Madras High Court

M/S.Eagle Earth Movers vs The General Manager on 17 October, 2022

                                                                          O.P.No.422 of 2018

                                  IN THE HIGH COURT OF JUDICATURE AT MADRAS

                                                DATED: 17.10.2022

                                                      CORAM

                          THE HONOURABLE MR.JUSTICE SENTHILKUMAR RAMAMOORTHY

                                                O.P.No.422 of 2018


                     M/s.Eagle Earth Movers,
                     Civil Engineering Contractor,
                     Rep. By its Proprietor,
                     Mr.U.R.Subramaniam,
                     No.14, S.C.S.Complex,
                     South Car Street,
                     Thiruchengodu-637 211
                     Namakkal District.                              ... Petitioner
                                                            vs.

                     1. The General Manager,
                        Southern Railway,
                        Part Town, Chennai-600 003.

                     2. The Chief Administrative Officer,
                        Construction, Southern Railway,
                        Periyar E.V.R.High Road,
                        Egmore, Chennai-600 008.

                     3. The Chief Engineer,
                        CE/S & RB/CN
                        Construction, Southern Railway,
                        Periyar E.V.R.High Road,
                        Egmore, Chennai-600 008.


                     1/21


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                                                                                       O.P.No.422 of 2018

                     4. The Deputy Chief Engineer,
                        Construction, Southern Railway,
                        Suramangalam,
                        Salem-636 005.

                     5. The Hon'ble Mr.Justice K.Mohanram,
                        Sole Arbitrator,
                        Retd. High Court of Madras,
                        No.3, Sivakamipuram,
                        IInd Cross Street, Thiruvanmiyur,
                        Chennai-600 041.                                              ... Respondents

                     PRAYER: Original Petition filed under Section 34 and 37 of the Arbitration
                     and Conciliation Act 1996 prayed that the award dated 04.01.2018 of the
                     Hon'ble Arbitrator/the 5th Respondent in the Arbitration proceedings between
                     the Petitioner and the 3rd Respondent, in its entirety, all the rejected claims of
                     the Petitioner and except the counter claim of the 3rd Respondent to be set
                     aside.


                                       For Petitioner   : Mrs.K.Aparna Devi for
                                                          M/s.M.Muraleedhara Reddy

                                       For Respondents : Mr.P.T.Ram Kumar for R1 to R4

                                                         ORDER

A contract for the construction of a Road over Bridge (ROB) and

ancillary work at the Rasipuram yard was awarded to the petitioner pursuant

to a tender floated by the respondents. The estimated contract value was

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Rs.12,45,07,150/-, as per the letter of acceptance dated 07.10.2009, and the

petitioner entered into an agreement dated 08.12.2009. The original

currency of contract was for a period of 12 months, i.e. the work was to be

completed on or before 06.10.2010. The admitted position is that the scope

of work under the contract was modified, multiple extensions of time were

granted and work was eventually completed in July 2012. As against the

estimated contract price, the value of work executed by the petitioner was

Rs.13,14,90,719/-.

2. Disputes arose between the parties with regard to amounts due and

payable by the respondents to the petitioner. The arbitral tribunal was

constituted after the petitioner filed a petition under Section 11 of the

Arbitration and Conciliation Act 1996 [the Arbitration Act]. Before the

arbitral tribunal, the petitioner raised seven claims for an aggregate sum of

Rs.2,43,04,882/-, which sum excluded two unquantified claims. These

claims included a claim of Rs.6,42,750/- towards the final bill, a claim of

Rs.65,42,399/- towards refund of security deposit, claims towards

prolongation costs and claims for damages and costs of arbitration.

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3. In response to these claims, the respondents filed a counter

statement. Apart from denying the claims of the petitioner, the respondents

made a counter claim for a sum of Rs.86,53,285/- towards vitiation. Upon

considering the pleadings, the arbitral tribunal framed 14 issues, which are

set out at paragraph 28 of the arbitral award dated 04.01.2018(the Award).

The petitioner examined one witness as C.W.1 and exhibited 15 documents

as Exs.C-1 to C-15 and the respondent also examined one witness as R.W.1

and exhibited 10 documents as Exs.R1 to R-10. Each witness was cross

examined by learned counsel for the counter party. By the the award, the

arbitral tribunal rejected all the claims of the petitioner and the counter

claim of the respondents.

4. Oral arguments on behalf of the petitioner were made by Mrs.

Aparna Devi, learned counsel, and on behalf of the respondents by

Mr.P.T.Ram Kumar, learned counsel.

