Madras High Court
Chennai Metropolitan Water Supply & ... vs Spml Infra Limited on 21 March, 2025
Author: Mohammed Shaffiq
Bench: Mohammed Shaffiq
OSA No.20 of 2019
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED: 21.03.2025
CORAM
THE HON'BLE MR.K.R.SHRIRAM, CHIEF JUSTICE
AND
THE HON'BLE MR.JUSTICE MOHAMMED SHAFFIQ
OSA No.20 of 2019
Chennai Metropolitan Water Supply & Sewerage Board,
No.1, Pumping Station Road,
Chennai - 600 002.
through the Managing Director ... Appellant
vs.
1. SPML Infra Limited,
F-27/2, Okhla Industrial Area Phase II,
New Delhi 1 10020
Through its Authorised Signatory
2. Dr.T.S.Sethurathnam
Presiding Arbitrator
C-137, Sarvodaya Enclave,
New Delhi 1 10 017
3. Capt.S.Raja Rao
Arbitrator
House No.279, 1 st B-Cross,
8th Main Road, 4th Block,
Basaveswara Nagar, Bengaluru 560 079
Page 1 of 18
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OSA No.20 of 2019
4. Mr.K.Ramalingam
Arbitrator
AP-506, 16 th Street,
Vaigai Colony, Anna Nagar West,
Chennai 600 040 ... Respondents
(Cause title for R-1 amended as per order
dated 21.03.2025 in CMP No.27820 of 2023
by the Hon'ble First Bench)
Prayer: Appeal filed against the order passed by learned Single Judge in OP
No.325 of 2009 dated 14.06.2017.
For Appellant : Mr.D.Balaraman
For Respondent No.1 : Mr.M.S.Krishnan,
Senior Counsel,
for Mr.K.Ashok Kumar
Respondents 2 and 4 – Arbitrators
Not ready in notice regarding Respondent No.3
JUDGMENT
(Judgment of the Court was delivered by the Hon'ble Chief Justice)
Appellant is unhappy with an order delivered on 14.06.2017 by
learned Single Judge of this Court under Section 34 of the Arbitration and
Conciliation Act, 1996 (the Act). By the said petition under Section 34 of
the Act, appellant challenged the majority award dated 15.12.2007.
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2. A tender was floated by appellant in October, 1997, inviting bids
for construction of permeate conveyance pipeline. Respondent No.1 was
the successful bidder and came to be appointed as contractor, pursuant to a
contract dated 26.11.1998. The contract executed comprised of both Rupee
as well as Japanese Yen component. Value of the contract in Indian rupees
was INR 18,05,30,000/- while in Japanese Yen was fixed at JPY
51,90,42,904/-
3. The scope of work of the contract broadly obliged respondent No.1
to:
a) construct pumping station and emergency
station at Koyambedu;
b) to supply and install electro mechanical and
instrumentation equipment; and
c) to supply and lay down 1700m of ductile iron
pipeline with all accessories of the requisite
diameter.
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4. Disputes arose between the parties as regards post-contractual
changes brought about in the alignment of the pipeline, which respondent
No.1 was obliged to lay down in terms of the contract.
5. The contract envisaged that only a part of the pipeline within the
range of 10-15% would be laid underground and that a major part of the
pipeline would have to be laid overground. It appears that due to post-
contractual changes, not only the actual length of the pipeline which had to
be laid got altered, but also the length of the pipeline which had to be laid
underground also increased. In sum, while the actual length of the pipeline
which had to be laid got changed from 17945m to 1 1887.2 m, the portion
which had to be laid underground increased from 1759m to 5637m. In
effect, the increase in that part of the pipeline which had to be laid below
the road surface, in percentage terms increased from 10-15% to 47.42%.
6. Besides this, the main average depth of excavation evidently
increased from 2.68m to 3.16m. In real terms, the increase was
approximately 0.5m; while in percentage terms, the average depth of
excavation increased by 18.65%.
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It is these post-contractual changes which made respondent No.1 to
lodge its claim for recovery of monies under various heads.
7. As it appears from the majority award, respondent No.1 lodged 16
claims, which included claim for interest; while appellant lodged a counter-
claim for the alleged delay committed by respondent No.1 in the execution
of the contract. In the counter-claim, appellant claimed liquidated damages
of 10% of the contract price.
8. As per the majority award, it contained 22 sub-heads under Claim-
1. Out of the 22 sub-heads, two sub-heads were rejected. Besides four other
claims were also rejected.
