Delhi High Court
Ircon International Limited vs M/S Jaiprakash Associates Ltd. on 26 February, 2019
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* IN THE HIGH COURT OF DELHI AT NEW DELHI
Reserved on : 21st January, 2019
Date of decision :26th February, 2019
+ O.M.P. 403/2010
IRCON INTERNATIONAL LIMITED ..... Petitioner
Through: Mr. Dinesh Agnani, Senior Advocate
with Ms. Leena Tuteja and Mr. Ishaan
Chawla, Advocates. (M:9810049061)
versus
M/S JAIPRAKASH ASSOCIATES LTD. ..... Respondent
Through: Mr. Lovkesh Sawhney, Advocate.
(M:9810010392)
CORAM:
JUSTICE PRATHIBA M. SINGH
JUDGMENT
Prathiba M. Singh, J.
1. The present petition under Section 34 of the Arbitration and
Conciliation Act, 1996 („the Act‟) challenges the impugned award dated 15th
April, 2010 whereby the Ld. Sole Arbitrator has awarded the claims raised
on behalf of M/s. Jaiprakash Associates Ltd. (hereinafter „the Contractor‟)
against IRCON International Limited (hereinafter „IRCON‟).
2. IRCON awarded contract dated 15th March, 2004 to the Contractor,
for "construction of civil works including tunnels, bridges, earthwork etc. in
Zone-III (KM 134-142) of Laole Quaziund Section of Udhampur, Srinagar,
Baramulla New B.G Railway Line Project (`work‟)." The total period for
completion of the work was 36 months. However, it is the admitted position
that during the said period, the Contractor could execute a part of the work,
to the tune of Rs. 26.44 crores as against the total project cost of Rs.168.46
crores. Due to the slow progress of work, IRCON issued a show cause
notice on 12th January, 2007. In response to this show cause notice, the
Contractor replied on 18th January, 2007 and alleged that the delays were
due to IRCON‟s breaches, including non-handing over of the site in time,
not providing safe working conditions in terrorist affected areas etc. The
Contractor, thus, requested for an extension of 840 days without levy of
penalty, subject to certain conditions. These conditions were not found to be
acceptable to IRCON and, accordingly, the parties agreed for a time
extension of 3 months without levy of liquidated damages. Thereafter,
correspondence was exchanged between the parties and IRCON on 22nd
February, 2007 suggested foreclosure of the contract on some conditions. A
counter proposal was received from the Contractor on 1st March, 2007 for
foreclosure. Finally, the parties signed a `foreclosure document‟ on 29th/30th
March, 2007 agreeing to foreclosure. As per the foreclosure document,
IRCON agreed to reimburse `a reasonable claim‟ of expenditure incurred
towards mobilisation etc. Pursuant to the foreclosure document, the
Contractor raised several claims in respect of the expenses incurred by it, for
which it claimed reimbursement on 29th May, 2007. The claims raised were
to the tune of Rs. 35.71 crores. The claims were rejected by IRCON on 23rd
July, 2007 and on 3rd October, 2007, the Ld. Sole Arbitrator was appointed
to adjudicate the dispute between the parties.
3. Before the Ld. Arbitrator, the main claims raised were in respect of
reimbursement of expenditure incurred, loss of profit and other losses
incurred by the Contractor. The Ld. Arbitrator awarded a sum of Rs.16.97
crores towards compensation and Rs.4.85 crores as interest. The counter
claims raised by IRCON were rejected. The operative portion of the award
is set out hereinbelow.
"Summary of Award
IN CONCLUSION, M/S. IRCON International Limited
(Respondents) shall pay to M/s. Jaiprakash Associates
Limited (Claimants) a sum of Rs. 21.82 crores (Rupees
twenty one crores eighty two lakh only) towards full
and final settlement of all claims/counter claims of
both the parties arising out of the disputes and
differences as referred by the Managing Director,
IRCON International Limited in his letter no.
IRCON/CO/ARBN/J&K/JP/870 dt. 03.10.2007
THAT the amount as mentioned above shall be paid to
the Claimants within 60 days from the date of
publication of the award failing which the amount of
award will carry a simple interest of 12 % per annum
w.e.f date of publication of AWARD till the date of
payment.
THAT this AWARD has been published on a stamp
paper of Rs. 1,000/- supplied by the Claimant and the
total expenses due as stamp duty shall be borne by the
Claimants, as applicable.
THAT any of the expenses incurred by the parties in
connection with the arbitration will be borne by
themselves. As agreed in the first meeting dt.
16.10.2007, Arbitrator‟s fee etc. will be shared equally
by both the parties.
Section 33 of the Arbitration & Conciliation Act, 1996
provides for correction & interpretation of Award:
Additional Award within 30 days from the date of
receipt of Arbitral Award.
