M/S.Bharat Heavy Electricals ... vs M/S Llyod Insulations (India) ...
2010 Latest Caselaw 1335 Del

*             IN THE HIGH COURT OF DELHI AT NEW DELHI

+                          O.M.P. No.300/1999

                                                     10th March, 2010


M/S.BHARAT HEAVY ELECTRICALS LTD.                          ...Petitioner

                           Through:     Mr. R.Chandrachud, Advocate

                           VERSUS

M/S LLYOD INSULATIONS (INDIA) LTD.                         ....Respondent

                           Through:     Mr. A.S.Chandhiok, ASG with Ms.
                                        Neelam Rathore , Ms. Geetika
                                        Panwar and Mr. Aashish Gupta,
                                        Advocates.


CORAM:
HON'BLE MR. JUSTICE VALMIKI J.MEHTA

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

2. To be referred to the Reporter or not?

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

 %                               JUDGMENT (ORAL)

VALMIKI J.MEHTA, J

1. This petition under Section 34 of the Arbitration and Conciliation Act,

1996 challenges the Award dated 17.7.1999 of an Arbitration Tribunal

consisting of three members. The disputes which have been decided by the

Arbitral Tribunal arose out of a contract between the parties dated 4.6.1986

OMP 300/1999 Page 1 and as per which contract the respondent was to execute insulation work in

the factory premises of the petitioner situated at Vishakapattnam.

2. The counsel for the petitioner has pressed the objection petition only

with regard to those claims of the respondent herein which in the arbitration

proceedings are referred to as claims in Annexures III, IV and V, dispute

with respect to awarding of interest which the counsel for the petitioner

argued could not have been awarded as per certain contractual clauses, and

finally as regarding awarding of escalation.

3. Ordinarily, in a judgment, this court would have given the details of

the disputes, the respective contentions of the parties and also its decision

supported by the reasons for accepting the Award by rejecting the

objections. However, in the facts of this case, in view of the fact that the

Award very nicely, if I may so, refers to point by point, first the

contentions of the claimant, then the contentions of the respondent, and then

the reasons for passing the Award, therefore, my task is much easier

because I simply intend to reproduce the relevant portions of the Award qua

the disputes with respect to Annexures III, IV and V. In view of the

thorough discussion and reasoning contained in the Award, I can do no

better than the Arbitrators, and I am therefore simply reproducing the

relevant portions of the Award giving just a bare limited reasoning and

conclusions of my own.

OMP 300/1999 Page 2

4. Claims contained in Annexures III, IV and V of the claimant‟s claim

petition and as dealt with by the Arbitrators are as per the following heads:-

"Annexure-III List of Piping System which were not specified to be Insulated, but insulated by the Claimants, as per Site Instructions, according to the Claimant;

Annexure-IV List of Pipings which are not covered in PEM Order and done Under the site instructions, as stated by the Claimants;

Annexure-V Portion of the Work classified as Stubs on Main Piping and listed accordingly."

All the claims forming the subject matter of these Annexures, are claims for

extra work done beyond the scope of work as envisaged in the contract.

5. As regards the disputes forming the subject matter of Annexure III,

the following portions of the Award deal with the same, and which I adopt

verbatim as correct and justified:-

"7.2 Issue No. 2:

Whether the claimant is entitled to payment as recorded in the aforesaid Annexure-III and if so, in what amount?

7.2.1 The Claimant have made the following points in the arguments:

a) that the claimant carried out the work strictly as per the Respondent‟s instructions.

b) that there is no indication in Ex-C-16/R-23 that the work represented in Annexure III would not be paid.

c) that the decision not to pay came only in or about Aug. 1996 when the Claimant appealed to BHEL Higher authorities;

d) that even if this work were to be treated outside the contract, the Claimant should still get paid under Section 70 of the Indian Contract Act.

e) that the contract specifications provide that the Cold face temperature should be brought down to 46oC or 10oC above the ambient temperature of 36o C by thermal insulation for achieving energy saving and safety under Clause 3.1 and 3.2 of

OMP 300/1999 Page 3 the Special Design Requirements on sheet 1 of 5 specific project requirements (pp228 to 233 of Counterstatement), whereas the temperature was above this limit of 46o C as it admitted by the Respondents at Ex-C-12/3.

f) that the actual work done has to be measured and

g) that the contract does not say anywhere that the site representative cannot order deviations.

7.2.2 The Respondents, on the other hand, raised the following points:

a) that the work represented in Annexure-III, was not carried out as per the Purchaser‟s instructions, that it was not within the scope of the contract;

b) that the respondent is not liable to pay for insulation wrongly done by the claimant;

c) that any works contract always pertained to a specific order and not the purchaser;

d) that the contractor is required to execute only works which are within the scope of the contract;

e) that the site Engineers of the Respondent, though authorized representatives, are only supervising authorities and not sanctioning authorities.

f) that if the site representative requested the contractor to carry out such work, it is at the risk and cost of the contractor only;

g) that unless instructions were issued in writing , they cannot be included within the scope of work;

h) that the contractor has to get approval in writing before executing any work;

i) that the claimant has not allowed the prescribed procedure;

j) that there is no technical clearance for the work.

k) that no payment can be made for work carried out unauthorisedly.

l) that the Claimant has not produced any evidence to show that the Claimant carried out the work represented in Annexure III at the behest of the respondent.

m) that this does not arise out of the present contract and the tribunal has no powers to pass an award thereon;

n) that the measurements do not amount to certification of work.

OMP 300/1999                                                                     Page 4
      o)     that measurements for above 50NB were to be measured as per
            drawings.
     p)     that the Principal cannot be held liable for wrong acts of the

agent; that the Claimants demand in the final bill was inflated and unjustified and not based on the actual work done by the Claimant;

q) that the respondent does not agree to the work in Annexure III, which is a list of piping not specified to be insulated as per the purchase order but insulated by the Claimant as per site instructions, and

r) that the principle of unjust enrichment is not applicable to the instant case.

