Mecon Ltd. vs Pioneer Fabricators P. Ltd.
2012 Latest Caselaw 3245 Del

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*     IN THE HIGH COURT OF DELHI AT NEW DELHI

%                      Judgment Reserved on : April 30, 2012
                     Judgment Pronounced on: May 15, 2012

+                      FAO(OS) 89/2008

      MECON LTD.                          ..... Appellant
          Represented by: Mr.S.K.Taneja, Senior Advocate
                         instructed by Mr.Rajesh Gupta,
                         Mr.Puneet Taneja and
                         Mr.Amrit Anand, Advocates.

                              versus

      PIONEER FABRICATORS P. LTD.          ....Respondent
           Represented by: Mr.Raman Kapur, Senior Advocate
                           instructed by Mr.Aviral Tiwari and
                           Mr.Dhiraj Sachdeva, Advocates.


       CORAM:
       HON'BLE MR. JUSTICE PRADEEP NANDRAJOG
       HON'BLE MR. JUSTICE SIDDHARTH MRIDUL


PRADEEP NANDRAJOG, J.

1. Mecon Ltd. invited offers as per tender documents to construct five retail outlets for Indian Oil Corporation Ltd. It was a case of a back to back contract. The Bill of Quantities i.e. works to be executed were quantified in detail and the price bid required item-wise price to be quoted. Pioneer Fabricators Pvt. Ltd. (hereinafter referred to as „Pioneer‟) was one amongst the many persons who submitted offers and being the lowest bidder had its offer in sum of `2,38,92,519/- accepted, resulting in a work order dated May 31, 2000 being

issued to it. It was a term that the work plan shall be finalized and accordingly, styling it as a Letter of Award, on June 13, 2000 the parties finalized in the said written memorandum the detail work-plans to complete the work, and as per which the time within which the work had to be completed at the five sites was fixed at 80 days commencing from the date when a particular site would be handed over. The Letter of Award dated June 13, 2000 clearly recorded that the bid quoted pertained to works to be executed as per Bill of Quantities items, and in respect of any extra item(s) of work, which may be required to be executed price would be paid as mutually determined/fixed by the parties.

2. Four out of the five sites were handed over on June 06, 2000 and thus qua said four sites the work had to be completed by August 25, 2000 and the remaining one site was handed over on July 12, 2000 requiring the work to be completed at said site by September 30, 2000.

3. During execution of the works, admittedly Mecon required Pioneer to execute 31 extra items of work and this obviously required the parties to sit across the table and decide the price to be paid to Pioneer for having executed the said 31 extra items of work.

4. The parties were a little unofficious in their dealings. They did not sit across the table and decide the price at which extra items got executed would be paid. The work progressed and was completed by October 31, 2001 at all the sites. Thus, it is apparent that qua four sites possession whereof was handed over on June 06, 2000, for which the works had to be completed by August 25, 2000, the delay was

14 months and for the fifth site possession whereof was handed over on July 12, 2000 and for which the works had to be completed by September 30, 2000, the delay was of 13 months.

5. As the work progressed, interim bills were raised and running payments released from time to time. This was obviously subject to the works being measured upon completion, since payment had to be made with reference to each item of work with reference to the Bill of Quantities and pertaining to the extra items of work, as per measurements recorded, and at the rate agreed.

6. Notwithstanding the works being completed by October 31, 2001, the parties showed no sense of urgency to finalize the issue of payment to be made. Correspondence was exchanged on the subject of the price to be paid for the extra items. Rival versions for the rate, as sought by Pioneer and as offered to be paid by Mecon, find a mention in the said correspondence. Consensus eluded the parties requiring a meeting across the table and this took place on August 07, 2002. A rate-list running into three pages was drawn up pertaining to the 31 extra items of work executed, detailing each extra item of work, the rate claimed by Pioneer, the rate offered by Mecon and the rate which was ultimately agreed to be received by Pioneer. The said document was not only signed by the representative of both parties but additionally had an endorsement by Pioneer as under:-

"Agreed"

       Sd/- (7-8-2002)          "We do not have any other
                                extra items except EI-1 to
                                EI-31 mentioned above."

