Delhi High Court
M/S Bhanu Construction Co. ... vs National Thermal Power Corp. Ltd. ... on 18 February, 2011
Author: Rajiv Sahai Endlaw
*IN THE HIGH COURT OF DELHI AT NEW DELHI
Date of decision: 18th February, 2011.
+ CS(OS) No.1998 of 1993
% M/S BHANU CONSTRUCTION CO. PVT.LTD. .... Plaintiff
Through: Mr. Ali Naqvi & Mr. Abhishek
Singh, Advocates.
Versus
NATIONAL THERMAL POWER CORP. LTD.
SINCE SUCCEEDED BY POWER GRID CORP. OF
INDIA LTD. .... Defendant/Objector
Through: Mr. B. Datta, Sr. Advocate with Mr.
R.K. Joshi & Mr. Jyotinder Kumar,
Advocates.
CORAM :-
HON'BLE MR. JUSTICE RAJIV SAHAI ENDLAW
1. Whether reporters of Local papers may
be allowed to see the judgment? No.
2. To be referred to the reporter or not? No.
3. Whether the judgment should be reported No.
in the Digest?
RAJIV SAHAI ENDLAW, J.
1. The suit was registered upon arbitration award dated 22 nd July, 1993
being filed by the arbitrators in this Court. Notice of filing of the award
CS(OS) No.1998/1993
was issued. Objections (I.A. No.4972/1994) under Section 30&33 of the
Arbitration Act, 1940 of the defendant to the award are for consideration.
No objections to the award have been preferred by the plaintiff. Usual
issues were framed on 8 th March, 1995. Synopses of submissions were
filed by the parties. I.A. No.12307/1999 has been filed by the plaintiff
under Section 17 of the 1940 Act contending that Arbitral Tribunal had
sent intimation to the parties also of the filing of the award in this Court;
that the objections to the award ought to have been filed by the defendant
within 30 days from such intimation and not within 30 days of the service
of the notice of filing of the award issued by this Court; that the objections
are liable to be dismissed on this ground only and seeking to immediately
make the award rule of the court. The said application was also directed to
be taken up for hearing along with the objections. However no arguments
on the said application were urged at the time of hearing or in the written
synopsis. The counsels for the parties have been heard on the objections to
the award.
CS(OS) No.1998/1993
2. The disputes and differences arose between the parties out of the
contract for the work of 400 KV Single Circuit Transmission Line from
Cuddapah to Bangalore against Specification No.CC-35-176. The Arbitral
Tribunal comprised of three technical experts with two being nominees of
each of the parties and the third having been nominated by the President of
the Institution of Engineers India in terms of the agreement between the
parties. Both parties filed claims against each other before the Arbitral
Tribunal. The time for making of the award was extended from time to
time; 24 sittings held and a unanimous award announced allowing ten out
of sixteen claims of the plaintiff and disallowing all the claims of the
defendant.
3. Objections to the award running into 67 pages have been preferred
by the defendant. It is pleaded that the work was to be completed by 1 st
January, 1985; however the progress of the work from the very beginning
was not commensurate with the Bar chart/work programme agreed upon
under the contract; that the plaintiff did not accelerate the progress of the
work inspite of repeated reminders of the defendant; on the contrary the
CS(OS) No.1998/1993
plaintiff requested for financial assistance and the defendant though not
bound to, agreed to and advanced monies on the condition that the same
shall be paid directly to the producers and suppliers nominated by the
plaintiff and the plaintiff shall furnish bank guarantee for equivalent
amount to the defendant; that the plaintiff still delayed the completion even
beyond the extension of 13 months, causing huge loss to the defendant;
that resultantly some part of the work was off-loaded from the scope of the
work of the plaintiff and awarded at the risk and cost of the plaintiff to M/s
Best & Crompton on 15th July, 1985; that the plaintiff could not improve
the progress of the remaining work inspite thereof; that resultantly some
more work was off-loaded on 15th November, 1985, again to M/s Best &
Crompton with the consent of the plaintiff; that the plaintiff could complete
the work only on 30th June, 1986 and sought extension of time for
completion till 31st August, 1986. It is further pleaded that the plaintiff
while filing claims before the Arbitrators, preferred new claims (i.e. 17 to
25) and which were not raised earlier and for which the Arbitral Tribunal
CS(OS) No.1998/1993
had not been constituted; that upon objection being taken by the defendant,
the Arbitral Tribunal also held the said claims to be beyond its jurisdiction.