7.2.3. After hearing both sides and after examination of all the record before us, we S/Shri T.S.Ratnam and K.V.Guruswami, have arrived at the finding that the Claimants is entitled to payment for the work done as recorded in Annexure III for the following reasons:-

a) The Ex-R-23 does not specifically indicate that this work was not payable even though the meeting (Ex-C16/R-23 was held more than 18 months after the completion of the work and 9 months after the submission of then final bill (Ex-C-11)

b) Ex-C-24 contains rejection of Claimants Bill for payment under Annexure IV and Annexure V only. There is no mention about Annexure III, even though this letter was issued 3 ½ years after completion of work and 2 ½ years after submission of the first final bill and more than a year after the submission of the revised final bill Ex-C-18, based on Ex-R-23. In fact, a plain reading of Ex-C-24 gives the strong impression that the revised final bill (Ex-C-18) was accepted by the Respondents except for Annexure IV & V.

c) There is nothing on record to indicate that Annexure III was not considered to be payable by the Respondents till the matter went to Arbitration.

d) The above would appear to indicate that the rejection of Annexure-III is an after thought.

e) If the Respondent had felt that the pipeline systems covered by Annexure-III were wrongly insulated, they had ample opportunity to point out the same to the Claimant and it has not been seriously disputed by the Respondents that the work of Annexure III was done on the instructions of the Site Representative of the Respondents.

OMP 300/1999                                                                     Page 5
      f)    In the Contract conditions there is no specific stipulation as to

who alone was authorized to give instructions to the claimants for the work at site. Any division of responsibilities and/or authorities between the Respondents‟ PEM Group and the Respondents Site Organization was not indicated or made known to the Claimants at any time during the course of the work.

g) Even in the comments on the final bill accompanying the Respondents letter dated 29.6.94 (Ex-C-12-3/3) it has been stated that working temperatures for some lines indicated in the Piping BOM is less than 60o C and hence was not considered for insulation in Schedule earlier. Even this does not indicate that the insulation done was wrong or was not required. The provisions under Paras 3.1, 3.2. and 3.5(Pages 227, 228 of CSF) stipulate that the Thermal insulation thickness has to be applied, so that the cold face temperature does not exceed 46o C for ambient temperature of 36o C and natural convection conditions, achieved for specified design conditions;

h) Again under para 3.0 Technical Specification of Order on Page 233 of CSF, it has been further emphasized that the Thermal Insulation shall be applied on the outer surface of Piping, Valves, Fabrication and Equipments specified to prevent loss of Heat from all exposed parts to limit the surface temperature with 10o C in excess of ambient temperature for the safety of operating personnel. These provisions are significant, as they give rise to them possibility that the Site Representative of the Respondents may have ordered the insulation of these piping system for bringing the work in line with the contract.

i) The fact that the said Site instructions were not issued in writing is not relevant once the measurements have been duly recorded by the said site representative who has given the said instructions. Thus he is deemed to have ratified the verbal instructions.

j) The work was done for the same work, on other portions of which, the insulations carried out have been approved by the Respondents. It is not as if there no deviations from the lump sum contract scope, as considerable deviations have occurred which have already been ratified by the Respondents by way of amendments as well as in the Annexures I and II. There is no reason why Annexure III should necessarily have been covered by an amendment.

k) There is no evidence to indicate that the contract was specifically between the PEM Group and the Claimants. It was between BHEL and the Claimant.

l) The argument above "Agent-Principal" relationship raised at the fag end of the hearings, by the Respondents, is irrelevant, as the

OMP 300/1999 Page 6 work was carried out based on valid instructions of the Respondents.

7.2.4 In view of the foregoing the finding of S/Shri T.S.Ratnam and K.V.Guruswami in reply to question no.1 of this issue is in the Affirmative. The amount involved has already been reconciled between the parties as Rs.99,064.79 which is payable to the claimants. The findings of Shri K.Ramachandran are given separately in Appendix "B" to this Award."

Certain portions of the Award have been underlined, and which underlining

has been provided by me, and which portions show important and justified

reasoning of the Arbitrators in awarding Rs. 99,064.79 as regards the Claim

in Annexure III. The objections to Claim in Annexure III are therefore

dismissed.

6. So far as the Award which pertains to Claim under Annexure IV is

concerned, the following portions of the Award deal with the same, and

which I agree and adopt :

"7.4 Issue No.3(b)

If so, whether the dispute or difference in respect of the aforesaid Annexure IV is a dispute or difference arising out of the construction or execution of the Contract or the respective rights and liabilities of the Parties?

     7.4.1    The Claimants argue

     a)       that the respondent has not stated in the counter-statement and in

correspondence on record that the work covered by Annexure IV was not executed by the Claimant;

b) that para 8.02 of the proceedings and Ex-R-32 show clearly that the work was not only executed by the Claimant but also certified by the respondents;

c) that it was only in August 1996 i.e 3 ½ years after the work was completed (Ex-C-24) that the respondent took and stand that the work was not

OMP 300/1999 Page 7 payable allegedly because it was outside PEM scope (Ex-C-12-3/3, C- 14/3, C-26/2)

d) that when the respondent‟s site representative ordered the claimant to execute this work, the Claimant was not informed that the work was anything other than a part of the main order (Ex-C-14/3, C-26/2);

e) that the fact that the work was measured and included in the final measurements by the same site representative also showed that the work was part of the main order.

f) that the Claimant is therefore entitled to payment for this work in terms of this contract; and

g) that even if it were assumed that the work was outside the scope of the main order, the Claimant should still get payment for it in terms of section 70 of the India Contract Act.

