbitral Tribunal for being permitted to

lead expert evidence but was denied such a request. The claim of the petitioner that no

expert evidence was called for by the Arbitral Tribunal and therefore, the Arbitral

Award is vitiated, is in my view without any merit particularly where the petitioner itself

did not bring any expert's evidence on record.

61. The PG Test was not done. So far the parties have no dispute. The real

controversy between the parties is in respect of the consequence of non-conductance of

PG Tests and as to the amount of price adjustment. The petitioner claims that PG Tests

ought to have been done, being mandatory, and if they were not done then the petitioner

were entitled to a deduction of Rs.65,00,000/- and not Rs.6,00,000/- as has been given by the Arbitral Tribunal.

62. At the outset the respondent has raised an objection to the claim of the petitioner

of its entitlement to deduct a sum of Rs.65,00,000/- as the same was not a part of the

pleading before the Arbitral Tribunal and is not even a ground in the present petition.

Since the petitioner did not raise this claim before the Arbitral Tribunal it cannot raise it

now for the first time before this court in its challenge to the Arbitral Award. The

Hon'ble Supreme Court in the case of B.S.N. Joshi & Sons Ltd. vs. Nair Coal Services

Ltd. & Ors. and this Court in the case of Delhi Jal Board vs. Vijay Kumar Goel and in

the case of NTPC vs. SAG have taken the same view. However, de hors the above

plea even on merits I do not agree with the submission of the petitioner.

63. The cooling towers were taken over by the petitioner on the following dates:

           Cooling tower No.1         22.04.1992
           Cooling tower No.2         26.12.1993
           Cooling tower No.3         20.10.1994
Cooling tower No.4         10.07.1995

64. It is also not in dispute that the petitioner has been using the cooling towers

continuously and has not got the PG Tests carried out by itself or through any other

entity. The petitioner has been using the cooling towers continuously and without any complaint. Neither before the Arbitral Tribunal nor before this Court, the petitioner has

been able to point out any deficiency in performance of the Cooling Towers. During the

course of arguments a question was put to the counsel for the petitioner that if the tests

were mandatory and non-conductance thereof, as submitted by it, could result in a

calamity, why were the cooling towers put into operation and not only that, have been

used continuously for the past almost 12 years. No reply was given to this query.

65. The petitioner could have got the PG Test conducted on its own, which was also

not done. The petitioner has given no reason for the not conducting of the P.G. Test on

its own. Furthermore, in terms of clause 14.3 of the contract the PG Tests were to be

commenced within 2 months from the date of successful completion of trial operations

and any extension of time beyond the two months could only be by mutual consent of

both the parties. This was also not done by the petitioner as no consent was obtained

from the respondent. The submission of the petitioner that the PG Tests were mandatory

is also contrary to the minutes of the meetings dated 10.09.1993, 13.09.1993 and

28.09.1993, in which the petitioner had agreed that in case of non-conductance of PG

Tests it would accept a rebate. The only question that therefore arises for consideration

is whether the petitioner was entitled to a rebate of Rs.65,00,000/- as claimed by it or of Rs.6,00,000/- as given by the Arbitral Tribunal. The petitioner claimed a rebate of

Rs.65,00,000/- on the ground that in terms of the contract the price of the PG Tests was

Rs.65,00,000/- and on non-completion thereof the petitioner was entitled to a rebate of

that amount without any doubt or deduction and it was not open to the Arbitral Tribunal

to reduce that amount. No such clause in the contract has been brought to the notice of

this Court. The contract was a lump sum contract. Since, it was not an item rate

contract no particular price was fixed for a particular job. This, being the admitted case

the petitioner cannot claim that the price for PG Tests was Rs.65,00,000/- and that it was

entitled to a rebate/deduction of that amount. In terms of the contract the payments were

to be made by the petitioner to the respondent in instalments linked with the progress of

the work. Release of payment was on completion of a specified activity but the

payment itself was not for that particular activity. Therefore, merely because a sum of

Rs.65,00,000/- was to be released on the completion of the PG Tests does not mean and

the petitioner has been unable to show, that the said amount was for PG Tests only.

