Madras High Court
M/S.Gammon India Limited vs The Commissioner on 17 February, 2021
O.P.No.377 of 2014
IN THE HIGH COURT OF JUDICATURE AT MADRAS
Dated : 17.02.2021
CORAM:
THE HONOURABLE Mr.JUSTICE M.SUNDAR
O.P.No.377 of 2014
M/s.Gammon India Limited,
Represented by Mr.J.L.Ashar,
Vice President, Head-Works Survey
Gammon House, Veer Savarkar Marg,
Prabha Devi, Mumbai-400 025. ... Petitioner
Vs.
1. The Commissioner,
Corporation of Chennai,
Rep.by Superintending Engineer (Bridges)
Ripon Buildings, EVR Road,
Chennai-600 003.
2. Sri.A.V.Rangaraju (Presiding Arbitrator)
No.65/6 Sakthi Flats,
Kamarajar Salai, Virugambakkam,
Chennai-600 092.
3. Dr.D.Thirunavukkarasu (Co-Arbitrator),
New No.60(Old No.56-B)
Anjugam Nagar III Street,
Ashok Nagar, Chennai-600 083.
4. Mr.A.Sampath Kumar (Co-Arbitrator),
No.519 2nd West Street, West Avenue,
Thiruvanmiyur, Chennai-600 041.
(R2 to R4 are deleted in and by this order)
... Respondents
1/19
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O.P.No.377 of 2014
Prayer: Original Petition filed under Section 34 of the Arbitration and
Conciliation Act, 1996, praying to set aside the Arbitral Award dated
15.02.2014 relating to construction of 4 GRADE SEPARATORS (GROUP-
1) DESIGN ENGINEERING, PROCUREMENT AND CONSTRUCTION IN
CHENNAI CITY (CONTRACT PACKAGE NO.BR/D.C.NO.B3/722/2006)
except with respect to the Claim No.2 for Rs.39,24,887.
For Petitioner : Mr.R.Venkataraman
For Respondents : Dr.P.Vasudevan for R1
R2 to R4-Arbitrators
*****
ORDER
Captioned 'Original Petition' ['OP' for the sake of brevity] was taken up
for final hearing in the regular physical Court today.
2. Mr.R.Venkataraman, learned counsel on record for sole petitioner
and Dr.P.Vasudevan, learned counsel on record for the contesting first
respondent, namely Corporation of Chennai were before me and captioned
OP was taken up for final disposal and arguments of both sides were heard
out with the consent of both learned counsel.
3. An 'Arbitral Award dated 15.02.2014 bearing reference Agreement
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O.P.No.377 of 2014
No.BR.DC.No.B3/722/2006' [hereinafter 'impugned award' for the sake of
brevity] made by a three Member 'Arbitral Tribunal' ['AT' for the sake of
brevity] has been assailed obviously under Section 34 of 'The Arbitration and
Conciliation Act, 1996 (Act No.26 of 1996)', which shall hereinafter be
referred to as 'A and C Act' for the sake of brevity in the captioned OP.
4. To be noted, the three noble men, who constituted the AT have been
arrayed as respondents 2, 3 and 4 in captioned OP. This Court, from the
submissions made/grounds urged, finds that the presence of the three noble
men, who constituted the AT in captioned OP is not necessary. Therefore,
following the procedure adopted by Hon'ble Supreme Court in Zonal
General Manager, Ircon International Ltd. Vs. Vinay Heavy Equipments
reported in (2015) 13 SCC 680 [to be noted, deletion procedure is captured
in order reported in 2007 SCC OnLine SC 4], this Court deletes respondents
2 to 4 from the array parties in the captioned OP. Therefore, Corporation of
Chennai, which has been described as the contesting first respondent supra,
now becomes the lone respondent in captioned OP.
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5. This Court, from hereon, in this order shall refer to the 'petitioner' as
'contractor' and 'lone respondent' shall be referred to as 'Chennai Corporation'.
