Delhi High Court

Aravali Power Company Pvt. Ltd. vs M/S. Subhash Infra Engineers Ltd. on 1 October, 2014

$~41
*      IN THE HIGH COURT OF DELHI AT NEW DELHI
+      ARB.A. 25/2014
                                   Judgment reserved on: 17.09.2014
%                                  Judgment pronounced on: 01.10.2014
       ARAVALI POWER COMPANY PVT LTD                         ..... Appellant
                                   Through:   Mr.Vikas Singh, Senior
                                              Advocate with Mr. Bharat,
                                              Ms. Deepika Kalia and
                                              Ms. Anasuya Choudhary,
                                              Advocates.
                          versus

       M/S SUBHASH INFRA ENGINEERS LTD.       .... Respondent
                         Through: Mr. Sandeep Sharma and
                                  Mr.Vatsal Kumar, Advocates
       CORAM:
       HON'BLE MS. JUSTICE DEEPA SHARMA

       JUDGMENT

1. The present petition has been filed against the orders dated

10.07.2014 and 08.08.2014 of learned arbitrator. It is submitted that

these orders are the interim order relating to the interim measures and

therefore, appeal is maintainable. It is further submitted that the order

of release of bank guarantee has been passed on the application of the

respondent dated 21.04.2014. It is further submitted that order dated

10.07.2014 regarding release of final bill payment, is bad in law as

there was no such request before the learned arbitrator in the

application dated 21.04.2014 filed by the respondent and therefore,

the said order is bad in law. It is further submitted that the order of

release of bank guarantee could not have been passed in violation of

Clause 9.7 of General Conditions of Contract (in short 'GCC') as it

was refundable on the expiry of defect liability period or on payment

of the amount of final bill in accordance with Clause 52, whichever is

later. Clause 52 of GCC clearly contemplates that the final bill

cannot be paid until the respondent records his unconditional

acceptance of the measurements and submits the final bill. It is

further submitted that although the period of defect liability had

expired on 14.01.2014, the respondent had not yet submitted the final

bill. It is submitted that the learned arbitrator has further erred in

holding that final bill had been submitted by the claimant/respondent

and that the same was processed by the appellant as 22nd RA bill (by

cutting the word final bill) especially when, admittedly, the 23rd and

24th RA bills were submitted thereafter by the respondent. It is further

submitted that the orders dated 10.07.2014 and 08.08.2014 be set

aside.

2. The application is contested by the respondent. They have filed

their written submissions although no reply has been filed. It is

argued on behalf of the respondent that the orders under challenge are

in the form of interim award and the same cannot be challenged under

Section 37 of the Arbitration and Conciliation Act, 1996 (hereinafter

referred to as 'the Act') by way of an appeal.

3. I have given careful consideration to the arguments of both the

parties.

4. The brief facts necessary for disposal of present appeal are

recorded hereinafter.

5. The appellant had entered into an agreement with the

respondent for Ash Dyke Package For Indira Gandhi Super Thermal

Power Project (IGSTPP), Jhajjar for a value of Rs.29,48,63,000/-.

Pursuant to Clause 8 of the Letter of Award (LOA), the respondent

was to submit the bank guarantee in the nature of security deposit for

execution of the contractual work. As per Clause 9.6 of GCC, 50 %

of the security deposit was to be released on the completion of the

said work. As per Clause 9.7 of GCC, the remaining amount of

security deposit was to be released on the expiry of the defect liability

period or on the payment of the amount of the final bill payable in

accordance with Clause 52 of GCC whichever is later. On completion

of work, the appellant had released 50 % of the security deposit in

terms of Clause 9.6 of GCC. Meanwhile, the dispute had arisen

between the parties and the claim petition was filed by the respondent.

During the pendency of the arbitral proceedings the period of defect

liability had expired and thereafter the respondent/claimant had

moved an application dated 21.04.2014 for release of the bank

guarantee on the ground that defect liability period had expired on

14.01.2014. Further issue was raised that in order to avoid the release

of the bank guarantee the appellant had issued, as an afterthought, a

letter dated 04.03.2014 wherein the appellant had alleged that the final

bill was ready since 16.10.2013. The respondent/claimant in this

application has also mentioned that though the final bill prepared by

the respondent/present appellant was without including other

payments but the present appellant had admitted entitlement for

payment. On these facts it was prayed that the bank guarantee be

released.

6. This application was taken up by the learned arbitrator on

10.07.2014 and following directions were issued:

"In view of the above and final bill being in positive and no claims raised by the respondent up to the expiry of the defect liability period, I decide to make immediate interim relief to the claimant through this order that the respondent to release the final bill payment as accepted by them as well as release of the bank guarantee before the next date of hearing.

The other claim of claimant as well as counter claim will be decided on its merits in final award after hearing the parties."

7. Subsequently, the appellant moved an application before the

learned arbitrator to keep the operation of the interim order for release

of bank guarantee pending till the end of September, 2014 and

accordingly, the learned arbitrator vide its order dated 08.08.2014

gave the respondent time to release the bank guarantee by 15.09.2014.

8. The sole contention of the respondent/claimant is that order

dated 10.07.2014 is in the form of interim award as by granting an

amount of Rs.401000/- towards final bill amount, the learned

arbitrator has given a finding on Claim 10 of the respondent/claimant.

It is further submitted that by the release of the bank guarantee the

arbitrator has granted the part of the relief of claim 6 of the

respondent/claimant. This argument is controverted by the appellant

stating therein that the order itself shows that "this order dispose of

the application dated 21.04.2014 and therefore this order cannot be

termed as an interim award but is an interim relief given to the

respondent." Learned counsel for the respondent/claimant has

submitted that observation of the learned arbitrator to the effect that

"the other claim of claimant as well as counter claim will be decided

on its merit in final award after hearing the parties", clearly shows

that this order is in the form of interim award.