7.4.2 The respondents contention in respect of this issue is broadly the same as in Issue 2 above. They argue:

a) that the work in Annexure IV was not ordered by the respondent or its authorized representative,

b) that this work relates to a totally separate contract and is therefore not payable under the subject contract:

c) that the respondent could not have ordered stoppage of the work which was the other departments of BHEL;

d) That the claim does not arise out of the subject contract and the tribunal has then no jurisdiction to go into it; and

e) That the Tribunal cannot enlarge its jurisdiction to decide disputes not relating to the subject order.

7.4.3 After hearing both the parties, we S/Shri T.S. Ratnam and K.V.

Guruswami, have come to the conclusion that the reply to this issue is in the affirmative for the following reasons :

a) The Respondents have questioned the jurisdiction of the Tribunal to pass an award in respect to Annexure IV, as, according to them, it does not arise fro the present contract and therefore this claim regarding Annexure IV should be excluded from the purview of these Arbitration proceedings. This point has come only at the argument stage and was not raised by the Respondents in the Plaint of their counter statement.

OMP 300/1999                                                                   Page 8
     b)     The work was ordered by the Site Representative of the Respondents as a

part of the work covered under this contract only. There is no contrary indication on the record. The Claimants were not told that this pertains to any other Divisions of the Respondents. They executed the work as being a part of the order placed on them by PEM Group (Ex-C-14/3, C-26/2);

c) In the joint measurements (Ex-C-11), the measurements of work of Annexure IV, in Ex-C-11, have been included under the heading "Final measurements for the work done under Purchase Order dated 4.6.86 for insulation package of M/s Lloyd insulations India Pvt. Ltd. for VSP, Vizag. And this work has been recorded under Page 18.

d) The first intimation that this work concerns the Respondents other Division is available on the record only in Ex-C-12/3/3 under Para II (1), confirmed in the last para of the Ex-C-14/3, 26/2.

e) There is no evidence to suggest that the Contracting Agency was PEM Group. The Purchaser was indicated as BHEL and no specific Division, Department Group or Individual had been identified as he Purchaser under Clause 2.1. of "instructions to Tenderers and General Terms and Conditions" it was between BHEL and the Claimants.

f) The Contract also did not indicate the particular person or group whose instructions alone should be followed and whose instruction not to be followed. The Division of responsibility and authority between the various functionaries of the Respondents was not intimated to the Claimants, incidentally it is observed that Contract clauses 15.7, 16.0 and 16.1 on pages 77 to 83 of the counter statement assign, certain functions to the Purchaser or his representative which could be discharged through the Site representative of the Purchasers only and the Claimants were required to comply with his instructions.

g) The rejection of the claim for payment for the work done under Annexure IV did not come till 3 ½ year after the completion of the work. Neither in the comments on the final bill (EX-C-12/3) or in the Minutes of Meeting at Ex-R-23, was there any categorical or specific indication that the work of Annexure IV would not be payable.

h) Even the fact that the work done under Annexure IV did not allegedly pertain to PEM Group of the Respondents, was conveyed only by the end of June 94, whereas the first final bill had been submitted early Jan‟94. During intervening period, after completion of work in Jan‟93 and upto June‟94, the PEM Representatives had adequate time to verify the position and to get the requisite clarification from their own Site Representative but they did not choose to do so.

OMP 300/1999                                                                   Page 9
      i)        If the Respondents did not want this work to be done, they should

have either stopped it while in progress or could have intimated the Claimants well in advance so that the Claimants could take up their claim with the concerned division of the Respondents Alternately, the Respondents could also have taken up the matter with their own Hyderabad Division and sorted out the matter through Book adjustment. The Respondents did none of these things but sat on the claim of Respondents without even giving the claimants a reply to their letters, reminders and appeals till the matter went to arbitration (Ex-C-19 to C-29).

7.4.4 In view of the foregoing, we S/Shri T.S. Ratnam and K.V. Guruswami, hold that the Tribunal has the jurisdiction to arbitrate on the matter concerning Annexure IV, as the dispute is clearly one arising out of the construction or execution of the contract.

7.5 Issue No.3C

If so, whether the claimant is entitled to payment for the work as recorded in the afore stated Annexure IV, and if so, in what amount ?

7.5.1 Coming to the second question raised under this issue, it will be seen that inspite of the Respondents being given repeated opportunity by the Tribunal to check up the figures in Annexure IV, without prejudice to their contention regarding admissibility, the Respondents refused to do so and hence the Tribunal has no alternative other than to accept the figures given by the Claimants which are actually certified by the site representative of the Respondents and based on the figures jointly arrived at with the Respondents as per Ex-C-16/R-23. The amount involved is Rs.3,19,367.80. We S/Shri T.S. Ratnam and K.V. Guruswami hold that the Claimant is entitled to this amount."

7. The underlined portions of the Award as regards Annexure IV is

again the underlining supplied by me to highlight certain major reasoning.

The reasoning of the Arbitrators is unexceptionable and faultless.

Objections with regard to this Claim in Annexure IV are also therefore

rejected.

8. Claim awarded under Annexure V is a claim which has been very

vehemently and strenuously objected to by the counsel for the petitioner.