9. In all, majority award directed payment of a sum of
Rs.13,72,38,571/- to respondent No.1 with interest @12% per annum from
01.09.2003 till the date of payment. The award also provided that if the
money as awarded was not paid within three months, respondent No.1
would be entitled to a further interest at the rate of 15% per annum till the
date of actual payment of the amount so awarded. The parties were
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directed to bear their own costs.
10. Insofar as the minority award was concerned, the contractor was
awarded Rs.1,54,57,574/- towards certain heads of claim. In addition,
interest at the rate of 8% per annum for a period between August, 2003 and
December, 2007 was also awarded and the interest is quantified at about
Rs.54,61,676/-. The minority award also directed further interest at the rate
of 6% per annum, if payment as ordered was not made on or before
December, 2007. Even in the minority award, Board's counter-claim for
liquidated damages has been rejected.
1 1. Appellant filed its Section 34 petition raising very broad grounds
to assail the award. Appellant's challenge primarily was confined to claim
Nos.2, 1 1 and 12. As regards Claim Nos.11 and 12, both parties agreed for
quashing of the award under those two heads and remand the matter for
fresh adjudication before a sole arbitrator who was appointed by the Court.
Adjudication of claim Nos.11 and 12 was carried out by a former Judge of
this Court, who was pleased to reject claim Nos.11 and 12 made by
respondent Corporation. Respondent No.1 has not challenged this award.
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That left only claim No.2 to be decided by learned Single Judge in the
Section 34 petition. Learned Single Judge rejected the challenge under
Section 34 of the Act by the impugned order pronounced on 14.06.2017,
and that is the only point that we need to consider under this appeal filed
under Section 37 of the Act.
12. This claim No.2 was in respect of additional work due to increase
in depth of excavation and due to the increase in the length of pipeline
running under the road due to post-contract changes in the alignment of the
pipeline. The contractor's claim, i.e., of respondent No.1, was that as per the
original tender drawing, only 1759m of the total length of pipe was under
the road, but due to post-contract changes in the alignment of pipeline, a
length of 5637m of the pipeline came under the road. It was also the
contractor's case that due to revision of alignment, there was considerable
reduction in the scope of work, i.e., reduction in the length of pipeline to be
laid. Against total length of pipeline in original scope of 17945m, the actual
length of pipeline laid was 1 1887.2m, out of which, length of pipe under
the road portion is 5637m as indicated by respondent No.1 which is 47.42%
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of the pipeline actually laid. The contractor's case was Clause 1.04 of
Volume 2A of the contract expressly stated that 10-15% of the pipeline will
be laid under the road. It was also the contractor's case that as per the
original contract, the main average depth of excavation for the entire
pipeline was 2.68m but due to post-contract changes in the alignment, the
main average depth of excavation as per “as built” drawings was found to
be 3.16m, an increase of 0.5 m from 2.68m. The increase in the depth of
excavation was therefore at 18.65%.
13. Admittedly, appellant paid a sum of Rs.4,67,47,483/- out of the
claim of Rs.9,87,05,340/-that was made by the contractor, leaving a
balance of Rs.5,19,57,857/-. It was this amount that was awarded in favour
of the contractor.
14. Mr.Balaraman submitted that Clause 8.1 of the General
Conditions of Contract (GCC) provided that the contractor shall be deemed
to have inspected and examined the site and its surroundings and to have
satisfied himself before submitting his tender, as to the nature of the ground
and sub-soil, form and nature of the site, quantity and nature of the work
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and materials necessary for the completion of the work and the means of
access to the site, the accommodation he may require and in general, to
have obtained himself all necessary information as to risk, contingencies
and other circumstances which might influence or affect his rights.
Mr.Balaraman also submitted that Clause 20 of the GCC also provides for
what would happen if unexpected underground structures were there.
Mr.Balaraman submitted that the contractor, as per Clause 20, was
expected to make his own examination and draw his own conclusions as to
the underground structures which will be encountered and he shall have no
claim for damages of any kind, on account of any errors, inaccuracies or
omission that may be found. He also submitted that protection and
temporary removal and replacement of existing utilities and structures was
part of the contract, and all costs in connection therewith was included in
the contract price in the tender. Mr.Balaraman therefore submitted that the
contractor was not entitled to any extra payment for the additional
underground pipeline laid or for the additional excavation he had done.