4. The senior counsel for the defendant has at the outset contended that
the award is liable to be set aside (i) because two claims have been allowed
on equity inspite of finding the claims to be contractually impermissible;
(ii) The Arbitral Tribunal has itself given extension of time for completion
of work and which was beyond its jurisdiction; (iii) inspite of the letter of
the plaintiff that it will not claim any escalation, allowed the claim for
escalation; (iv) claims have been allowed inspite of finding under Issue
No.15 of there being no proof; (v) allowed interest at the high rate of 18%
per annum which itself runs into crores of rupees.
5. The senior counsel has thereafter made submission claim-wise.
6. Claim No.I of the plaintiff of `.18.623 lacs for reimbursement of
extra expenditure for vetting the designs by a foreign company has
been allowed for `6.18 lacs.
The Arbitral Tribunal found that though collaboration with a specific
foreign party was not envisaged in the invitation to tender, in the bid or
CS(OS) No.1998/1993
even in the extensive post bid and pre-award correspondence but the
defendant had prevailed upon the plaintiff to qualify themselves by suitable
collaboration. However the Arbitral Tribunal in para 52.1.3 of the award
agreed with the defendant that the collaboration was not under duress as
pleaded by the plaintiff. It was however held that since the defendant had
reaped the benefit of access to diversified foreign know-how in design, it
was liable to pay 50% of the foreign exchange expenditure incurred by the
plaintiff in this regard i.e. `6.18 lac and which has been awarded to the
plaintiff.
7. The senior counsel for the defendant has argued that the plaintiff
cannot possibly be entitled to expenditure incurred by it for being eligible
to bid or to enter into the contract with the defendant and in the face of the
finding that the defendant had not so compelled the plaintiff, the award for
`6.18 lac is bad. It is further contended that the contract was an item rate
contract and there is no item providing for the said claim; that the Arbitral
Tribunal under Issue No.10 has held that contractually the expenditure is
not reimbursable but has sought to justify the claim by holding that neither
CS(OS) No.1998/1993
of the parties at the time of award of the work were aware of the
implications of adopting U.S. practice in carrying out the design and since
there were difficulties and delays in obtaining release of foreign exchange
and different practices in working out L/R ratio etc.; in equity, extra
expenditure is to be considered for reimbursement in the relevant context.
It is yet further shown that the Arbitral Tribunal under Issue No.29 held
that the plaintiff did not possess the qualifying requirement as per NIT
when it made the offer and became qualified only in March, 1982 when
entered into the foreign collaboration and owing whereto the work was
awarded to them. It is further shown that under Issue No.31 the Arbitral
Tribunal has held that the plaintiff was contractually obliged to furnish to
the defendant designs duly vetted by the foreign collaborators.
8. Per contra, the counsel for the plaintiff has contended that once an
award is found to be fair and honest and not based on unsound legal
proposition, the Court should not sit in appeal over it and no case of
misconduct can be said to be made out. Reliance is placed on U.P. State
Electricity Board v. Pateshwari Electricals and Associated Industries (P)
CS(OS) No.1998/1993
Ltd. 1991 (Supp) 2 SCC 718 to contend that the Arbitrator can award any
compensation/claim on the basis of equity. Reliance is also placed on
Section 70 of the Indian Contract Act, 1872 to contend that it itself is an
equitable law and its scope is much larger than the principle of quantum
meriut as explained in Food Corporation of India v. Vikas Majdoor
Kamdar Sahkari Mandli Ltd. (2007) 13 SCC 544.
Reliance is also placed on:-
a) Ispat Engineer and Foundry Works v. SAIL (2001) 6 SCC 347
(paras 3,4&5);
b) Pure Helium India Pvt. Ltd. v. Oil & Natural Gas Commission
(2003) 8 SCC 593 (paras 19,20,22,23,25,27,31,32,33&36);
c) N. Chellappan v. Secretary, Kerala State Electricity Board
(1975) 1 SCC 289 (paras 11,12&13);
d) State of UP v. Allied Constructions (2003) 7 SCC 396 (para 4);
e) Smt. Santa Sila Devi v. Dhirendra Nath Sen AIR 1963 SC 1677
(paras 10&13);
CS(OS) No.1998/1993
f) Goa, Daman & Diu Housing Board v. Ramakant V.P.