Accordingly, either of the party may refer, if they have
any such request to make to me within 30 days by
giving a notice to the other party for any correction &
interpretation: Additional Award within a period of 30
days."
4. The objections raised by Mr. Agnani, learned Senior Advocate are
two-fold, namely that the foreclosure document only provided for
reimbursement of reasonable expenses and not for awarding of claims for
losses. He submits that the foreclosure document was the final settlement
between the parties and ought to be treated as such. He further submits that
the award of Rs.16.97 crores towards expenses is completely baseless and
unverified. He further submits that the Ld. Arbitrator has gone beyond his
mandate. The calculations by the Arbitrator are guesswork and not based on
any evidence.
5. It is further submitted that the contractor had failed to mobilize
sufficient manpower and equipment, which in fact resulted in issuance of
show cause notice under Clause 89 of the GCC. Reference is made to letter
dated 12th January, 2007 which enumerated the various deficiencies in the
work carried out by the contractor and gives seven days‟ notice under
Clause 89 of the general conditions of contract. It is submitted that the Ld.
Arbitrator did not take into consideration the various shortcomings in the
execution of the work by the contractor. In fact, even during the period in
which the contractor was carrying out the said work, it ought to have
completed work worth Rs. 41.99 crores instead of Rs. 25.64 crores. This,
according to IRCON showed that there was inadequate mobilization on the
ground. The contractor having been forced to exit the work due to its own
short comings and deficiencies ought not to profit from the same by
claiming expenditure which it did not incur. It is further submitted that the
Ld. Arbitrator failed to consider that IRCON had paid mobilization advance
in two installments in terms of the GCC and also machinery advance. The
said two payments were advances given to the contractor, which carried
interest being PLR + 1% per annum. This amount was not repaid by the
contractor and the said amount and the interest on the advance given is
approximately Rs. 29.87 crores.
6. It is further submitted that the Ld. Arbitrator was bound by the
foreclosure documents and hence could not have awarded amounts towards
interest liability and corporate expenses. It is urged that the present being a
case of termination under Clause 89 of the GCC due to defaults of the
contractor, the award of compensation is not justified.
7. On the other hand, Mr. Sawhney, learned counsel appearing for the
Contractor submits that the Ld. Arbitrator had got verification of the
expenditure incurred done, by constituting a committee vide order dated 10th
May, 2008. The said committee consisted of representatives of both parties
and the amounts awarded by the Arbitrator are, in fact, much lesser than
what the said committee had verified. It is further submitted that all along it
was clear that any settlement or foreclosure would be subject to the claims
of the Contractor. This is clear from a reading of the various letters, which
have been written by the Contractor. IRCON was always aware that the
Contractor had incurred huge expenditure. The delay in the execution of the
work, was completely due to the breaches of IRCON as also conditions
prevalent in the sensitive area where the project was being implemented.
He, thus, states that the award is completely reasonable and is not liable to
be interfered with.
8. It is further submitted that the foreclosure document was an
agreement between the parties and IRCON had agreed to reimburse
reasonable expenses. Since the Joint Committee had verified the expenditure
incurred by the contractor, the argument that the expenditure is inflated is
liable to be rejected. It is further submitted that the mobilization advance
paid along with interest amount is fully secured by way of bank guarantee.
The last bank guarantee issued by the contractor is for a sum of Rs.
23,27,40,000/-, which is valid till 31st March 2019. Thus, the mobilization
and equipment advance is fully secured. It is further urged by the contractor
that though Clause 89 was invoked by IRCON, when the contractor refuted
the same, the contract period was extended by three months, and in fact, the
initial notice under clause 89 was not followed up. Finally, the foreclosure
document was executed, and this continues to bind the parties.
Analysis and Findings
9. Before going into the respective contentions of the parties, it is
important to extract the relevant portion of the foreclosure document, which
was accepted by the parties.
"
1 IRCON does not insist upon JAL will work out the
immediate return of expenditure incurred by them
advance made by IRCON to on account of mobilization etc
JAL, which could not be and submit a reasonable
adjusted/recovered so far claim within a period of 2
because of inadequate months from the date of
progress of work for foreclosure of the contract.
