Mahanagar Telephone Nigam ... vs M/S Unibros & Anr.
2017 Latest Caselaw 135 Del

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*      IN THE HIGH COURT OF DELHI AT NEW DELHI

                                     Reserved on: December 17, 2016.
                                     Decision on: January 10, 2017.

+                       O.M.P. 378/2009

       MAHANAGAR TELEPHONE NIGAM LIMITED (MTNL).. Petitioner
                   Through: Mr. Vaibhav Kalra, Ms. Neha Bhatnagar
                   and Mr. Jasbir Bidhuri, Advocates.

                                 versus

       M/S UNIBROS & ANR.                        ..... Respondents
                     Through: Mr. Chetan Sharma, Senior Advocate
                     with Ms. Rajeshwari H. and Ms. Aparna Gaur,
                     Advocates.


       CORAM: JUSTICE S. MURALIDHAR

                               JUDGMENT

% 10.01.2017

1. This petition under Section 34 of the Arbitration and Conciliation Act, 1996 („Act‟) by the Mahanagar Telephone Nigam Limited („MTNL‟) challenges an Award dated 29th December, 2000 of the sole Arbitrator (Respondent No. 2) in the disputes between MTNL and M/s. Unibros (Respondent No.1) on the other arising out of a contract awarded by MTNL to Respondent No. 1 for the work of construction of telephone exchange- cum-office building at the CGO, Complex, Lodhi Road, New Delhi.

2. The sole Arbitrator has by the impugned Award allowed Claim Nos. 1, 2,

3, 10, 12 and 15 of Respondent No. 1. All the counter-claims filed by MTNL have been dismissed.

3. MTNL notified tenders for construction of the above telephone exchange at Lodhi Road and Respondent No. 1 submitted its tender documents for the same on 31st January, 1990. Respondent No. 1 was a successful bidder and was awarded the contract which was to be completed within 24 months from the issuance of the Letter of Intent („LOI‟). The schedule provided that the RCC for raft of the main exchange and office building would be completed within four months; that Respondent No. 1 was also to ensure that all the necessary materials such as aluminium doors and windows, steel doors and windows, rolling shutters etc. were ordered well in advance and not later than six months from the date of LOI.

4. A formal agreement was executed between MTNL and Respondent No. 1 on 21st November, 1990. Apart from the notice/letter inviting tender, the General Conditions of Contract („GCC‟), Special Conditions of Contract („SCC‟), Specifications, Drawings, Plans, Time Schedule of Completion of Jobs, Letter of Acceptance of Tender and any statement of agreed variations with its enclosures etc. were to form part of the contract documents.

5. MTNL accepted the tender submitted by Respondent No. 1 for a total value of Rs.8,83,03,475. This was subject to Respondent No. 1 furnishing a bank guarantee („BG‟) at 10% of the accepted value as per Clause 19.2. The second condition was that steel and cement required for the work was to be arranged by Respondent No. 1 as per the tender conditions and modifications by letter dated 6th June, 1990.

6. According to MTNL, the progress of work was very slow and till September 1991, Respondent No. 1 was able to achieve only 2.5% of the work against 60% that had been stipulated. Only the excavation work had been done. The case of Respondent No. 1, on the other hand, was that on inspection of the site around 26th July, 1990 after the award of the contract, it was found that there were jhuggis on the site in addition to cables and wires all over the place. It is stated that despite several reminders, MTNL failed to remove the hurdles.

7. While by letter dated 11th September, 1991, Respondent No. 1 invoked the arbitration clause and sought the appointment of an Arbitrator as MTNL had failed to remove the hurdles, MTNL had on its part issued a show cause notice („SCN‟) dated 17th September, 1991 to Respondent No. 1 for delay in completing the project. On 25th September, 1991, Respondent No. 1 replied to the SCN attributing the delay to the non-action on the part of MTNL. By a letter dated 19th November, 1991, MTNL terminated the contract and forfeited the deposit amount of Rs. 93,531 as well as Rs. 88,30,348 by encashing the BG furnished by Respondent No. 1.

8. On 20th November, 1991 Mr. N.N. Chakraborty, Chief Engineer (Civil), All India Radio, New Delhi was appointed as sole Arbitrator upon an application by MTNL. On 13th March, 1992, the sole Arbitrator passed an interim Award holding that it was MTNL‟s responsibility to remove the hurdles. Since it failed to do so, the rescission of the contract by MTNL was invalid.