OMP 300/1999 Page 10 Once again, before reproducing the relevant portions of the Award, the only

preface I need to give, is that no doubt the contract is a lump sum contract

i.e. for the entire scope of the work, however, the specific number of

joints/meeting points of a small pipe with the big pipe (and on which pipes

insulation was to be done) is especially provided in the scope of the work

under the contract. These meeting points or joints have been given under

two headings of "Tees" and "Flanges/Joints" . It is not disputed that the

claim in question of the respondent in the arbitration proceedings was with

respect to the work pertaining to such joints/meeting points which were

admittedly in excess of the number of joints/meeting points of the pipes as

provided under the contract. The counsel for the petitioner, wanted to argue

that payment for this claim was already covered under Annexures I to III i.e.

in effect he contended that there was a double payment while awarding of

this claim by the Arbitrators under Annexure V. This contention of the

counsel for the petitioner is incorrect, because this argument and contention

is conspicuous by its absence in the entire arbitration record. All that the

counsel for the petitioner relied upon, to support this contention, was some

stray lines in a written submission filed by the present respondent. In my

opinion, this is totally impermissible, because, a few stray lines cannot

surely destroy the very basis and existence of a claim under Annexure V and

which claim has in fact been vehemently pressed in the arbitration

proceedings. The effect of the Award under Annexure V is that for the extra

OMP 300/1999 Page 11 work of insulation done to the additional joints/meeting points of the small

and the big pipes, payment has been awarded by the Arbitration Tribunal.

Once it is admitted that the number of joints/meeting points of the small and

big pipes are more than what is provided under the contract, and which thus

involves extra work and extra cost to the contractor, I fail to understand

how this part of the Award can be objected to. The relevant portions of the

Award dealing with this Claim under Annexure V, and which again I adopt,

read as under:

"7.6 Issue No.4

Whether the work as recorded in Annexure V of the MOM held in the office of the Respondent in New Delhi from 26.10.94 to 15.11.94 purporting to be in respect of Stubs, was executed by the Claimant?

There is no dispute that the work of Annexure V was executed by the Claimants. It has been agreed to by the Respondents by Ex-C-16/Ex-R-23, Ex- R-32.

7.7 Issue No.5

Whether the Claimant is entitled to extra payment for the work, as recorded in the Aforesaid Annexure V, and if so in what amount?

    7.7.1    The Claimant argue:

    a)       that Ex-C-16/R-23 shows that the Respondent is not disputing the fact

that the work represented by Annexure V has been done.

b) that there are no stubs included in the insulation schedule for piping and Equipment (Ex-R-13; PP 240-280)

c) that the argument that just because stubs are not included in the contract, their insulation should be deemed to be included in the scope of the contract, is fallacious as it will mean that any item about which the contract is silent should be deemed to be included in the scope of the contract;

d) that the so called stubs were insulated and included in the final measurements as Tees;

OMP 300/1999                                                                     Page 12
     e)        that as admitted by the respondent in the hearing held on 31 OCT 99,

the so-called stubs were actually branch connections;

f) that the same or similar sizes of the branch connection arbitrarily classified as stubs in Annexure V, 21 months after completion of the work and 9 months after record of final measurements occur as Tees in the insulation schedule (E-R-12/pp 240-290):

g) that this arbitrary nomenclature was acquiesced in by the Claimant only with a view to getting early payment of its long pending dues;

h) that it was never envisaged at that time that payment would not be made for the work represented in Annexure-V

i) that what was envisaged was that billing for the so-called stubs would be done separately;

j) that the respondent‟s contention that it was not bound by the final measurements recorded by its authorized representative at site was perverse;

k) that the co-called stubs would fall under the category of insulated welded Tees as per para 9.2.2 (c) of IS 7413;

l) that the subject contract is governed only by the terms and conditions contained therein and not by any guidelines given in any other document like Ex-R-37 or by any other contract like Ex-R-34 or R- 35;

m) that whatever excess was there in the number of Tees in Ex-C-11 over the number of Tees in the insulation schedule (pp 311-349 of counter statement of facts) have been arbitrarily transferred from the category of Tees to that of stubs without adopting any technical criteria;

n) that in the second sentence of para 9.2.2 (c) of IS 7413, there is no mention of fitting; all that it says is "in case of insulated welded Tee,..... the diameter over insulation of each of the two pipes forming the tee is to be added to overall length".

o) that Ex-C-50 establishes that a Tee joint is a welded joint between two members located approximately at right angles to each other in the form of a „T‟.

p) that a TEE includes both a Tee fitting and also a stub in connection.

q) that the Expert witness Mr. K.Radhakrishnan has supported this contention; he has further stated that there is no authority for the proposition that a branch/Tee connection beyond a certain ratio of

OMP 300/1999 Page 13 D/d (base pipe Ods) or D1/d1 (insulated ODs) should be classified as stubs;

r) that whatever Tees have been categorized in Annexure V as stubs are actually welded Tees coming under the ambit of the provision in the second sentence of para 9.2.2 (c) of IS 7413.

s) that there were several contradictions in the evidence tendered by the Respondent‟s witness Mr. A.K. Bhargave, he had not taken or recorded measurements for insulation in the Rajghat work.

t) that Ex-C-60 establishes that this work was a sump sum order and the contract amount and the billed amount were the same without any deviation.

u) that the two samples of insulated/welded Tees produced by the Claimant (photographs Ex-C-62, C-63 show that the complexity of insulation and effort required depend not on the pipe diameters but on the insulation thickness;

v) that the ratio of the main pipe dia to the branch pipe dia cannot be a deciding factor for determining the complexity of the insulation work and this had been admitted by the witness of the Respondent during cross examination; and

w) that looked at from any payment for the work represented in Annexure V was tenable.

7.7.2 The respondent contends;

a) that the preparation of Annexure V does not create any obligation on the part of the Respondent to pay for the same;

b) that the work represented in Annexure V are neither Tees nor stubs;

    c)      that they were branch connections;

    d)      that they are not fittings;

    e)      that clause 9.2.2(c) is applicable only for T-fittings and not branch
            connections

    f)      that trade practice is not to treat branch lines as Tee fittings and

    g)      that extra payment towards Annexure V is not tenable.