reasons beyond JAL‟s The claims submitted by JAL
control despite substantial will be examined along with
investment in deployment of the counter claims of IRCON
resources and expenditure within 2 months from the date
for execution of works. JAL of submission of the claims
is preparing details for the and if the same are not
amount it considers to be its resolved amicably, the dispute
entitlement & towards shall be referred to
compensation for Arbitration as requested by
idling/under utilization of JAL. The procedure for
resources which will be appointment of Arbitrator
submitted to you shortly. shall be as per Clause 90 of
GCC. The request of JAL for
In case JAL and IRCON not depositing the un-
come to an agreement to the adjusted/un-recovered
said compensation, the mobilization advances at this
outstanding advance stage and instead covering it
payment could be adjusted by a suitable BG including the
against it and the balance interest amount thereon is
amount payable on either agreed to. JAL will however
side could be squared up submit the fresh BG or amend
within an agreed period. the existing BG suitably to
cover the outstanding
However, in case no mobilization advances along
agreement is reached with the interest thereon as
between IRCON and JAL on per the details given in Annex-
the aforesaid compensation, I and keep it valid along with
the matter could be referred interest accruable for the
to Arbitration under the extended period till such time
Arbitration to be mutually the Arbitration is concluded
agreed by JAL and IRCON and the Arbitration award is
or by 3 Arbitrators. In such published. The settlement of
situation (i.e. grant of account in respect of
Arbitrator) JAL will be Mobilization Advance will be
agreeable to keep in force carried out on publication of
the BG for the outstanding the award. No further
advance payment till the extension of BGs will be
matter is settled by allowed on publication of
Arbitrator. award by the Arbitrator.
IRCON will be at liberty to
encash the BG, if on
publication of the award, the
amount of unsettled/
unadjusted advances is not
deposited by JAL. Further
IRCON will release the BGs
submitted by JAL, if no
amount is payable by JAL to
IRCON as a result of award
by the Arbitrators.
2 The work already done by The work already done by
JAL shall be jointly JAL shall be jointly measured
measured for finalization of for finalization of payment
payments including payment within two months of issue of
for extra items before the this letter.
foreclosure of the contract.
3 JAL shall furnish Accepted.
Performance Guarantee for
an amount equal to 3% +
5% against retention
money= 8% of the value of Partly Accepted. PBG shall be
work done by JAL valid for a period of 12
BG shall be valid for a months from the date of
period of 12 months from foreclosure of the contract.
the date of foreclosure of
the contract OR date on
which IRCON or any other Existing PBG will be released
agency commences the work after receipt of new PBG and
whichever is earlier. fresh/additional BG for
JAL‟s existing Performance mobilization advance.
Guarantee and the
Retention money available The foreclosure of the
with IRCON shall be contract will be deemed to be
released by IRCON to JAL with the mutual consent of
before foreclosure of the both the parties without levy
contract. of any liquidated damages
The foreclosure of the and any risk & cost liability
contract will be deemed to on JAL on account of getting
be with the mutual consent the balance work executed by
of the parties without levy of IRCON.
any liquidated damages or IRCON however reserves its
claim by IRCON. right to submit counter claims
before the Arbitrator and also
for mutual settlement of
compensation stated above
under item I
4 JAL will allow free access Noted. JAL will vacate the site
to the site of work to IRCON within one month of issue of
or any agency appointed by this letter or by the time the
IRCON for carrying out new agency is fixed whichever
remnant of work in a is earlier.
manner decided by IRCON
without any objection by
JAL. JAL will vacate the
work site within a
reasonable time after the
foreclosure of the contract.
You are hereby requested to give your acceptance to
the above, so that further necessary action is taken for
signing the supplementary agreement for the
foreclosure of the contract. Till such time the
supplementary agreement is signed, this letter will be
taken as the formal agreement and the date of
foreclosure for all purposes will be taken as the date of
issue of this letter."
10. Though the above document provides that a subsequent agreement
would be executed, in fact no such subsequent agreement came to be
executed. Thus, the foreclosure document is to be taken as the final
agreement between the parties.
11. The above table was incorporated as part of a letter, which was
communicated to the Contractor by IRCON on 29th March, 2007. While
setting out the stand of the Contractor, IRCON gave its own response to the
same and at the end, the acceptance of IRCON‟s stand was sought. On
behalf of the Contractor, its director Mr. Samir Gaur, signed this document
with the remark "accepted" on 30th March, 2007. Thus, in respect of the
foreclosure and the rights and liabilities post the foreclosure, the foreclosure
document binds the parties.
12. As per the foreclosure document-
The Contractor could raise reasonable claims within a period of two
months in respect of expenditure incurred on account of mobilisation
etc. The same were to be, thereafter, examined by IRCON. If the
same were not resolved between the parties, the claims would be
referred to arbitration.
The mobilisation advance and equipment advance and any other
advance would then be retained by the Contractor subject to
furnishing of the bank guarantee to IRCON for securing the said
advances along with interest.
In respect of work executed by the Contractor, joint measurement
would be taken by the parties and payment would be made within two
months from the foreclosure document. Performance Bank Guarantee
was also to be issued until the fresh Bank Guarantee towards
advances would be submitted. Upon the submission of the letter, the
Performance Bank Guarantee was to be released.
The foreclosure was with mutual consent of the parties without levy
of liquidated damages and also any risk and costs liability on the
Contractor, if IRCON decided to get the works executed by any third
party.
However, IRCON could raise its counter claims before the Ld.
Arbitrator and also seek settlement of compensation.