66. It is an admitted case of the parties that the only thing that remained was the

conductance of the PG Test and all other obligations had been performed. Thus, can it

be said that because the PG Tests had not been performed the respondent would not be made payment for other works done by it merely because payment of such work was

linked with the completion of the PG Tests. I do not think so. This is not a part of the

contract. The petitioner could not have refused to make payments in respect of work

that was done by the respondent and accepted by the petitioner on the ground of non-

conductance of PG Tests. The only rebate/deduction the petitioner was entitled to was

the price/cost of conductance of PG Test. The petitioner has not brought to the notice of

this Court any evidence filed by the petitioner before the Arbitral Tribunal as to actual

conduct or the cost of PG Test. In the minutes of the meetings dated 10.09.1993,

1309.1993 and 28.09.1993, the petitioner had accepted a rebate of Rs.4,45,000/- for non-

conductance of PG Tests for 3 cooling towers. The Respondent at the same calculation

of approximately Rs.1,50,000/- per cooling towers, gave a price adjustment/rebate of

Rs.6,00,000/- for non-conductance of PG Tests for 4 cooling towers. The Arbitral

Tribunal accepted this. The factual conclusion arrived at by the Arbitral Tribunal on the

basis of the minutes of the meeting dated 10.9.1993, 13.9.1993 and 28.9.1993 does not

suffer from any perversity and consequently does not merit any interference from this

Court.

67. It is submitted by Mr. R.P. Bhat, learned senior counsel on behalf of the petitioner, that the arbitral tribunal had wrongly directed the petitioner to pay to the

respondent Exchange Rate Variation (ERV) when the respondent makes payment to its

foreign collaborators. He submits that the requirement of payment of foreign exchange

arises only when the liability is incurred and payment is made. In the present case, he

submits no liability arose and therefore the question of exchange rate variation awarded

cannot arise.

68. Mr. P.V. Kapur, learned senior counsel for the respondent has submitted that no

amount has been awarded for ERV. Therefore, the very premise of the petitioner's

objection is erroneous. He submits, that the liability to pay ERV has not been denied by

the petitioner. By the award the petitioner has only been directed to pay the ERV if and

when the respondent makes the payment to the foreign collaborator. So if the

respondent does not pay its foreign collaborator the petitioner does not have to pay any

amount to the respondent. He further submits that since the petitioner had refused to

pay to the respondent the sum due and payable to it under the contract, the respondent

was prevented from making the payments to its foreign collaborators i.e. Heithkamp and

Balke Durr, Germany under the agreements that the respondent had with them. He

submits that the petitioner also admits in Ground AI of the petition, that its liability to pay the ERV will arise when payment has been made to the foreign collaborator. Thus,

the liability to pay ERV is not denied by the petitioner.

69. I have considered the above plea. The Award does not direct the petitioner to

make the payment of the ERV to the respondent without the respondent having made

any payment to its foreign collaborators. The Award in respect of ERV is only

declaratory. There is no prohibition in the Arbitration Act, prohibiting the Arbitral

Tribunal from making a declaratory award. It is also not the petitioner's case that under

the contract ERV was not permissible or contemplated and has yet been granted by the

Arbitral Tribunal. It is admitted by the petitioner that ERV shall be payable to the

respondent only when the respondent actually makes the payment to the foreign

collaborator. This is what the Arbitral Tribunal has directed. The objection of the

petitioner is thus misconceived and does not warrant any interference in the Awards.

70. It is then submitted by Mr. R.P. Bhat, learned senior counsel, that the Arbitral

Tribunal has awarded interest @ 18% on delayed payment and future interest @ 18% on

the awarded amounts, from the date of the award till the date of its implementation. His

objection to the grant of interest is three fold (a) the awarded amount is huge and

therefore no interest should have been granted (b) there was no stipulation in the contract for grant of interest and therefore the Arbitral Tribunal could not have awarded

any amount of interest and (c) for the period prior to the date when the findings are

rendered that the claimant is entitled to the amounts awarded, no interest is payable.