                              Sd/- (7-8-2002)

7. Having agreed the rate at which extra items of work had to be paid for, the parties had to jointly measure the works at site so that the payment could be released after joint measurements were completed and finally recorded in the measurement book. This happened till the last week of September 2002, by which week the parties reconciled the issue pertaining to the work executed at site.

8. On October 08, 2002, Pioneer submitted a final bill and as per which it raised a demand, pertaining to extra items of work, in sum of `1,05,05,374/- and for the works executed as per Bill of Quantities in sum of `1,92,81,990.62. This bill was verified and there being discrepancies, was accepted in sum of `2,88,74,334/- by Mecon, representing the value of the work done and after adjusting running payments made pursuant to interim bills raised, finalized the amount payable at `57,41,541/-.

9. There was again a lull, till when on February 14, 2003, Pioneer sent a letter under a caption „No Claim Certificate‟ writing to Mecon as under:-

"This is with reference of above mentioned work order number. We hereby certify that we have no further claim (except release of LD Charges etc.) than those given in the final bill which includes the work done bill and release of retention money etc. We shall accept this payment as full and final settlement of our claims and we shall not resort to the provisions of Indian Arbitration Act 1940 thereafter."

10. On May 05, 2003 Mecon sent a letter to Pioneer informing that if it would confirm that revised contract price for the work done was accepted by it, in sum of `2,88,74,334/-, Mecon would make the necessary payment. But, prior thereto, Pioneer notified 16 claims vide its letter dated March 19, 2003 addressed to the DGM and Product Coordinator of Mecon at 14th-15th Floor, Scope Minar, Laxmi Nagar, New Delhi-110092, which letter Mecon claims was never received by it, and it may be noted that in the letter dated June 13, 2000, styled as a Letter of Award, vide Clause No.15 it was specifically provided that all correspondence pertaining to the contract would be in duplicate and addressed to: (i) Deputy General, Manager Mecon Ltd., 208-216 Aurobindo Place, Hauz Khas, New Delhi- 110016; and (ii) General Manager, Mecon Ltd., 208-216 Aurobindo Place, Hauz Khas, New Delhi-110016.

11. As per the letter, Pioneer invoked the arbitration clause in the agreement and called upon Mecon to forward three names to enable it to appoint a sole arbitrator from out of the panel. It was in this that Mecon wrote for the first time that it had issued the No Claim Certificate under protest. It may be noted by us that the letter dated February 14, 2003 addressed by Pioneer to Mecon under the caption No Claim Certificate did not so record. This letter was not responded to by Mecon for the reason it claims not having received the letter. Pioneer thereafter appointed Sh.K.D.Bali as a Sole Arbitrator and in respect of whose jurisdiction to adjudicate the claim we note that an objection was taken before him by Mecon, but an order was passed against Mecon by the learned Arbitrator. While challenging the award grounds were urged to

challenge the very appointment of the arbitrator by Pioneer and hence his jurisdiction to enter upon reference, but the decision has been pronounced against Mecon. We note that in the memorandum of appeal, grounds have been urged on the subject of Sh.K.D.Bali having no jurisdiction to adjudicate the claim, but no submissions were advance thereon during arguments of the appeal and thus we do not deal with the issue.

12. The only argument advanced during hearing of the appeal was that the bar of accord denuded Pioneer to raise the claims before the learned Arbitrator, and for which, the facts which we have noted hereinabove were pressed into aid.

