Madras High Court
M/S.Gammon Engineers And Contractors ... vs M/S.Nlc Tamil Nadu Power Limited on 23 April, 2025
Author: G.Jayachandran
Bench: G.Jayachandran
C.M.A(MD)Nos.864 & 865 of 2019
BEFORE THE MADURAI BENCH OF MADRAS HIGH COURT
Reserved on : 05.03.2025
Pronounced on : 23.04.2025
CORAM:
THE HONOURABLE DR.JUSTICE G.JAYACHANDRAN
AND
THE HONOURABLE MS.JUSTICE R.POORNIMA
C.M.A.(MD)Nos.864 & 865 of 2019
and
C.M.P(MD)No.11401 of 2019
CMA(MD).No.864 of 2019
M/s.Gammon Engineers and Contractors Pvt. Ltd.,
Rep. by its Authorized Representative Mr.R.Sivasubramanian
Gammon House,Veer Savarkar Marg,
Prabhadevi,
Mumbai - 400025. ... Appellant/ Petitioner/Claimant
Vs.
M/s.NLC Tamil Nadu Power Limited,
First Floor, No.8, Mayor Sathyamurthy Road, FSD,
Egmore Complex of Food Corporation of India,
Chepet, Chennai – 600031.
...Respondent/Respondent/Respondent
1/37
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C.M.A(MD)Nos.864 & 865 of 2019
PRAYER: Civil Miscellaneous Appeal filed under Section 37 of the
Arbitration and Conciliation Act, 1996, to set aside the fair and decreetal
order dated 19.09.2019 made in Arb.O.P.No.58 of 2018 on the file of
Principal District Judge, Thoothukudi and allow this Civil Miscellaneous
Appeal.
CMA(MD).No.865 of 2019
M/s.Gammon Engineers and Contractors Pvt. Ltd.,
Rep. by its Authorized Representative Mr.R.Sivasubramanian
Gammon House,Veer Savarkar Marg,
Prabhadevi,
Mumbai - 400025. ... Appellant/ Respondent/Respondent
Vs.
M/s.NLC Tamil Nadu Power Limited,
First Floor, No.8, Mayor Sathyamurthy Road, FSD,
Egmore Complex of Food Corporation of India,
Chepet, Chennai – 600031.
...Respondent/Petitioner/Counter Claimant
PRAYER: Civil Miscellaneous Appeal filed under Section 37 of the
Arbitration and Conciliation Act, 1996, to set aside the fair and decreetal
2/37
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C.M.A(MD)Nos.864 & 865 of 2019
order dated 19.09.2019 made in Arb.O.P.No.33 of 2019 on the file of
Principal District Judge, Thoothukudi and allow this Civil Miscellaneous
Appeal.
In both cases
For Appellant : Mr.P.J.Rishikesh
for Mr.A.Sivaji
For Respondent : Mr.K.R.Laxman
COMMON JUDGMENT
(Judgment of this Court was delivered by R.POORNIMA, J.)
The appellant has filed these Civil Miscellaneous Appeals
against the fair order and decreetal order dated 19.09.2019 passed in
Ar.O.P.Nos.58 of 2018 and 33 of 2019 by the Principal District Judge,
Thoothukudi.
2. The claimant and the respondent filed Arbitration
Petitions under Section 34 of The Arbitration and Conciliation Act, 1996.
The appellant filed Ar.O.P.No.58 of 2818 and respondent filed Ar.O.P.No.
33 of 2019 on the file of the Principal District Judge, Thoothukudi. In a
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common impugned order dated 19.09.2019, the Principal District Judge
allowed Ar.O.P.No.33 of 2019 and dismissed Ar.O.P.No.58 of 2018,
against which the present Civil Miscellaneous Appeals filed by the
appellant (claimant) with the following among other grounds :
a) The learned Judge has not independently, analysed the law on
liquidated damages at all anywhere in the impugned order.
b) In para 27 of the order, the learned judge stated that the delay is
a factual aspect and concludes that the Arbitral Tribunal has considered
the same.
c) In para 36, page 60, the learned judge holds that actual loss need
not be proved for levy of liquidated damages and rejects the contention
of the appellant. The findings of the learned judge is erroneous, since
what has to be proved first is legal injury or loss due to breach and if this
is proved then even if actual loss is not proved, only then liquidated
damages can be levied. In short, proving legal injury arising out of the
breach is a sine qua non for levying liquidated damages of contract.
