Continental Construction ... vs National Hydroelectric Power ...
2010 Latest Caselaw 4747 Del

*                 THE HIGH COURT OF DELHI AT NEW DELHI

+                       CS(OS) No. 2678/1994

%                                                   Date of Decision: 08.10.2010



Continental Construction Ltd.                  ..... Petitioner
                           Through : Mr. Kailash Vasdev, Sr.Adv.
                           with Mr.V.P. Dewan & Ms. Ekta Mehta,
                           Advocates

                                           versus

National Hydroelectric Power Corpn Ltd              ..... Respondent

                                Through : Mr.Anil Dutt & Mr.Shabyashachi Patra,
                                Advocates

                                AND

                        CS(OS)No.2679/1994

Continental Construction Ltd                        ..... Petitioner
                           Through : Mr Kailash Vasdev, Sr.Adv
                           with Mr.V.P. Dewan & Ms. Ekta Mehta,
                           Advocates

                                           versus

National Hydroelectric Power Corpn Ltd              ..... Respondent

                                Through : Mr Anil Dutt & Mr Shabyashachi Patra,
                                Advocates

CORAM :

Hon'ble Mr. Justice Rajiv Shakdher

1. Whether the Reporters of local papers may
   be allowed to see the judgment ?                        No
2. To be referred to Reporters or not ?                    No
3. Whether the judgment should be reported
   in the Digest ?                                         No

Rajiv Shakdher, J. (Oral)

1. The captioned suits have been filed by the plaintiff i.e., Continental Construction

Limited (hereinafter referred to as „CCL‟) to make a common award dated 07.11.1994, a rule

of court. The captioned suits have been filed under Sections 14 and 17 of the Arbitration Act,

1940. In respect of the said award, it may only be noted that in respect of the very same

award, there were two other suits filed by Hindustan Construction Company Limited

(hereinafter referred to as „HCCL‟) and Jai Parkash Associates Private Limited (hereinafter

referred to as „JPAPL‟). In so far as HCCL and JPAPL are concerned, with the consent of the

parties, the award has been set aside and the matter has been referred to a sole Arbitrator for

decision on merits, dehors the issue of admissibility of the claims made by the claimant

companies i.e., HCCL and JPAPL in the light of the provisions of clause 53 of the General

Conditions of the Contract (in short the „GCC‟) contained in the agreement dated 01.10.1985

obtaining between the parties. In the captioned suits, however, CCL has chosen to argue the

matter.

2. Before I proceed further, it would facilitate if the relevant portion of the reference

made to the Arbitrator is extracted:-

".....to decide and make an award only regarding claim for payment of additional percentage on direct cost or labour component for extra items of work-labour mark-up and also required counter claim of national Hydroelectric Power Corporation Limited against the contractor as shown in the statement to follow in any subject always, however, to their admissibility under clauses 53 and 55 of the above said agreement."

3. A bare perusal of the reference made, to the Arbitrator, would show that while

deciding the disputes obtaining between the parties, he had to necessarily decide at the very

threshold whether or not the claims would be admissible in view of the provisions of clause

53 of the GCC.

4. Therefore, a perusal of Clause 53 and 55 of the GCC becomes relevant for the

purposes of the disposal of the captioned suits. For the sake of convenience, the relevant

portions of the said clauses are extracted hereinafter:-

Clause 53:

"Finality Clause - It shall be accepted as an inseparable part of the contract that in matters regarding materials, workmanship, removal of improper work, interpretation of the contract drawings and contract

specifications, mode of procedure and the carrying out of the work as stipulated in the clause Nos.7,8,10,13, 17, 18, 21, 23, 24, 29, 32, 34, 37, 38, 40, 41 & 44, the decision of the Engineer-in-Charge, which shall be given in writing, shall be final and binding on the contractor."

Clause 55:

"Arbitration: Except as otherwise provided, in clause 53 herein before, all questions, disputes or differences in respect of which the decision has not been final and conclusive, arising between the contractor and the corporation, in relation to or in connection with the contract shall be referred for arbitration in the manner provided as under and to the sole arbitrator appointed as follows........"

5. A conjoint reading of clause 53 and 55 of the GCC would show that the matters which

fall in clause 18 of the GCC, amongst others, are excepted from the process of arbitration.

6. The aforementioned factual aspect has not been disputed by the learned counsel for the

parties. It is also not in dispute that the main issue which required resolution by the Arbitrator

was with respect to the interpretation of the provision in the contract obtaining between the

parties, pertaining to determination of rates of extra items, which while forming part of the

said contract exceed 30% deviation limit set in the contract. Thus the clause which the

Arbitrator was required to interpret on merits, was clause 18.2 (iii).