71. Mr. Kapur, the learned senior counsel for the respondent relies upon Section 31

sub sections (7)(a) and (b) to support the grant of interest. He submits that the Arbitral

Tribunal, notwithstanding that there is no provision in the contract for grant of interest,

has the power to grant interest on the amounts claimed from the date when the cause of

action arose till the date of the award and also on the award from the date of the award

till the date of payment. It is only when there is contract to the contrary, he submits, that

the Arbitral Tribunal cannot award interest. In the present case there is no contract to

the contrary. Awarding interest on the amounts claimed, he submits, is the discretion of

the Arbitral Tribunal. However, the Arbitration Act provides that an award once made

shall carry interest @ 18% p.a., unless otherwise directed by the arbitrators. According

to him, even if the Arbitral Tribunal does not grant any interest on the awarded amount,

yet by virtue of section 31(7)(b) of the Arbitration Act, the award shall carry interest @

18% p.a. from the date of the award till its payment. Insofar as the interest on the

awarded amounts is concerned, he submits that the respondent had been denied the use of its money and the interest is in no manner excessive.

72. Section 31 sub-sections (7)(a) and (b) of the Arbitration Act read thus:

"Section 31. Form and contents of arbitral award

(7) (a) Unless otherwise agreed by the parties, where and in so far as an arbitral award is for the payment of money, the arbitral tribunal may include in the sum for which the award is made interest, at such rate as it deems reasonable, on the whole or any part of the money, for the whole or any part of the period between the date on which the cause of action arose and the date on which the award is made.

(b) A sum directed to be paid by an arbitral award shall, unless the award otherwise directs, carry interest at the rate of eighteen per centum per annum from the date of the award to the date of payment."

73. A perusal of the above provision demonstrates that there is no merit in the

petitioner's plea that interest could not have been granted as there was no contractual

prohibition from doing so. The objections of the petitioner in respect of quantum of

interest, in my view, however, deserve consideration. Even though on awards not

specifying interest, 18% interest is statutorily payable, yet this cannot uniformly apply in

respect of all awards. Since the current rate of interest is lower, I am of the view that

Mr. Bhat's plea is justified and the interest granted by the Arbitrators should be reduced

from 18% to 12%.

74. Mr. Bhat, learned senior counsel for the petitioner has next submitted that while the arbitration proceedings were going on the respondent submitted a final bill. The

effect of submission of final bill was that the pre-final bill and all claims made

thereunder stood abandoned and therefore, the Arbitral Tribunal could not have

adjudicated upon them. The Arbitral Tribunal according to him has acted illegally and

without jurisdiction by adjudicating claims that formed part of the pre-final bill.

75. Mr. P.V. Kapur, learned senior counsel appearing for the respondent has

submitted that this objection has been raised for the first time during arguments. He

further submits that the petitioner has sought to create confusion and that two bills were

never propounded. According to him this objection is contrary to the pleadings of the

petitioner in the petition inasmuch as in paragraph No. 3 of the petition the petitioner

had admitted that all the disputes arose from the "pre-final bill" dated 25.07.1996 and

that no final bill was ever raised. He submits that at the time of arguments only in order

to create confusion and to mislead this Court, a baseless allegation was raised by the

petitioner, contrary to its own pleadings, that a "pre-final bill" and a "final bill" was

raised by the respondent and that since the claims in the "pre-final bill" were given up in

the "final bill" yet the Arbitral Tribunal adjudicated the claims which were subject

matter of the "pre-final bill".

