Delhi High Court
Rites Ltd. vs Mr. Subrata Kumar Ghose on 17 May, 2019
$~13
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Reserved on:3rdMay, 2019
Pronounced on:17th May, 2019
+ O.M.P. (COMM) 177/2019, I.A. 6487/2019& I.A. 6488/2019
RITES LTD. ..... Petitioner
Through: Mr. R.P. Agrawal, Advocate with Ms.
Sonali Rastogi and Mr. Prateek
Kushwaha, Advocates.
versus
MR. SUBRATA KUMAR GHOSE ..... Respondent
Through: None.
CORAM: JUSTICE SANJEEV NARULA
JUDGMENT
SANJEEV NARULA, J
1. The present Petition under Section 34 of the Arbitration and Conciliation
Act, 1996 ("the Act" in short) read with Section 10 (2) of The Commercial
Courts, Commercial Division and Commercial Appellate Division of High
Courts Act, 2015 challenges the arbitral award dated 7th January 2019 passed
by the learned Sole Arbitrator Sh. T.K. Dhar.
Brief Facts
2. Petitioner is an Engineering Consultancy Company incorporated under
the provisions of the Companies Act, 1956, specializing in the field of
Transport Infrastructure and was acting as a constituted attorney of Steel
Authority of India Limited (SAIL), Raw Material Division, Kolkata.
Respondent runs a sole proprietorship business under the name and style of
Dawn Engineering Company.
3. Petitioner floated a Tender dated 23rd April 2012 for the DESIGN,
SUPPLY, ERECTION, TESTING ANDCOMMISSIONING OF
SWITCHING POST (SSP) at Bolani Ores Mines Railway Post,
Chakradharpur Division of South Eastern Railway, on behalf of Steel
Authority of India Limited, Raw Material Division, whereby the Respondent
was declared the successful bidder and he was awarded the said work vide
Letter of Acceptance (LOA) dated 18th September 2012 for an amount of Rs.
43,49,993/-.
4. As per the LOA the said work was to be completed within a period of 6
months from the date of issuance of LOA i.e. 17th March 2013, or from the
date of handing over of site, which ever was later. In terms of the LOA the
Respondent was required to furnish an irrevocable performance guarantee
(PG) for an amount of Rs. 2,17,500/- within 15 days. The Respondent failed
to do so, but nonetheless the Petitioner directed him to carry on the SSP
work in terms of the LOA.
5. The Petitioner the issued several reminder to the Respondent to furnish
the aforesaid PG and also requested him to expedite the work. A number of
alterations in the approved drawings for the project (on the basis of which
the work was to be completed) were made and as a result, the Respondent
sought extension for completion of the work by upto 30th June 2013. The
said request was not allowed. The Respondent then informed the Petitioner
that due to the amendments in the drawings and change of site there was a
variation of 60% and material requirements were also enhanced by 68%. On
24th May 2013 Petitioner extended the date for furnishing the Performance
guarantee to 5th June 2013, but despite the extension the Respondent failed
to comply. On 8th November 2013 a show cause notice was issued stating as
to why the contract should not be terminated. This was followed by the
termination notice dated 17th April 2014 attributing delay and failure on the
part of the Respondent to furnish the PG. Aggrieved by the said
termination, Respondent vide letter dated 3rd August 2016 wrote to the
Petitioner requesting for appointment of a sole Arbitrator. On 21st September
2016, the competent authority of the Petitioner appointed Sh. T.K. Dhar,
Retd. ED, NTPC Ltd. as the Sole Arbitrator, in terms of the Arbitration
Agreement.
6. Before the Arbitrator the Respondent filed several claims including
recovery of dues and payment for the work done. After due consideration of
the facts and material produced in trial, the Learned Arbitrator in Para 5.27
of the Award, has held that the termination of the contract by the Petitioner
was illegal and beyond contract stipulations. The Petitioner had no authority
to forfeit the earnest money deposited and other dues of the unpaid work.
The Ld. Arbitrator has allowed the Claims raised by the Respondent as
under: -
S. No. Particular of CLAIM Amount Amount Awarded
Claimed (Rs.) (Rs.)