6. Chennai Corporation awarded the work of construction of 4 Grade
Separators to the contractor vide Letter dated 02.01.2007 bearing reference
Lr.No.B3/722/2006. This was crystallized by way of recitals and covenants
vide an Agreement bearing reference 'Agreement
No.BR.DC.No.B3/722/2006' [hereinafter 'said contract' for the sake of
brevity]. This Court is informed that value of said contract is Rs.4080.915
lakhs and the period for completion of work under said contract is 15
months. The work of construction of 4 Grade Separators as can be culled out
from the case file reads as follows:
'This work of Construction of 4 Nos. of Grade Separators in
Chennai under Package No.B3/722/2006 (Group 1) at:
1. North Usman Road – Kodambakkam High Road Junction
2. Usman Road – Duraisamy Road Junction
3. G.N.Road- Thirumalai Road Junction and
4. Pasumpon Muthuramalingam Salai- Turnbulls Road Junction'
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O.P.No.377 of 2014
7. The above shall be referred to as 'said work' for the sake of
convenience.
8. Owing to the short statutory perimeter of Section 34 of A and C Act
or in other words, the limited legal landscape within which a Section 34
Court should perambulate for testing an arbitral award, short facts shorn of
elaboration will suffice. In this view of the matter, it will suffice to say that
when said contract was put into operation for doing said work, disputes
touching upon costs variation, 'Extension of Time' [EOT] and delay erupted.
This is the crux and gravamen of the lis between the contractor and Chennai
Corporation.
9. AT was constituted, AT entered upon reference and adjudicated
upon the above lis. To be noted, before AT, contractor was the sole claimant
and Chennai Corporation was the lone respondent. Contractor, as claimant
before AT, made claims under seven heads and an abstract of these seven
heads of claim, as captured in the impugned award can be usefully extracted
and reproduced for better appreciation of this order. It reads as follows:
' Abstract of claims is as follows:
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O.P.No.377 of 2014
Claim Description Amount in Rs.
No
1 Claim towards reimbursement of
i. Uncovered overhead and loss of profit for the
period from Feb., 2007 to Oct., 2009 amounting
to Rs.6,93,75,555/- 11,56,25,925/-
ii. Loss due to idling of Machinery and for
reduced productivity at 10% from Feb., 2007 to
Oct., 2009 amounting to Rs.4,62,50,370/- for
Chennai Flyovers
2 Claim towards difference in value of contract for 39,24,887/-
the Pasumpon Muthuramalingam Salai-Turnbulls
Road Junction Flyover (Turnbulls Road-
Cenotaph Road Junction)
3 Claim towards difference in escalation cost paid 45,67,782/-
4 Claim towards interest for the unpaid price 24,12,245/-
escalation
5 Claim towards difference in amount of variation 3,62,523/-
and non-tendered items
6 Claim towards interest from cause of action to To be
date of award and post award period quantified
7 Cost of Arbitration To be
quantified
which are the subject matter of this dispute before this Tribunal.'
10. This Court is informed that there was no oral evidence before AT
and documentary evidence in terms of marking of exhibits also did not
happen. On the basis of rival pleadings and whatever supporting material
was available, AT passed an award acceding to claim no.1 in part and claim
no.2 in full. Future interest at 10% per annum on claim no.1 and interest
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O.P.No.377 of 2014
from the date of completion of work on claim no.2 were awarded. To be
noted, as already mentioned supra, date of impugned award is 15.02.2014
and there is no disputation that date of completion of work is 11.11.2009.
Therefore, interest at the rate of 10% per annum was awarded from
15.02.2014 on part of claim no.1, and at the rate of 10% was awarded on
entire amount claimed vide claim no.2 [Rs.39,24,887/-] from 11.11.2009.
11. Summary of the operative portion as can be culled out from the
impugned award reads as follows:
'CONCLUSION:
SUMMARY OF AWARD IS AS FOLLOWS:
S.No Description of Award Award Amount
in Rs.
1 Towards Loss of profit for the period from 1,20,00,000.00
May, 2008 to Oct., 2009
2 Towards difference in value of contract for 39,24,887.00
the Cenotaph Roa Junction Flyover
3 Towards difference in escalation cost paid Nil
4 Towards interest for the unpaid price Nil
escalation
5 Towards difference in amount of variation Nil
and non-tendered items
6 Towards interest from cause of action to date 5,60,237.00
7 Towards Cost of Arbitration Nil
Total 1,64,85,124.00
We therefore award a net amount of Rs.1,64,85,124.00 in favour
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O.P.No.377 of 2014
of the Claimants. The award shall carry a future interest @ 10%
p.a commencing from three months from the date of award, i.e.,
from 15.05.2014, till the date of payment.'