Darvotkar AIR 1991 SC 2089 (para 12);
g) Food Corporation of India v. Joginderpal Mohinderpal Singh
AIR 1989 SC 777 (paras 7,8 & 10);
h) Coimbatore Dist. P.T. Sangam v. Bala Subramania Foundry
AIR 1987 SC 2045 (para 7);
i) Vikas Majdoor Kamdar Sahkari Mandli Ltd. (supra) (para
5,11,16,19,20 & 21);
j) K.N. Sathyapalan v. State of Kerala (2007) 13 SCC 43
(distinguishes Alopi Parshad & Sons Ltd. v. UOI AIR 1960 SC
588) - (paras 5,6,11,14,15,16,17,18,24,25,26,27 & 31);
k) Civil Engineers (India) v. DDA 60 (1995) DLT 26 (para 6);
l) MCD v. Jagan Nath Ashok Kumar (1987) 4 SCC 497 (paras
2,3,4,5 & 6);
CS(OS) No.1998/1993
m) Arosan Enterprises Ltd. v. UOI (1999) 9 SCC 449 (paras
1,13,14,15,21,24,26,27 & 39).
n) Sudarsan Trading Co. v. Govt. of Kerala (1989) 2 SCC 38
(paras 28,29 &30).
9. The settled position in law is that an Arbitral Tribunal is a creature
of the agreement. Reference in this regard may also be made to -
(a) Rajasthan State Mines & Minerals Ltd. v. Eastern Engineering
Enterprises (1999) 9 SCC 283;
(b) Steel Authority of India Ltd. v. JC Budharaja, Govt. & Mining
Contractor (1999) 8 SCC 122;
(c) Grid Corporation of Orissa Ltd. v. Balasore Technical School
(2000) 9 SCC 552; and
(d) Ramnath International Construction (P) Ltd. v. UOI (2007) 2 SCC
453.
CS(OS) No.1998/1993
The Arbitral Tribunal cannot award beyond the agreement. Once the
Arbitral Tribunal had concluded that under the contract the plaintiff was
not entitled to the expenses incurred on foreign collaboration, the Arbitral
Tribunal had no jurisdiction to allow the said claim for the reason of the
defendant having benefited therefrom. Moreover once it was found that the
plaintiff, to be eligible to enter into the contract, was required to have a
foreign collaboration, the senior counsel for the defendant is correct in
contending that the expenses for becoming eligible could not be claimed. I
have therefore no hesitation in allowing the said objection and in setting
aside of the award in so far as allowing Claim No.I of the plaintiff for
`6.18 lacs.
10. The Claim No.II of the plaintiff for `50.86 lacs towards
reimbursement of extra expenditure incurred on account of difference
in weight of fabricated tower parts and bolts & nuts i.e. difference
between the actual weights and those as per LOA has been allowed for
`10.40 lacs.
It was the case of the plaintiff that the foreign collaborator while
following the defendant's specifications worked out the L/R ratio
according to the practice prevailing in America - had Indian design
CS(OS) No.1998/1993
practice been followed, there would have been a reduction in the tower
height; owing thereto excess expenditure had to be incurred and which the
plaintiff computed to be of 319 tonnes costing ` 50.86 lacs. The defendant
though admitted increased weight owing to the US practice having been
followed, contended that they had nothing to do with it. The Arbitral
Tribunal without giving any reason under Claim No.II as to why the
plaintiff was entitled to the said amount assessed extra weight and the
expenditure incurred thereon to be of ` 10.40 lacs which were awarded to
the plaintiff.