13. After the signing of the foreclosure document, the contractor vide
letter dated 29th May 2007 claimed a sum of approx. Rs. 35.71crores
towards the expenditure incurred. The contractor raised this claim on the
basis of the foreclosure document which permitted it to "submit a
reasonable claim."
14. On 23rd July 2007, IRCON rejected the expenditure claim on the
ground that the same is a huge claim and is unreasonable. The letter is set
out below:
" The said contract was foreclosed vide this office letter
No. IRCON/1014/J&K.KQ/Zone-III/36/ dated 29.03.2007.
As per the terms and conditions of the foreclosure, it was
understood that M/s. JAL will work out the expenditure
incurred by them on account of mobilization etc. and
submit a reasonable claim within a period of 2 months
from the date of proposal of the contract.
M/s. JAL has submitted a claim of Rs. 35.7 Crore vide
letter under reference dated 29.05.2007. Such a huge
claim is unreasonable and not acceptable to M/s IRCON.
In view of the above, it is advised that the matter may be
referred to arbitration for settling the reasonable claims.
IRCON will also submit its counter claims during the
arbitration proceedings."
15. Vide letter dated 12th September 2007, the contractor invoked
arbitration and on 3rd October 2007 a sole arbitrator was appointed by
IRCON.
16. The parties filed their pleadings before the Arbitrator. On 10th May
2008, IRCON raised an objection before the Ld. Arbitrator that the
contractor had failed to submit documents in support of the claims. In
rejoinder, the contractor submitted a long list of documents, which it relied
upon. Considering the nature of documents, the Ld. Sole Arbitrator
constituted a joint committee for verification of the documents. The said
committee consisted of the DGM and Manager (finance) of IRCON and two
officials of the contractor. The Ld. Arbitrator directed that a joint statement
would be submitted by the committee. The relevant portion of the order
passed by the Ld. Arbitrator dated 10th May, 2008 is extracted below.
" In their counter statement of facts, M/s. IRCON
International Limited have said that the Claimant have not
submitted the documents substantiating the deployment of
men and machines on the project. In their rejoinder, M/s.
Jaiprakash Associates Limited submitted a long list of such
documents.
It was, therefore, decided that all such documents referred
to by the claimant will be jointly verified by a Committee
consisting of:-
a. On behalf of Ircon International Limited
i. Shri Vinod Kumar/DGM
ii. Shri Yogesh Malik/Manager (Finance)
b. On behalf of Jaiprakash Associates Limited
i. Shri K.J. Singh
ii. Shri Atiq Ahmed Siddiqui.
And the „Joint Statement‟ will be submitted to the Sole
Arbitrator by 30.6.2008."
17. The above said committee submitted a report dated 13 th September
2008, which reads as under:-
"REPORT OF THE COMMITTEE
A committee of the following representatives was constituted
by the learned arbitrator during the hearing on 10 th of May
2008.
Representatives of Claimant Representatives of Respondent
Sh. K J Singh Sh. Vinod Kumar Sharma
Sh. Atiq Ahmad Siddiqi Sh. Yogesh Malik
The committee was directed to examine the expenditure details
submitted by the Claimant and scrutinize the vouchers in
support of the expenditure incurred by the Claimant. The report
was to be submitted by 30th June, 2008. This date was extended
to 31st August and later to 30th September 2008. The committee
representatives met in the office of the Claimant at Noida on
18th & 19th June and 21st July 2008. The committee members
visited the site office of the Claimant from 11th Sep to 13th Sep
2008 to verify the accounting records and related vouchers for
the total expenditure incurred on mobilization etc. and on
various heads of account as per the Statement of Claim (SOC).
The expenditure details and vouchers were examined by the
committee vis-a-vis the audited accounts for the financial years
2004 - 2005 to 2006-2007 (Three Years). During the
verification, certain typographical discrepancies were detected
particularly under the head of Manpower. Expenditure incurred
by Claimant towards donation and penalties has also been
removed from the total expenditure incurred. The net impact on
account of these errors amounts to Rs 34.50 lacs resulted into
reduction of expenditure on manpower from Rs 15.57 crores to
Rs 15.26 crores . The other heads of expenditure have been
found to be correct vis-a-vis the audited records. The total
expenditure as shown on page 411 of SOC, thus verified , works
out of Rs 45.50 crores, which includes the owning cost of the
equipments for the total period of its deployment only and
excludes the amount of margin money on Bank Guarantee. The
details of the expenditure verified have been given below:-
Sr. No. Heads Amounts (Rs. Crores)
1. Manpower 15.26
2. Equipment (Owning cost for the 11.07
total deployment period)
3. Camp Construction 3.93
4. Access Roads 3.03
5. Electrical Installation 0.96
6. Water Supply System 0.64
7. Communication System 0.56
8. Land Lease and Compensation 0.86
9. Rehandling of Steel From 0.34
Nachlana Bridge to worksite
10. Transportation of heavy 0.11
equipment in knock down
condition
11. Civil works for construction 0.50
Plants
12. Maintenance of Bank Guarantees 1.81
13. Maintenance of Insurance 0.06
Policies
14. Interest liability on Advance 6.37
45.50 crore
"
18. Thus, as per the report of the committee, the total expenditure
incurred by the contractor on the project was Rs. 45.50 crores.