7. Mr. Vasdev who appears for the objector National Hydroelectric Power Corporation

Limited (hereinafter referred to as „NHPCL‟) submits that the award is not sustainable in law

in view of the fact that the learned Arbitrator has not adjudicated upon the admissibility of the

claims of CCL in the light of the provisions of clause 53 of the GCC as required by the

reference made to him. Mr Vasdev contended that the decision of the Engineer-in-Charge in

respect of the matters which were covered by clause 53 read with Section 18 of the GCC were

excepted from the arbitral process. The learned Arbitrator, it was contended, instead of

returning a finding one way or the other has proceeded to take the easier way out by referring

to letters which were exchanged between the parties, in particular, a communication of the

Board of Directors of NHPCL, whereby the matter was referred to a Standing Review

Committee. To buttress his submission, Mr Vasdev referred to a letter dated 04.01.1991

issued by NHPCL to CCL, whereby NHPCL rejected the claim of CCL made on account of

labour mark-up. It was Mr Vasdev‟s contention that in view of the said rejection, CCL by a

communication dated 14.02.1991, after emphasizing the tenability of their claim, sought

reference of the dispute to an Arbitrator in terms of clause 55 of the GCC. It was Mr.

Vasdev‟s contention that therefore, the factum of the rejection of the claim was not in dispute

which is why CCL had sought, a reference of the disputes to an Arbitrator. It was thus

contended that: it was in the background of these circumstances, that on, 08.06.1992 NHPCL

informed CCL since its claim for labour mark-up, in respect of the extra items, had not been

accepted, they could, if they so chose, have the matter referred to Arbitration. In nutshell, Mr.

Vasdev submitted that the Arbitrator was required to determine as to whether or not the

rejection of the claim of CCL by the Engineer-in-Charge had attained finality in terms of

clause 53 of the GCC.

8. Mr. Dutt, on the other hand, contended that the Arbitrator was a lay person, and not an

expert in the field of law. It was his contention that the award would demonstrate that he had

perused the correspondence exchanged between the parties; which led him to come to a

conclusion that NHPCL had given up its stand that the disputes were not referable to an

Arbitrator. According to Mr. Dutt, the issue as regards the admissibility of the claims stood

adjudicated, and hence other findings on merits would have to be examined.

8.1 Mr. Dutt further contended that, in any event, clause 53 of the GCC did not include

labour mark-up, and hence the bar of clause 53 could not have come in the way of the

claimants.

9. I have heard the learned counsel for the parties. Having perused the award, I am of the

view that it is quite clear that a specific reference was made to the Arbitrator to examine the

admissibility of the claims in the light of the provisions of clause 53 of the GCC. The

Arbitrator, therefore, was required to return a finding on that aspect of the matter.

10. This is also evident from the fact that after pleadings were filed by parties, issues were

cast, and one of the issues cast in the matter related to the bar of clause 53 of the GCC. For

the sake of convenience, the said issue is extracted hereinafter :-

"Whether the decision of the Engineer-in-Charge as per Clause 53 is final and binding (OPR) as alleged in para 1 of the preliminary objections in the amended reply."

11. In the background of this issue, the observations made by the Arbitrator, according to

me is not a decision on the issue but a mere narration of facts. The relevant observations of

arbitrator pertaining to this aspect of the matter are extracted hereinafter :-

"VII.5. Though the Engineer-in-charge had not accepted the rate analysis for such items, there was no written final decision by the Engineer-in- charge in terms of GCC clause 53 to which the claimants could be bound. After the representation by the claimants, the issue was reopened and referred by two successive General Managers of the Project to NHPC Corporate Office, duly proposing / recommending a labour mark-up of 80%, as reasonable to cover legal obligations of the Contractor as the existing percentage mark-up of schedule D cannot be considered to cover up the clement of indirect labour component. This recommendation was for a set of Contractors working for the project.

VII. 6. The Corporation Office, realizing the importance of the case, and inspite of the fact that both the Contract Division and Law Section had not agreed for the payment of a separate labour mark-up, appointed a high level Standing Review Committee of five senior officers including Director (Projects) and Director (Finance) which, after detailed investigations and analysis, recommended an increase of 59.77% (labour mark-up) over and above the direct wages paid by the contractor to the labourers (74.715% including Contractual Schedule D percentage of 25%). Even the Contractor‟s representatives were associated with the fixation of the labour mark-up, (and at one stage the claimants CCL had consented to accept the findings of the Committee as final and binding) but the Board of Directors of NHPC did not accept the recommendation and instead decided that the proposal involves a very important principle and any decision thereon would set a precedence for various projects of the Corporation and also to the other organizations. It was therefore decided that the matter may be referred to Arbitration in terms of the Contract Agreement.