15. We would have agreed with Mr.Balaraman that these clauses
would have prohibited the contractor from claiming any extra amount if
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there were no post-contract changes in the alignment of the pipelines.
16. Before we go into the scope of challenge to an arbitral award, it
will be useful to reproduce the discussion made in the majority award under
this head:
“Conclusion
In view of the major post contract
changes in the alignment of pipeline, the
Respondent's reference to the printed offer letter
in the tender document or reference to pre-
tender site inspection by the tenderer or various
other clauses of the contract have become
irrelevant.
It is also not a lumpsum contract as stated
earlier. The unit rate for various item have been
quoted lumpsum or even per metre basis. The
entire work was executed under the supervision,
direction and approval of the Engineers of the
Respondent. There were series of contemporary
correspondence in this regard. Further Clause 28
of GCC provided for execution of additional
work.
Both the parties have cited various case
laws in support of their respective contention.
These have been discussed in detail
hereinbefore. In the case of State of Maharastra
vs. Nav Bharat Builders (AIR 1991 SC 1 1), the
Hon'ble Supreme Court held that the Arbitrator
is entitled to interpret any clause of the contract
reading the contract as a whole, keeping in mind
the intention of the parties. The claimant have
submitted the case of M.L.Damlia & Co. vs.
Union of India (AIR 1997 Cal 266). These cases
have been discussed under Claim No.1. The
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claimant also relied upon FIDIC condition of
contract which states that unforeseen constraints
permit compensation to Contractor who
encounters an exceptional physical constraints
not foreseen at the time of contract. The
Respondent cited the case laws of Rajasthan
State Mines and Minerals vs. Eastern
Engineering Enterprises (AIR 1999 SC 3627).
Ramachandra Reddy vs. State of Andhra Pradesh
2001(4) SCC 241 and C.H.Ramalinga Reddy vs.
Superintending Engineer 1999(9) SCC 610.
These cases have been discussed earlier and also
under Claim No.1. None of the case laws cited
by the Respondent prohibits the claim. The
Claimant is entitled to payment due to major
post contract changes in the alignment.
There was difference between the parties
as to whether the work is an extra work or not.
The absence of written order will not be towards
payment, if the works in question are indeed
extra works. However, in this case, there were
written orders from the Engineer to take up the
pipe laying work as per the revised alignment of
the pipeline. Further in the instant case, details
of pipe laying works indicating the depth of
excavation, width of excavation, thickness of
concrete, inert level of the pipe line were jointly
recorded in job cards and signed by both the
parties which indicated the execution of works
by the Claimant under day-to-day supervision,
inspection and approval by the Respondent. In
this case, we hold that the works under the
Claim No.2 are extra/ additional work for
reasons as stated earlier and the Claimant is
entitled to payment for the same.
In the instant case due to post contract
changes in the alignment, the agreed fact
situation ceased to exist. It cannot be denied that
laying of pipeline under the road which involved
cutting off road hard crust taking additional
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safety measures during excavation of trenches
and laying of pipeline, obtaining permission
from the authorities etc., is more expensive than
laying of pipeline beyond the road portion.
Similarly, the cost of laying pipeline is also
increased with the increase in depth of
excavation, inter alia, due to additional shoring,
additional de-watering, additional lift etc. The
Respondent have furnished exhaustive details
indicating the chainnages where the pipes were
laid, the Respondent also indicated the depth of
excavation as per the original drawing and also
the depth of excavation as per the actual work.
The Respondent have also indicated difference
in depth for each chainnages. The difference in
depth of excavation varied from 0.070 to 2.906
m. The Respondent have worked out as per
depth analysis of CMWSSB procedure and the
rates as per schedule of rates which works out
Rs.4,79,15,214.71 (pages 181 of RV-6A). This
amount for the reasons stated earlier is to be
increased by 106% that is to say, the amount is
Rs.9,87,05,340/-. The Respondent have already
paid a sum of Rs.4,67,47,483/- leaving a
balance of Rs.5,19,57,857/- and we make an
award of the said amount in favour of the
Claimant against Claim No.2.”
(emphasis supplied)
17. As is evident from the extract and as noted earlier, appellant itself
has liquidated part of the claim, amounting to Rs.4,67,47,483/- albeit based
on the agreed rates as against adjusted rates. As regards the adjustment in
rates, the rationale provided by the arbitrators from the portion quoted
above is quite evident and plausible. Whether such a view expressed by the
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arbitrators can be interfered with under Section 34 of the Arbitration Act is
a point that we have to consider.