76. Mr. Kapur submits that the respondent had submitted its pre-final bill on

25.7.1996 which was rejected by the petitioner on 09.08.1996 and 16.8.1996. The said

bill was in fact the final bill regardless of its nomenclature, as the respondent raised no

other bill. During the arbitration proceedings, the respondent had filed its statement of

Facts/claims in two parts. With each part a statement giving the summary of the claims

included in that particular part was also filed. In other words according to him the bill

dated 25.07.1996, only for the purposes of making a summary of the claims, was divided

into two parts and part-I thereof was filed with Part-I of the Statement of Facts/Claim

nomenclatured as "final bill" and the other part was filed with Part-II of the Statement of

Facts/claims. He submits that there was no abandonment of any claim under the "pre-

final bill" dated 25.07.1996.

77. The petitioner has not raised this objection in the petition and therefore, I am not

inclined to entertain the same. No ground taken orally or in written submission deserves

to be considered unless the same forms a part of the pleadings. A party who wishes to

put forth a ground that is not a party of the pleadings must first amend its pleadings by

taking permission of the Court and bringing to the notice of the Court the additional

grounds sought to be urged by it. It is for the Court to permit such amendment or not and also to consider if such an amendment is permissible at all. If such amendment is

permitted the other party shall also get a change to respond to the additional pleas sought

to be raised. Pleadings therefore have to be drafted carefully and cannot be merely by

oral arguments or written submissions without the other side getting a proper

opportunity to plead their case. Consequently, this plea cannot be entertained and in

any case is without merit as it is evident that the bill dated 25th July, 1996 was split into

two only for the sake of convenience and can in no manner said to be two distinct pre-

final and final bills.

78. The petitioner has also assailed the awards on the ground that the Arbitral

Tribunal has awarded claims in favour of the respondent which had been settled in the

meetings held between the parties on 10.09.1993, 13.09.1993 and 28.09.1993. Since the

claims had been settled, there was no dispute between the parties in respect of the same

and they could not have been a subject matter of arbitration.

79. It is only a dispute that can be referred to arbitration, and if a claim has been fully

and finally settled it certainly cannot be a dispute so as to be referred to arbitration. The

petitioner has been unable to demonstrate to this Court any claim which was settled in

the said meetings but was yet decided by the Arbitral Tribunal. In fact, the Arbitral Tribunal has already held in the Awards that the Extras and additional works claimed by

the respondent were not raised during the said meetings. The claims which were not

settled in the said meetings were not precluded from being referred to arbitration. The

objection of the petitioner is accordingly rejected.

80. The petitioner has also questioned the awards on the ground that the respondent

was to provide two butterfly valves to the petitioner at no extra cost to it and that the

contractual cost of each butterfly valve was Rs.2,00,000/-. The petitioner has claimed

that the respondent did not provide the butterfly valves. Consequently, the petitioner

purchased one out of the two butterfly valves at a cost of Rs.2,60,000/- and that for the

non-supply of the other butterfly valve the petitioner has claimed a sum of Rs.14.10

lakhs being the cost of the same at the time of filing the present petition.

81. I have considered the finding of the Arbitral Tribunal in respect of this claim of

the petitioner. The Arbitral Tribunal has held as under:-

"NTPC have claimed a sum of Rs.6,30,000/- for two butterfly valves stated to have been not supplied by the Claimants. An amount of Rs.60,000/- as increase in cost of Butterfly valves has also been claimed separately. Since, the N.T.P.C. have not furnished any proof of actual purchase of Butterfly valves (at the risk and cost of the claimants) and the higher price involved, this Tribunal accepts only Rs.2,00,000/- as cost of each valve provided in the contract. Since the cost of one valve i.e. Rs.2 lakhs has already been deducted in the final bill submitted by the Claimants, the Tribunal awards only Rs.2 lakhs to be paid to the respondents by the Claimants for the second valve."