d) Even assuming, without admitting that delays were on the part
of Appellant, respondent could not commission the cooling tower even
after completion of work by the claimant for the reason not attributable
to the claimant. Therefore, there was no loss or legal injury to the
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C.M.A(MD)Nos.864 & 865 of 2019
respondent and hence levy of liquidated damages was wrong. The
assured losses which the respondent claims is mere assertion of
non-existent claims since the commissioning of the plant after the
completion of the scope of work on the part of the appellant.
e) To Levi liquidated damages, the party complaining of a breach
must plead and proved legal injury, and then only they would be entitled
for damages. If the legal injury or the loss is proved, but could not be
quantifiable then the pre-estimated damages in the form of liquidated
damages would spring into effect.
f) The learned judge ought not to have brushed aside the admission
made by the respondent with respect to seven months and seven days
delay on the ground that it is factual, but ought to have seen why the
Arbitral Tribunal failed to award compensation for this period and ought
to have set aside the Award on this aspect too.
g) The learned Judge erred in allowing the interest under Section
34 of the Arbitration and Conciliation Act, 1996 and the same is against
the well settled proposition laid down as to when an Arbitral Award can
be set aside.
h) The learned Judge erred in stating that liquidated damages
refund would attract interest.
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i) The learned Judge ought to have appreciated the fact that grant
of interest is always a matter of discretion which the Tribunal had
possessed.
j) The learned Judge erred in interfering with the Award by
granting interest at the rate of 18% from an imaginary date and that too
on the ground that the Award suffers from 'patent illegality'.
k) The learned Judge has not specifically rendered a finding that
the award is a violation of any procedure and this being the case the
Judge cannot substitute its view on that of the Arbitral Award especially
when the award had gone against the terms of the agreement.
3. The learned counsel for the respondent orally put forth the
argument and also filed written argument as follows :
i) The dates and events of the contract set fourth below :
S. Date Events
No.
1. 12.03.2010 Letter of Award
2. 27.07.2010 Date on which the 75% of the Site for the
Cooling Tower 1
3. 08.01.2011 Date on which the 25% of the Site was
handed over (Cooling Tower-I)
4. 15.09.2010 Date of Contract
5. 11.02.2012 Scheduled Date of Completion of the
Contract 23 Months- CT1
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6. 11.07.2012 Scheduled Date of Completion of the
Contract 28 Months- CT2
7. 18.09.2012 One EOT was granted without levy of LD
8. 18.09.2012 So, he should have completed the CL -1
on or before.
9. 19.09.2012 Date of which the original 23 months gets
end for finality of the Contract work of
erection of Cooling Tower-1.
10. 15.10.2015 Date on which the Mechanical
Completion was done for Cooling
Tower-1
11. 27.07.2016 Mechanical Completion for Cooling
Tower-2
ii) The appellant ought to have commence the contract work
on the date of letter of award viz., 12.3.2010.
(a) As far as the Cooling Tower-1 is concerned, 75% of the
premises was given to the position of the appellant herein with
immediate effect on the date of letter of award dated 12.3.2010, wherein
only 25% of the extent was belatedly handed over to the appellant on
08.01.2011.
(b) As far as the Cooling Tower-2 is concerned, the entire
premises was totally handed over on the date of letter of award itself
namely, 12.3.2010.
iii) In the given situation, question of delay being attributed
on completion of mechanical completion/technical completion is purely
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due to the appellant and at no point of time, it was on the instance of the
respondent. The delay caused by the appellant, the extension of time
granted are extracted below, which will demonstrate the fact that the
delay was purely on the instance of the appellant :
S. No Date Particulars
1. 11.04.2012 Extension of time granted by the respondent,
in favour of the applicant for CT1 is till
05.12.2012 and CT 2 is till 30.11.2012 with
LD.
2. 11.09.2012 Extension of time granted by the respondent,
in favour of the applicant for CT1 is till
18.09.2012 without LD and CT 2 is till
30.11.2012 with LD.
3. 22.02.2013 Extension of time granted by the respondent,
in favour of the applicant for CT1 is till
31.03.2013 and CT2 is till 30.06.2013 with
LD.
4. 20.05.2013 Extension of time granted by the respondent,
in favour of the applicant for CT1 is till
31.08.2013 and CT 2 is till 30.10.2013 with
LD.
5. 04.10.2013 Extension of time granted by the respondent,
in favour of the applicant for CT1 is till
30.09.2013 and CT 2 is till 31.01.2014 with
LD.
6. 03.01.2014 Extension of time granted by the respondent,
in favour of the applicant for CT1 is till
31.12.2013 and CT 2 is till 31.03.2014 with
LD.
7. 05.03.2014 Extension of time granted by the respondent,
in favour of the applicant for CT1 is till
31-03-2014 and CT2 is till 31.05.2014 with
LD.