1. Claim towards refund 38,000/- 38,000/-
of Earnest Money
Deposit
2. Claim towards work 1,53,000/- 1,53,000/-
done but not paid
3. Claim towards Loss of 1,00,00,00/- NIL
Goodwill and
Reputation
4. Claim towards Loss of 70,000,00/- 6,52,490/-
Business entailing Loss
of Profitability
5. Claim towards Mental 50,000,00/- NIL
Harassment
6. Claim towards
payment of [email protected]
18% PA
(a) Pre-award interest NIL
(b) Post-award interest 10% PA after 03
months from date of
award
TOTAL AWARDED 2,21,91,000/- 8,43,940/-
AMOUNT
Grounds/Submissions of the Petitioner
7. During the course of arguments learned counsel for the Petitioner
confined the scope of challenge in the present petition to the findings on
Claim Nos. 2 and 4. The Learned counsel however raised preliminary
objections that the Arbitrator could not have decided the disputes referred to
it, as the Respondent had failed to comply with the pre-arbitration conditions
as prescribed in Clause 25 of the General Conditions of Contract (GCC),
which reads as under: -
"CLAUSE 25
Settlement of Disputes and Arbitration
Except where otherwise provided in the Contract all questions and
disputes relating to the meaning of the specifications, design,
drawings and instructions hereinbefore mentioned and as to the
quality of workmanship or' materials used on the work or as to any
other question, claim, right, matter or thing whatsoever in any way
arising out of or relating to the Contract, designs, drawings,
specifications, estimates, instructions, orders or these conditions or
otherwise concerning the works or the execution or failure to
execute the same whether arising during the progress of the work ,
or after the cancellation ,termination, completion or abandonment
thereof shall be dealt with as mentioned hereinafter.
1) If the Contractor considers any work demanded of him to be
outside the requirements of the Contract, or disputes any drawings,
record or decision given in writing by the Engineer on any matter
in connection with or arising out of the Contract or carrying out of
the work, to be unacceptable, he shall promptly within 15 days
request the Engineer-incharge in writing for written instruction or
decision. Thereupon, the Engineer-in-charge shall give his written
instructions or decision within a period of one month from the
receipt of the Contractor's letter.
If the Engineer-in-charge fails to give his instructions or decision
in writing within the aforesaid period or if the Contractor is
dissatisfied with the instructions or decision of the Engineer-in -
charge, the Contractor may, within 15 days of the receipt of the
Engineer-in-charge decision, appeal to the Appellate Authority
specified in Schedule 'F' who shall afford an opportunity to the
Contractor to be heard, if the latter so desires, and to offer
evidence in support of his appeal. The Appellate Authority shall
give his decision within 30 days of receipt of Contractor's appeal.
If the Contractor is dissatisfied with this decision , the Contractor
shall within a period of 30 days from receipt of the decision, give
notice to the Appointing Authority specified in Schedule 'F' for
appointment of Arbitrator, failing which the said decision shall be
final binding and conclusive and not referable to adjudication by
the arbitrator. "
8. He argues that in terms of the said aforesaid Clause, the Respondent
should have first approached the Engineer-in-Chief for adjudication of the
disputes arising out of the LOA. Thereafter, if the Respondent was
aggrieved by the decision of the Engineer-in-Chief, he should have
approached the Appellate Authority as specified in Schedule F of the LOA
and only in the event the Respondent was not satisfied with the decision of
the Appellate Authority, he could have approached the learned Arbitrator
for adjudication of the disputes. He further submits that the request for
appointment of the Arbitrator after 28 months for the date of termination
noticeis barred by limitation in terms of Clause 25.1 that requires the
Respondent to seek appointment of Arbitrator within 30 days of receipt of
the decision of the Appellate Authority. He further submits that the learned
Arbitrator failed to take into consideration the exaggeration of claims made
by the Respondent in contrast to his letter dated 3rd August 2016, where
under an aggregate amount of Rs. 2,73,926.85/- was claimed, without any
demand for loss of profits/ business. Lastly, He submits that the learned
Arbitrator has failed to take note of the preliminary objections before
deciding the specific claims of the Respondent and the Arbitral Award is
thus bad in law and should be set aside.
Findings and Analysis on Preliminary Objections
9. Before deciding the challenge to the findings of the Arbitrator on the
specific claims, it is essential to deal with the preliminary objections. Sh.
T.K. Dhar, Retd. ED, NTPC Ltd. was appointed as the sole arbitrator. His
appointment was pursuant to the invocation notice dated 3rd August 2016
sent by the Respondent requesting for constitution of the arbitral tribunal in
consonance with the provisions of the GCC. In response to the letter dated
3rd August 2016, the Petitioner without any reservation or insisting upon the
pre-reference procedure proceeded to appoint the arbitrator. The contents of
the letter of appointment of arbitrator are being reproduced hereunder:-
"Whereas M/s Dawn Engineering Company, Kolkata have
written letter to Group General Manager/EE vide their letter dt.