82. The petitioner could not have claimed any amount, in excess of the contractual

amount, without furnishing proof thereof. Furthermore, the petitioner has in the present

petition claimed Rs.14.10 lakhs as the cost of spare. While affirming the finding of the

Arbitral Tribunal that only one valve was to be paid for by the respondent, I am unable

to accept the valuation of Rs.2 lakhs put by the Tribunal for the said single butterfly

valve. By its own calculation of Rs.6,30,000/- for the 2 valves, the price of the valve

ought to have been Rs.3,15,000/-. Even on this amount the respondent was liable to pay

the increase of Rs.30,000/- each per valve claimed by the petitioner. In my view, for a

latter purchase an increase of Rs.30,000/- was reasonable. Consequently the amount

payable by the respondent towards the cost of one butterfly is enhanced from Rs.2 lakhs

to Rs.3,45,000/-. The increase of Rs.30,000/- only per valve which was eminently

reasonable had to be added to the price of Rs.3,15,000/- for the purchase of one butterfly

valve to be accounted for by the respondent.

83. The Petitioner has assailed the Awards on the ground that petitioner's claims for

excess consumption of cement and steel by the Respondent was wrongly rejected

whereas the claim of the respondent for extra item was wrongly allowed by the Arbitral tribunal, the petitioners claim for liquidated damages was wrongly rejected while that of

the respondent was allowed, the claims of the petitioner for advances paid to the

respondent ought to have been considered and allowed but was wrongly rejected and

more generally that the claims of the petitioner were wrongly rejected and those of the

respondent wrongly allowed.

84. It is submitted by the respondent that the contract did not include the structural

designs and drawings at the time it was concluded. The tender quantities of cement and

steel were on the basis of the design of a foreign collaborator based on international

standards. He submits that after the tender had been submitted a meeting took place on

03.11.1988 in which the petitioner requested that the designs, specifications etc. should

be changed from international standards to Indian Standards. Accordingly, it was agreed

that the offer given by the respondent was in compliance with the specifications and

requirements of Indian Standards except for the technical deviations/variations agreed

and discussed in the said meeting. Further, due to non-availability of design sections of

the sections of steel had to be changed. Thus, clearly the petitioner had to bear the cost

of excess steel as steel, being a free issue item under the contract.

85. It was further submitted that soil characteristics and its bearing capacity at the site were markedly different from those projected by the petitioner in the tender document.

This resulted in the change in design of the basin slab, basin foundation, piles and the

like. These factors he submitted, were directly attributable to the petitioner, resulted in

the increase of cement and steel consumption.

86. It was also contended by the respondent that there was no dispute that all the

quantities of steel and cement issued by the petitioner to the respondent was used in the

cooling towers and that there was no pilferage or theft. He submitted that the lumpsum

cost/charges quoted in the tender were based on quantities of cement and steel to be used

as, given in the tender document. However, since the quantity of cement and steel

actually used in the contract was increased due to the change in designs by petitioner

and due to the wrong information given by the petitioner in the tender document, the

respondent had also to incur additional labour expenses. It is pertinent to mention that

the petitioner was aware that the respondent was not doing the work gratuitously, despite

this the work was accepted by the petitioner and the petitioner is enjoying the benefit of

the said work. Therefore, in terms of Section 70 of the Indian Contract Act, the

Respondent was entitled to compensation for the work done by it and which was rightly

awarded by the Arbitral Tribunal as per the law enunciated by the Hon'ble Supreme court of India in its decision in the case of V.R. Subhramanyam v/s. B. Tyayappa -

reported in AIR 1966 SC 1034, that:

"5. Counsel for the appellant submitted that as in the view of the High Court the respondent failed to prove the oral agreement pleaded by him, the suit should have been dismissed, and they should not have awarded compensation quantum merit which was not claimed. It was urged that the respondent must succeed or fail on the case pleaded by him, and not on a cause of action not pleaded. In our view, there is no substance in this contention. As we have already observed, in respect of the additional work done by the respondent, both the parties set up conflicting oral agreements. These were not accepted by the High Court. If a party to a contract has rendered service to the other not intending to do so gratuitously and the other person has obtained some benefit, the former is entitled to compensation for the value of the services rendered by him. Evidently, the respondent made additional constructions to the building and they were not done gratuitously. He was therefore entitled to receive compensation for the work done which was not covered by the agreement. The respondent claimed under an oral agreement compensation at prevailing market rates for work done by him : even if he failed to prove an express agreement in that behalf, the court may still award him compensation under s. 70 of the Contract Act. By awarding a decree for compensation under the Statute and not under the oral contract pleaded, there was in the circumstances of this case no substantial departure from the claim made by the respondent."