9. This was an Award made under the Arbitration Act, 1940. Respondent No. 1 applied to this Court for enforcing the said Award. MTNL then filed this petition under Sections 30 and 33 of the Arbitration Act, 1940. By an order dated 24th May, 1999, this Court upheld the objections of MTNL in Suit No. 1124-A/92 and set aside the Award dated 13th March, 1992. The matter was remanded to an Arbitrator, this time, appointed by the Court itself.

10. On 29th December, 2000, Mr. K.D. Bali, the sole Arbitrator appointed by the Court made an Award whereby MTNL was directed to pay Respondent No. 1 Rs. 1,01,49,885.18 (for claim nos. 1,2, 3, 10 & 12) along with 18% interest awarded in Claim no. 15. n the ground that the contract was unable to be completed on account of breaches by MTNL.

11. Suit No. 266-A of 2001 was filed by MTNL under Sections 14 and 17 of the Arbitration Act, 1940 for a direction to Mr. Bali to file the Award. Following this, IA No. 3170 of 2002 was filed by MTNL seeking rejection of the Award dated 29th December, 2000. Meanwhile, on 30th July, 2001, Respondent No. 1 filed Execution Petition No. 163 of 2001 for enforcement of the Award dated 29th December, 2000. An order was passed on 31st July, 2001 attaching the accounts of MTNL. In the said Execution Petition, MTNL filed EA No. 306/2001 under Order XXI Rules 26 and 29 of CPC read with Section 41 of the Arbitration Act, 1940. By an order dated 10th August, 2001, the Court directed that the attached amount could not be disbursed.

12. Respondent No. 1 raised a preliminary objection as regards

maintainability of the objections filed by MTNL on 5th September, 2001 claiming that they had to be filed under Section 34(3) of the Act within a period of three months from the date of receipt of the signed copy of the Award. The Single Judge of this Court dismissed Suit No. 266A/2001 filed by MTNL by a judgment dated 5th May, 2003. It was held that the objections already filed would be treated as having been filed under Section 34 of the Act.

13. MTNL filed an appeal being FAO (OS) No. 284 of 2003 under Section 39 of the Arbitration Act, 1940 for setting aside the decision dated 5 th May, 2003 of the learned Single Judge. The said appeal was dismissed by the Division Bench on 17th December, 2008. This was further affirmed by the Supreme Court by the dismissal of the SLP (Civil) No. 10068 of 2009 filed by MTNL on 4th May, 2009.

14. It may be recalled that the objections filed by MTNL were directed to be numbered by the Court as OMP No. 378 of 2009 and treated as having been filed under Section 34 of the Act. Respondent No. 1 raised a plea that this OMP No. 378 of 2009 was also time barred. This plea was negatived by the Court by a detailed order dated 4th July, 2011. The petition seeking review of the said order was dismissed on 7th March, 2014.

15. Mr. Vaibhav Kalra, learned counsel appearing for the Petitioner has submitted as under:

(i) The various documents produced by MTNL before the learned Arbitrator demonstrated that the jhuggis were outside the area where construction was

to be carried and, therefore, the excuse that the work could not commence till the jhuggis were removed ought not to have been countenanced by the learned Arbitrator. Several documents were placed on record before the learned Arbitrator to show that it was Respondent No. 1 which had delayed the construction work and was unable to meet the conditions stipulated under the contract. Therefore, the learned Arbitrator overlooked the material documents in passing the impugned Award and there is no justification in allowing claim No.1 for a sum of Rs. 93,531.

(ii) Claim No. 2 for a sum of Rs.14,35,743 was allowed on account of BG for the period 1st October, 1993 till 31st December, 2000 as a consequence of Claim No. 1 having been allowed which in turn was based on the finding that the termination notice dated 19th November, 1991 issued by MTNL to Respondent No. 1 was unjustified.

(iii) On the assumption that Respondent No. 1 ought to have earned profits at 10% of the contract value and considering that Respondent No. 1 had already executed work to the tune of Rs.19,08,033, the learned Arbitrator awarded loss of profits @ 7.5% of the contract value which worked to Rs.64.75 lakhs. There was nothing to show that Respondent No. 1 would have earned profits at 7.5%.