19. The Ld. Arbitrator vide the impugned award dated 15th April 2010
held that the foreclosure document dated 29th March, 2007 is the final
binding contract between the parties. The arbitrator holds that the conclusion
of the relationship between the parties was not covered by clause 88 and 89,
but was by execution of a supplementary agreement under clause 56 of the
general conditions of contract. The Ld. Arbitrator further held that the
foreclosure documents, being later in point of time, would prevail in the case
of any contradiction between the original contract and the foreclosure
documents. Finally, the Ld. Arbitrator awarded a sum of Rs. 16.97crores
under various heads, in addition to interest. The observations of the
Arbitrator are set out hereinbelow:
" The decision to grant 90 days extension unilaterally
by the Respondents was to consider the reply of the
Claimants to 7 days notice with all the prons & cons of
the reply including discussion with Northern Railway.
This means that any action that followed in this case
was well considered decision on the part of the
Respondents and the stand now that is a case of
determination of Contract under Clause 89 of GCC is
an afterthought. This makes it very clear that this is not
a case of determining the Contract under Clause 89 of
G.C.C.
9. In view of the above, I have come to a conclusion
that this is not a case of determination of Contract
under Clause 89 of G.C.C. at all. This is a case of
amendment to the existing Contract in form of a
Supplementary Agreement under Clause 56 of G.C.C.
This is covered by Clause 62 of Contract Act 1872
(effect of novation, rescission and alteration of
contract) being a material alteration. The Respondent's
letter dt. 29.03.2007 duly accepted by the Claimants on
30.03.2007 is a Supplementary Agreement. This
Supplementary Agreement has come into existence
much later than the original Contract. Therefore, in
case any contradiction in the provisions of the two, the
provision of the Supplementary Agreement shall
prevail. The Claimants are therefore right when they
insist that the role of the present Arbitration is only to
arrive at reasonable amount of claims submitted by the
Claimants and further to adjudicate on the counter
claims of the Respondent.
10. I would, therefore, confine my role to arrive at a
reasonable amount for each claim of the Claimants
and to the Counter Claims of the Respondents only.
Any amendment in claims/ counter claim made due to
any calculation or with-drawl by the party concerned
will, of course, be considered."
20. Thus, the only role that the Arbitrator assumed for adjudication was
the determination of the reasonable compensation payable to the contractor
for the expenditure incurred.
21. The Ld. Arbitrator observed that the stand of IRCON was that the
figures given by the contractor were highly inflated and there was no
authentic data in support of the said figures. Ld. Arbitrator, however, held
that since he was not equipped with any machinery to go into the accounts
on his own, he had appointed a joint committee to verify the claims. Once
the verification has been done by the Joint Committee, the Ld. Arbitrator
held that he had no reason to disbelieve the said figures.
22. The Ld. Arbitrator thereafter holds that there were several reasons
why the work could not be started by the contractor on all fronts. However,
he concluded that several of the reasons were `beyond the control of both the
parties‟. It was further observed that the contractor "had not deployed the
full machinery and manpower". After doing so, the Arbitrator observed as
under:-
"Due to various reasons as pointed out by the
Claimants themselves the work could not be started at
all fronts. Besides other reasons, non availability of
land & non up-gradation of arterial access roads,
bridges across Bichlari river & Mahu Mangat Nala
did not permit full deployment. There have been
reasons beyond control of both the parties. Therefore,
it will not be fair to accept that the amount realized out
of the expenditure of mobilization etc. can be directly
proportional to the total cost of work. The Claimants
are well experienced company who have handled such
projects. Using their experience & prudence; they must
have mobilized their resources keeping in view the
working conditions and thus avoided large scale
wastages. They have also not deployed the full
machinery and man power. As a matter of fact, there
are two joint meetings held on 24.10.2005 and another
one held on 09.06.2006. Both these meetings were
attended by Shri Samir Gaur & Shri R.K. Jain from the
side of the Claimants where the Claimants have agreed
for improving the deployment of men & machinery.
In this manner, it can be seen that both the parties
were reasonable & sincere towards the making the
project a success but unfortunately due to
circumstances beyond control of both of them, the
progress could not be achieved. In my opinion, other
problems could be solved by adopting better
techniques, better coordination and extension of time.