VIII.7. It is pertinent to note that the Board of Directors of NHPC did

neither specifically reject the recommendation of the high level Standing Review Committee or observed on its contents. The second rejection letter of the labour mark-up sent to the Contractor also does not refer to the finality clause GCC 53 and GCC 29.13 and does not assert that the Engineer-in-charge‟s decision was final and binding. Moreover, the powers of the Engineer-in-charge in terms of the contract remained diluted because of reference made to the Corporate office by the General Managers of the project.

VIII.8 The rates of the extra items were not decided by the Engineer- in-charge strictly as laid down in GCC 18.2 (iii) and the respondents have not considered in their rate analysis actual labour costs and labour force actually provided by the Contractor for the extra items of work under reference. The contractor‟s labour costs consist of nominal designated wages plus cost of statutory benefits and other expenses he has to incur on labour as dealt with under GCC 29.5 and this is to be taken into account while working out extra item rates. This is also evident from the observations of the two General Managers of the Project and the contents of the Report of the high level Standing Review Committee. Conclusion drawn by the high level Standing Review Committee that work cannot be expected to be done by a Contractor without covering the actual expenses and also giving him a reasonable cover for overheads and profits is relevant both from practicability of the situation and equity.

VII.9. As argued by the respondents NHPC, if the decision of the Enginer-in-charge was final and binding and there was no finality in his decision), the specific matter of labour mark-up need not have to be referred to the Arbitrator, which the Board of Directors has done in its wisdom in the interest of justice and fair play. I do not therefore consider that the dispute constitutes an excepted matter and as such it is arbitrable under clause 55 of the Contract, notwithstanding the stipulations in clause 53 of the contract, which are in any case not strictly and wholly applicable in this case.

VII.10. Moreover, in view of the fact that traditions and usages of construction industry are important factors to be considered while dealing with the works of the type under reference (Reports of the Committee on Cost Control of River Valley Projects is relevant in this connection), particularly as the labour cost has not been specifically defined in the

Contract Agreement and the rates have not been worked out by the Engineer-in-charge strictly as per stipulations in the contract agreement and further not communicated to the contractor suitably and finally, the dispute is arbitrable and thus it is within the jurisdiction of the Arbitrator to adjudicate in the dispute." (the emphasis is mine)

12. A perusal of the observations extracted hereinabove would show that the Arbitrator

was swayed by the fact that the Board of Directors of NHPCL had not specifically rejected the

recommendations of the high level Standing Review Committee. As argued by Mr. Vasdev,

the Arbitrator was required to return a specific finding with regard to the issue cast, that is,

whether or not the decision of the Engineer-in-charge was final and binding, or in the

alternative, as argued by Mr. Dutt, come to a conclusion that the claim made by CCL did not

fall in clause 18.2 (iii). In my view, the Arbitrator has done neither. In these circumstances,

the only conclusion that I could come to, is that, the award would have to be set aside. The

reason for coming to this conclusion is quite simple; which is, that even if on merits, the

Arbitrator had found in favour of the CCL, which he has in the present case; on the issue of

admissibility he could have come to a conclusion in favour of NHPCL. Resultantly, nothing

would have been due to the claimant i.e., CCL. The arbitrator‟s failure to return a clear

finding on issue of admissibility has rendered the exercise nugatory. The argument of Mr

Dutt that the arbitrator is a lay person and hence, the court should look for a finding on the

issue in the observations made by him in the award cannot be accepted. The arbitral process

is set in motion based on the agreement arrived at between parties. The qualifications of an

arbitrator can and do form a part of the agreement. Therefore, once an issue is cast the

arbitrator is required to return a specific finding.

13. Accordingly, in view of the above discussion the award is set aside.

14. At this stage it may also be pertinent to refer to the observations of the Supreme Court

as to the options available to the court once an award has been set aside. The relevant

observations of the Supreme Court in the case of Juggilal Kamlapat vs General Fibre Dealers

Ltd AIR 1962 SC 1123 are extracted hereinbelow:

"8. It is clear from s. 19 that there are three matters which have to be borne in mind in arbitration proceedings. There is first the arbitration agreement. Next comes the reference to arbitration and lastly the award. Section 19 provides inter alia that where an award has been set aside, the court may by order supersede the reference and shall thereupon order that the arbitration agreement shall cease to have effect with respect to the difference referred. The section therefore leaves it to the discretion of the court when it decides to set aside an award, whether to supersede the reference or not. It may not supersede the reference at all in which case though the award may be set aside the reference will continue. But if it supersedes the reference it has also inconsequence to order that the arbitration agreement on the basis of which the reference was made would cease to have effect with respect to the difference referred. It is only therefore when the court orders supersession of the reference that the consequence follows that the arbitration agreement ceases to have effect with respect to the subject matter of the reference. The intention of the legislature in making this change in the consequences to follow the setting aside of an award is clear in as much as the provision recognises that there may be different kinds of arbitration agreements, some of which might be exhausted by the reference already made and the award following thereon which has been set aside while others may be of a more comprehensive nature and may contemplate continuation of the reference relating to the same dispute or successive references relating to different disputes covered by the arbitration agreement. The legislature has therefore given discretion to the court under s. 19 to decide when it sets aside an award what the consequences of its order setting aside the award will be. If the court finds that the arbitration agreement is of the kind which exhausts itself after the first reference is made if it finds on account of the reasons which have impelled it to set aside the award that there should be no further reference of the dispute to arbitration, the court has the power to supersede the reference and thereupon order that the arbitration agreement shall cease to have effect with respect to the difference referred. On the other hand if the court finds that the arbitration agreement is of a general nature and contemplates continuation of the reference with respect to the same dispute or successive references with respect to different disputes arising under the terms of the arbitration agreement it may not supersede the reference with the result that the reference as well as the arbitration agreement on which it is based survives. In such a case there can in our opinion be no doubt, that where the reference and the arbitration agreement survive the same dispute may go