7.7.3 After hearing both the parties and after studying and examining all the relevant Documents, oral evidences and exhibits produced and considering all the aspects involved. S/Shri T.S.Ratnam and K.V.Guruswami have come to the conclusion that the Claimants are

OMP 300/1999 Page 14 entitled to payment for the work covered by Annexure V for the following reasons:

a) The term „stubs‟ attributed to the work in Annexure V is a misnomer.

They were in fact Tee joints of branch connections, as there were in fact no stubs in the entire work of the Contract. What was done was insulation of Tee joints only.

b) The work covered by Annexure V has been included in the final measurements (Ex-C-11) as Tees only.

c) Annexure V has been prepared by simply deducting from the total number of Tees as measured in Ex-C-11, the number of Tees provided in the insulation Schedule (pages 311 to 349 of the Counterstatement) of the Contract and dubbing the balance as Stubs, which is not correct Annexure V therefore represent only the excess number of Tees over the numbers included in the insulation schedule defining the scope of work under the contract.

d) Tees can be formed by either jointing with flanges or by welding a separate Tee piece to the main and branch lines or by directly welding the branch line to the Main line. In both cases, where welding is resorted to the two lines from a Welded Tee.

e) The Respondents are not able to say which of the items constitution welded tees in Annexure V were formed by introducing a Tee piece and which by direct welding It is clear that no distinction was made at the time of final measurements.

f) The Respondents have, in the course of Arbitration proceedings, classified some items in Annexure V, as Tees, based not on whether a separate Tee piece fitting was introduced to form the Tee, but on the relative diameters of the main pipe and the branch pipe. They have taken support for this from Ex-R-37 (Thermal Insulation Handbook). This handbook is of a recommendatory nature, giving guidelines in how to prepare tender documents and how to define Tees in them. This handbook has no application to the contract between the Claimants and the Respondents. The contract stipulates only IS; 7413 (Ex-C-31) as governing the measurements.

g) As per the provisions of IS-7413 and as per the contract, the measurements for the insulations work has to be taken after the completion of the work and over the insulated surfaces, as it is the outside surface of the piping system that is to be insulated.

h) The mechanical procedure or method adopted for forming the Welded Tee, whether by introducing a separate Tee piece fitting or by directly welding the branch pipe to the main pipe, has no relevance to the Insulator, as there is no difference in the outside configuration of the piping to be insulated, whatever be the

OMP 300/1999 Page 15 mechanical procedure or method for making the Welded Tee. The surface areas to be insulated, the configurations of outer surfaces to be insulated in both the cases and the materials and efforts involved are the same in both the cases.

i) The distinction in para 9.2.2© of IS 7413 (Ex-C-31) made between.

Now welded (flanged). Tees and Welded Tees and the provisions for both the types separately in the first and second sentence of the said para are significant in the connection. The occurrence of the provision for welded fees under the head of "Fittings" cannot be taken to mean that the welded tees will not come under the ambit of para 9.2.2 © of Ex-C-31, unless a separate Tee piece fitting has been used. In fact its is significant that this criterion has not been adopted by the Respondents or by their Expert witness. The criterion adopted by them is that according to them, if the branch pipeline is less than half the size of the main pipeline it should not be considered as Tee for the purpose of para 9.2.1 of IS 7413(Ex-C-31). There is some difference in views between the Respondents engineer and their expert witness, as to how much less than the main line size should the branch line size be to come within the above disqualifying limit. The Expert witness, Shri A.K.Bhargava, first said that it should be half and later corrected himself to two sizes lower than half. The Respondents engineer has admitted some items in Annexure V on the basis of the branch line size being one size lower than half the main line size. Both have relied on Ex-R-37 to support their views, but Ex-R-37 is not binding on the contract, as it is not a contractually binding document. Besides, Ex-R-37 is only recommendatory for preparation of tenders for insulation works, it would thus appeal that such classifications are highly subjective and cannot be depended upon. The plain and straightforward meaning of the second sentence of Clause 9.2.2 © of IS-7431 (Ex-C-31) is that any welded. Tee connection, if insulated has to be measured in terms of this provision only.

7.7.4 In view of the foregoing, he answer of S/Shri T.S.Ratnam and K.V.

Guruswami, to the first query under this issue is in the affirmative.

7.7.5 Coming to the second query under the issue, the finally corrected Annexure V, incorporating the comments and corrections pointed out by the Respondents, is at Ex-C-54 (corrected) Ex-C-56 which shows the total value of the work in Annexure V as Rs.42,35,569.25/-. The Respondents have reinstated on this statement some items to the category of Tees and have also worked out the amount payable for these items Ex-R-44. The equivalent lengths of these Tees have been taken, in this statement based on the provisions applicable to flanged fittings (based on the lengths of the fittings) and not as applicable to welded Tees (based on the insulated diameters of both the lines forming the Tee). This is not acceptable in any case the arbitrary classification of Tees and non Tees by the Respondent is not based on IS-7413(Ex-C-31).

OMP 300/1999 Page 16 7.7.6 We S/Shri T.S.Ratnam and K.V.Guruswami, have therefore, come to the conclusion that all the items in Annexure V, as finally corrected (Ex-C-56) are to be considered as welded tees and the calculations of equivalent lengths have to be calculated as per IS-7413 as has been done in Ex-C-56. The rates applicable have already been accepted by the Respondents. The Claimants are therefore eligible for the payment of Rs. 42,35,569.25/- against Annexure V, as per the findings of S/Shri T.S.Ratnam and K.V.Guruswami. The findings of Shri R.Ramachandran are given separately in Appendix „B‟ to this Award."

I have once again underlined certain portions of the Award containing the

important reasoning. With regard to this portion of the Award, subject para

„h‟ is crucial and which rightly holds that nomenclature is not important but

what is relevant and crucial is the fact that there were extra joints and which

called for extra work beyond the scope of the contract.