But the main difficulties were delay in land acquisition
by Respondents, militancy and delay by the
Respondents in upgrading the arterial road and
bridges which did not allow the project to proceed. I
would, therefore, consider it fair to make an
assessment about the cost of work which could be done
by the Claimants with the deployment of man &
machinery at various fronts which were open. For this
purpose the Respondents have submitted on
20.02.2009 a written brief wherein they have submitted
a detailed table showing the cost of work which was
possible to be done. The table indicates the cost of
tunneling work as Rs.40.75 crores and that for bridges
Rs. 1.24 crores. The total to the possible work thus
works out to Rs. 41.99 crores.
To my mind this amount of Rs. 41.99 crores is a fair
assessment and I therefore use this figure for working
out the expenditure realized against the Head of
Expenditure column in the table showing claims
submitted by the Claimants. For the sake of
convenience, I will use the same formula for the
manpower & equipments also. The formula will be
(i) Realized amount = Expenditure chargeable to
contract /41.99 x 25.64
(ii) Claim = Unrealized amount = Expenditure
chargeable to contract - realized amount"
23. By applying the formula extracted above, the Ld. Arbitrator came to
the conclusion that Rs.16.97 crores is the unrealized portion of the
expenditure i.e. the acceptable claim towards expenditure incurred by the
contractor, which has not been realized through the value of work done. The
arbitrator denied the loss of profits claim. The Arbitrator also awarded
interest at 12% per annum on the amount awarded. The counter claims of
IRCON were rejected.
24. The first submission that is to be considered is as to whether the
cessation of relationship between the parties was under clause 88 or 89 of
General Conditions of Contract or whether it constituted novation under
Clause 56. Clauses 56, 88 and 89 are set out below:
"56. Modification to contract to be in writing - In
the event of any of the provisions of the contract
requiring to be modified after the contract documents
have been signed, the modifications shall be made in
writing and signed by IRCON and the contractor and
no work shall proceed under such modifications until
this has been done. Any verbal or written arrangement
abandoning, modifying, extending, reducing or
supplementing the contract or any of the terms thereof
shall be deemed conditional and shall not be binding
on IRCON unless and until the same is incorporated in
a formal instrument and signed by IRCON and the
contractor, and till then IRCON shall have the right to
repudiate such arrangements.
88. (1) Right of IRCON to determine the contract:-
IRCON shall be entitled to determine and terminate the
contract at any time should, in IRCON opinion, the
cessation of work becomes necessary owing to paucity of
funds or from any other cause whatever, in which case the
value of approved materials at site and of work done to
date by the contractor will be paid for in full at the rate
specified in the contract. Notice in writing from IRCON of
such determination and the reasons therefor shall be
conclusive evidence thereof.
(2) Payment on determination of contract:- Should the
contract under sub- clause (1) of this clause and The
contractor claims payment for expenditure incurred by him
in the expectation of completing the whole of the work,
IRCON shall admit and consider such claims as are
deemed reasonable and are supported by vouchers to the
satisfaction of the Engineer. IRCON's decision on the
necessity and propriety of such expenditure shall be final
and conclusive.
(3) The contractor shall have no claim to any payment
of compensation or otherwise, whatsoever on account
of any profit or advantage which he might have derived
from the execution of the work in full but which he did
not derive in consequence of determination of contract
89. Determination of contract owing to default
of contractor :- (1) If the contractor should
i) Become bankrupt or insolvent, or
ii) Make an arrangement with or assignment in favour
of his creditors, or agree to carry out the contract
under a Committee of inspection of his creditors, or
iii) Being a Company or Corporation, go into
liquidation (other than a voluntary liquidation for the
purposes of amalgamation or reconstruction), or
(iv) Have an execution levied on his goods or property
on the works, or
(v) Assign the contract or any part there-of otherwise
than provided in Clause 18 of these conditions or
(vi) Abandon the contract, or
(vii) Persistently disregard the instructions of the
Engineer, or contravene any provision of the contract,
or
(viii) Fail to adhere to the agreed programme of work
by a margin of 10% of the stipulated period.
(ix) Fail to remove materials from the site or to pull
down and replace work after receiving from Engineer
notice to the effect that the said materials or works
have been condemned or rejected, or
(x) Fail to take steps to employ competent or additional
staff and labour as required under these conditions, or
(xi) Fails to afford the Engineer or Engineer‟s
representative proper facilities for inspecting the works
or any part thereof as required under these conditions,
or
xii) Promise, offer or give any bribe, commission, gift
or advantage either himself or through his partner,
agent or servant to any officer or employee of IRCON
or to any person on his or their behalf in relation to the
execution of this or any other contract with IRCON
Then and in any of the said cases, the Engineer on
behalf of IRCON may serve the contractor with a
notice in writing to that effect and if the contractor
does not within seven days after the delivery to him of
such notice proceed to make good his default in so far
as the same is capable of being made good and carry
on the work or comply with such directions as aforesaid
to the entire satisfaction of the Engineer, IRCON shall be
entitled after giving 48 hours in writing under the hand
of the Engineer to rescind the contract as a whole or in
part or parts ( as may be specified in such notice) and
adopt either or both of the following courses:-
a) To carry out the whole of part of the work from which the
contractor has been removed by employment of the
required labour and material, the costs of which shall
include lead, lift freight, supervision and all incidental
charges.
b) To measure up the whole or part of the work from which
the contractor has been removed and to get it completed
by another contractor the manner and method in which
such work is completed shall be in the entire discretion
of the Engineer whose decision shall be final.