11. The senior counsel for the defendant has drawn attention again to the
finding of the arbitrators on Issue No.10 holding that contractually the
extra expenditure incurred is not reimbursable and the finding on Issue
No.13 to the effect that the design was to be made by the plaintiff in
collaboration with the foreign party and the plaintiff was liable to execute
the work at quoted rates. It is shown that the basis of the price payable
under the contract was per tower basis and no claim for extra expenditure if
CS(OS) No.1998/1993
any incurred by the plaintiff in designing and manufacturing the tower
could be claimed.
12. The arguments of the counsel for the plaintiff in opposition are the
same as in the case of Claim No.I above.
13. I am of the opinion that the award of `10.40 lacs under Claim No.II
is not only inconsistent to the findings under Issues No.10&13 but again
beyond the agreement and thus the said award also cannot be sustained and
is set aside. The Apex Court decision in Union of India v.
Pundarikakshudu & Sons (2003) 8 SCC 168 is also an authority on the
proposition that arriving at inconsistent findings as regards breach of
contract is a legal misconduct.
14. Claim No.III of the plaintiff for `2.04 lacs towards
reimbursement of extra expenditure incurred on excavation and
concreting has been allowed for `51,000/- .
It was the case of the plaintiff itself that excess work was caused
owing to intervention of U.S. practice. The arbitrators for the same reasons
CS(OS) No.1998/1993
as for Claim No.II, scaling down the amount of the claim, awarded
`51,000/-.
15. The arguments of the counsels with respect to the said claim are the
same as with respect to Claim No.II. The award for Claim No.II having
been set aside, the award of `51,000/- under Claim No.III has to
necessarily go.
16. Claim No.IV of `52.92 lacs for balance amount payable towards
price variation i.e. difference of the amount entitled to and actually
paid has been allowed for `49.86 lacs.
The Arbitral Tribunal held that the date of completion was 1 st
January, 1985; owing to prevailing conditions the same was extended till
31st January, 1986; that the defendant however withheld further extension
to pressurize the plaintiff into completion; that subsequent evidence and
behaviour of the parties justified extension of the completion period up to
30th June, 1986 and the insistence of the defendant for completion by 31st
January, 1986 was not justified. On the said basis price variation was
allowed and the claim of ` 49.86 lacs accepted.
CS(OS) No.1998/1993
17. The senior counsel for the defendant has with reference to Clauses
22.3, 22.4.3, 13.7 of the GCC Volume-I and Clause 6 of Letter of Award
dated 31st March, 1982 contended that no escalation was payable for the
period of time between the scheduled date of shipment and the actual date
of shipment. Attention is next invited to the finding returned under Issue
No.12 holding the off-loading of part of the work as justified and the
targets given being very high and incapable of performance. It is argued
that the Arbitral Tribunal cannot re-write the contract or extend time of
performance of the contract. It is also argued that once the targets had been
agreed to, the question of arbitrators holding the same to be high did not
arise. It is argued that there is no calculation or formula or basis given for
arriving at the figure of `49.86 lacs awarded. It is urged that the price
variation granted is for the extension allowed from 1st February, 1986 to
30th June, 1986. It is also urged that while on the same evidence Claim
No.V also on account of price variation has been rejected, Claim No.IV has
been allowed. Attention is also invited to the finding under Issue No.15
where the risk between the owner and the contractor was directed to be
CS(OS) No.1998/1993
borne in the percentage of 60% by the defendant and 40% by the plaintiff.
It is argued that even if the Claim No.IV were to be allowed, there is no
reason why the entire burden has been put on the defendant and at least
40% not directed to be shared by the plaintiff.
18. The counsel for the plaintiff has argued that the findings of the
arbitrators with respect to the time for performance cannot be interfered
with. Reliance in this regard is placed on:-
i. Jagan Nath Ashok Kumar (supra);
ii. Arosan Enterprises Ltd. (supra);
iii. McDermott International Inc. v. Burn Standard Co. (2006)
11 SCC 181 (paras 86,87 &88)
iv. J.K. Industries Ltd. v. Texmaco Ltd. MANU/DE/1314/2009
v. Hind Construction Contractors v. State of Maharashtra
(1979) 2 SCC 70 (paras 7,8,9 & 10).