9. The next issue which has been urged by the counsel for the petitioner

was that in view of the contractual provisions, interest could not have been

awarded by the Arbitrators. The counsel for the petitioner has relied upon

Clauses 6.10.6, 8.16.1 to 8.16.3 of the contract. To appreciate Clause 6.10.6

it is necessary to reproduce the entire Clause 6.10 with its 10 Sub-Clauses

and which read as under:-

        "6.10.0            SECURITY DEPOSIT:

        6.10.1      The successful tenderer within thirty (30) days of written

notice of acceptance of his officer shall give security for 5% of the value of the main order and O&M spares order.

6.10.2 The security can be given either by Demand Draft or through a Bank Guarantee in a proforma to be provided by BHEL.

OMP 300/1999                                                                      Page 17
        6.10.3    If the value of the order/contract done at any time exceeds

the accepted agreement value, the security deposit shall be correspondingly enhanced and the extra security deposit shall be immediately deposited by the Seller or recovered frompayments due to him.

6.10.4 Failure to deposit the security deposit within the stipulated time, may lead to forfeiture of earnest money and concellation of the award of work.

6.10.5 Purchaser reserves the right of forfeiture of security deposit in addition to other claims and penalities in the contractual obligations or in the event of termination of contract as per terms and conditions of contract.

6.10.6 No interest shall be payable by Purchaser on security deposit or on any money due to the Seller by Purchaser.

6.10.7 The Purchaser shall be entitled and it shall be law-ful on his part to forfeit the said security deposit in whole or part in the event of any default, failure, neglect on the part of the seller in fulfilment of or performance in all respects of the contract under reference.

Waival of this clause it not possible even if the supplier is registered with DGS&D.

6.10.8 The security deposit/guarantee shall be renewed by the Seller, whenever it is warranted till the fulfilment of contractual obligations.

6.10.9 The validity for the security/guarantee shall be upto receipt of last consignment completing the equipment at site/erection/commissioning of the same.

6.10.10 The security deposit/guarantee shall be released on production of-

a/ supply completion certificate from the Engineer co-related with the bill of materials.

b/ fulfilment of all other contractual obligations."

OMP 300/1999 Page 18

10. I have very recently had an occasion to consider this very issue in the

judgment titled as Union of India vs. M/s. Chenab Construction Joint

Venture in OMP No. 44/2010 decided on 5th March, 2010 where I have held

that unless the clause which contractually dis-entitles interest is a standalone

and an comprehensive clause barring all claims of interest, it cannot be said

that claims of interest are barred by virtue of a sub-clause in a contract

inasmuch as a sub-clause has to be read with the other sub-clauses forming

part of the same heading. The relevant paragraphs of that judgment are

paras 12 to 14 which read as under:-

"12. The last issue which was urged before this court was that the Arbitrators have erred in awarding interest against the contractual provisions. The counsel for the petitioner has for this purpose relied upon a recent Supreme Court judgment reported as Sayeed Ahmed & Co.Vs. State of U.P. & Ors. 2009 (3) Arb. LR. 29. The relevant clause of the contract before the Supreme Court in Sayeed Ahmed's case reads as under:

"No claim for interest or damages will be entertained by the government with respect to any money or balance which may be lying with the government or may become due owing to any dispute, difference or misunderstanding between the Engineer-in-charge on the one hand and the contractor on the other hand or with respect to any delay on the part of the Engineer-in-charge in making periodical or final payment or any other respect whatsoever."

In the light of the aforesaid clause, which is a comprehensive clause for all the claims under the contract, the Supreme Court held that the contractor is not entitled to interest in the light of the contractual provisions.

The contractual Clause so far as the present case is concerned and which has been relied upon by the counsel for the petitioner reads as under:

"16(2) Interest on amounts- No interest will be payable upon the earnest money or the security deposit or amounts payable to the Contractor under the contract, but Government Securities deposited in

OMP 300/1999 Page 19 terms of sub-clause (1) of this clause will be repayable with interest accrued thereon."

On the basis of the aforesaid Clause 16(2) and the decision in Sayeed Ahmed's case, the counsel for the petitioner has contended that interest should not have been awarded.

13. In my opinion, this contention of the counsel for the petitioner is not a valid contention. This is for the reason that the expression "amounts payable to the contractor under the contract" as occurring in Clause 16(2) is an expression which is necessarily to be read ejusdem generis with the expression of "earnest money" and "security deposit" as found in this very clause. That this expression should be read as ejusdem generis is clarified by Clause 16(1) which is immediately above the Clause 16(2), and which reads as under:

"16(1) Earnest money and security deposit:- The earnest money deposited by the Contractor with his tender will be retained by the Railway as part of security for the due and faithful fulfilment of the contract by the Contractor. The balance to make up this security deposit which will be 10 per cent of the total value of the contract, unless otherwise specified in the special conditions, if any, may be deposited by the contractor in cash or in the form of Government Securities or may be recovered by percentage deduction from the Contractor‟s "on account" bills, provided also that in case of a defaulting contractor the Railway may retain any amount due for payment to the contractor on the spending „on account bills‟ so that the amount or amounts so retained may not exceed 10% of the total value of the contract."

A reading of Clause 16(1) shows that non payment of interest is with respect to the amounts which are withheld either as earnest money or security deposit. The subject Clause 16(1) is not for all amounts under the contract. In the facts of this case, interest which has been awarded by the Arbitrators has nothing to do with the amounts which have been withheld towards the earnest money and security deposit. I therefore reject the contention that no interest was payable on the amounts as awarded by the Arbitrators as the interest awarded does not pertain to earnest money or security deposit amounts.

