Madras High Court
Chief Engineer vs Engineering Products (I) on 23 September, 2025
Author: N.Anand Venkatesh
Bench: N.Anand Venkatesh
2025:MHC:2266
1 OP No. 60 of 2018
IN THE HIGH COURT OF JUDICATURE AT MADRAS
RESERVED ON : 19.09.2025
PRONOUNCED ON : 23.09.2025
CORAM
THE HONOURABLE MR.JUSTICE N.ANAND VENKATESH
OP No. 60 of 2018
AND
ARB O.P(COM.DIV.) NO. 77 OF 2021
OP No. 60 of 2018
Chief Engineer
Metropolitan Transport Project
(Railways), Southern Railway, Egmore,
Chennai-600 008.
Petitioner(s)
.Vs.
1. Engineering Products (I)
Limited, 3D, EC Chambers,
No.92, G.N.Chetty Street, T.Nagar,
Chennai-600 017.
2.Mr.S.Balachandran
Chief Electrical Engineer,
Delhi Metro Rail Corporation Limited,
Kochi.
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2 OP No. 60 of 2018
3.Mr.A.K.Sinha
Chief Planning and Development
Engineer, Southern Railway
Chennai-600 003.
4.Mr.K.Govindasai Babu
Deputy Financial Adviser and Chief
Accounts Officer,
Headquarters Office, Southern Railway,
Chennai-600 003.
Respondent(s)
PRAYER
Original Petition filed under Section 34 of the Arbitration and
Conciliation Act, 1996, to set aside the arbitral award of respondents 2 to 4
dated 17.11.2014 made in relation to the disputes arising out of Agreement
No.MTP/Civil/ 368/2000 in so far as the award under claims 5,8, and 12 are
concerned and to direct the respondents to pay the cost to the petitioner.
For Petitioner(s): Mr.P.T.Ramkumar
Standing Counsel
For Respondent(s) : Mr.K.Harishankar
and
Ms.Mithreyi Kasthurirangan
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3 OP No. 60 of 2018
Arb O.P(COM.DIV.) No. 77 of 2021
M/s. Engineering Projects (i) Ltd
3-D, EC Chmabers, 92 GN Chetty
Street,T.Nagar
Chennai 600 017.
Petitioner
.Vs.
The Chief Engineer
MTP (Railways)
Southern Railways, Egmore,
Chennai 600 008.
Respondent(s)
PRAYER
Petition filed under Section 34 of Arbitration and Conciliation Act, 1996,
that the Award of the Arbitral Tribunal dated 17.11.2014 made by the Arbitrators
in relation to the disputes arising out of the agreement
No.MTP/CIVIL/368/2000 dated 12.09.2000 in so far as disallowing part of the
claim No.1, 2, entire claim No.3, part of claim No.5,6, entire claim No.7, part of
claim No.8. entire claim No.10, part of claim No.12 and entire claim No.13 are
concerned may be set aside.
For Petitioner(s): Mr.K.Harishankar
and
Ms.Mithreyi Kasthurirangan
For Respondent(s) : Mr.P.T.Ramkumar
Standing Counsel for Railways
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4 OP No. 60 of 2018
COMMON ORDER
These petitions have been filed under Section 34 of the Arbitration and
Conciliation Act, 1996 [for brevity hereinafter referred as 'the Act'] against the
award of the Arbitral Tribunal dated 17.11.2014. Insofar as
Arb.O.P(Com.Div.)No.77 of 2021, disallowing the part of the Claim Nos.1, 2,
5, 6, 8 and 12 and disallowing the entire claim in Claim Nos. 3, 7, 10 and 13 has
been put to challenge. Insofar as OP.No.60 of 2018, the award granting Claim
Nos.5, 8 and 12 has been put to challenge.
2.The respondent invited tenders for execution of MRTS Phase-II
between Thirumalai (LUZ) - Velachery, specifically for Pile Foundation and
RCC works in columns, beams and slabs of the station building at Kotturpuram
adjoining Buckingham Canal.
3.The petitioners bid was accepted by Letter of Acceptance dated
22.5.2000 for a contract value of Rs.5,52,08,490/-. The agreement was
executed on 12.09.2000 with a stipulated completion period of 12 months
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commencing from 22.5.2000 upto 21.5.2001.