87. I have considered the rival submission and the Awards. The Arbitral Tribunal has

held, and in my view, rightly that once it stood admitted by the petitioner that the

material issued by it was used for its project and that there was no theft or pilferage, the

petitioner could not make any claim against the respondent for excess consumption or

deny the claim of the respondent for additional works which were necessitated due to

site conditions and the, change in design.

88. The petitioner has not questioned the conclusion of the Arbitral Tribunal that there was change in designs and specifications and that the site conditions were different.

Once deviation from the tender document as originally stipulated is undisputed, the

resultant change in the consumption and the claim therefore cannot also be disputed.

Further, the respondent if it had to do additional work, was entitled to, and rightly

awarded for the additional work. These objections raised by the petitioner therefore do

not merit any interference in the Award and are accordingly rejected.

89. The objection raised by the petitioner's counsel Sh. Bhat is that the advances were

not adjusted has been considered by the Arbitral Tribunal in the Awards and they have

held that the amount claims by the petitioner for recovery of advances had been adjusted

in the "pre-final bill". The petitioner has, however, not set out as to which of the

amounts due to it under its claim for recovery of advances had not been adjusted and

were therefore, recoverable. The claim made by the petitioner is general and sweeping

without any particulars or details. The objection by the petitioner is therefore rejected.

90. The objections raised by the petitioner with respect to the award of liquidated

damages, are the following (a) the Arbitral Tribunal used Hudson's formula which it

should not have done; (b) the Arbitral Tribunal came to the conclusion that 50% delay

was attributable to the Respondent and yet awarded liquidated damages in favour of the Respondent; and (c) the claim of the petitioner for liquidated damages was rejected.

91. At the outset the respondent's counsel points out that this is not a ground taken by

the petitioner in the petition and the respondent has therefore, had not opportunity to

deal with the same. This is a good reason by itself to reject this objection. However,

since I have heard both the senior counsel on this plea I am dealing with the issue on

merits as well.

92. In the case of Mc.Dermott International Inc. Vs. Burn Standard Co. Ltd. And

Ors. - (2006) 11 SCC 181 cited by the respondent, the Hon'ble Supreme Court after

taking note of the various formulae available for calculating damages, including the

Hudson formula, has held as under:

"106. We do not intend to delve deep into the matter as it is an accepted position that different formulae can be applied in different circumstances and the question as to whether damages should be computed by taking recourse to one or the other formula, having regard to the facts and circumstances of a particular case, would eminently fall within the domain of the arbitrator.

107. If the learned arbitrator, therefore applied the Emden Formula in assessing the amount of damages, he cannot be said to have committed an error warranting interference by this Court"

93. The Arbitral Tribunal in the present case comprised of Engineers, two of whom

were appointed by the President, Institution of Engineers. Their decision to apply the Hudson Formula for calculating the damages and expenses cannot be faulted merely

because they choose to apply the said formula. This objection of the petitioner thus has

no merit and is therefore, rejected.

94. The Respondent had made claim of Rs.445.50 lakhs on account of losses and

damages suffered by it (respondent) due to prolongation of completion period and the

petitioner had made a claim of Rs.65.05 lakhs on account of liquidated damages for

delay attributable to the respondent.