14. The counsel for the petitioner in addition to the judgment of Sayeed Ahmed's case has relied upon the decision of the Supreme Court in the case of M.B.Patel and Company Vs. Oil and Natural Gas Commission 2008 (8) SCC 251. On a first reading, the clause in M.B. Patel's case appears to be similar to the Clause 16(2) in question, however, the Clause in the case of M.B. Patel is not similar because in the facts of the present case there are two Clauses 16(1) and 16(2) and not only one clause similar to Clause 16(2) as found in the facts of the M.B.Patel's case. In the case of M.B.Patel,

OMP 300/1999 Page 20 the relevant clause was an independent Clause 18 which reads as under:

"18. Interest on amounts:- No interest will be payable on the security deposit or any other amount payable to the contractor under the contract."

In my opinion, the judgment in M.B.Patel's case also will not apply to the facts of the present case. If there is a standalone clause like Clause 18 and which would be equivalent to Clause 16 (2) in the facts of the present case, then, the expression "any other amount payable to the contractor" can be read as meaning all types of amounts payable but, as I have already stated above, in the facts of the present case, the relevant clause is only a sub-Clause 2 of the main Clause 16(1) and therefore, the expression "any other amount payable to the contractor" has necessarily to be read in the context of Clause 16(1) and also to be therefore read ejusdem generis."

11. In my opinion, the reasoning as given in OMP 44/2010 in M/s.

Chenab Construction Joint Venture (supra) case will apply with full force

and effect even to the facts of the present case because Clause 6.10.6 which

is relied upon by the counsel for the petitioner has to be read in the context

and along with the other sub-clauses of Clause 6.10. Clause 6.10.6 has

necessarily to take colour, content and meaning from the other sub-clauses

of the main Clause 6.10.

12. The counsel for the petitioner has sought to differentiate the aforesaid

judgment in OMP 44/2010 in M/s. Chenab Construction Joint Venture by

relying upon an un-reported decision of the Supreme Court in the case of

Civil Appeal No. 7423/2005 titled as B.H.E.L. vs. M/s. Globe Hi-Fabs Ltd.

decided on 12th November, 2009. A reading of this judgment shows that the

Supreme Court interpreted a clause similar to Clause 6.10.6 in the present

OMP 300/1999 Page 21 case as a standalone clause and not as a sub-clause to be read with other sub-

clauses forming part of the main clause. From a reading of the judgment

also it is not clear as to whether the Supreme Court was giving an

interpretation of the clause in the said case although the said clause was only

a sub-clause with the other sub-clauses pertaining to security deposit and

earnest money. Mr. Chandhiok, learned ASG, to differentiate this judgment

has in fact argued that the said judgment would not apply because the

Supreme Court in the said judgment treated the relevant clause as a wholly

independent and standalone clause, which becomes clear from the following

portion of the judgment:

"In the present case we noticed that the clause barring interest is very widely worded. It uses the words „any amount due to the contractor by the employer‟. In our opinion, these words cannot be read as ejusdem generis along with the earlier words "earnest money" or "security deposit".

I have no option but to agree with the contention of Mr. Chandhiok, learned

ASG inasmuch as I do not have the benefit of the pleadings and documents

in the case before the Supreme Court in Civil Appeal No. 7423/2005. The

paragraph reproduced above as relied upon by Mr. Chandhiok, in fact, is

clearly indicative of the fact that the Supreme Court in that case treated the

relevant clause not in the context of other sub-clauses but as an independent

and exhaustive Clause in itself. The Constitution Bench of the Supreme

Court in the judgment reported as Padma Sunder Rao vs. State of Tamil

Nadu (2002) 3 SCC 533 has held that judgment of a Court has not to be

OMP 300/1999 Page 22 read as a statute and even a single different fact between two cases can make

a complete difference so that it can be urged that the ratio of one case should

not apply to the facts of another case. As I have already stated that since the

decision in Civil Appeal No.7423/2005, does not deal with the subject

clause as forming part of a main clause having other sub-clauses, I, in the

absence of pleadings of the said case before me and other contractual

clauses in the said case, feel that the said judgment is distinguishable on the

facts, as compared to the facts of the present case.

13. The penultimate issue which has been urged by the counsel for the

petitioner was that the rate of interest as awarded by the Arbitrator is

excessive and the rate of interest ought not to have been awarded by the

Arbitration Tribunal at 15% and 18% per annum simple. There is merit in

this contention of the counsel for the petitioner. The Supreme Court in the

chain of judgments reported as Rajendra Construction Co. v. Maharashtra

Housing & Area Development Authority and others, 2005 (6) SCC 678,

McDermott International Inc. v. Burn Standard Co. Ltd. and others, 2006

(11) SCC 181, Rajasthan State Road Transport Corporation v. Indag

Rubber Ltd., (2006) 7 SCC 700, Krishna Bhagya Jala Nigam Ltd. v.

G.Harischandra, 2007 (2) SCC 720 and State of Rajasthan Vs. Ferro

Concrete Construction Pvt. Ltd (2009)3 Arb. LR 140(SC) has mandated the

Courts to take note of the consistent fall in the rates of interest in the

changed economic scenario and has directed that the Courts should reduce

OMP 300/1999 Page 23 the high rates of interest as granted by the Award. This Court in view of the

ratio of the aforesaid judgments of the Supreme Court has been consistently

awarding interest at 9% per annum simple. In the facts and circumstances of

the case, therefore, I reduce the rate of interest as granted by the Award from

15%-/18% to 9% per annum simple. I am, however, not changing the period

for which interest has been awarded by the Arbitrator.

14. The counsel for the petitioner lastly urged that the claim pertaining to

escalation awarded by the Arbitrators was not justified because there was no

original reference of the same to the arbitration. The Award deals with

claim and awards the same after duly considering the respective contentions

of the parties and the relevant portion I am reproducing immediately

hereafter. In fact, this issue was framed as a supplementary issue on an

application by the present respondent and which was allowed. The relevant

portion of the Award reads as under:

"7.10 Supplementary issue regarding balance (10%) escalation payment not paid to the Claimants by the Respondent:

7.10.1 The Claimant, during the course of the arbitration hearing, raised the issue of balance amount due towards escalation payable to them under the contract and prayed for adjudication of this claim. It was pointed out by the Tribunal and this did not form a specific claim before it. Accordingly it advised the Claimant to take up the matter directly with the Respondent vide para 10.11 of the proceedings.