And in both the cases (a) and (b) mentioned above,
IRCON shall be entitled (i) to forfeit the whole or such
portion of the security deposit as it may consider fit, and
(ii) to recover from the contractor the cost of carrying
out the work in excess of the sum which would have been
payable according to the certificate of the Engineer to
the contractor if the work had been carried out by the
contractor under the terms of the contract, such
certificate being final and binding upon the contractor.
Provided, however, that such recovery shall be made
only when the cost incurred in excess is more than the
security deposit proposed to be forfeited and shall be
limited to the amount by which the cost incurred in
excess exceeds the security deposit proposed to be
forfeited. The amount thus to be forfeited or recovered
may be deducted from any moneys then due or which at
any time thereafter may be deducted from any moneys
then due or which at any time thereafter may become due
to the contractor by IRCON under this or any other
Contract or otherwise.
Provided always that in any case in which any of the
powers conferred upon IRCON by sub-clause (1) of
Clause 89 hereof of Clause 89 hereof shall have
become exercisable and the same shall not be
exercised, the non-exercise thereof shall not constitute
a waiver of any of the conditions thereof and such
powers shall notwithstanding be exercisable in the
event of any future case of default by the contractor for
which his liability for past and future shall remain
unaffected.
(2) Right of IRCON after rescission of contract owing
to default of Contractor - In the event of any or several
of the courses, referred to in sub-clause (1) of the
clause, being adopted:-
a) The contractor shall have no claim to compensation
for any loss sustained by him by reason of his having
procured any material or entered into any
commitments or made any advances on account of or
with a view to the execution of the works or the
performance of the contract and Contractor shall not
be entitled to recover or be paid any sum for any work
thereto for actually performing under the contract
unless and until the Engineer has certified the
performance of such work and the value payable in
respect thereof and the contractor shall only be entitled
to be paid the value so certified.
b) The Engineer or the Engineer‟s Representative shall
be entitled to take possession of any materials, tools,
implements, machinery and buildings on the works or
on the property on which these are being or ought to
have been executed, and to retain and employ the same
in the further execution of the works or any part
thereof until the completion of the works without the
contractor being entitled to any compensation for the
use and employment thereof or for wear and tear or
destruction thereof.
c) The Engineer shall as soon as may be practicable
after removal of the contractor fix and determine ex-
parte or by or after reference to the parties or after
such investigation or enquiries as he may consider fit
to make or institute and shall certify what amount ( if
any) had at the time of rescission of the Contract been
reasonably earned or would reasonably accrue to The
contractor in respect of the works then actually done
by him under the contract and what was the value of
any unused or partially used materials, or any
constructional plant and temporary works upon the
site.
d) IRCON shall not be liable to pay to the contractor
any moneys on account of the contract until the
expiration of the period of maintenance, damages for
delay in completion (if any) and all other expenses
incurred by IRCON have been ascertained and the
amount thereof certified by the engineer. The
contractor shall then be entitled to receive only such
sum or sums (if any) as the Engineer may certify would
have been due to him upon due completion by him after
deducting the said amount, but if such amount shall
exceed the sum which would have been payable to the
contractor, then the contractor shall upon demand pay
to IRCON the amount of such excess and it shall be
deemed a debt due by the contractor to IRCON and
shall be recoverable accordingly.
25. A perusal of clause 89 shows that the same provides for
"determination of contract owing to default of the contractor." If there is
any default, as per the contract, IRCON was required to give notice of seven
days to the contractor to make good the default and follow it up with a 48-
hour notice in writing to rescind the contract as a whole or as a part. Though
IRCON gave the first notice of seven days, the second notice was not issued.
After prolonged correspondence, the foreclosure document dated 29th March
2007 was executed. Thus, the arbitrator was right in holding that the
sequence of events showed that there was no termination of contract due to
default under clause 89. A perusal of the foreclosure document further
shows that the same was similar to the mechanism provided in clause 88.
26. Under both the above clauses, parties could agree to modify/vary the
contract. Under clause 88(2), expenditure incurred which is considered
reasonable is liable to be reimbursed by IRCON. No profits were liable to be
awarded. The Ld. Arbitrator holds that the foreclosure document is a
binding contract and applies the principles as contained in Clause 88 in
awarding the expenditure to the contract. The finding that the foreclosure
document is a binding contract and that the only issue for determination was
the amount of expenditure that could be considered reasonable for being
reimbursed is fully justified in the facts, and is not liable to be interfered
with.