(iv) With Respondent No. 1 already having communicated its lack of ability to continue with the project by its letter dated 11th September, 1991invoking the arbitration clause, there was no question of awarding it any amount towards loss of profits under Claim No. 3 much less the sum of Rs.64.75 lakhs. There is nothing to place on record to demonstrate how Respondent

No. 1 would have earned profits at 7.5%.

(v) The learned Arbitrator erred in allowing claim No. 10 to the tune of Rs. 2,64,542 which was corrected to Rs. 2,24,861.18 by Corrigendum to the Award dated 19th January, 2001 towards escalation in material, labour and POL. This was contrary to Clause 66.2(a) which clearly stipulated that no compensation would be payable for work for which the stipulated period of completion was six months or less.

(vi) No escalation could have been awarded since the RCC was not prepared till the termination of the agreement.

(vii) The learned Arbitrator wrongly awarded Rs.19,20,750 under Claim No.12 towards expenditure incurred by installing a Well Point System for pumping out of water. It is submitted that the learned Arbitrator wrongly interpreted clauses 41.2, 41.3, 44 and 44.1 of the agreement between the parties where nothing extra was payable to Respondent No. 1 for adverse sub-soil conditions as well as claim towards pumping out of water.

(viii) The learned Arbitrator also erred in granting Respondent No. 1 the cost of de-watering which was contrary to the terms of the agreement between the parties.

(ix) Finally, awarding interest @ 18% per annum on Claim nos. 1, 2 and 3 from 11th September, 1991 till the date of payment and at 18% per annum on Claim no. 12 from 17th December, 1991 till the date of payment thereafter was also consequently unsustainable in law. In any event, this was an

extraordinarily high rate of interest.

(x) The counter claims were rejected only on the ground that there was no delay on part of Respondent No. 1 and that termination of the contract was bad in law.

16. Mr. Chetan Sharma, learned Senior counsel appearing on behalf of Respondent No. 1 on the other hand referred to the correspondence between the parties. In particular, he referred to the correspondence exchanged between the Railways and the Land & Development Officer („L&DO‟) on 18th December, 1990 and other letters which will be discussed hereafter. He submitted that the Award did not call for interference under any of the grounds mentioned in Section 34 of the Act.

17. Before examining the above submissions, the Court would like to preface its discussion with reference to the judgment of the Supreme Court in Associate Builders v. Delhi Development Authority 215 (2014) DLT 204 which recapitulates the entire law on the scope of the powers of the Court to interfere with the arbitral award under Section 34 of the Act. Inter alia it was observed that "an Arbitral Tribunal must decide in accordance with the terms of the contract, but if any arbitrator construes a term of the contract in an unreasonable manner, it will not mean that the Award can be set aside on this ground. Construction of the terms of a contract is primarily for an arbitrator to decide unless the arbitrator construes the contract in such a way that it could be said to be something that no fair-minded or reasonable person could do." It was further reiterated that "once it is found that the arbitrator's approach is not arbitrary or capricious, then he is the last word on

facts." The Supreme Court also reiterated that "an award can be said to be against justice only when it shocks the conscience of the Court." The Court observed that it is settled law that where a finding is based on no evidence, and the AT takes into account something irrelevant to the decision which it arrives at, or ignores vital evidence in arriving at its decision, such decision would be termed as perverse. The above principles were reiterated in ONGC Limited v. Western Geco International Limited 2014 (9) SCC 263 where the Supreme Court elaborated on what construes "the fundamental policy of Indian law" for the purposes of Section 34 (2) (b) (ii) of the Act. In the decision of Associate Builders v. Delhi Development Authority (supra), the Supreme Court has emphasised that on questions of fact, the view of the learned Arbitrator would be final. The following observations in the said decision are relevant:

"It must clearly be understood that when a court is applying the "public policy" test to an arbitration award, it does not act as a court of appeal and consequently errors of fact cannot be corrected. A possible view by the arbitrator on facts has necessarily to pass muster as the arbitrator is the ultimate master of the quantity and quality of evidence to be relied upon when he delivers his arbitral award. Thus an award based on little evidence or on evidence which does not measure up in quality to a trained legal mind would not be held to be invalid on this score. Once it is found that the arbitrator‟s approach is not arbitrary or capricious, then he is the last word on facts. "

18. The learned Arbitrator has in the impugned Award come to certain definite findings of fact. It was found that the area of the land where the building was to be erected was made available to Respondent No. 1 by MTNL with the temporary works in that part of the area. Till the contract was terminated, this was not removed by MTNL. A high tension electric

cable passing through that site/land which posed a hindrance was also not removed till the rescission of the contract. It is also found that the excavation at a depth of 7.4 meters in a part of the area handed over to the Petitioner was "practically not feasible since the same posed imminent danger to the life of jhuggie dwellers who were living along the plot as the excavation line was going beyond the envelop line." The learned Arbitrator also observed as under:

"The record placed by the parties before me established that jhuggies did exist on the land immediately abutting the area where the building was to be erected. Admittedly the excavation line exceeded the perimeter of Envelop to house the raft foundation of the building which was to be laid at basement level."