95. In the award the Arbitral Tribunal has held that it was respondent's case that time

and again extension was granted by the petitioner, agreeing that no liquidated damages

would be charged till the extended period, showed that delay was occasioned because of

reasons attributable to the petitioner. The Arbitral Tribunal also notes that despite being

called upon to do so, the petitioner did not furnish any tabulated statement setting out the

delays caused by the respondent. The Arbitral Tribunal further held that there was a

force majeure clause in the contract and any delay caused due to force majeure had to

be excluded. In the view of the refusal by the petitioner to submit the tabulation, the

Arbitral Tribunal rightly drew an adverse inference against it and held that the petitioner

was responsible for 50% of the delay. Therefore, the Arbitral Tribunal, by applying the Hudson Formula, calculated only 50% of the amount which would otherwise have been

payable. Thus, the Arbitral Tribunal directed the petitioner to pay only 50% of the

amount of losses and damages suffered by the respondent on account of the prolongation

of the work. The objection raised by the petitioner, namely that the Arbitral Tribunal

despite holding that the respondent was liable for 50% of the delay granted the entire

claim, is therefore, clearly misconceived and is rejected.

96. The third objection raised by the petitioner is in respect of the rejection of its

claim of liquidated damages, in view of the fact that liquidated damages have been

provided for in the contract and the Arbitral Tribunal having come to the conclusion that

the petitioner was liable for only 50% of the delays. At first blush, this argument seems

attractive. However, on consideration it appears that this objection is also without merit.

97. The Arbitral Tribunal has declined the petitioner's claim for liquidated damages

inter alia, for the following reasons:

a. Failure on the part of the petitioner to give notice to the respondent, of its

(petitioner's) intention to claim compensation for delay when possession of cooling

towers was taken by the petitioner, which disentitled the petitioner to claim

compensation in terms of Section 55 of the Indian Contract Act, 1872; b. Refusal by the petitioner to furnish any details in respect of its claim for liquidated

damages;

c. Non-production of any evidence by the petitioner to show any damage suffered by

it on account of alleged delay on the part of the respondent; and

d. Cooling Tower no. 1 even though it was completed in April 1992 was not

commissioned till November/December 1992, showed that no loss or damage was

suffered by the petitioner.

98. I have considered the reasons given by the Arbitral Tribunal for rejecting the

petitioner's claim for liquidated damages, which are germane and relevant, and I do not

find any illegality or infirmity in the same. The Arbitral Tribunal, has rightly rejected

the petitioner's claim for liquidated damages. I am also fortified in my view because

even before this Court, no ground has been made out by the petitioner that it was entitled

to liquidated damages because the Arbitral Tribunal had in a patently illegal manner

rejected the same.

99. The petitioner has raised several other objections in its petition, however the said

objections are completely lacking in particulars and the counsel for the petitioner at the time of bearing did not seriously urge the other objections.

100. Arbitration proceedings and Arbitral Awards are not a prelude to court

proceedings by way of appeals against the award. Arbitration proceedings are a

separate/alternative forum selected by the parties for expeditious redressal of their

disputes because of the finality attached to such decisions. Courts in all jurisdictions

have made efforts to uphold such finality rather than to upset it. The Parliament of India

by enacting the Arbitration & Conciliation Act, 1996 and also the Courts of India in

various judgments have time and again recognized such finality and have encouraged it.

This Court in the case of Gian Chand Totu (supra) has held that the illegality attached

to the award warranting interference from the Court under Section 34 of the Act should

not be of trivial nature but should be patently illegal going to the root of the matter and

must shock the judicial conscience of the Court.

101. In the present case, the petitioner has not been able to set out any ground on merits

on which the Arbitral award merits interference from this Court except in the case of the

butterfly valve and the award is modified and respondent held liable to pay

Rs.3,45,000/- instead of Rs.2,00,000/- ordered by the Arbitral Tribunal on this claim.

This amount of Rs.3,45,000/- instead of Rs.2,00,000/- shall be adjusted from the amount payable by the petitioner to the respondent. However, I also allow the plea of the

learned counsel for the petitioner Shri Bhat that in light of the current interest rates levy

of 18% interest per annum was excessive and consequently reduce the rate of interest

awarded by the Arbitral Tribunal to 12% uniformly. The present petition is accordingly

dismissed with the above modifications with costs of Rs.20,000/- in favour of the

respondent.

(MUKUL MUDGAL) JUDGE April 17, 2009 sk