CS(OS) No.1998/1993
19. Though I agree with the contention of the plaintiff that the findings
regarding time of performance returned in the award are not to be
interfered but I am unable to find any reason in the award for allowing the
claim for `49.86 lacs. The award does not state that the defendant had
admitted the said claim, for there being no need for the plaintiff to prove
the same. The award does not even state as to how and in accordance with
which formula price variation has been worked out.
20. It is also not the case that the arbitrators were required to give a non-
speaking award. The arbitrators are required to give reasons and not
finding any reason whatsoever for allowing the claim in entirety of `49.86
lacs, there is no option but to set it aside.
21. Claim No.VI of `11,29,711/- was for refund of amount
recovered unjustly on account of off-loading portion of the work of
tower erection and stringing to M/s Best & Crompton.
The said claim has been allowed in entirety for the findings under
Issue No.12 i.e. of the targets set being high.
CS(OS) No.1998/1993
22. It is undisputed that the work was off-loaded with the consent of the
plaintiff and at the cost and risk of the plaintiff. Once that was so, the
reasoning of the arbitrators that the targets were high and incapable of
achievement is nothing but misconduct. The arbitrators again have entered
into the arena of changing the contract between the parties and of which
the Arbitral Tribunal being itself a creature of the contract, could not have
done. Once the plaintiff had agreed to the targets, it did not lie in the mouth
of the plaintiff to plead that the targets were unrealistic or beyond
achievement. The plaintiff could have been relieved of the said targets only
on the ground of a contributory failure on the part of the defendant. That is
not the case here. Without that being the case, the defendant was justified
in deducting from the amounts due to the plaintiff the extra amount
incurred by it in off-loading part of the work to M/s Best & Crompton at
the risk of the plaintiff. The award against Claim No.VI is also accordingly
set aside.
CS(OS) No.1998/1993
23. Claim No.VII of `.20.46 lacs for reimbursement of extra
expenditure incurred on extra cut points for single and double circuits
of the transmission line has been allowed for `13,81,000/- .
The defence of the defendant to the said claim was that such
variation was a normal feature. The Arbitral Tribunal found the variation to
be against the industry norm and assessed in Appendix-12 to the award the
amount to which the plaintiff was entitled to on this account at
`13,81,000/-.
24. The senior counsel for the defendant has argued that the arbitrators,
for allowing the said claim have relied on their own professional
experience in the matter and also claimed to have consulted practicing
professionals in the field. It is argued that neither any notice of the same
was given to the defendant nor the defendant given any opportunity to
cross examine the said professionals. From the Tender documents/contract
it is shown that there is no mention of cut points. It is thus urged that no
award for additional work for excess cut points could have been made.
CS(OS) No.1998/1993
25. I am unable to agree. The parties had chosen technical persons as
their own nominees as arbitrators and had entrusted the appointment of the
third arbitrator also to an expert body. The appointment of such experts
was not without reason. The parties understood that the adjudication
required expert knowledge possessed by the Arbitral Tribunal and relied on
that for making of the award. The defendant cannot now be heard to state
that such experts ought not to have used their knowledge and expertise in
the field. The Division Bench of this Court in Em & Em Associates Vs.
DDA AIR 2003 Delhi 128 has held that the modern tendency especially in
commercial arbitrations is to uphold the awards of skilled persons that the
parties themselves have selected. Similarly the consultation by the
arbitrators with professionals currently in the field also cannot tantamount
to misconduct. The arbitrators though experts were no longer in active
practice. No error can be found in their re-assuring themselves that their
knowledge/expertise had not been outdated and as to the prevalent norms.
The arbitrators were not required to involve the parties or to give an
opportunity of cross examination qua the said consultation. The arbitrators
CS(OS) No.1998/1993
have in Appendix-12 given the reasons for arriving at the awarded amount
of `13,81,000/-. Thus the objections qua award on Claim No.VII are
without any merit and are dismissed.
26. Claim No.IX of `15.03 lacs for reimbursement of extra cost
incurred in fabricating extra tonnage of tower parts has been allowed
for `9 lacs.
It was the admitted position that in the exigencies and urgencies of
the project the plaintiff was required to carry out the said work. The
arbitrators as aforesaid had apportioned the said liability as 60% of the
defendant and 40% of the plaintiff. There does not appear to have been any
dispute of the amount spent in the same. The arbitrators accordingly
apportioned the liability of the defendant as 60% i.e `9 lacs.