0308.2016 referred at Sr. no. (iii) that certain disputes have arisen
between the above noted parties in respect of the above noted
work. I, Executive Director (RI)/RITES by power conferred on
me under Clause 25 of the said Agreement hereby appoint as
Sole Arbitrator to decide and make his award regarding the
claims/disputes by the contractor as well as the Counter Claims
of RITES, if any, arising out of the same contract, subject to
admissibility of the Claims and the Counter Claims 25 of the
aforesaid Agreement.
The Arbitrator shall give his award in respect of each
Claim/Counter Claim and also give reasons for the award in
respect of each Claim/Counter Claim."
Petitioner was well within his rights to compel the Respondent to undergo
the pre-arbitration process. However, it did not do so and appointed the
arbitrator asking him to give his award in respect of each claim supported by
reasons. Therefore, at this stage after the completion of the arbitration
proceedings this objection of the Petitioner is untenable and is liable to be
rejected.
10. The next contention, that the Arbitrator could not have entertained
claims in excess of the amount mentioned in the letter of invocation of the
arbitration clause dated 3rdAugust 2016 is also misconceived. The letter of
appointment dated 22nd September 2016 does not define the terms of
reference. The learned Arbitrator in para 5.27 of the award has also noted
that the claimant has never raised the aforesaid contention in the claim
petition and the same was brought up for the first time during the course of
arguments after the conclusion of trial. Referring to the contents of the letter
of appointment, the Arbitrator has concluded that Petitioner did not restrict
the scope of arbitration. The wording of the appointment letter is clear,
unambiguous and permits the parties to raise all such claims as may arise
under the agreement. These observations and findings are based on
documents and do not call for any interference. Petitioner's contention that
the invocation of the arbitration clause after 28 months from the date of
termination of contract is barred by limitation is contrary to the settled
position of law. The Supreme Court in National Insurance Co. Ltd. v. Sujir
Ganesh Nayak & Co., [1997] 3 SCR 202 has held that the period of
limitation cannot be curtailed by parties by way of a contractual stipulation.
The invocation of arbitration, being the commencement of the proceedings
as envisaged under Section 21 of the Arbitration and Conciliation Act, 1996,
is within time and cannot be said to be barred by limitation. This objection is
also rejected.
Claim No. 2- Claim towards work done but not paid
11. Learned counsel for the Petitioner argues that the Ld. Arbitrator failed to
appreciate and consider the terms of the letter of appointment dated 5th
October 2012. No payments could have been made until the Respondent had
furnished the PG and APG in terms of the LOA and hence, the Respondent
was not entitled to payment for the works done by him. The learned
Arbitrator failed to consider that the Respondent did not raise any Bill for
the works done by him under the Agreement. The Arbitrator has awarded a
sum of Rs. 1,53,000/- merely on the basis of a Letter dated 15th March 2013
sent to the Petitioner stating the amount of work done by him. The said
Claim ought not to have been allowed in absence of any cogent evidence to
support the same.
12. Learned Arbitrator while deciding the validity of the termination of the
Contract between the parties has held that the termination to be illegal and
unlawful. Further, he has also returned a finding of fact holding the
petitioner guilty of delay in execution of the work. It is also observed that on
account of the failure of the Respondent to furnish the PG and APG within
the stipulated time as per the LOA, the Petitioner could have terminated the
Contract. The conduct of the Petitioner has been elaborately discussed in the
impugned award. Despite the delay on the part of Respondent in furnishing
the PG and APG and other stipulations as per the LOA, Petitioner allowed
the Respondent to continue with the execution of the contract. Petitioner
granted Respondent extension of time to furnish the PG and APG and also
permitted him to carry on the work in terms of the LOA. Hence, the
Petitioner has remitted the terms of the Contract which mandated the
Respondent to furnish the PG and APG before any payment could be made
to him for the work carried out in terms of the agreement. Respondent
performed his obligation and executed the work till the date of termination.
Since the termination has been held to be unlawful, the necessary corollary
is that Respondent became entitled for the work done. On termination, right
to payment for the work done but not paid remains unaffected. There was no
counter-claim of the Petitioner and thus Respondent was entitled to be paid
for the work done. The Supreme Court in McDermott International Inc. v.
Burn Standard Co. Ltd. (2006) 11 SCC 181, has held that construction of
contract between the parties is within the jurisdiction of the arbitrator and
they cannot be said to have misdirected themselves in taking into
consideration the conduct of the parties. The learned Arbitrator has rightly
awarded the claim towards the work done and not paid. The said finding is
based on well grounded reason and requires no interference by the Court.