5. The petitioner assailed the Award both on the ground of delay in

the pronouncement thereof and on the merits. As regards the delay in

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pronouncing the Award, learned counsel pointed out that arbitral

proceedings were concluded originally on 02.10.2015. By referring to the

minutes of the meeting held on 02.10.2015, learned counsel pointed out that

it is recorded therein that arguments were concluded and that orders were

reserved for passing the award. After 02.10.2015, learned counsel contends

that the parties did not hear from the arbitral tribunal in spite of the lapse of

about 1 ½ years. In order to ascertain the status, by communication dated

15.03.2017, the petitioner requested the arbitral tribunal to re-open the

proceedings. Pursuant thereto, a hearing was held on 22.04.2017 and the

award was reserved after the said hearing. According to learned counsel for

the petitioner, no new material was placed before the arbitral tribunal, either

by way of clarification or otherwise, at the hearing on 22.04.2017.

Eventually, the Award was pronounced about eight months later on

04.01.2018. Learned counsel for the petitioner contended that the Award is

vitiated by the inordinate delay in pronouncing the same. In support of this

contention, learned counsel placed before the Court the order of this Court in

K.Dhanasekar v. Union of India (Dhanasekar)(2020) 1 MLJ 169, wherein

an arbitral award was set aside on account of the unexplained delay of three

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years and seven months. On the same issue, learned counsel also placed

reliance on the judgment of the Delhi High Court in Director General

Central Reserve Police Force v. Fibroplast Marine Pvt. Ltd. in O.M.P.

No.(Comm) 511 of 2019 dated 04.05.2022. In order to demonstrate that the

arbitral tribunal is likely to lose track of events that transpired during the

course of the arbitral proceedings if there is considerable delay, learned

counsel referred to the minutes of proceedings [page 409 of the typed set]

wherein it was recorded that the transportation costs would be borne by the

petitioner herein/claimant therein and, thereafter, the operative portion of

the award at page 457 of the typed set wherein such transportation costs

were lost sight of by the arbitral tribunal. Likewise, learned counsel

contended that the submissions made by parties, including on merits, would

also have been lost sight of due to the lapse of time.

6. Turning to the merits of the dispute, learned counsel focused

attention on the rejection of the claim for amounts outstanding against the

final bill and the claim for refund of the security deposit. Learned counsel

pointed out that the scope of work under the contract was admittedly revised

and work relating to three ROBs, which had to be executed about 15 kms

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away from the original project site, were included in the revised scope of

work. According to learned counsel, the vitiation clause could not have been

applied but for this substantial variation in the original scope of work. With

regard to the application of the vitiation clause, learned counsel contended

that the petitioner was unaware of the rates quoted by the L2 and L3 bidders

in relation to the additional scope of work.

7. The next contention of learned counsel was that the arbitral tribunal

erred patently in accepting the objection of the respondents herein that the

claims are excepted matters as per clause 63 of the General Conditions of

Contract (GCC) in course of final disposal. According to learned counsel,

such objections should have been raised by the respondents in reply to the

notice under Section 21 of the Arbitration Act or, at any rate, in course of

the Section 11 proceedings before this Court. Even otherwise, learned

counsel contended that the arbitral tribunal should have determined whether

these are excepted matters by framing a preliminary issue. As a

consequence of deciding that these claims fall within the scope of excepted

matters, in course of final disposal, it was submitted that the petitioner has

lost the opportunity of making these claims by way of a civil suit. Therefore,

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learned counsel contended that interference is called for and that the Award

is liable to be set aside.

8. Mr.Ram Kumar made submissions in response and to the contrary.

He opened his submissions by pointing out that the contract was executed

over an extended period upon the petitioner applying for and being granted

about seven extensions. By referring to the requests for extension, by letters

dated 04.01.2011, 24.02.2011, 13.06.2011, etc., he pointed out that the

petitioner cited many reasons attributable to himself while seeking extension

and that extensions were granted by executing rider agreements subject to

the same terms and conditions as contained in the original agreement and on

condition that no increase in rates would be granted on account of the

extensions.

9. With regard to the variation in scope of work, learned counsel

pointed out that the petitioner expressly consented to the execution of

additional work under communication dated 13.05.2010 [Ex.R3], whereby

the petitioner agreed to execute the three ROBs at the rates and as per the

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terms and conditions of the contact. As regards the vitiation clause, Mr.Ram

Kumar submitted that the said vitiation clause admittedly forms part of the

special conditions of contract (SCC). The said vitiation clause was not

objected to at any time by the petitioner until the final bill stage. By referring

to the counter statement of the respondents before the arbitral tribunal, he

pointed out that the respondents expressly referred to the vitiation clause and

stated that the total amount arrived at by operating the vitiation clause is

Rs.86,53,285/-, which is liable to be recovered from the

petitioner/contractor. By referring to the reply statement of the respondents

before the arbitral tribunal, he pointed out that the vitiation statement was

made available to all the tenderers at the time of opening of tenders.