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8. 11.06.2014 Extension of time granted by the respondent,
in favour of the applicant for CT1 is till
31.08.2014 and CT 2 is till 31.08.2014 with
LD.
9. 11.08.20114 Extension of time granted by the respondent,
in favour of the applicant for CT1 is till
30.09.2014 and CT 2 is till 30.09.2014 with
LD.
10. 21.11.2014 Extension of time granted by the respondent,
in favour of the applicant for CT1 is till
31.10.2014 and CT 2 is till 31.10.2014 with
LD.
11. 09.01.2015 Extension of time granted by the respondent,
in favour of the applicant for CT1 is till
31.12.2014 and CT 2 is till 31.12.2014 with
LD.
12. 21.04.2015 Extension of time granted by the respondent,
in favour of the applicant for CT1 is till
30.04.2015 and CT 2 is till 30.04.2015 with
LD.
13. 20.03.2015 Extension of time granted by the respondent,
in favour of the applicant for CT1 is till
30.06.2015 and CT 2 is till 30.06.2015 with
LD.
14. 28.08.2015 Extension of time granted by the respondent,
in favour of the applicant for CT1 is till
31.08.2015 and CT 2 is till 30.09.2015 with
LD.
15. 07.12.2015 Extension of time granted by the respondent,
in favour of the applicant for CT1 is till
15.10.2015 and CT 2 is till 31.12.2015 with
LD.
16. 09.03.2016 Extension of time granted by the respondent,
in favour of the applicant for CT1 is till
31.03.2016 and CT 2 is till 31.03.2016 with
LD.
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17. 07.06.2016 Extension of time granted by the respondent,
in favour of the applicant for CT1 is till
31.07.2016 and CT 2 is till 31.07.2016 with
LD.
iv) The delay, which caused for the delivery of 25% of the
land, as far as Cooling Tower-1 is concerned, in order to indemnify and
compensate the delay, which was confined only to 25% of the land, that
too, only relating to Cooling Tower - 1, already an extension of time was
given to the appellant without levy of liquidated damages. In spite of
giving much of extension which was from 01.05.2010 to 08.01.2011, the
appellant did not made use of the said extension which was not without
levy of liquidated damages, wherein, deliberately, negligently and will
fully, the Appellant delayed the construction, which is already dealt in
detail in the extension time granted for 17 times and as such, question of
concession to the appellant herein in any manner, whatsoever, both under
law facts is impermissible.
v) The entire premises was rightly been handed over as far
as Cooling Tower-2 is concerned, the appellant herein could have
commenced the work for both the Cooling Tower-1 and Cooling
Tower-2, wherein, only due to the negligent, willful, deliberate delay, the
appellant was levied with liquidated damages, which was confirmed by
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both the Arbitration Tribunal and the learned Principal District Judge,
with definite set of reasons for not completing the contract.
vi) The Arbitration Tribunal and the learned Principal
District Judge has elaborately dealt the issue and confirmed the fact that
the levy of liquidated damages is legally and factually reasonable and
only due to the reasons for not completing the contract within time,
which was solely on the instance of the appellant herein.
vii) The legal factors relating to said delay factors are
concerned, the contract is very clear as far as liquidated damages is
concerned, wherein the consequences for invoking the liquidated
damages is for non-fulfilment of contract within the agreed time
schedule, wherein, when time was the Essence of Contract and when
liquidated damages itself was agreed by both the parties to get invoked if
and only delay is caused by the Appellant for compliance of the contract,
wherein, when delay has got incurred on the instance of the appellant as
demonstrated, which was also for an exorbitant period of three years
from the date of commencement of the contract, the liquidated damages
was levied only as per the agreed terms and conditions of the contract,
for better appreciation, the said portion of agreed clause to invoke
liquidated damages is legally sustainable.
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viii) When the delay is apparent from the fact of record, the
levy of liquidated damages does not require any further investigation or
interpretation.
ix) When there was such much of loss, the delay incurred
that much of thousands of crores of loss established, which is an apparent
factor which requires further proof of the incurred legal injury. Here is a
case where the contract was erect the Cooling Tower-1 and Cooling
Tower-2, which is the prime mechanism even to commence the Unit.
x) To establish the legal injury, following points are
essential:
a) The respondent here in is a company, indulged in
power generation, wherein, the appellant was engaged to erect
Cooling Tower-1 and Cooling Tower-2 which is predominant
equipment to keep working the system of power generation, if the
cooling tower is not functioning, the generation of power by units
will be decreased.
c) Even till today, the appellant has not completed
the performance guarantee test, wherein, still the Cooling
Tower-1 and 2 is not functioning to its utmost level.