7.10.2 The Claimant subsequently moved an application dated 26.5.99 seeking amendment of its plaint. The Claimants followed this up with another letter dated The Claimants stated that they took up the matter with the respondent vide letter dated 25.5.99 but that from the respondent‟s reply dated 14.06.99 (Ex-C 59-1/1) it appeared that the Respondent was not inclined to release the balance escalation payment

OMP 300/1999 Page 24 before closing of the contract and award of the tribunal. The Claimant further stated that it could not understand why the balance 10% payment admittedly due should wait for the award of the Tribunal and that this matter be also taken up for adjudication.

7.10.3 The respondent‟ stand is that the claim is not a subject matter of the present dispute and is not arbitrable. Without prejudice to this position, the respondent submitted that the balance escalation payment has to be as per actual limited to maximum of Rs.2,54,936.52 as per the calculations submitted by them along with their written arguments. They have not worked out the actual amount.

7.10.4.1 We, S/Shri T.S. Ratnam and K.V. Guruswami, have considered the matter carefully. It is seen from the record (Ex-C-30/3) that the 90% of escalation payment has been paid. The balance 10% payment due towards escalation is certainly a matter which arises out of the construction or execution of the subject contract. This payment would normally figure as an item in the final bill, the payment due against which forms claim No.1 of the Claimant it is true that the balance 10% escalation payment does not figure in claim No.1. The Claimants have stated that they presumed that this balance, being admittedly due, would be released by the Respondents, with whom the former had been corresponding independently of this Arbitration (Ex-R-30) but the Respondents have stated that they would make payment only as per the award. The Claimants have submitted evidence to show that as advised by the Tribunal, they took up the matter with the Respondents, who only reiterated their earlier statement that they would make payment only as per the award (Ex-C-59). The Claimants have therefore expressed their apprehension that the matter might drag on indefinitely in view of the respondent‟s attitude and that they might have to seek arbitration again on this issue and this would result in multiplicity of proceedings. The claimants therefore have prayed for taking up this matter also for adjudication. We see considerable sense in this request. The matter certainly is one arising out of the construction or execution of the subject contract it would also have normally figured in the final bill of the claimant, adjudication of which figures in the Claimant‟s letter seeking arbitration (Ex-C-29), on which the reference to the present arbitration is based.

7.10.5 We, S/Shri T.S. Ratnam and K.V. Guruswami accordingly overrule the Respondent‟s objection and allow the amendment of the plaint sought by the Claimant and proceed to pronounce our decision thereof below.

7.10.6 Coming to the amount of the claim, the amount was not disputed till the very close of the Proceedings by the Respondents. They have now come up with some calculations in their written arguments to say that the Claimants are eligible up to an amount of Rs.2,54,936/- and not Rs.5,44,426/-, as claimed by the Claimant. These calculations have been examined and it is found that they are based on the escalation ceiling

OMP 300/1999 Page 25 of 15% for Phase II, which is not correct and should actually be as per Amendment No.III (Ex-R-16). The repugnancy in the wording of this amendment is resolved by reference to the Minutes of the meeting (Ex-C-

64), which is the basis for amendment no. III issued by the Respondents. If 30% PVC ceiling for Phase II is considered, the amount will work out to much higher than Rs.5,44,426/- claimed by the Claimants.

7.10.7 The Respondents have admittedly paid 90% of the escalation bills (Ex-c-30/3). Even working from this amount, the 10% balance due comes to the amount claimed by the claimants.

7.10.8 We, S/Shri T.S. Ratnam and K.V. Guruswami therefore, hold that claimants are entitled to receive an amount of Rs.5,44,425/- from the claimants. The views of Shri K. Ramachadran are given separately in Appendix "B" to this Award."

There is therefore no merit in the objection to the awarding of

escalation, and the same is rejected because I am not inclined to entertain, in

the facts of the present case, a strictly technical objection when otherwise

clearly the escalation was payable and 90% of which was paid, and only the

balance 10% has been given in the Award. Further, I have not been shown

the reference letter/order to hold that this issue has not been referred to

arbitration. Also, it is not that the Arbitrators could not have decided this

issue because they had no inherent jurisdiction inasmuch as/because it was

an excepted matter. Finally I may add that the jurisdiction of the Arbitrators

flows from the Arbitration Clause, and it is not the contention of the counsel

for the petitioner that the dispute as to escalation is beyond the scope of the

Arbitration Clause or that there cannot be determination of the dispute as to

escalation by Arbitrators because the Arbitration Clause requires a specific

reference.

OMP 300/1999 Page 26

15. In view of the above, the objection petition is dismissed with costs of

Rs. 1 lakhs in terms of para 37 of the judgment of the Supreme Court

reported as Salem Advocate Bar Association vs. Union of India, 2005 (6)

SCC 344. In awarding the costs, I have taken note of the financial capacity

of the parties and also the fact that petitioner has got the benefit of the

reduced rate of interest which has been reduced to almost 60%/50% than as

was awarded by the Arbitrators. If possibly this case would have been

decided in 1999 itself when this case was filed, and when the aforesaid

judgments of the Supreme Court reducing the rates of interest were not

applicable, the petitioner would not have got benefit of a reduced rate of

interest and this is also an additional factor considered by me in awarding

the costs. The petition is accordingly disposed of.

                                             VALMIKI J.MEHTA, J


March10, 2010
Dkg/ib




OMP 300/1999                                                          Page 27