13. Before the Arbitrator 16 claims were raised by Pioneer. Before discussing the claims, the learned Arbitrator noted the facts and the events as they transpired after the work order dated May 31, 2000 was issued. The learned Arbitrator noted that the works had to be executed at five sites : Faridpur, Gulamkhera, Kesarpur, Bankatra and Transport Nagar and from the evidence on record found that there were principally five reasons which had occasioned the delay in executing the works : (i) late handing over of all the sites, (ii) belated drawings and designs being furnished by Mecon, (iii) belated instructions by Mecon requiring Pioneer to execute the work, (iv) belated supply of material to be issued to Pioneer, and (v) belated payments released under running bills disrupting the cash flow of Pioneer. The learned Arbitrator has extensively noted the evidence to bring out the aforesaid, and suffice would it be to state that these are matters of fact and

as long as there is evidence to support the finding returned by the learned Arbitrator, are immune from challenge.

14. Unfortunately, on the issue of there being an accord, there is no meaningful discussion by the Arbitrator in the award, save and except a non-reasoned observation in paragraph 34(e) of the award. We quote : „It also cannot be denied that the respondent has been withholding a large sum due to the claimant from payment and must have exercised undue influence on the claimant to agree to the respondents terms howsoever unfair.‟

15. We may highlight that while narrating the facts, in paragraph 10 of the award, the learned Arbitrator has recorded that the No Claim Certificate issued by Pioneer on February 14, 2003 was under protest and reserving right to other payments.

16. This is a wrong reproduction of a material fact. As noted in para 9 above, the letter dated February 14, 2003, under the caption „NO CLAIM CERTIFICATE‟ does not contain any such reservation of it being under protest. The letter is unequivocal in its language. It is only the letter dated March 19, 2003, which Mecon claims not having been received by it, which for the first time contains the writing that Pioneer had issued the No Claim Certificate without prejudice to its claims. It is also relevant to note that in the letter dated March 19, 2003 Pioneer never took the stand that it was constrained to issue the No Claim Certificate on February 14, 2003 under duress.

17. With respect to the claims, claim No.1 in sum of `66,15,716/- has been allowed by the learned Arbitrator in

view of the settlement between the parties in sum of `57,41,541/-, and thus there is an acknowledgment, in unwritten words, by the learned Arbitrator that the accord arrived at between the parties, with the rates agreed upon at the meeting which took place on August 07, 2002, and the exact work done as recorded in the measurement book in the last week of September 2002 would bind the parties. While discussing this very issue, the learned Arbitrator has held that since delay in executing the works is not attributable to Pioneer, the liquidated damages levied by Mecon are unjustified. Thus, claim has been allowed in sum of `57,41,541/-, which we highlight is the exact amount payable as noted by us in para 8 above.

18. Needless to state, as a result thereof, the learned Arbitrator has held, with respect to Pioneer‟s claim to be paid even the liquidated damages levied i.e. claim No.16, that since full amount was ordered to be paid under claim No.1, the same need not be separately awarded under claim No.16.

19. It is apparent that claim No.1 and claim No.16 adjudicated by the learned Arbitrator are in complete harmony with the accord between the parties.

20. The learned Arbitrator has thereafter discussed claim No.2, which was for interest to be paid on delayed payments of the running bills, claim No.3 for short payment under the running bills, claim No.4 for alleged extra work pertaining to soiling below asphaltic drive, claim No.5 for additional work for lead of earth at Dankatara and Gulamkhera works, claim No.6 for under payment relating to CC flooring in drive way, claim No.7 for extra expenditure incurred in

removing slush and water from tank pits, claim No.8 for overhead charges during prolongation of the contract, claim No.9 for loss of profit due to reduction in productivity i.e. alleged loss of business which contractor i.e. Pioneer could have executed during the period the contract got prolonged, claim No.10 with respect or rise in cost of material and labour during contract prolongated period, claim No.11 for expenditure incurred on watch and war, claim No.12 for wages of idle labour, claim No.13 for renewal of guarantee bond during contract prolongated period, claim No.14 for payment to remove water logging and claim No.15, which we note was not finally pressed.

21. The learned Arbitrator has allowed claim No.2, not in full, but in sum of `11,85,000/-, claim No.3, not in full, but in sum of `27,000/-, claims No.4, 6, 7, 8 and 14 in full. Rejecting claims No.5, 12 and 13, claims No.9, 10 and 11 have been allowed in part.