19. This led MTNL to correspond with L&DO as well as the Delhi Development Authority („DDA‟) for removal of the jhuggies which were beyond the excavation line since otherwise in spite of due protection there was every likelihood of a land slide on the edges where the jhuggies were situated. On this aspect, Mr. Chetan Sharma, learned Senior counsel appearing for Respondent No. 1 has placed before the Court copies of some of the correspondences exchanged which bear out the above finding of the learned Arbitrator. These letters were placed before the learned Arbitrator. By a letter dated 18th December, 1990 addressed to the L&DO, the Chief Manager of MTNL inter alia observed "at present jhuggies have occupied the public land on two sides of the plot and on third side encroachment has started a big way...", "with the construction of the jhuggies all around, it would be difficult to take up the construction work since there will be constant risk of collapse of the jhuggies on the periphery of the plot."

Finally, it was requested that "the jhuggies around the plot may kindly be [...] removed so that construction of building can be taken up without any risk."

20. The above letter shows that MTNL was itself actually conscious of the danger opposed by the jhuggies abutting the land/site. Importantly, MTNL was aware that the excavation work and thereafter the construction work could not possibly be undertaken in these circumstances.

21. Not only this, on 10th June, 1991 a complaint was lodged by MTNL with the Station House Officer („SHO‟), Police Station, Lodhi Colony again drawing attention to the fact that there was every likelihood of a landslide on the vertical site of the excavation on the edges of which the jhuggies were situated. Within ten days i.e., on 20th June, 1991, MTNL wrote to the DDA again pointing out that "it is very difficult to take up the construction work of foundations, retaining walls etc as adequate working space is not available and there is also constant risk of collapse of the Jhuggies".

22. On 10th July, 1991, MTNL wrote again to the DDA enclosing a cheque of Rs.3,80,000 "for shifting of 38 eligible squatters as intimated by L&DO @ Rs.10,000 per eligible squatter." The DDA was asked to take up the matter on priority. Then a telegram was sent on 26th September, 1991 by Respondent No. 1 intimating MTNL that the site condition was still precarious and pointing out that the previous warning by Respondent No. 1 was ignored by MTNL and, therefore, the consequences thereof would be attributed to MTNL.

23. Mr. Sharma, learned Senior counsel appearing for Respondent No. 1 is right in his submission that a perusal of the above correspondence will show that the blame for the delay in commencement of the work could not be laid at the doorstep of Respondent No. 1. All those jhuggies may not have been on the site. They were all along the periphery and without their eviction in accordance with law, the question of commencing the work of excavation and then construction did not arise.

24. The Court is, therefore, satisfied that the learned Arbitrator was not in error in coming to the above conclusion.

25. A submission in this behalf was made by Mr. Kalra that no opportunity was given by the learned Arbitrator to MTNL to produce witnesses or to even cross-examine the deponents of the affidavits filed by Respondent No.

1. However, on a perusal of the arbitral Award, the Court finds that the above submission is not correct. On the hearing before the learned Arbitrator on 15th January, 2000, both parties agreed that they would not in fact want to cross-examine any of the deponents of the affidavits filed by way of examination-in-chief. The question, therefore, of MTNL being denied any opportunity in that regard did not arise. There is a specific recording by the Arbitrator that reads as under:

"Admission and Denial of Documents:

1. Respondents stated that they would rely on the documents filed by them before the previous arbitrator. Besides, Respondents shall also rely on the documents filed with their pleadings before the present arbitrator.

2. The Claimants stated that they would rely on the documents

filed by them in their pleadings before the present arbitrator.

3. The parties state that documents filed by either party are admitted by the respective opposite parties as to their existence but not necessarily the contents thereof.