4.The completion of work was delayed due to several factors. Extension
of time was granted by the respondents under Clause 17(2) of the General
Conditions of Contract [GCC]. The work was ultimately completed on
10.11.2004 and completion certificate was also issued by the respondents.
5.Disputes arose between the parties and hence an Arbitral Tribunal was
constitued by order dated 29.01.2008. The Tribunal after hearing both sides
passed an award dated 17.11.2014. The same has been put to challenge in these
petitions by both the petitioner and the respondents with respect to certain
claims.
6.Heard the learned counsel for the petitioner and the learned counsel
appearing on behalf of the respondents.
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7.The claim made by the claimant, the substantiation made by the
claimant, the defence taken by the Southern Railways and the findings rendered
by the Arbitral Tribunal are tabulated and extracted hereunder for easy
understanding:
S.No. Description of Substantiation Defence raised Findings
Claim made by the by the rendered in
Claimant Respondent the Arbitral
Award
Claim Increase of 30% The Claimant The The Tribunal
1 on the value of submits that Respondent held that the
the work done though the has sought original 12-
during the contract rejection of month
extended stipulated a the claim, completion
completion contending period for the
period of 12 that the Rs.
months, delays delays were 5,52,08,490/
in drawings and occasioned by - Crores
material supply the Claimant’s contract was
on the part of failure to unrealistic
the Respondent mobilize and
extended the skilled labour, unjustified,
work by over 3 machinery and given the
years. It is planning, difficult site
urged that the including conditions
rates quoted repeated (coffer dam
became failures of the in water,
unworkable batching excavation of
owing to plant. It is slum).
inflation and further Relying on
escalation. The contended Clause 17(2)
Claimant that of the GCC,
contends that extensions the Tribunal
substantial work were granted found no
to the value of only upon the delay
₹4,88,50,501/- Claimant’s attributable
was executed request and to the
during this rider claimant and
extended agreements upheld the
period, for were executed application of
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which reaffirming the Price
reimbursement the original Variation
of escalation at rates. It is Clause (PVC)
25% (₹ also the case formula as
1,22,12,625/-) of the per Railway
is sought, Respondent circulars. It
placing reliance that the fixed a
on decisions of Claimant reasonable
the Hon’ble furnished a completion
Supreme Court “No Claim period of 18
permitting Certificate” months and
compensation before applied PVC
despite settlement of formula to
contractual the final bill. works
prohibitions Hence, the executed
when delay is demand for beyond 12
attributable to enhanced months.
the Respondent. rates is urged Based on bill-
to be an wise records
afterthought from CC Bill
untenable. onwards, the
Tribunal
calculated
escalation at
Rs.
9,24,035/-
and awarded
this amount
to the
claimant,
ensuring
compensation
while
acknowledgin
g shared
responsibility
of both
parties.
Claim Payment for the The Claimant The The Tribunal
2 additional submits that Respondent held that the
quantity of coffer though Item 8 has sought Respondent
dam of Annexure IVA rejection of failed to
arrangements referred to the claim, prove non-
made. cofferdams in contending execution of
the Buckingham that payment coffer dam
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Canal alone, for cofferdam works and
site conditions works is offered no
made governed by justification
cofferdams Item 8 of for
necessary for Annexure IVA differential
pile caps and tie and its treatment
beams across necessity is between
the site. It is determined by similar pile
urged that the Engineer- rows (Row E
execution in-Charge. It vs. Row F). It
extended to is submitted found that
4960 RM as that the coffer dams
against 1000 Claimant was were
RM stipulated in duly paid technically
the agreement, wherever necessary for
and the cofferdams Rows F, G
Claimant, under were and H, given
instructions and executed, their cut-off
supervision of even beyond levels below
the Respondent, agreed MSL.
carried out such quantities, Rejecting the
works. Payment and that the claim for full
for the balance Claimant had rates, the
1720 RM, signed the Tribunal
amounting to final bill and adopted a
Rs.96,95,000/-, variation reasonable
is therefore statement rate of one-
sought. without third
protest. The agreement
claim is urged rate (Rs.
to be an 1,875/Rm)
afterthought for makeshift
and coffer dams,
unsustainable. applying
compensator
y
percentages
—50% (Row
F), 25%
(Row G),
15% (Row H)
—based on
inspection.
