Madras High Court
The Project Director vs Jsr Constructions Pvt. Ltd on 7 September, 2021
O.S.A.No.212 of 2019
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED: 07.09.2021
CORAM :
THE HON'BLE MR.SANJIB BANERJEE, CHIEF JUSTICE
AND
THE HON'BLE MR.JUSTICE P.D.AUDIKESAVALU
O.S.A.No.212 of 2019
The Project Director
Tamil Nadu Road Sector Project
TNMB Complex-I Floor
171, South Kesavaperumalpuram
Off Greenways Road
R.A.Puram, Chennai – 600 028. ... Appellant
Vs.
JSR Constructions Pvt. Ltd, Bangalore
rep. by Power of Attorney Holder
R.Paneerselvam
114-G1, Green House Apartments
Mc Donalds Road
Cantonment, Trichy – 620 001. ... Respondent
Prayer: Appeal under Order XXXVI Rule 1 of the Original Side Rules
read with Clause 15 of the Letters Patent against the judgment dated
30.4.2019 passed by the learned Single Judge on O.P.No.228 of 2014.
For the Appellant : Mr.R.Shunmugasundaram
____________
Page 1 of 11
https://www.mhc.tn.gov.in/judis/
O.S.A.No.212 of 2019
Advocate-General
assisted by
Mr.P.Muthukumar
State Government Pleader
For the Respondent : Mr.D.Balaraman
JUDGMENT
(Delivered by the Hon'ble Chief Justice)
The appeal is directed against an order dated April 30, 2019
passed under Section 34 of the Arbitration and Conciliation Act, 1996,
rejecting the challenge to an arbitral award dated November 23, 2013.
2. The matter pertains to a project undertaken and completed in
or about the year 2008 for the construction of two segments of the
Ramanathapuram Bypass road adding up to slightly over 10 kilometre.
The respondent contractor initiated the arbitral reference upon
claiming, inter alia, the wrongful withholding of performance security,
money payable under the bills raised by the contractor, loss of profit
on account of delay and the like. The arbitral tribunal consisted of
three members. It is the majority view which was assailed as such
majority view found a substantial amount, in excess of Rs.9.44 crore
together with interest, to be due and owing from the appellant herein.
____________
https://www.mhc.tn.gov.in/judis/
O.S.A.No.212 of 2019
The original contract was valued at a little over Rs.35 crore.
3. The appellant questions the award made under two heads of
claim: the wrongful withholding of payment to the tune of
Rs.84,55,380/- and the loss assessed due to overhead and profit to
the extent of Rs.3,90,99,700/-. These two items are covered by the
first head of claim of award and the first item under the fifth head,
respectively.
4. It is recorded that no challenge has been thrown in the
present appeal in respect of the three other heads on which sums in
excess of Rs.4.62 crore, Rs.75,000/- and Rs.5.68 lakh were awarded
by the arbitral tribunal on account of release of performance security,
revised rate for box culvert and refund of recovered interest on
mobilisation advance, respectively.
5. It appears from the judgment and order impugned that a
rather general challenge was fashioned in the proceedings under
Section 34 of the Act and the court found that the matters had been
appropriately dealt with by the arbitral tribunal. The arbitration court
____________
https://www.mhc.tn.gov.in/judis/
O.S.A.No.212 of 2019
found that it was a techno commercial arbitration, since various
technical aspects went into the consideration of the matter, particularly
engineering and design defects complained of and the assessment
thereof.
6. As to the first head of claim pertaining to the withholding of
the sum in excess of Rs.84 lakh, the appellant says that it was on
account of the defective work on a section of the stretch pertaining to
a bridge. Certain cracks or other defects may have been noticed and it
is the appellant's case that despite the contractor being obliged to
remove the defect within a period of one year of it being pointed out,
as envisaged in the contract, no endeavour was made by the
contractor here to address the defect or attempt to rectify the same.
The appellant says that since the appellant had to take steps, inter
alia, by engaging another contractor to take care of the defective
workmanship of this contractor, considerable sums were expended and
there was no basis to the arbitral tribunal absolving the contractor of
the liability on such count.
7. The discussion on such aspect is found in paragraph 9.3 and
____________
https://www.mhc.tn.gov.in/judis/
O.S.A.No.212 of 2019
thereafter in the majority award. The substance of the dispute was
that the contractor claimed that it was an anomaly in the design of the
bridge that led to what the employer perceived to be a fault and the
contractor was required to make the construction in accordance with
the design supplied by the employer. The correspondence in such
regard have been noticed and re-produced in the award and it appears
that upon the disputes arising between the parties herein, expert
opinion was sought from the Indian Institute of Technology, Chennai.
The report of the IIT has been copiously referred to in the award and,
on the expert assessment of the specialised arbitral tribunal, it
appeared that the fault lay in the design and not in the workmanship.
Several pages have been expended in discussing the matter and the
arbitral tribunal found that the contractor was not liable for the
perceived defect.
8. In the face of such categorical finding rendered by the arbitral
tribunal on the basis of an expert opinion obtained from a recognised
institution as the IIT, there was little room for the arbitration court to
interfere with such aspect of the matter, particularly within the limited
ambit of authority available under Section 34 of the Act.