d) The said Cooling Towers 1 and 2 was managed to
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run from 18.06.2015 and 29.08.2015, wherein, only after running
of the said unit, the power generation was done, only after the
said power generation, the said power generation was supplied
and income of monetary factors was accounted
e) Even before the commencement of the unit there
was a delay caused by the appellant for the commencement of
unit and only after commencement of the unit the quantum of
income to the unit was generated and identified, wherein, the
delay in generating the income is the actual legal injury which
does not have any specific document or proof describing on cost
due to the delay.
d) There would not be any generation of power at all
for selling the power to other agencies and hence, the time is the
essence of contract, even as per agreed terms of contract, the
liquidated damages will be levied if the completion of the work
itself is delay, question of further deliberation does not arise.
xi) The delay caused in commencing the unit itself amounts
to demonstrating legal injury by the respondent.
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4. Heard the learned counsel on either side and perused the
materials available on record.
5. Background of the case reveals that in order to setting up
the Thermal Power Point plant after approval, NTPL acting through
NLC Ltd., invited tenders from the interested bidders, dividing the whole
project into diverse packages.
6. The appellant became the successful bidder for the
construction of two Natural Draught Cooling Towers (NDCT –1 and
NDCT-2 collectively package) at a contract price of Rs.127,05,00,000/-
inclusive of taxes and duties. The NLC Ltd., issued the letter of award
dated 12.3.2010 in favour of the claimant.
7. The time schedule stipulated in the award as follows:
4.7 Completion of Time
4.7.1 The contractor shall complete the whole of the works
(mechanical completion) within the following period :
Cooling Tower No.1: 23 months from the date of letter of award
Cooling Tower No.2: 28 months from the date of letter of award
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4.7.2 Performance of guarantee test of the Cooling Towers shall be
completed within the following periods :
Cooling Tower No.1 : 28 months from the date of letter of award
Cooling Tower No.2 : 33 months from the date of letter of award
8. Time schedule for completion of project stipulated in
clause 4.8 as follows:
“ The L1 – PERT network schedule annexed at the end of this
schedule shows activities that have been considered by the Contractor for
preparation of L1 PERT Network schedule like manufacturing, delivery
and erection of the Natural Draft Cooling Towers, trial runs and
commissioning including and performance Guarantee Tests of all Plants
and Equipment under the scope of Contractor. These milestones shall be
binding on the Contractor and form an integral part of the Contract.”
9. It was also Envisaged that the performance of guaranteed
test should be completed in 28 months and 33 months, respectively. From
the date of LOE namely five months from the date of mechanical
completion of CTs.
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10. The contractor furnished performance bank guarantee
dated 9.4.2010 for a sum of Rs.12,70,50,000/- being 10% of the contract
value from ICICI Bank Limited.
11. However the contract was not completed as per terms of
award dated 12.03.2010, Mechanical completion of CT –1, and CT –2
was completed on 15.10.2015 and 27.7.2016, respectively, with time
lapse of 1342 days (disregarding the revised mechanical completion time
pursuant to granting extension of seven months and seven days by the
respondent) for CT –1 and 1477 days for CT –2.
12. NTPL retained amounts out of the R.A bills to recover
the LD amount. 90% of the LD amount was released to the claimant on
its furnishing liquidated damages, bank guarantee (LDBG). The same
was protested by the claimant.
13. There were disputes arose between the parties since the
contract entered between the parties contained Arbitration Clause (clause
10.33.3.2.) Taking course to the said clause, the claimant invoked
arbitration, Arbitral Tribunal was constituted.
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14. After hearing the parties, the Arbitration tribunal raised
the following issues for consideration:
1. Whether the claimant has delayed the completion of
contract work, and whether the reasons for the delay were
solely attributable to the claimant ?
2. Whether the respondent is entitled to levy liquidated
damages in terms of the contract and on facts of the case ?
3. Whether the respondent is not entitled to encash the
LDBG?
4. Whether the claimant is entitled to seek the payment of
amount withheld by the respondent towards liquidated
damages?
5. Whether the claimant is entitled to one or more of the
claims advanced by the claimant ? If so, whether interest is
payable and at what rate and for what period ?
6. Whether the respondent sent to the counter claim of
Rs.88,09,30,000/- towards production loss on account of lesser
condenser vacuum during the period April, May and June
2016 ?
7.Whether the counter claim of Rs.1.003 crores towards
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acid cleaning of the condenser tube is payable by the claimant?
8. Whether the respondent is entitled to the counter claim
of Rs.37,66,03,698/- towards alleged production loss on
account of shut down for 25 days for carrying out acid cleaning
works?