9. The first controversy therefore is whether the orders dated

10.07.2014 and 08.08.2014 are in the form of an Award? Award has

not been defined anywhere in the Arbitration and Conciliation Act

except that the award includes the interim award. There is no dispute

to the settled law that an order of the arbitrator can be termed as an

award only when it determines the rights of the parties finally, on the

claims whether by way of interim award or by way of final award.

The question to be seen therefore is whether vide these orders the

learned arbitrator has finally determined the rights of the parties.

Contention of the respondent/claimant is that the findings of the

learned arbitrator to direct the respondent to pay an amount of

Rs.401000/- towards the final bill amount to a finding on Claim 10 of

the respondent. Two reliefs have been given to respondent/claimant

by the learned arbitrator vide his order dated 10.07.2014. First is

release of the final bill payment as accepted by them and other is

release of the bank guarantee.

10. As regards release of final bill payment is concerned, the

respondent/claimant had raised a demand of payment of final bill in

the form of Claim 10.

11. Claim 10 of the respondent/claimant is as follows:

CLAIM NO.10 - FINAL BILL The final bill amounting to Rs.410000/- which is admitted payment has not been released and is therefore required to be released with interest @ 18% per annum.

12. The appellant in his reply to this claim had taken the plea that

the claim was not tenable as the claimant had not submitted the final

bill and the final bill could not be paid till the claimant recorded his

unconditional acceptance of the measurement and submit the final

bill.

13. In the rejoinder, the respondent/claimant qua their Claim 10 had

alleged that there was no dispute in the measurement and that it was

on the accepted measurement that an amount of Rs.4,10,000/- is

payable by the claimant. It is further stated in the rejoinder that the

claimant had informed the appellant vide letter dated 20.12.2012 of

the completion of the work and had requested them to prepare the

final bill and release the payment. It is further submitted that the

letter dated 04.03.2014 had been issued with ill motive by the

appellant and that the claimant were entitled for this sum.

14. From this factual position it is clear that the release of the

money towards final bill was one of the claim and vide this order

dated 10.07.2014 the arbitrator has determined the said claim of the

respondent/claimant. The observation of the learned arbitrator to the

effect that the other claims of the claimant as well as counter claim

would be decided on this merit in final award further confirms that

this part of the order dated 10.07.2014 is by way of an interim award.

Hence, cannot be challenged by way of an appeal.

15. Vide this order dated 10.07.2014, the arbitrator has also ordered

release of the bank guarantee while disposing of an application of the

claimant dated 21.04.2014 for that relief. No claim has been made by

the respondent/claimant in his claim petition before the learned

arbitrator for release of the bank guarantee. The only claim qua bank

guarantee, which had been put up as claim 6 relates to claiming of

charges incurred on account of extension of bank guarantee.

16. In the rejoinder, however, the respondent/claimant has also

stated that the bank guarantee has been illegally withheld and

requested for issuance of necessary directions for release of bank

guarantee. Along with this rejoinder, the claimant had also moved a

separate application dated 21.04.2014 for release of the said bank

guarantee.

17. From the perusal of order dated 10.07.2014 it is apparent that

although the claimant had contended that withholding of a bank

guarantee is illegal, no finding had been given by the learned

arbitrator. The learned arbitrator has simply ordered for the release of

the bank guarantee. The entitlement of the claimant for charges on

account of the extension of the bank guarantee is also left to be

determined in the final award. No finding on Claim 6 of the claimant

has been given in this order. The order for release of the bank

guarantee is in the form of an interim order passed as an interim

measure on an application of the claimant, without determining the

claim and contentions of the parties. It is apparent that while moving

an application dated 21.04.2014, the claimant has not mentioned any

provision under which the said application had been moved. The title

of the application is simply for release of the bank guarantee on the

ground that defect liability period has expired. This part of the order

of the learned arbitrator therefore is not in the form of an award but is

an order in the form of interim measure. Both the directions of

learned arbitrator are separable as they are not interconnected. Hence,

challenging the findings relating to release of bank guarantee is

appealable under Section 37 (2) (b) of the Act.

18. It is argued on behalf of the appellant that the order for release

of bank guarantee is violative of Clause 9.7 read with Clause 52 of

GCC.

19. It is argued on behalf of the respondent/claimant that the order

of the learned arbitrator does not suffer with any infirmity as the same

has been passed in terms of the said clauses.

20. Clause 9.7 of GCC deals with the release of the bank guarantee.

The clause is reproduced as under:

"9.7 On expiry of the Defects Liability Period (referred to in Condition 33 hereof) or on payment of the amount of the Final bill in accordance with condition 52 whichever is later, the Engineer-in-Charge shall on demand from the Contractor, refund to him the remaining portion of the security deposit provided the Engineer-in-Charge is

satisfied that there is no demand outstanding against the contractor."

21. From the perusal of the relevant clause it is apparent that this

clause is in three parts i.e. (a) on expiry of defect liability period, (b)

on payment of amount of final bill in accordance with condition 52,

clearly provided that "the engineer-in-charge is satisfied that there is

no demand outstanding against the contractor".

22. Learned arbitrator has defaulted in releasing the bank guarantee

on the ground that the defect liability period had expired and a final

bill had been issued by the engineer-in-charge and no claim raised till

expiry of period of defect liability. However, it is clear that there is

no certificate of the engineer-in-charge to the effect that there is no

demand outstanding against the contractor. It is not disputed that the

appellant has also filed a counter claim before the learned arbitrator,