22. From the facts noted hereinabove in paras 1 to 12, it would be quite apparent that the issue of the price at which work executed beyond Bill of Quantities would be paid for, was the subject matter of correspondence exchanged between the parties and being resolved at a meeting held on August 07, 2002. No other demands were ever raised by the contractor. All extra items of work were listed and rate at which payment had to be made was agreed upon. By September 2002, the dispute relating to the measurements was also resolved and on October 08, 2002, Pioneer raised a bill in sum of `2,97,87,364.62, which was found to be having discrepancies and was finally settled at `2,88,74,334/- adjusting running

payments made against interim bills `57,41,541/- was payable and on February 14, 2003, Pioneer sent a letter under the caption „No Claim Certificate‟, contents whereof have been noted by us in para 9 above.

23. Thus, it is clear that all issues were settled between the parties after due deliberations, save and except the issue of release of liquidated damages.

24. Before the learned Arbitrator, the plea of accord was raised by Mecon and aforesaid evidence placed before the learned Arbitrator, and regretfully has been totally ignored by the learned Arbitrator. We find not even an attempt made by the learned Arbitrator to discuss on the subject of there being an accord and a No Claim Certificate issued by Pioneer, except a vague reference in paras 34 (e) of the award that since Mecon had withheld a large sum due to Pioneer, there must have been exercised undue influence. Further, as already noted by us, in para 10 of the award, the learned Arbitrator has incorrectly recorded that the No Claim Certificate sent on February 14, 2003, was expressly made to have been submitted „under protest‟. This wrong finding has apparently influenced the learned Arbitrator. We are unable to write anything more, with reference to the award, for the reason the award does not discuss the issue at all. A cryptic wrong fact has been noted in para 10 of the award, and a non reasoned and a presumptive reasoned finding on undue influence has been returned in para 34(e) of the award.

25. We find that the learned Single Judge has simply held that an issue of accord and satisfaction can be the subject matter of an arbitrable claim and since the same would be an

issue of fact, a decision by the Arbitrator would bind the parties. With reference to the decision of the Supreme Court reported as AIR 2003 SC 2629 ONGC vs. Saw Pipes Ltd., the learned single Judge has held that the scope of judicial interference under Section 34 of the Arbitration and Conciliation Act, 1996 is narrow.

26. The issue, whether a plea of accord and a no claims issued, can or cannot be the subject matter of arbitration has vexed the Courts on the very arbitrability of the claim. For, if there is an accord, there is no arbitrable dispute. If there is no arbitrable dispute, where is the question of a reference to an Arbitration? This is one view. The other view is that if a party alleges undue influence while executing the document recording an accord, it would then be an arbitrable dispute on the subject: Whether there was an undue influence.

27. Thus, it was the duty of the learned Arbitrator to have discussed the evidence, for one of his mandate was to decide : Whether the No Claim Certificate issued by Pioneer on February 14, 2003 was the result of an undue influence. The Arbitrator has just not discussed the evidence on the subject. We do not find the Arbitrator having returned any meaningful finding thereon. The award therefore suffers for an illegality contemplated by the decision of the Supreme Court in Saw Pipes‟ case (supra).

28. The learned Single Judge has no doubt discussed this issue, but has not noted the relatable evidence, which we have noted in paras 6 to 10 above.

29. On the subject of an accord being the result of a free will of the parties or undue influence, the learned Single

Judge has noted various decisions, the latest being JT 2004 (1) SC 1 Chairman & MD NTPC Ltd. v. M/s.Reshmi Constructions, Builders & Contractors. The learned Single Judge has highlighted that when Pioneer gave the No Claim Certificate, it was expressly made clear that the same was „Under Protest‟.

30. Now, this is factually incorrect. As noted by us, the No Claim Certificate is actually a letter dated February 14, 2003, contents whereof have been noted by us in para 9 above. It has no endorsement „Under Protest‟. It is the letter dated March 19, 2003, which Mecon claims not to have been received, which records for the first time that the No Claim Certificate had been given „Under Protest‟.