9. To what relief the parties are entitled to ?
15. In conclusion, majority Arbitral award passed on
19.08.2018, under Sections 31, 32 of the Arbitration and Conciliation
Act, 1996 and answered for the above issues as follows:
1. It is the claimant had delayed the exhibition of the
package due the delay in submission of drawings, mobilisation
of men and material and financial distress caused by the conduct
of the claimant in diversion of the funds advanced by the
respondent (in para 110, 111) of the award,
2. Respondent is justified in levying LD for both CTs.,
3. Clauses 44.9.1.6 and 4.9.1.7 of the contract contemplate
a situation, whereby at the request of contractor on its
furnishing, a suitable bank guarantee for hundred percent of the
withheld amount, the respondent could release an amount of up
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to 90% of the amount. The respondent released 90% of the
amount and retained by way of LD in terms of clause 4.9.1.6 of
the contract after withholding the balance 10%.
4. The respondent is entitled to levy LD for the delay in
the mechanical completion of CTs. Hence, the claimant is not
entitled to seek the release of the withheld amount of LD(being
10% of the total LD) from the respondent.
5. Claim of interest is not sustainable as the contract
prohibits payment of interest on delayed/overdue payments. The
claim the respondent made a claim for refund of amount of LD
amount released against LDBG with interest for the first time in
the statement statement of defence filed on 19.10.2017.
6. The counter claim of respondent in issue nos 6 to 8
were rejected.
7. The Tribunal concludes that all the claims preferred by
the claimant was rejected, responded is entitled to encash the
liquidated damages bank guarantee submitted by the claimant
dated 12.12.2013 issued by Punjab National Bank, Mumbai
branch towards Rs.9,37,72,341/-
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16. The main contention of the appellant is that, legal injury
arising out of the breach is a sine qua non for levying liquidated
damages, the parties claiming of breach must plead and prove the legal
injury, but the respondent failed to prove the same. Therefore, there was
no loss or legal injury to the respondent and hence, levy of liquidated
damages was wrong.
17. A legal injury occurs when a parties rights under contract
are violated. Section 73 of the Indian Contract Act reads as follows;
When a contract has been broken, the party who suffers
by such breach is entitled to receive, from the party who has
broken the contract, compensation for any loss or damage
caused to him thereby, which naturally arose in the usual
course of things from such breach, or which the parties knew,
when they made the contract, to be likely to result from the
breach of it. Section 74 of the India Contract Act read along
with Section 73 of the Act.
18. Section 74 of the Indian Contract Act provides that,
when the terms of contract are broken, if a sum named in the contract as
the amount to be paid in case of such breach, the party complaining of
the breach is entitled, whether or not actual damage or loss is proved to
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have been caused thereby, to receive from the party who has broken the
contract reasonable compensation not exceeding the amount so named,
as the case may be the penalty stipulated.
19. In the judgment in Oil and Natural Gas Corporation
Ltd., Vs. Saw Pipes Ltd., reported in 2003 (5) SCC 705, it was held as
follows:
(1) Terms of the contract are required to be taken
into consideration before arriving at the conclusion
whether the party claiming damages is entitled to the same;
(2) If the terms are clear and unambiguous
stipulating the liquidated damages in case of the breach of
the contract unless it is held that such estimate of
damages/compensation is unreasonable or is by way of
penalty, party who has committed the breach is required to
pay such compensation and that is what is provided in
Section 73 of the Contract Act.
(3) Section 74 is to be read along with Section 73
and, therefore, in every case of breach of contract, the
person aggrieved by the breach is not required to prove
actual loss or damage suffered by him before he can claim
a decree. The Court is competent to award reasonable
compensation in case of breach even if no actual damage is
proved to have been suffered in consequences of the breach
of a contract.
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(4) In some contracts, it would be impossible for the
Court to assess the compensation arising from breach and
if the compensation contemplated is not by way of penalty
or unreasonable, Court can award the same if it is genuine
pre-estimate by the parties as the measure of reasonable
compensation.”
and in the judgement in Kailash Nath Associates Vs. Delhi
Development Authority And Another reported in 2015 (4) SCC 136, it
has held as follows :
“"43.1 Where a sum is named in a contract as a
liquidated amount payable by way of damages, the party
complaining of a breach can receive as reasonable
compensation such liquidated amount only if it is a genuine
pre-estimate of damages fixed by both parties and found to be
such by the court. In other cases, where a sum is named in a
contract as a liquidated amount payable by way of damages,
only reasonable compensation can be awarded not exceeding
the amount so stated. Similarly, in cases where the amount
fixed is in the nature of penalty, only reasonable
compensation can be awarded not exceeding the penalty so
stated. In both cases, the liquidated amount or penalty is the
upper limit beyond which the court cannot grant reasonable
compensation.