before the arbitrators again provided there is machinery provided in the arbitration agreement which makes this possible. It will thus be seen that the discretion vested in the court under s. 19 depends upon the nature of the arbitration agreement in particular cases and it is on a consideration of those terms that the court may decide in one case to supersede the reference and order the arbitration agreement to cease to have effect after taking into account the reasons which have impelled it to set aside the award and another not to set aside the reference with the result that the reference and the arbitration agreement subsist; and if the arbitration agreement provides for machinery to have further arbitration on the same dispute or other disputes arising under the arbitration agreement it is permissible to have further arbitration on the same dispute or other disputes. The same discretion is given to the court with respect to arbitration under Chap. III of the Act dealing with "arbitration with intervention of a court where there is no suit pending," as s. 20(5) provides that after the arbitration agreement has been ordered to be filed, the arbitration shall proceed in accordance with, and shall be governed by, the other provisions of the Act so far as they can be made applicable. Further we find that the same discretion has been given to the court in the matter of arbitration in suits provided under Chap. IV, as s. 25 provides that "the provisions of the others Chapters shall, so far as they can be made applicable, apply to arbitration under this Chapter." The proviso to s. 25 gives discretion to the court in any of the circumstances mentioned in Sections 8, 10, 11 and 12, instead of filling up the vacancies or making the appointments, to make an order superseding the arbitration and proceed with the suit, and where the court supersedes the arbitration under s. 19 it shall proceed with the suit. The scheme of the Act therefore is whether the arbitration is under Chap. II, Chap. III or Chap. IV, to give discretion to the court to decide whether to supersede the reference or not. Where it decides to supersede the reference it has to order that the arbitration agreement shall cease to have effect with respect to the difference referred; but where it decides not to supersede the reference and the reference and the arbitration agreement subsist and if there is machinery provided in the arbitration agreement for making a further reference or for continuing the same reference, further arbitration can take place. The contention therefore urged on behalf of the appellant that once the award is set aside the arbitrator becomes functus officio and consequently there can be no further reference with respect to the dispute decided by the award which is set aside, must fail in view of the specific provisions of s. 19 of the Act.

9. We have already said that generally speaking, the arbitrator becomes functus officio after he has given the award; but that does not in our opinion mean that in no circumstances can there be further arbitration proceedings where an award is set aside or that the same arbitrator can never have anything to do with the award with respect to the same dispute. Section 13(d), for example, gives power to the arbitrator to correct in an award any clerical mistake or error arising from any accidental slip or omission. Further s. 16 gives power to the court to remit the award to the arbitrator for reconsideration. Therefore, when it is said that the arbitrator is generally functus officio after he has made the award, it only means that he cannot change that award in any matter of substance himself. But that does not take away the court's power to remit the award for reconsideration under s. 16 or to refuse to supersede the reference even though the award is set aside leaving it to the parties to take such further action under the arbitration agreement for further arbitration if it is possible so to do under the terms of a particular arbitration agreement. We are therefore of opinion that whatever may be the position in the absence of a provision similar to s. 19 of the Act there can be no doubt that s. 19 gives power to the court not to supersede the reference and so leave the arbitration agreement effective even when it sets aside award and thereupon it will depend upon the terms of the arbitration agreement whether arbitration proceedings can go on with respect to the same dispute or with respect to some other disputes arising under the arbitration agreement. This was the view taken in the Barangore Jute Factory case. Similar view has been taken in Rallis India Ltd. v. B. V. Manickam Chetti & Co., and in Firm Gulab Rai Girdhari Lal v. Firm Bansi Lal Hansraj. We think that this view is correct." (emphasis is mine)

15. Since I do not propose to supersede the reference, parties are free to take recourse to

remedies available to them, in regard to the matter at hand. Thus, the objections stand

allowed. The captioned suits are disposed of with the aforementioned observations. Parties

to bear their own costs.

OCTOBER 08, 2010                                             RAJIV SHAKDHER, J
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