31. The learned Single Judge has missed the point.

32. On the subject of an accord being out of free will or a result of undue influence, apart from the decision in Reshmi Constructions‟s case (supra) the issue was discussed by the Supreme Court in five prior decisions reported as AIR 1988 SC 1172 Union of India vs. L.K.Ahuja, 1994 (Suppl) 3 SCC 126 M/s B.K.Ramaiah & Co. vs. Chairman & Managing Director, NTPC, 1995 (Suppl) 3 SCC 324 Nathani Steels Ltd. vs. Associated Constructions, 2000 (8) SCC 1 Union of India vs. Popular Builders, Calcutta, (2000) 10 SCC 178 Jayesh Engineering Words vs. New India Assurance Com. Ltd.

33. The ratio of law which can be culled out from the aforesaid decisions has been pithily stated by the Supreme Court in Reshmi Constructions‟ case (supra) by highlighting, in para 39(ii), that where there is evidence of parties negotiating prior to a settlement taking place resulting in a full and final discharge voucher/receipt being executed, later on the party

executing the receipt cannot turn around and reprobate to claim that the accord was not voluntary.

34. Though the learned Single Judge has noted the decision of the Supreme Court in Reshmi Constructions‟ case (supra), but has missed para 39(ii) thereof.

35. From the facts noted by us herein above, it is clear that the parties negotiated since October 31, 2001 on the issue of payment to be made for extra items of work and arrived at a consensus on August 07, 2002. Thereafter, by September 2002 the parties arrived at a consensus on the exact work executed and on October 08, 2002 Pioneer submitted the final bill followed by issuing the letter dated February 14, 2003 which is the No Claim Certificate. Pioneer never raised the demands as were subsequently raised. There is clear cut evidence of there being an accord on all the disputes except whether liquidated damages could be levied. Claims pertaining to alleged extra items beyond the 31 which were listed by Pioneer and in respect of which rates were agreed between the parties after protracted correspondence, by sitting on the table on August 07, 2002, could not have been raised and the accord reopened.

36. Highlighting once again that the learned Arbitrator, who was charged with the primary responsibility of deciding the issue pertaining to an accord has not discharged his responsibility inasmuch as he has not even bothered to decide the issue by looking at the evidence and has acted cryptically and on a presumptive reasoning, we conclude by returning a finding that the learned Single Judge has misapplied the law on the subject and has also misread the evidence.

37. The obvious finding would be that the impugned award is liable to be set aside as regards the claims by Pioneer except the claim which rose out of the accord and in respect of which we must bring on record that for the total work, including extra items, executed in sum of `2,88,74,334/- the learned Arbitrator has awarded further sum of `1,91,66,074/- without any justification for the amount, beyond `57,41,541/-.

38. As per the accord `57,41,541/- was admittedly payable and this amount learned counsel for Mecon admits as being payable, save and except counsel sought to urge that liquidated damages in sum of `28,87,433/- were leviable.

39. On this amount, we find that the learned Arbitrator has returned a finding of fact, of delay being attributable to Mecon and in respect of which finding, learned senior counsel for Mecon could show nothing to dent the same. We have highlighted hereinabove, in brief, the factors determined by the learned Arbitrator attributing responsibility on Mecon for the delay.

40. Accordingly, we hold Pioneer entitled to `57,41,541/- and this amount has to be paid with effect from August 01, 2002, the date from which interest has been awarded by the learned Arbitrator. The rate of interest would be 12% per annum (simple) till payment would be made.

41. In terms of the order dated February 22, 2008 passed in the appeal, the appellant was required to deposit the amount decreed by the learned Arbitrator in this Court which has been invested in a fixed deposit.

42. Accordingly, we direct the Registry to release such amount as would be payable to the respondent as per para 40 above and would refund the balance to the appellant.

43. No costs.

(PRADEEP NANDRAJOG) JUDGE

(SIDDHARTH MRIDUL) JUDGE MAY 15, 2012 dk