The
admissible
perimeter
was fixed at
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858.4389m,
subject to a
4% reduction
for exceeding
the 125%
quantity
limit.
Accordingly,
the Tribunal
awarded Rs.
12,51,604/-
for the
unpaid coffer
dam work.
Claim Compensation for The Claimant The The Tribunal
3 reduction in scope submits that the Respondent held that the
work of station removal of has sought overall
building works. station building rejection of variation in
works, without the claim, execution,
any default on contending even without
its part, that the the purported
amounts to Claimant office
partial executed the building, was
prevention and entire scope of only 3.73%
breach of work and, in above the
contract. Loss fact, exceeded agreement
of profit is the agreement value. It
claimed at 10% value by found that no
of the value of 3.73%. It is agreed work
work worth Rs. submitted that had been
80,00,000/-, works worth dropped and
i.e., Rs. Rs. the
8,00,000/-. 5,75,89,250.8 Respondent’s
0/- Crores official notes
were executed could not
as against the serve as
agreement proof of any
value of Rs. contractual
5,55,20,848.90 obligation to
/- Crores. construct an
Hence, the office
allegation of building.
reduction of Accordingly,
scope or loss the claim was
of profit is rejected.
baseless.
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Claim Payment for The Claimant The The Tribunal
4 empty boring submits that Respondent noted that
though the has sought the
contract rejection of Respondent
specified no the claim, had not
limit for empty contending disputed the
boring, that the quantum of
abnormal contractor was empty
depths were required to fix boring,
encountered, the working thereby
which could not platform level accepting the
have been to minimize claimant’s
anticipated empty boring, figures. It
while quoting and that no held that the
rates. It is extra payment final drawing
contended that was was issued
810m of empty admissible during
boring was under the execution,
carried out agreement. It preventing
across piles, is further the claimant
incurring Rs. urged that the from
9,80,726/- and Claimant foreseeing
reimbursement failed to set and pricing
is sought as the the platform this work at
work was optimally, the tender
essential and resulting in stage.
unavoidable. excess empty Rejecting the
boring, and allegation of
that the claim poor
constitutes an planning, the
excepted Tribunal
matter under emphasized
the contract. that the
claimant, as
an
experienced
contractor
chosen by
the Railways,
could not be
presumed
negligent.
Accordingly,
applying a
reduced rate
to the
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undisputed
extra empty
boring
quantities,
the Tribunal
awarded
Rs.9,17,952/-.
Claim Compensation The Claimant The The Tribunal
5 towards loss of submits that the Respondent rejected most
profits and Respondent has sought of the
overheads. failed to hand rejection of claimant’s
over the site the claim, contentions
and drawings as contending as
required under that the PVC unsubstantiat
Section 52 of formula was ed and
the Contract inapplicable, abstract
Act, thereby that statements,
committing extensions except the
breach. Though were granted proven delay
the contract only at the in payment of
period was 12 Claimant’s CC Bills 26
months, the request and 27. It
work extended through rider held that the
to 42 months agreements claimant was
solely due to reaffirming entitled to
the original rates, compensation
Respondent’s and that for the lost
delays. It is therefore no opportunity
further urged escalation or of funds
that schedule compensation during the
quantities were was payable. delayed
misleading, The claim is period.
payments were alleged to be Accordingly,
delayed, and an the Tribunal
the Claimant afterthought. awarded Rs.
suffered heavy 21,246/-
cost escalation. towards
By applying interest at
Hudson’s 12% p.a. on
formula, loss of the amounts
overheads and of the two
profit is bills.
quantified at Rs.
277,60,000/-.
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Claim Payment for the The Claimant The The Tribunal
6 extra works done submits that Respondent held that the
not covered by under the has sought claimant had
the agreement instructions and rejection of not produced
supervision of the claim, any proof of
the Respondent, contending the
it executed that Respondent
additional works demolition directing
such as works were execution of
demolition of already settled the alleged
abandoned under the final works and
structures, bill and no- had never
cable claim raised these
protection, certificate, claims prior
earth cutting, that cable to arbitration
and formation protection was proceedings.
of earthen a contractual As the claims
bunds. It is obligation were
urged that the without any unsubstantiat
total value of protest. The ed, they were
such works earthwork for rejected.
comes to Rs. pile caps and
36,42,025/-, for diversions was
which incidental to
reimbursement the contract.
is claimed. It is
contended
that the
claims are
contrary to
the contract
and
unsupported
by any
records.