12. With regard to interest on claims 1 and 2, which have been alluded
to supra, finding returned by the AT vide claim no.6 is relevant and the same
reads as follows:
'An interest at 10% per annum for the amount of
Rs.1,20,00,000.00 is awarded from 15.02.2014 and again an
interest at 10% per annum for the amount of Rs.39,24,887.00 from
11.11.2009 till the date of this Award, 15.02.2014 is also awarded
under this claim. Thus the amount awarded is Rs.5,60,237.00, as
on date.'
13. Learned counsel for petitioner, as protagonist of captioned OP,
made one pointed submission in his campaign against the impugned award
and that one pointed submission is, AT has not given reasons for not
acceding to the entire claim of 11,56,25,925, which is claim no.1. To be
noted, claim no.1 is towards loss of profit and loss due to idling of
machinery. It is also to be noted that as alluded to supra, this claim no.1 was
allowed in part and a round sum of Rs.1.20 crores was awarded.
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O.P.No.377 of 2014
14. Therefore, statutorily speaking, challenge to the impugned award is
predicated on Section 31(3) of A and C Act. In response to the above
submission, learned counsel for Chennai Corporation submitted that it cannot
be gainsaid that the AT has not set out the reasons upon which impugned
award is based as the impugned award makes it clear that the contractor has
not substantiated its claim with documentary evidence as required under
Section 73 of Indian Contract Act, 1872 (Act No.9 of 1872) and 10% of
claim no.1 has been acceded to by applying Hudson's formulae, which has
been articulated with clarity and specificity in the impugned award.
15. Before this Court proceeds further, it is necessary to record two
significant aspects in this matter. One aspect is learned counsel for
contractor submitted that out of seven heads of claim, challenge to impugned
award predicated on Section 31(3) plea of A and C Act is confined to only
that portion of the impugned award, which has not acceded to claim no.1 in
its entirety. It was pointed out that claim no.2 has been awarded in its
entirety and there was no challenge with regard to claims 3 to 7. To be
noted, claim no.6 is interest details of which has been set out supra. Claim
no.7 is cost of Arbitration which has been directed to be borne equally by
both parties. Second significant aspect is, learned counsel for Chennai
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Corporation submitted that Chennai Corporation has not preferred an
independent OP assailing the impugned award. It was submitted that though
Chennai Corporation had every intention of assailing the impugned award,
efforts to present an application within the prescribed time and the
condonable cap ran into rough weather and therefore, for all practicable
purposes, there is no cross OP.
16. In a challenge to an Arbitral Award predicated on a Section 31(3)
plea, this Court is conscious that it will not supply reasons or support the
impugned award by embarking upon a process of expanding or qualifying the
reasons given by the AT. Therefore, this Court deems it appropriate to
extract and reproduce the rival pleadings, discussion and dispositive
reasoning with regard to claim no.1 alone as contained in the impugned
award and the same read as follows:
'Claim 1:
The Claimant stated that they had submitted their tender documents
indicating the details of the rates, which also contained indirect expenses
of 15% for certain work and 7.5% for certain work and 10% towards
Profit, treating the date of completion as 19-05-2008. Further they
insisted that the delay was not due to them. They suffered loss of profit
and loss due to unutilized overheads and worked out the claim amounts as
Rs.31378554.00 and Rs,37997001.00 respectively, totalling to
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O.P.No.377 of 2014
Rs.69375555.00.
In addition to this, they worked out the loss due to productivity due to
maintenance of work force and plants and equipments for the delayed
progress prior to the stipulated date of completion and till the date of
actual completion and claim amount as Rs.20919035.90 and
Rs.25331334.10 respectively, totalling to Rs.46250370.00.
Thus the amount of claim 1 is at Rs.115625925.00.
The Claimant further submitted that the price escalation takes care of only
price variation and not the loss of overhead and profit.
Further they have never waived their right to claim compensation for
losses.
Stating that the delay is not attributable to the bidder, EOT was initially
sought upto 19-03-2009 by the claimants, whereas the respondents
granted only upto 30-11-2008. The decision in respect of the Cenetoph
Road-Turnbulls Road Junction was finalized just less than a month of the
extended completion date. Second EOT was granted upto 11-11-2009.