Moreover, it is trite law that when the decision of the arbitrator is based on
sound reasoning and well established principles of law, the same cannot be
interfered with by this Court in its jurisdiction under Section 34 of the Act.
Hence, the challenge to the Claim No.2 is dismissed and the decision of the
learned Arbitrator of the said Claim is upheld.
Claim No. 4.- Claim towards Loss of Business entailing Loss of
Profitability
13. Learned counsel for the Petitioner preludes his submissions on Claim no.
4 by contending that the Arbitrator wrongly allowed an amount of Rs.
6,52,490/- towards loss of profit , failing to take note that the Respondent
had claimed the said amount under the head of loss of business. He argues
that loss of profits and loss of business cannot be considered to have the
same meaning. He submits that the Claim has been erroneously allowed by
the Arbitrator on assumptive grounds that in Commercial Contracts, 15% of
profits normally accrue. The only evidence led by the Respondent to justify
his claim for loss of profits/loss of business was his balance sheet/Income
Tax Returns for the year 2004-05 to 2008-09. The said documents instead of
proving loss, show annual profits of Rs. 35,00,000/- and are also irrelevant
as the Contract/dispute pertained to the year 2012 to 2014. It is also
contended that the claim of loss of business filed before the learned
Arbitrator was merely an afterthought as the Respondentdid not raise any
Claim of loss of profits/business in its letter dated 3rd August 2016 where
under an aggregate amount of Rs. 2,73,926.85/- was sought. Lastly, it is
contended that the Claim ought not to have been allowed by the learned
Arbitrator on the ground that Respondent had sought an exaggerated amount
of Rs. 70,00,000/- towards loss of business despite his Annual Business
Report reflecting an annual profits up to Rs. 35,000,00/- only.
14. While allowing this claim the Arbitrator has held the Respondent to be
entitled to marginal profits which he would have yielded on completing the
work in terms of the agreement between the parties. The findings of the
learned arbitrator are based on the finding that termination of the contract
was unjustified and arbitrary and the failure of the Respondent to complete
the work was attributable to the Petitioner. The learned arbitrator while
allowing the said claim awarded a nominal amount of Rs. 6,52,490/- as
compensation for the wrongful termination of the contract. Hence, the
distinction that the Petitioner has tried to raise between loss of profit and
loss of business is completely bereft of merit. Since the Petitioner has been
held to be at fault, it was legally bound to compensate the other party to the
agreement. As a direct consequence of the unlawful termination, the
Respondent is to be presumed to have sustained damages, it may be
liquidated damages or in some cases nominal damages. In absence of actual
loss of profit, the Arbitrator can award nominal damages in favour of the
party not in breach of the agreement, however, such damages can only be
nominal in nature. What is to be the amount of nominal damages depends on
the facts of each particular case. In the present case award of damages of Rs.
6,52,490/- as compensation for the wrongful termination of the contract is
nominal and reasonable. The courts have also recognized the position that in
a works contract, if the party entrusting the work commits breach of the
contract, the contractor is entitled to claim damages for loss of profit, which
he expected to earn by undertaking the works contract. In such cases, the
Court without insisting for direct proof of the measure of lost profit, have
granted 10-15 per cent of the contract value as damages. Since the amount
awarded is nominal and keeping in view that the scope of interference by the
Court with an arbitral Award has been considerably narrowed down by the
Supreme Court in several decisions, the court is not inclined to interfere with
the findings in the impugned award on this claim. Court also finds the
reasoning given by the Arbitrator to be proper and sound and is accordingly
upheld.
15. Lastly, relying on well-worn principles laid down by the Supreme Court
in Associate Builders v. Delhi Development Authority reported in (2015) 3
SCC 49, H.B Gandhi, Excise & Taxation Officer-cum-Assessing
Authority v. Gopi Nath & Sons reported in 1992 Supp (2) SCC 312, State
of Orissa v. M/s. SamantaryConstn. Pvt. Ltd.reported in 2015 (9) SCALE
685andP.R. Shah, Shares and Stock Brokers Private Limited v. B.H.H.
Securities Private Limited, reported in (2012) 1 SCC 594 to the effect that a
court exercising jurisdiction under Section 34 of Act does not sit in appeal
over the award to re-assess or re-appreciate evidence; and that where there is
nothing perverse or irrational, the Court will not interfere in an arbitral
award, this court holds that there is no ground for interference in the award.
16. In view of the above, the petition along with all pending applications are
dismissed with no order as to costs.
SANJEEV NARULA, J.
th
May17 , 2019
ss