Therefore, he submitted that the contention of learned counsel for the

petitioner to the effect that the petitioner was unaware of the rates quoted by

L3 and L4 tenders is incorrect.

10. With regard to the contention on excepted matters, he submitted

that the respondents referred to clause 63 in the counter statement so as to

contend that the claim relating to vitiation is an excepted matter. According

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to learned counsel, the said contention could not have been raised in the

course of Section 11 proceedings as per the law applicable at the relevant

point of time. By referring to a recent judgment of the Hon'ble Supreme

Court in Indian Oil Corporation Limited v. NCC Limited 2022 SCC

OnLine SC 896, he pointed out that it is now possible for a party to raise an

objection on the ground that the dispute proposed to be referred to

arbitration deals with excepted matters. With regard to the law on excepted

matters, he relied upon the judgments in Harsha Constructions v. Union

of India (Harsha Constructions), (2014) 9 SCC 246, particularly

paragraph 19 thereof; Mitra Guha Builders (India) Company v. Oil and

Natural Gas Corporation Limited (2020) 3 SCC 222, particularly

paragraphs 7 and 26 thereof; and General Manager, Northern Railway and

Another v. Sarvesh Chopra (Sarvesh Chopra),(2002) 4 SCC 45,

particularly paragraphs 18 and 19 thereof.

11. With this background, he turned to the relevant findings in the

Award. He pointed out that the arbitral tribunal recorded its findings in

paragraph 38 onwards and concluded in paragraph 48 that claims relating to

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clause 44 of the SCC fall within the scope of excepted matters as per clause

63 of the GCC. On the said basis, he submitted that Issue Nos.1 and 3 to 6

were decided in favour of the respondents and against the petitioner. As

regards other issues, upon holding that they are not excepted, he concluded

that the arbitral tribunal decided the said issues against the petitioner after

examining the evidence on record with regard to the reasons for delay. Since

the arbitral tribunal concluded that issues relating to vitiation are excepted,

he pointed out that the counter claim of the respondents was also rejected.

12. The contentions of the contesting parties raise issues both on

delay and on the merits. The contentions based on delay are dealt with first.

Learned counsel for the petitioner contended that the Award is vitiated on

account of the fact that the arbitral tribunal took about 33 months to

pronounce the Award. The minutes of the 11th sitting of the arbitral tribunal

is before the Court and this discloses that arguments were originally

concluded on 02.10.2015. The communication of 15.03.2017 from the

petitioner is also on record. This communication reads as under:

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“I humbly request to re-open the Arbitral proceedings in respect of the above Agreement, as I want to submit some clarifications with regard to the dispute and also to circulate a Judgment. It is further submitted that one Arbitration hearing may be held at any convenient day of the parties and 'His Lordship'. From this communication, it is evident that a request to reopen the arbitral

proceeding was made by the petitioner herein. The said request was acceded

to by the arbitral tribunal, as is evident from the communication from the

arbitral tribunal fixing a hearing on 22.04.2017. The minutes of the hearing

on 22.04.2017 is on record and the said minutes indicate that both parties

provided clarifications to queries raised by the tribunal and made additional

submissions. These documents indicate beyond doubt that arbitral

proceedings were re-opened and eventually concluded on 22.04.2017.

Hence, the contentions relating to delay should be viewed in this factual

context. After concluding proceedings on 22.04.2017, the Award was

pronounced on 04.01.2018. Therefore, the arbitral tribunal has taken about

8 months to pronounce the Award. While the appropriate length of time to

pronounce a verdict in any legal proceeding, including arbitration, is about 3

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months, the question that arises for consideration is whether the lapse of 8

months before the Award was pronounced vitiates the Award. Learned

counsel for the petitioner relied upon the earlier judgment of this Court in

Dhanasekar. In Dhanasekar, the award was set aside on the ground of the

lapse of 3 years and 7 months from the date of reserving the award.

Therefore, the said judgment does not advance the cause of the petitioner.

Two further aspects are relevant: both parties submitted written submissions

before the arbitral tribunal and, therefore, the tribunal had the benefit of

examining the written submissions while preparing and pronouncing the

Award; and the petitioner is unable to point out any significant or serious

flaw in the Award on account of the lapse of time. Therefore, the contention

based on delay is rejected.

13.Turning to the merits of the Award, the petitioner assails the

Award largely in respect of the rejection of the claim in respect of the final

bill and for refund of the security deposit. Both these claims were rejected on

the ground that the vitiation clause was operated by the respondents and that

the decision in relation to the operation of the vitiation clause is an excepted

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matter. The vitiation clause should be examined along with the clause on

excepted matters before drawing conclusions as to whether the Award calls

for interference. Clause 44, which deals with vitiation, is set out below:

“Clause 44.0-VITIATION CLAUSE:

“44.1. In the event of Vitiation occurring due to increase or decrease in quantities among the first, second and third lowest valid tenderers, the vitiation shall be to contractor's account. The total value of the work done shall be calculated at the rate offered by those tenderers and the amount payable shall be limited to the lowest aggregate value as worked out.