The Respondent in reply submitted that the Claim No.1 was claimed for the
period from February 2007 to October 2009. The price escalation was
awarded and sufficient EOT was granted only to compensate all other
claims by the Claimant. Having received the price escalation without any
objection, the Claimant is not entitled to make any further claim. The
claim is not jsutifiable and there were no basis for the reasons put forth by
the Claimant for the delay on delayed handing over of the site and shot
temporary stoppage of work, as the Claimant completed the work within
the granted time.
The Respondent further insisted that the claim No.1 is vexatious claim and
thus liable to be rejected.
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O.P.No.377 of 2014
AWARD
Loss of profit and loss due to unutilized overheads are claimed from
February 2007 to October 2009. Loss of unutilized overheads is a
combination of items at 15% for certain work and 7.5% for certain work
and the account is maintained. The delay in the project is to be computed
only from and beyond the original intended date of completion of entire
project till the date of actual date of completion i.e., from 20-05-2008 to
10-11-2009.
The table below shows the original contract value, value of completion,
Value of work as on May 2008, delay and the balance value of work
completed beyond the original intended date of completion of entire work.
As per Hunson's formulae, 10% is being adopted both for overheads and
loss of profit as per the trade practice in the contractual field.
Further any compensation claimed by the Claimant is to be substantiated
with documentary evidence supported by vouchers, etc., which the
Claimant grossly failed to do as per Sec.73 of ICA.
But, at the same time, it is an undeniable fact that, the works of 3 grade
separator were delayed completion respectively by 96,224 and 540 days,
etc., due to causes beyond the control of the Claimant. Therefore, it may
not be right to deny the loss suffered by the Claimant also.
North Usman Road G.N.Road Cenetoph
Usman Road
Road
Contract Rs.6.49 Rs.14.00 Cr. Rs.10.60 Cr. Rs.7.15 Cr.
Sum – Org. Cr. (Rs.9.80 Cr)
Total Value Rs.6.45 Rs.6.315 Rs.7,701 Rs.7,341
Cr.
Value as on Rs.6.45 Rs.0.969 Rs.1,986 Rs.0.000
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North Usman Road G.N.Road Cenetoph
Usman Road
Road
May 08 Cr.
Balance Rs.0.00 Rs.7,284 Rs.5,715 Rs.7,341
Value
Ahead / 24 Days 96 Days 224 Days 540 Days
Delay Ahead Delay Delay Delay
Escalation Nil 9593516.50 11841019.63 11292267.91
Paid
In view of the above, the Tribunal is pleased to Award a sum of
Rs.1.20 Crores, as a lump sum compensation to meet the ends of justice.
17. A bare perusal of the above without adding or subtracting to the
impugned award leaves this Court with the considered view that the AT has
stated the reasons upon which, it is based. This conclusion of this Section 34
Court i.e., supervisory Court under A and C Act is owing to the following
reason:
a) (i) The lead case on a Section 31(3) plea is Dyna Technologies
case being Dyna Technologies Private Limited Vs. Crompton
Greaves Limited reported in (2019) 20 SCC 1; 2019 SCC OnLine
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O.P.No.377 of 2014
SC 1656. In Dyna Technologies case law, Hon'ble Supreme Court
laid down the law on a Section 31(3) of A and C Act plea and said
that the mandate of Section 31 (3) of A and C Act is to set out
basis/reasons, which are not lacking qua being intelligible,
appropriate and/or adequate. Hon'ble Supreme Court significantly,
in the Dyna Technologies principle, made it clear that Section
31(3) of A and C Act does not require an elaborate judgment to be
passed by the AT i.e., Arbitrators and this is having regard to
speedy resolution of disputes. This law laid down by Hon'ble
Supreme Court is instructive. This is captured in paragraph 34 of
Dyna Technologies case, which reads as follows:
'34.The mandate under Section 31(3) of the Arbitration Act is to
have reasoning which is intelligible and adequate and, which
can in appropriate cases be even implied by the courts from a
fair reading of the award and documents referred to
thereunder, if the need be. The aforesaid provision does not
require an elaborate judgment to be passed by the arbitrators
having regard to the speedy resolution of dispute.'