The answer is no.
18. The award has been assailed on the ground prescribed in Section
34(2)(b)(ii) of the Act - it is in conflict with Public Policy of India. The
Apex Court, in Associate Builders vs. Delhi Development Authority1 ,
which was followed in Ssangyong Engineering & Construction Co. Ltd.
vs. National Highways Authority of India2, has analysed the expression
"The Public Policy of India". The Court held that merits of an arbitral award
are to be looked into under specific circumstances and went on to list 4 sub-
heads under the head "Public Policy of India". The Court held, inter alia,
that in a challenge to an award under Section 34 of the Act, the Court does
not act as a Court of appeal. Interference is permissible only when findings
of arbitrators or the Arbitral Tribunal are arbitrary, capricious or perverse,
or when the conscience of the Court is shocked, or when illegality is not
trivial but goes to the root of the matter, and not when merely another view
1 (2015) 3 SCC 49
2 AIR 2019 SC 5041
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is possible. The Apex Court more importantly has held that the arbitrator is
the ultimate master of quantity and quality of evidence while drawing
arbitral award. The award based on little evidence or on evidence which
does not measure up in quality to a trained legal mind cannot be held
invalid.
The Court went on to hold that once it is found that arbitrators'
approach is neither arbitrary nor capricious, no interference is called for on
facts.
19. The arbitrators have returned a finding of fact that additional
works were in fact carried out by the contractor and that there was in fact,
a post-contractual realignment of the pipeline. There is also a finding of fact
that this realignment, while reducing the length, resulted in approximately
42.47% of the pipeline being laid below the road surface as against 10-15%
which was envisaged in the contract. In real and absolute terms, the total
length of the pipeline found by the arbitrators in the majority award,
reduced from 17945m to 1 1887.2m. Though under the contract, the
contract was to lay only 1759m of the total length of pipeline below the
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road surface, after the post-contractual changes had been put in place, it
ended up laying 5637m of pipeline underground.
20. Furthermore, there is also a finding of fact that main depth of
excavation was also required to be varied even according to the calculation
furnished by appellant. The difference in depth of excavation varied from
0.070m to 2.906m. There is also a finding of fact given by the Tribunal that
post-contractual realignment of pipeline required contractor to negotiate
culverts etc.
21. In view of the above, and as arbitrators are the ultimate masters
of quantity and quality of evidence while drawing the arbitral award, and
arbitrators have returned a finding of fact, we see no reason to interfere.
22. We find nothing wrong in the arbitrators' findings that for the
additional items of work, contractor could be paid an enhanced rate as per
the formula put in place by the arbitrators, who had authored the majority
award.
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23. Therefore, we do not find that the arbitrators' findings are
arbitrary or capricious or perverse. The findings do not shock our
conscience and there is no illegality; let alone being trivial or going to the
root of the matter.
24. Appeal stands dismissed.
25. Mr.Krishnan is pressing for cost. He is justified. Mr.Balaraman
submits that he has restricted his challenge to the impugned order only to
Claim No.2 and nothing else.
Keeping that in mind, we award only Rs.2,00,000/- (Rupees Two
lakhs only) as costs.
(K.R.SHRIRAM, CJ.) (MOHAMMED SHAFFIQ, J.)
21.03.2025
Index : Yes
Neutral Citation : Yes
tar
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To
1. The Authorised Signatory
SPML Infra Limited,
F-27/2, Okhla Industrial Area Phase II,
New Delhi 1 10020
2. Dr.T.S.Sethurathnam
Presiding Arbitrator
C-137, Sarvodaya Enclave,
New Delhi 1 10 017
3. Capt.S.Raja Rao
Arbitrator
House No.279, 1 st B-Cross,
8th Main Road, 4th Block,
Basaveswara Nagar, Bengaluru 560 079
4. Mr.K.Ramalingam
Arbitrator
AP-506, 16 th Street,
Vaigai Colony, Anna Nagar West,
Chennai 600 040
5. The Sub-Assistant Registrar,
Original Side Section,
Madras High Court
6.The Managing Director
Chennai Metroplitan Water Supply & Sewerage Board,
No.1, Pumping Station Road,
Chennai - 600 002.
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THE HON'BLE CHIEF JUSTICE
AND
MOHAMMED SHAFFIQ, J.
(tar)
21.03.2025
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