43.2 Reasonable compensation will be fixed on well-
known principles that are applicable to the law of contract,
which are to be found, inter alia, in section 73 of the
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Contract Act.
43.3 Since section 74 awards reasonable compensation
for damages or loss caused by a breach of contract, damage
or loss caused is sine qua non for the applicability of the
section.
43.4 (omitted here)
43.5 (omitted here)
43.6 The expression "whether or not actual damage or
loss is proved to have been caused thereby means that where
it is possible to prove actual damage or loss, such proof is
not dispensed with. It is only in cases where damage or loss
is difficult or Impossible to prove that the liquidated amount
named in the contract, if a genuine pre-estimate of damage or
loss, can be awarded.”
20. In fourth schedule 4.7 (completion time) 4.7.1 to 4.7.2,
4.8, clearly stipulated that Cooling Tower -1/should be completed within
23 months from the date of letter of award, cooling tower 2 should be
completed within 28 months from the date of letter of award,,
performance, guarantee, test of the cooling towers shall be completed viz
Cooling Tower No.1 should be completed within 28 months from the
date of letter of award, Cooling Tower-2 it should be completed within
33 months from the date of letter of award. However the claimant has
not completed the execution of work within time stipulated in the Award
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and the mechanical completion of Cooling Tower-1 was achieved on
15.10.2015 and that of Cooling Tower -2 on 27.07.2016.
21. “In Clause Schedule IV of the Contract, 4.9.1.1 The
Time stipulated in the Contract shall be deemed to be the essence of the
Contract. In case the Contractor fails to adhere to the time specified in
the Contract Clause 4.7.1, then Liquidated Damages, not as penalty, will
be levied by the Purchaser.
4.9.1.3 If the reason for the delay is solely attributable to the
Purchaser, adequate time extension will be given to the Contractor to the
extent of delay attributable to the Purchaser.
4.9.1.4 if the reason for the delay is purely attributable to the
Contractor, L.D. will be levied, and extension of time may be granted.”
22. The claimant failed to perform his part of contract within
the time stipulated in the agreement after knowing that the time is the
essence of contract, There was enormous delay in handing over the
Cooling Tower No.1 and 2. He has not furnished any plausible reply or
evidence to show that he is not responsible for the delay in completing
the work. In the arbitration award dated 19.08.2018 in para 24 to 125,
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discussed in detail the reason for the delay on the part of the claimant by
verifying the documents, evidence, etc. After considering the entire
material hold that the delay in completion of the work on the sole part of
the claimant. The respondent have right to levy LD and extension of
time given.
23. Therefore in every breach of contract, the person
aggrieved by breach need not required to prove actual loss or damage
suffered by him, he can claim decree. It is clearly proved that the
appellant is sole cause for delay in completing the contract and the
respondent could not run the Cooling Tower 1 and 2 in time and could
not generate income. Further, proof of legal injury is not required to
prove if liquidated damages have been stipulated in the contract.
Therefore the argument advanced by the appellant that the respondent
failed to prove the legal injury sustained by them is unsustainable.
24. The Principal District Judge also after verifying the
entire record confirm the majority award and negatived the petition filed
by the claimant in Ar.O.P.No.58 of 2018. We do not wish to interfere with
the order of the Arbitral Award as well as the decision by the Principal
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District Judge.
25. The learned Principal District Judge allowed
Arb.O.P.No.33 of 2019 filed by the respondent by allowing interest
claimed in the liquidated damages, bank guaranty from 27.07.2016. the
possible dated of encashment of LDBG with 18% interest till the date of
realisation.
26. Now we need to decide whether Principal District Judge
empowered under the Arbitration and Conciliation Act, 1996 to set aside
the Arbitral award dated 19.08.2018 by allowing the counter claim, filed
by the respondent which was negatived by the Arbitral Tribunal.
27. Section 34 of Arbitration and Conciliation Act, 1996
reads as follows :
34. Application for setting aside Arbitral award –
(1) Recourse to a Court against an arbitral award may
be made only by an application for setting aside such award
in accordance with sub-section (2) and sub-section (3).