27. The senior counsel for the defendant has argued that the said claim is
the same as Claim No.II (supra). I am unable to agree. The said claim was
not on account of the American design but owing to extra cost admittedly
incurred owing to exigencies and urgencies of the project.
CS(OS) No.1998/1993
28. The senior counsel has next argued that the arbitrators have
overlooked the contention of the defendant, of the plaintiff under the
contract being required to take out insurance against such risks. Attention
is invited to the terms of the contract in this regard. It is also argued that
the award is in ignorance of the pleadings. It is thus contended that the
responsibility for the risk was to be solely of the plaintiff and 60% thereof
could not have been saddled on the defendant.
29. The courts have held that merely because an arbitrator has wrongly
construed a contractual provision is no ground for setting aside of the
award. When the parties agree to refer their disputes to arbitration they are
bound by the interpretation by the Tribunal of the terms of the contract
whether right or wrong. Reference in this regard can be made to -
(a) Hindustan Construction Co. Ltd. v. State of J&K (1992) 4 SCC
217;
CS(OS) No.1998/1993
(b) Himanchal Pradesh State Electricity Board v. R.J. Shah & Co.
(1999) 4 SCC 214 .
If such grounds were to be permitted, then the jurisdiction exercised in the
matter of the perversity would be appellate and which the legislature has
not provided for. A case for interference is made out only when perversity
is shown. I am unable to find any element of perversity in the award qua
Claim No.IX. The objections of the defendant to the award under the said
claim are accordingly dismissed.
30. Claim No.XII for `124.21 lacs towards extra expenditure
incurred on overheads beyond the stipulated agreement period has
been allowed for `23 lacs.
While it was the contention of the defendant that the delays beyond
1stJanuary, 1985 were attributable to the plaintiff and thus the plaintiff
should bear the entire costs in full, the plaintiff attributed the delays to the
defendant. The Arbitral Tribunal in view of the finding aforesaid that
insistence by the defendant on completion by 31 st January, 1986 was not
justified, and further in view of the finding that the plaintiff after 31st
CS(OS) No.1998/1993
January, 1986 repeatedly promised performance to agreed levels and then
repeatedly failed, held that both parties should share the overheads equally.
The Arbitral Tribunal computed the overheads for 18 months of delay i.e.
from 1st January, 1985 to 30th June, 1986 at `44.34 lacs and accordingly
passed an award for half of that amount i.e. `22.17 lacs say `23 lacs as
aforesaid.
31. The senior counsel for the defendant has argued that the heading of
the claim itself shows that the claim is de hors the contract. It is contended
that the said claim again amounts to re-writing of the contract by the
arbitrators. Reliance is placed on:-
1) Rickmers Verwaltung GMBH v. Indian Oil Corporation Ltd.
1999(1) SCC 1 (para 13);
2) Asstt. Excise Commissioner v. ISSAC Peter 1994(4) SCC
104;
3) Shin Satellite Public Co. Ltd. v. Jain Studios Ltd. (2006) 2
SCC 628 (para 15);
CS(OS) No.1998/1993
4) Forbes Gokak Ltd. v. Central Warehousing Corporation 2003
(1) RAJ 200 (Del) (paras 50,51).
32. It is further urged that though in para 35.1 the arbitrators have held
that the damages for respective breaches have to be arrived at on the basis
of actual loss sustained, in paragraphs 52.12.2, "in the absence of hard
unchallengeable evidence" assessment has been made on rough estimates.
It is thus argued that the award is without any basis. Claiming
inconsistency and relying on:-
1) K.P. Poulose v. State of Kerala AIR 1975 SC 1259;
2) V.G. George v. Indian Rare Earths Ltd. AIR 1999 SC 1409 ;
3) Bombay Ammonia Pvt. Ltd. v. UOI AIR 1987 Delhi 148,
setting aside of the award is sought.
33. Reliance is also placed on:-
A. Sikkim Subba Associates v. State of Sikkim (2001) 5 SCC
629;
B. Bombay Ammonia Pvt. Ltd. (supra)
CS(OS) No.1998/1993
to contend that award without evidence is liable to be set aside.