____________
https://www.mhc.tn.gov.in/judis/
O.S.A.No.212 of 2019
9. Accordingly, there does not appear to be any merit in the first
count of challenge pertaining to the award of a sum in excess of Rs.84
lakh for the wrongful withholding by the appellant herein of the bills
due and payable to the contractor in terms of the relevant contract.
10. Apropos the other ground of challenge pertaining to the first
item under the fifth head of the claim, on account of overhead and loss
of profit, the appellant draws the court's attention to when the papers
in support of such claim may have been filed before the arbitral
tribunal. The appellant refers to recording in the award as to the dates
of hearing and suggests that it was only after the hearing was
substantially completed that the primary evidence in support of such
head of claim was produced before the arbitral tribunal.
11. It is the appellant's underlying suggestion that pleadings and
evidence should precede the hearing and the hearing is taken up at a
stage after the cross-examination and if the material in support of the
claim was produced in course of the hearing, the appellant was
deprived the opportunity of cross-examining the representatives of the
____________
https://www.mhc.tn.gov.in/judis/
O.S.A.No.212 of 2019
contractor in respect of the evidence produced in such regard.
12. For a start, there does not appear to be any specific ground
taken in the petition under Section 34 of the Act complaining of any
lack of opportunity on the part of the appellant herein to cross-
examine any representative or witness called by the contractor.
Indeed, it does not appear, on a reading of the judgment and order
impugned, that an issue was raised as to the late filing of papers
pertaining to such head of claim. At any rate, the arbitral tribunal is
the master of the procedure and the award was rendered several
months after the evidence in respect of the impugned head of claim
was furnished. It does not appear that the appellant herein was
deprived from dealing with the evidence or making any submission in
such regard. At any rate, no minutes of any proceedings before the
arbitral tribunal has been produced to demonstrate that the cross-
examination was sought by the appellant and it was declined by the
tribunal, no letter of protest issued to the arbitral tribunal by the
appellant in course of the proceedings has also been disclosed in such
regard.
13. When it comes to the loss of profit or cost overrun due to the
____________
https://www.mhc.tn.gov.in/judis/
O.S.A.No.212 of 2019
delay in the completion of the work upon the employer being
responsible for the delay, there is no doubt that the assessment that is
made is not arithmetically accurate and there are certain guidelines to
go by. This was an engineering contract and the use of Hudson's
formula in engineering contracts is almost universal and is judicially
recognised in this country. Of the several judgments, including those
rendered by the Supreme Court and which recognise the applicability
of Hudson's formula in engineering contracts, two of the more
prominent may be referred to – (2015) 3 SCC 49 (Associate Builders
v. Delhi Development Authority) and (2006) 11 SCC 181 (McDermott
International Inc. v. Burn Standard Company Limited).
14. Further, authoritative pronouncements of the Supreme Court
instruct that when it comes to loss of profit, a rough and ready
estimate can be made. Approximation to the extent of 15% of the
contract price is permissible in terms of such judgments. In the
present case, upon applying Hudson's formula, about 18% of the value
of the original contract has been assessed to be the quantum of loss of
profit for the period of delay and the figure arrived at upon applying
Hudson's formula has been toned down in the majority view to about
____________
https://www.mhc.tn.gov.in/judis/
O.S.A.No.212 of 2019
Rs.3.91 crore.
15. Considering that the value of the contract was in excess of
Rs.35 crore, the quantum awarded on account of loss of profit by
applying the Hudson's formula does not shock the conscience of the
court or otherwise appear to be patently erroneous or manifestly
arbitrary. At any rate, the challenge on this head does not appear to
have been fashioned as being opposed to public policy since the law in
this country recognises the entitlement of a contractor to
compensation on account of loss of profit for the delay occasioned at
the behest of the employer.
16. In the impugned judgment and order, the arbitration court
refers to certain salutary principles which ought always to be
remembered in this jurisdiction. Apart from the arbitral tribunal being
the master of the procedure, the arbitral tribunal also has the final say
as to the quality and the quantum of evidence before it. In exercise of
the limited authority under Section 34 of the Act, the Court cannot re-
assess the evidence before the Arbitrator or supplant its view for that
expressed by the arbitrator, even if the other view appears more
____________
https://www.mhc.tn.gov.in/judis/
O.S.A.No.212 of 2019
plausible to the court.
17. There does not appear any infirmity in the judgment and
order impugned in it refusing to interfere with the arbitral award in this
case. The specific challenge launched by the appellant herein to the
two heads of claim do not meet the exalted tests required to be
discharged in this jurisdiction.
18. Accordingly, O.S.A.No.212 of 2019 fails and the same is
dismissed. C.M.P.No.19435 of 2019 is closed.
There will, however, be no order as to costs.
(S.B., CJ.) (P.D.A., J.)
07.09.2021
Index : No
bbr
To:
The Sub Assistant Registrar
Original Side
High Court, Madras.
____________
https://www.mhc.tn.gov.in/judis/
O.S.A.No.212 of 2019
THE HON'BLE CHIEF JUSTICE
AND
P.D.AUDIKESAVALU, J.
bbr
O.S.A.No.212 of 2019
07.09.2021
____________
https://www.mhc.tn.gov.in/judis/