(2) An arbitral award may be set aside by the Court
only if
(a)the party making the application [establishes on the
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basis of the record of the arbitral tribunal that] -
(i) a party was under some incapacity; or
(ii) the arbitration agreement is not valid under the law
to which the parties have subjected it or, failing any
indication thereon, under the law for the time being in force;
or
(iii) the party making the application was not given
proper notice of the appointment of an arbitrator or of the
arbitral proceedings or was otherwise unable to present his
case; or
(iv) the arbitral award deals with a dispute not
contemplated by or not falling within the terms of the
submission to arbitration, or it contains decisions on matters
beyond the scope of the submission to arbitration:
Provided that, if the decisions on matters submitted to
arbitration can be separated from those not so submitted,
only that part of the arbitral award which contains decisions
on matters not submitted to arbitration may be set aside; or
(v) the composition of the arbitral tribunal or the
arbitral procedure was not in accordance with the agreement
of the parties, unless such agreement was in conflict with a
provision of this Part from which the parties cannot derogate,
or, failing such agreement, was not in accordance with this
Part; or
(b) the Court finds that
(i) the subject-matter of the dispute is not capable of
settlement by arbitration under the law for the time being in
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force, or
(ii) the arbitral award is in conflict with the public
policy of India.
[Explanation 1. - For the avoidance of any doubt, it is
clarified that an award is in conflict with the public policy of
India, only if,-
(i) the making of the award was induced or affected by fraud
or corruption or was in violation of section 75 or section 81;
or
(ii) it is in contravention with the fundamental policy of
Indian law; or
(iii) it is in conflict with the most basic notions of morality or
justice.
Explanation 2. - For the avoidance of doubt, the test as to
whether there is a contravention with the fundamental policy
of Indian law shall not entail a review on the merits of the
dispute.]
[(2A) An arbitral award arising out of arbitration's
other than international commercial arbitration's, may also
be set aside by the Court, if the Court finds that the award is
vitiated by patent illegality appearing on the face of the
award:
Provided that an award shall not be set aside merely on
the ground of an erroneous application of the law or by
reappreciation of evidence.]
(3) An application for setting aside may not be made
after three months have elapsed from the date on which the
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party making that application had received the arbitral
award or, if a request had been made under section 33, from
the date on which that request had been disposed of by the
arbitral tribunal:
Provided that if the Court is satisfied that the applicant
was prevented by sufficient cause from making the
application within the said period of three months it may
entertain the application within a further period of thirty
days, but not thereafter.
(4) On receipt of an application under sub-section (1),
the Court may, where it is appropriate and it is so requested
by a party, adjourn the proceedings for a period of time
determined by it in order to give the arbitral tribunal an
opportunity to resume the arbitral proceedings or to take
such other action as in the opinion of arbitral tribunal will
eliminate the grounds for setting aside the arbitral award.
(5) [ An application under this section shall be filed by
a party only after issuing a prior notice to the other party and
such application shall be accompanied by an affidavit by the
applicant endorsing compliance with the said requirement.
(6) An application under this section shall be disposed
of expeditiously, and in any event, within a period of one year
from the date on which the notice referred to in sub-section
(5) is served upon the other party.]
28. The learned counsel for the appellant, who is respondent
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in Arb.O.P.No.33 of 2019 argued that Section 31(7) of the Arbitration
and Conciliation Act, which has employed, the word may regarding
awarding of interest, and hence the discretion is solely on the Arbitral
Tribunal.
29. He further argued that the learned Judge ought to have
seen that what constitute the patent illegality which has been interpreted
by the Hon'ble Supreme Court in Associate Builders Vs. Delhi
Development Authority reported in 2015(3) SCC 49, has elaborated what
constitutes patent illegality, which means :
a. fraud or corruption.
b. contravention of substantive law
c. error of law by the arbitrator
d. contravention of the arbitration and Conciliation Act, 1996 itself
e. the arbitrator fails to give consideration to the terms of the
contract and usages of trade under Section 28(3) of the Act VI.
f. arbitrator fails to give a reason for his decision.
30. He further argued that, as per the judgement rendered in
McDemott International Inc vs. Burn Standard Co., Ltd., reported in
2006(11) SCC 181, the Court under Section 34 cannot correct errors of
the arbitrators and only quash the award, leaving the parties free to begin
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arbitration again, if they so desire.
31. Under Section 34 an award could be Interfere only if and
when the award goes against them. Terms of contract and contrary to the
substantial law and prayed to set aside the order dated 19.08.2019 by the
learned Principal District Judge, Thoothukudi.
32. The learned counsel for the respondent referred the
judgment rendered in Indian Railways Construction Company Ltd., Vs.