4. As regards details of risk and cost amount filed in the statement before the arbitrator, the same are not dispute[d] by the Claimants. However, this will be subject to the determination on merits whether any liability towards risk and cost is to be fastened on the Claimants and if so to what extent.

In view of the above, both the parties stated that they do not wish to lead any oral evidence."

26. The Award in respect of Claim No. 1 was consequential upon the learned Arbitrator finding that it was MTNL which was responsible for the delay in completion of the project because of its failure to remove the hindrances. This Court has already held that the above finding is a finding of fact and there is no legal infirmity therein which warrants interference. The Court is unable to be persuaded to hold that the award of Rs.93,531 under Claim No.1 is erroneous.

27. As regards Claim No.2 the BG had to be kept alive during the pendency of the arbitral proceedings. Respondent No. 1 had to be compensated for the expenditure in that regard. The allowing of Claim No. 2 is also, therefore, upheld.

28. As far as Claim No. 3 is concerned, awarding 7.5% for loss of profits is below 10% as claimed. This cannot be said to be arbitrary or perverse.

29. As regards Claim Nos. 7, 8, 9 and 10, the sub-soil at a depth of 3.14 meters from the ground level was not covered under the appropriated risk that was envisaged under the contract. The learned Arbitrator has in fact disallowed Claim Nos. 7, 8 and 9 as they overlapped with Claim No.12. The learned Arbitrator after perusing Clauses 41.2 and 41.3 noted that they provided that nothing extra would be payable for adverse sub-soil conditions. However, as correctly noted, what was claimed was not for adverse sub-soil conditions like piping, heaving and quick conditions. The learned Arbitrator noted that even when the balance work was taken up, the same technology of the Well Point System was followed by MTNL itself through the new contractor. The learned Arbitrator also found that Clauses 44 and 44.1 provided for extra rate for working during monsoon. These clauses did not cater to the huge job of allowing the sub-soil water at a depth. The said two clauses were only meant for removing water as a result of monsoon and for getting the construction site free from water. Clause 17.4 also catered to certain facilities being provided by Respondent No. 1 while performing the work. This also did not cover the huge job of sub-soil water removal. Likewise, Clauses 66.2 and 66.3 did not debar the admissibility of costs incurred for running the Well Point System. It is only on a complete consideration of all the above clauses that the learned Arbitrator thought it necessary to allow Claim No. 12 and that too only for the period between 15th February, 1991 and 16th December, 1991 after which point MTNL had taken over the pumping.

30. As regards Claim No. 10 on account of escalation under Clauses 66.2(a),

details reasons have been given by the learned Arbitrator for referring the escalation only towards materials, labour and POL to the extent of Rs.2,64,542, later corrected to Rs. 2,24,861 by Corrigendum to the Award dated 19th January, 2001. The learned Arbitrator noted that the amounts claimed under Claim nos. 5 to 9 have in fact been disallowed and, therefore, no escalation is payable for the said work. Even as regards the award of interest, the learned Arbitrator has been careful to award interest @ 18% per annum from the date of the claim till the date of payment. The said award of interest cannot be said to be excessive.

31. Turning to the rejection of MTNL's counter-claims, the learned Arbitrator found that counter-claim No. 1 was too remote a loss and was also not backed by any evidence. Counter-claim No. 2 was linked to the rescinding of the contract which, in any event, was held to be unsustainable. Counter-claim No. 3 again was not backed by any evidence. Counter-claim No. 4 was not traceable to any stipulation in the contract. Counter-claim No. 5, again, was raised for the whole area where the water-proofing had been carried out and MTNL, in fact, failed to justify such a counter-claim. Counter-claim No. 6 had already been included in Counter-claim No. 2 which had been disallowed. Likewise, Counter-claim No. 7 which was for forfeiture of deposits had to be disallowed since the finding was that it was MTNL which had wrongly rescinded the contract. As far as Counter-claim No. 8 was concerned, no basis was furnished for holding Respondent No. 1 liable in relation to the purported security arrangements and establishment charges. Thus, the counter-claim was unsubstantiated. Counter-claim No. 9 for pre-suit and pendent lite and future interest and Counter-claim No. 10 for

costs were likewise rejected.

32. The Court finds that the said Award is, therefore, based on a correct analysis of the relevant clauses of the contract and cannot be said to be perverse warranting any interference.

33. The petition is dismissed but, in the circumstances, with no order as to costs.

JANUARY 10, 2017                                  S. MURALIDHAR, J.
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