34. It is yet further pleaded that the contract period having been
extended from 1st January, 1985 to 31st January, 1986, no overhead for the
said period in any case could have been awarded. Attention is also invited
to para 52.12.2 (a) of the award where it is recorded that the PV formula
applied by the arbitrators comprised of overheads also.
35. Per contra, the counsel for the plaintiff has contended that the
arbitrators having recorded that full and fair opportunity had been given to
the parties, no case for misconduct can be said to have been made out.
Reliance is also placed on paras 85 to 88 of McDermott International Inc.
(supra) to contend that time is not of the essence in construction contracts.
Attention is invited to the letter dated 3rd September, 1984 listing delays
attributable to the defendant and to the bid proposal to show that the prices
were valid for six months. It is contended that all specifications were as per
Indian standards and arbitrators having returned a factual finding of
CS(OS) No.1998/1993
American standards having been used and the defendant having benefitted
therefrom, there is no defect capable of interference in the award.
36. The senior counsel for the defendant has rejoined by drawing
attention to para 108 of the judgment in McDermott International Inc. to
contend that in that case also the Ld. Arbitrator had insisted that sufferance
of actual damages must be proved by bringing on record books of
accounts.
37. Having held the extension of period of performance from 1 st
February, 1986 to 30th June, 1986 by the arbitrators to be bad, the award
awarding overheads for the said period has to be axiomatically set aside.
The question which arises is whether the award for the period 1 st January,
1985 to 31st January, 1986 requires interference or not. Need is not felt to
go into the said question since from the award as it stands, the amount
awarded of `23 lacs cannot be segregated. Thus the entire award under
Claim No.XII has to be set aside.
CS(OS) No.1998/1993
38. I am also of the opinion that no award could have been made on
"imponderables and rough estimate" admittedly used by the arbitrators.
The PV formula used of 25% was for the fixed elements "including"
overheads and not overheads alone. There is no basis whatsoever for the
arbitrators assuming that overheads formed 50% of the fixed elements.
Similarly, the other formula adopted was also on estimates. The arbitrators
failed to render an award of the claim on merits and to return a finding on
whether the claim of the plaintiff of overheads of `124.21 lacs was
established or not. The only conclusion which follows is that the plaintiff
had failed to establish the claim. The arbitrators instead of dismissing the
claim tried to make out a new case and which is not permissible in law.
39. Claim No.XIII of `.3.40 lacs towards reimbursement of extra
expenditure incurred in furnishing bank guarantee beyond the
stipulated agreement has been allowed for ` 1,51,526/-
The said amount was claimed by the plaintiff for expenses incurred
in furnishing Bank Guarantee beyond the originally stipulated completion
date of 1st January, 1985. The arbitrators on the basis of finding that both
CS(OS) No.1998/1993
parties were equally to blame for the delays awarded half of that amount
i.e. `1,51,526/-.
40. The senior counsel for the defendant has contended that as per the
contract the plaintiff was bound to keep the Bank Guarantee alive for a
period of 15 months from the original date of completion; that the plaintiff
had completed the line on 30 th June, 1986 and as such was bound to keep
the bank guarantee alive in any case till 30 th September, 1987 and thus the
claim for expenses incurred could not have been allowed. The counsel for
the plaintiff has again contended that the findings are factual in nature not
capable of interference. The senior counsel for the defendant also invited
attention to statement XIII A giving the computation of the amount of
`3.40 lacs claimed by the plaintiff. It is shown that though the claim was in
respect of contract performance guarantee only but the amount claimed
included expenses of other guarantees also and with respect to which no
claim was made.
CS(OS) No.1998/1993
41. The counsel for the plaintiff has not argued that the objections now
raised by the defendant did not form the defence of the defendant to the
claims before the arbitrators. The award is completely silent with respect to
the defences of the defendant. I find the arbitrators to have misconducted
themselves in not adjudicating the dispute raised before them and in not
even considering the pleas of the defendant. The award is liable to be
dismissed on this ground alone.
42. The Arbitral Tribunal has awarded interest (i) at 18% per annum pre
reference amounting to ` 25,07,436/-, (ii) at 18% per annum pendente lite
from the date of reference i.e. 20 th June, 1988 to the date of award and also
(iii) at 18% per annum from the date of the award i.e. 22 nd July, 1993 till
the date of actual payment or date of decree whichever is earlier.