M/s.National Buildings Construction Corporation Ltd., reported in
(2023) 7 SCC 390 with regard to levy of interest :-
“7.5....However, the High Court has not at all
considered Section 31(7)(a) of the Arbitration Act, which
permits the arbitrator that unless otherwise agreed by the
parties, where and in so far as an arbitral award is for
the payment of money, the Arbitral Tribunal may include
in the sum for which the award is made interest, at such
rate as it deems reasonable, for the whole or any part of
the period between the date on which the cause of action
arose and the date on which the award is made. Thus,
unless there is a specific bar under the contract, it is
always open for the arbitrator / Arbitral Tribunal to
award pendente lite interest. Identical question came to
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be considered by this Court in the case of Raveechee and
Company (supra). In the said decision, it is observed and
held by this Court that an arbitrator has the power to
award interest unless specifically barred from awarding
it and the bar must be clear and specific. In the said
decision, it is observed and held that the liability to pay
interest pendente lite arises because the claimant has
been found entitled to the same and had been kept out
from those dues due to the pendency of the arbitration,
i.e., pendente lite.
Applying the law laid down by this Court in the
aforesaid decision to the facts of the case on hand, once it
was found that the advance amount was paid for
hypothecation of equipment and thereafter when the
Arbitral Tribunal awarded the interest on advance for
hypothecation of equipment, the same was not required to
be interfered with by the learned Single Judge in exercise
of the powers under Section 34 of the Arbitration Act and
even by the Division Bench of the High Court while
exercising the powers under Section 37 of the Arbitration
Act. However, at the same time to award the interest @
18% can be said to be on a higher side. In the facts and
circumstances of the case, if the interest is awarded @
12% on advance for the hypothecation of equipment, the
same can be said to be reasonable interest'.”
and argued that the order of the learned Principal District Judge is well
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reasonable and no interference is required.
33. On hearing both side, Section 31(7) of the Arbitration
and Conciliation Act, 1996 stipulates that “(a). unless otherwise agreed
by the parties, where and insofar as an Arbitral award is for the payment
of money, the Arbitral Tribunal may include in the sum for which award
is made interest, at such rate as it deems reasonable, on the whole or any
part of the money, for the whole or any part of the period between the
date on which cause of action arose and date on which the award is
made.
(b). A sum directed to be paid by Arbitral award shall, unless the
award otherwise directs, carry interest at the rate of 2%, higher than the
current rate of interest prevalent on the date of award, from the date of
award to the date of payment.”
34. The Arbitration Tribunal in the award decline to allow
interest by holding that at the time of entering into contract it was not
agreed between the parties to pay interest on the liquidated damages and
the respondent made a claim for refund of the amount of LD amount
released against LDBG with interest for the first time in the statement of
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defence and not entered for the interest.
35. It is general rule is that once the liquidated damages are
ruled as penalty interest is not generally allowed. But in clause 4.9.1.1 of
the contract entered into between the parties, it is stated that in case the
contractor fails to adhere to the time specified in the contract clause 4.7.1
then liquidated damages not as penalty, will be levied by the percentages.
36. The dictum laid down in the Judgment, Indian Railways
Construction Company Ltd., Vs. National Buildings Construction
Corporation Ltd., reported in (2023) 7 SCC 390 unless there is specific
bar under the contractor it is always open for the arbitrator, Arbitral
tribunal to award pendente lite interest unless specifically barred in
awarding it.
37. The learned Principal District Judge taking into
consideration of the fact that the money involved in the transaction is
public fund and granting interest and cost.
38. Granting of interest is well within the Public Policy
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Interest Act, 1975 allows the Courts to award interest as damages, and
debts or in any proceedings in which as claim for interest in respect of
any debt or damages if it thinks fit proper to the person making the claim
at the rate not exceeding the the correct rate of interest for the whole or
any part of period stipulate in the claim.
39. Since the amount involved in the contract is commercial
in nature, the learned Principal District Judge allowed 18% per annum
with cost which is not illegal or arbitrary. The findings of the learned
Principal District Judge is proper and we do not wish to interfere with the
findings of the Arbitaral Award. Hence, these Civil Miscellaneous
Appeals deserves no merit and liable to be dismissed.
40. In the result, both the Civil Miscellaneous Appeals are
dismissed. No costs. Consequently, the connected miscellaneous
petition is closed.
(G.J., J.) & (R.P., J.)
23.04.2025
Index : Yes / No
Internet : Yes / No
NCC : Yes / No
RM
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To
1.The Principal District Judge,
Thoothukudi
Copy to
1.The Section Officer,
ER/VR Section,
Madurai Bench of Madras High Court,
Madurai.
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C.M.A(MD)Nos.864 & 865 of 2019
G.JAYACHANDRAN, J.
AND
R.POORNIMA, J.
RM
Common Judgment in
C.M.A.(MD)Nos.864 & 865 of 2019
23.04.2025
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