44.2. Vitiation as above shall be worked out as a whole for Agreement including all variations in quantities”.

Clause 63 of GCC deals with excepted matters. The said clause is as under:

“Clause 63 – Matters finally determined

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by the Railway:- All the disputes and differences of any kind whatsoever arising out of or in connection with the contract, whether during the progress of the work or after their completion and whether before or after the determination of the contract, shall be referred by the Contractor to the Railway and the Railway shall within 120 days after receipt of the Contractor's representation make and notify decisions on all matters referred to by the Contractor in writing provided that matters for which provision has been made in clauses 8(a), 18, 22(5), 39, 43(2), 45(a), 55, 55-A (5), 57, 57-A, 61(1), 61(2) and 62(1)(B), of the General Conditions of Contract or in any clause of the Special Conditions of the Contract shall be deemed as “excepted Matters” and the decisions of the Railway authority, thereon shall be final and binding on the Contractor; provided further that “excepted Matters” shall stand specifically excluded from the purview of the Arbitration clause and shall not be referred to Arbitration.”

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14. On examining clause 63, it appears that matters dealt with in

specific clauses of the GCC are excepted and all matters relating to any

clause of the SCC are excepted. The admitted position is that clause 44.0 is

contained in the SCC. Upon considering these two clauses and clause 42,

which deals with modification of the contract, the arbitral tribunal recorded

the finding in paragraph 44 that the petitioner agreed to execute three

additional ROBs at the rates specified in the contract. Paragraph 44 is

relevant in this regard and it reads as under:

“44. It is contended by the claimant that the consent letter (Ex.R3) obtained from the claimant by the Railway itself proves that the construction of the additional ROBs fell beyond the scope of the contract and not governed by the terms and conditions of the original contract especially for application of rates quoted by L2 and L3 tenderers in terms of clause 44.0 of SCC.

This contention is liable to be rejected on the face of it in the light of the contents of Ex.R-3 Consent letter. In Ex.R-3 the claimant has unequivocally agreed to execute the ROBs not only at the

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accepted agreement rates but also on the terms and conditions of contract under the agreement No.114/CN/2009 dt. 08.12.2009 (subject agreement). Therefore it is not open to the claimant to contend that the 4 additional ROBs are not governed by the terms and conditions of the original contract and clause 44.0 of SCC is not applicable.”

15. In paragraph 45, the arbitral tribunal examined the evidence on

record and concluded on that basis that the L2 and L3 tenderers had quoted

their rates for reinforced cement concrete retaining wall (the RCC retaining

wall) under BSR Items 511 bi and 511 di in Annexure – A of the tender.

Thereafter, the arbitral tribunal noticed that the petitioner had given consent

to execute the RCC retaining wall by signing the Interim Variation

Statement (Ex.R-4) and for the deletion of the reinforced earth retaining

wall. Upon evaluating the evidence on this matter, the tribunal concluded

that the vitiation clause becomes applicable. After recording that the vitiation

clause is applicable, the arbitral tribunal proceeded to examine whether

clause 44.0 of SCC will fall within the scope of excepted matters and, if so,

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whether the tribunal could determine an excepted matter. For such purpose,

relevant judgments on excepted matters, such as Harsha Constructions and

Sarvesh Chopra, were examined. Eventually, the arbitral tribunal held as

under, in relevant part, in paragraphs 48 and 49:-

“48. For the aforesaid reasons it is held that Clause 44.0 of the Special Conditions of Contact is applicable to the present dispute and consequently clause 63 of the General conditions of Contract is also applicable and therefore this dispute falls within the ambit of “Excepted Matters”.

to 6 are answered against the claimant and in favour of the respondents and consequently Claim No.1 of the claimant is rejected. As Claim No.1 has been rejected this Tribunal cannot order refund of the Security Deposit and therefore Claim No.2 is also rejected.”

16. The above conclusions of the arbitral tribunal are based on a

reasonable construction of clauses 42 and 44 of the SCC and clause 63 of

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the GCC. The conclusions drawn by the tribunal are also based on a

reasonable appraisal of the evidence adduced by the parties before the

arbitral tribunal.

17. Learned counsel for the petitioner contended that the arbitral

tribunal should have framed a preliminary issue with regard to the excepted

matters and decided the said issue at an earlier point of time. Under the

Arbitration Act, the arbitral tribunal is conferred considerable latitude with

regard to the manner of conducting the arbitral proceedings. The petitioner

also contended that it lost the opportunity of raising claims in relation to