27. Thus, all that is required to be seen is whether what has been awarded
is "the expenditure incurred by them (sic contractor) on account of
mobilization etc." and "whether the same is reasonable".
28. In order to determine the expenditure incurred by the contractor, the
Ld. Arbitrator appointed a joint committee to verify the total expenditure
incurred. The said committee confirmed the total expenditure as being Rs.
45.50 crores. The Ld. Arbitrator applies a formula to arrive at the reasonable
expenditure to be reimbursed. He does this by applying the formula used by
IRCON to show the cost of work that ought to have been done by the
contractor. It is after applying this formula that the Arbitrator arrives at a
figure of Rs. 16.95 crores as being the reasonable expenditure. The amounts
determined are tabulated by the Ld. Arbitrator as under:
Sr. Heads of Total Expenditure Expenditure Unrealized
No Expenditure Expenditure chargeable realized portion of
to contract through the expenditure
value of =
work Acceptable
claims
1. Manpower 15.26 15.26 9.31 5.95
2. Equipment 40.33 11.07 6.75 4.32
3. Camp 3.93 1.72 1.05 0.67
Construction
4. Access Roads 3.03 3.03 1.85 1.18
5. Electrical 0.96 0.24 0.15 0.09
installation
6. Water Supply 0.64 0.19 0.11 0.08
System
7. Communication 0.56 0.12 0.07 0.05
System
8. Land lease and 0.86 0.86 0.52 0.34
Compensation
9. Re-handling of 0.34 0.34 0.00 0.34
Steel from
Nachnala
bridge to work
site
10. Transportation 0.11 0.11 0.00 0.11
of heavy
equipment in
knocked down
condition
11. Civil works for 0.50 0.50 0.30 0.20
Construction
Plants
12. Maintenance of 3.86 1.81 1.10 0.71
bank
Guarantees
13. Maintenance of 0.06 0.06 0.03 0.03
Insurance
policies
14 Interest liability 6.37 6.37 3.88 2.49
on Advances
76.81 41.68 25.12 16.56
Add 2.5% 0.41
Corporate
expenses which
are considered
reasonable
Total 16.97
The conclusions given by the Arbitrator are based on the table extracted in
the Report of the Committee and include various heads such as interest
liability on advances, corporate expenses etc. The question is whether all
these amounts are liable to be awarded in favour of the contractor.
29. Since the final document agreed to by the parties, is the foreclosure
document, what is liable to be reimbursed is only expenditure on account of
mobilization etc. which is reasonable. The Ld. Arbitrator has come to the
conclusion that the delay in this matter was not purely attributable to
IRCON, in fact it was for reasons beyond the control of both the parties.
This combined with the fact that there were repeated complaints by IRCON
that sufficient man power and equipment mobilization had not taken place,
led to cessation of the contract. Further, the non-execution of a substantial
portion of the work is also clear from the total value of work executed
during the period of the contract which is Rs.26.44 crores out of Rs. 168.46
crores i.e., approx.15% of the value of the contract. Thus, it cannot be held
that IRCON is liable to reimburse the entire expenditure. Some part of the
blame lies on the contractor and only such expenditure is liable to be
reimbursed which relates to mobilization etc., as per the foreclosure
document. A perusal of the table above shows that the Ld. Arbitrator has
gone beyond the foreclosure document, while holding that the said
document is binding. Reimbursement of amounts which do not constitute
expenditure towards mobilization etc., would not be permissible.
Accordingly, the following heads of expenditure are not liable to be granted
namely-
(I) Maintenance of bank guarantee.
(II) Maintenance of insurance policies.
(III) Interest liability on advance and corporate expenses.
30. The remaining amounts towards items 1 to 11 in the above table are
awarded in favour of the contractor i.e. a sum of Rs. 12.99 crores. The loss
of profits claim has been rightly rejected by the Arbitrator.
31. Thus, the O.M.P. is disposed of by awarding a sum of Rs. 12.99
crores to the contractor with interest @ 6% per annum from the date of
award i.e. 15th April, 2010 till date. Parties are directed to work out the
adjustments after taking into consideration the mobilization advance,
equipment advance, and the interest thereon, payable by the contractor to
IRCON. The exercise be completed within a period of 8 weeks from today.
The Bank Guarantee of the contractor which is valid till 31st March 2019,
may be encashed by IRCON and the adjustment of the accounts may be
worked out accordingly within a period of four weeks.
32. OMP is disposed of in the above terms.
PRATHIBA M. SINGH
JUDGE
FEBRUARY 26, 2019/dk/MR