43. The senior counsel for the defendant has contended that the award
of pre reference interest is contrary to the Interest Act, 1978; it is urged
that the notice claiming interest as mandated by Section 3 (b) of the
Interest Act, 1978 was given only on 15 th November, 1987 and thus
CS(OS) No.1998/1993
interest prior thereto could not have been awarded. Reliance in this regard
is placed on Superintending Engineer v. B. Subba Reddy AIR 1999 SC
1747. Objection is also taken to the rate of interest awarded claiming it to
be highly excessive. Lastly, it is contended that no interest could have been
awarded for the period for making the award Rule of the Court. Reference
in this regard is made to Section 29 of the Arbitration Act, 1940.
44. I am unable to, in exercise of jurisdiction under Sections 30&33 of
the 1940 Act find a ground for interference with the award of interest for
pre reference period. The Supreme Court recently in Sree Kamatchi
Amman Constructions v. Railways (2010) 8 SCC 767 relying upon the
Constitution Bench judgment in Dhenkanal Minor Irrigation Division v.
N.C. Budharaj (2001) 2 SCC 721 held that the arbitrator has the
jurisdiction to award interest pre-reference, pendente lite and future if there
is no express bar in the contract regarding award of interest. No such bar
has been shown in the present case. As far as award of interest pendente
lite is concerned also, in view of the judgments in (a) M/s. Manalal
Prabhudayal v. Oriental Insurance Co. Ltd. AIR 2006 SC 3026;
CS(OS) No.1998/1993
(b) Bihar Sponge Iron Ltd. (BSIL) v. Rail India Technical & Economic
Services Ltd. 132 (2006) DLT 489 (DB); (c) MMTC Ltd. v. Sineximco
Pte. Ltd. 2009 (V) AD (Del.) 748; (d) Union of India v. Saraswat
Trading Agency JT 2009 (9) SC 648 and (e) Sayeed Ahmed & Co. v. State
of U.P. (2009) 12 SCC 26, interference with rate awarded is
impermissible. Section 29 of the Act only empowers the Court to award
interest from the date of the decree to the date of payment. However the
fact remains that the proceedings for making the award Rule of the Court
have remained pending in the Court for an unusually long time. On
account thereof only, it is deemed appropriate to balance the equities. The
Supreme Court in (i) Pure Helium India (P) Ltd.(supra) (ii) Krishna
Bhagya Jala Nigam Ltd. v. G. Harish Chandra Reddy (2007) 2 SCC 720
and (iii) U.P. Coop. Federation Ltd. v. Three Circles (2009) 10 SCC 374
has reduced the rate of interest from 18% per annum. In the facts and
circumstances of the case, it is deemed expedient to vary the rate of
interest from the date of filing of the award in this Court and till this date
from 18% per annum to 10% per annum. The plaintiff shall also be entitled
CS(OS) No.1998/1993
to interest from the date of the decree till the date of payment at 10% per
annum.
45. In so far as the counter claims of the defendant are concerned, the
senior counsel for the defendant has made submissions only with respect to
the rejection of the Counter Claim No.V of ` 22.99 lacs for liquidated
damages. The Arbitral Tribunal has rejected the said counter claim of the
defendant on account of the defendant being equally responsible for the
delays.
46. The finding of the Arbitral Tribunal of the defendant also being
responsible for delay, is a finding of fact and cannot be interfered with in
exercise of jurisdiction under Sections 30 & 33 of the Act. No merit is
therefore found in the objections of the defendant to the rejection of the
said counter claim. The said objection is accordingly rejected.
47. No other arguments have been raised.
CS(OS) No.1998/1993
48. The award as modified hereinabove is accordingly made Rule of the
Court and a decree in terms thereof is passed as aforesaid. The plaintiff
shall be entitled to interest on the principal amount from the date of the
decree till the date of payment @10% per annum. No order as to costs.
RAJIV SAHAI ENDLAW
(JUDGE)
FEBRUARY 18th, 2011
pp..
CS(OS) No.1998/1993