(Underlining made by this Court to supply
emphasis and highlight)
(ii) Be that as it may, Dyna Technologies principle is the touch stone
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for testing a campaign against an arbitral award predicated under Section
31(3) of A and C Act. In Dyna Technologies, Hon'ble Supreme Court culled
out three facets on this aspects and on those three facets are a) proper, b)
intelligible and c) adequate. To flip it and set out the same as grounds of
challenge a) improper, b) unintelligible and c) inadequate. This has been
elucidatively explained by Hon'ble Supreme Court in paragraph 35 of Dyna
Technologies, which reads as follows:
'35. When we consider the requirement of a reasoned order,
three characteristics of a reasoned order can be fathomed. They
are: proper, intelligible and adequate. If the reasonings in the
order are improper, they reveal a flaw in the decision-making
process. If the challenge to an award is based on impropriety or
perversity in the reasoning, then it can be challenged strictly on the
grounds provided under Section 34 of the Arbitration Act. If the
challenge to an award is based on the ground that the same is
unintelligible, the same would be equivalent of providing no
reasons at all. Coming to the last aspect concerning the challenge
on adequacy of reasons, the Court while exercising jurisdiction
under Section 34 has to adjudicate the validity of such an award
based on the degree of particularity of reasoning required having
regard to the nature of issues falling for consideration. The degree
of particularity cannot be stated in a precise manner as the same
would depend on the complexity of the issue. Even if the Court
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comes to a conclusion that there were gaps in the reasoning for the
conclusions reached by the Tribunal, the Court needs to have
regard to the documents submitted by the parties and the
contentions raised before the Tribunal so that awards with
inadequate reasons are not set aside in casual and cavalier
manner. On the other hand, ordinarily unintelligible awards are to
be set aside, subject to party autonomy to do away with the
reasoned award. Therefore, the courts are required to be careful
while distinguishing between inadequacy of reasons in an award
and unintelligible awards.'
(iii) There is nothing to demonstrate that the reasonings qua claim no.1
are improper that there is a flaw in the decision making process. This rules
out impropriety. A plain and bare reading of the extracted (reproduced)
portions of impugned award qua claim no.1 makes it clear that it cannot be
gainsaid that the AT has not provided any reason at all. This douses the
unintelligible facet. To be noted, AT has made it clear that there was no
documentary evidence, damages were not proved under Section 73 of The
Indian Contract Act, 1872 (Act No.9 of 1872) and Hudson's formulae has
been applied. With regard to inadequacy, it has been made clear that the
degree of particularity cannot be stated in a precise manner as the same
would depend on the complexity of the issue. It was made clear that Court
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should have regard to the documents that were submitted by the parties and
the contentions before the Tribunal.
(iv) The Hon'ble Supreme Court has also cautioned that setting aside of
arbitral awards on this ground cannot be done in a casual and cavalier
manner. To be noted, paragraph 35 of Dyna Technologies has been
extracted and reproduced supra.
b) The next reason is, this Court finds that claims towards loss of profit
and towards loss towards idling of machinery are certainly within the realm
of Section 73 of The Indian Contract Act, 1872 and the law is too very well
settled that such a claim has to be proved by placing relevant evidence before
the AT. There is no disputation that there was no oral evidence before AT. It
is nobody's case that the number and kind of machinery that was deployed or
the number of days for which such machinery idled were set out with clarity
and specificity before AT, much less with buttressing evidence. Therefore,
AT adopting the Hudson's formulae and awarding 10% of the claim cannot
be found fault with.
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18. The contractor should consider itself lucky that there is no cross
OP filed by Chennai Corporation as if there had been a cross OP, the award
of Rs.1.20 crores being part of claim no.1 should have also passed the rigour
of the above challenge. However, absent challenge from Chennai
Corporation, this Hudson's formulae approach remains.
19. Owing to all that have set out supra, this Section 34 Court is of the
considered view that the lone ground which impugned award is assailed fails
and the captioned OP deserves to be dismissed.
OP dismissed. There shall be no order as to costs.
17.02.2021
Speaking order: Yes/No
Index: Yes/No
kmi
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O.P.No.377 of 2014
M.SUNDAR.J.,
kmi
O.P.No.377 of 2014
17.02.2021
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