Claim Compensation for The Claimant The The Tribunal
7 idle labour submits that it Respondent acknowledge
mobilized has sought d idling
labour, rejection of caused by
machinery, and the claim, shared delay
staff contending but found
immediately that despite that the
after the letter 67% of the claimant had
of acceptance, site and provided no
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but due to the drawings documentary
Respondent’s being proof of
failure to issue available, the expenditure.
drawings, the Claimant Since
workforce failed to make compensation
remained idle. preliminary for delays
It is contended arrangements was already
that this led to such as considered
infructuous winches, under Claims
expenditure on chisels, 1 and 5, the
idle labour bailers, power Tribunal
quantified at Rs. supply, and rejected the
18,49,250/-, liner bending claim.
which is sought setups. It is
as urged that the
compensation. delay was due
to poor
planning by
the Claimant,
and the
department
cannot be held
liable.
Claim Compensation for The Claimant The The Tribunal
8 idle Machinery submits that Respondent partly upheld
and Plants - Loss various has sought the
of productivity equipment rejection of claimant’s
remained idle the claim, idling claims
due to the contending based on
Respondent’s that only two admitted
defaults and tripods were facts and
claimed initially reasonable
compensation brought, that market rates:
as follows: essential 1. Piling Rigs:
machinery Accepted
1.Rigs and such as liner Respondent’s
other machinery bending own letter
(including machines, showing
generator, plate winches, and 2119 hours
bending, etc.) – batching idling;
Rs.21,41,750/-. plants were compensation
delayed by the awarded at
2.62 KVA Claimant, and market rental
Generator – Rs. that no rate.
1,35,000/-. alternate 2. Generator:
arrangements Rejected for
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3.Plate Bending were made. It lack of proof.
Machine – idle is submitted 3. Plate
from that idle Bending
01.06.2000 to periods were Machine
16.10.2000, at attributable (10hp):
Rs. 20,000/- solely to the Found 34
per month. Claimant’s days idling,
poor planning awarded at
4.Batching Plant and failure to market rate
– idle from mobilize (lower than
05.11.2000 to resources. claimant’s
15.04.2001, rate).
claim of Rs. 4. Batching
5,50,000/-. Plant: Held
5.Welding Respondent
Transformer – failed to hand
idle from over land,
01.06.2000 to causing 5.5
16.10.2000 (Rs. months
67,500/-) and delay;
from compensation
16.10.2000 to awarded at
01.03.2001 (Rs. market rate.
33,750/-). 5. Concrete
Mixer:
Rejected as
not required
for the
project.
6. Welding
Transformers
: Awarded
partial
compensation
for 3 units at
a
conservative
rate.
Accordingly,
the Tribunal
awarded a
total of Rs.
4,09,659/-.
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Claim Refund of the cost The Claimant The The Tribunal
9 of empty Gunny submits that the Respondent noted that
Bags recovered Respondent has sought the
recovered Rs. rejection of Respondent
4,43,946/- the claim, did not
towards the contending dispute the
cost of empty that under claimant’s
cement bags Clause 33(3) contention
despite there of the GCC that cement
being no clause empty cement was issued in
in the contract bags are HDPE bags
authorising such departmental and offered
recovery. It is property and no evidence
urged that since that the of supply in
empty cement Claimant gunny bags.
bags are not failed to It held that
the return them. the recovery
Respondent’s Hence, made on this
property under recovery of basis was
Clause 33(3) of Rs. 2,95,964/- unjustified.
the GCC, the at Rs. 2 per Accordingly,
recovery is bag was the Tribunal
without rightly made. awarded Rs.
contractual 2,95,964/- to
basis and the claimant.
refund is
sought.
Claim Refund of the The Claimant The The Tribunal
10 rebate of 19% submits that it Respondent held that a
offered relied on the has sought negative
Respondent’s rejection of percentage
planning and the claim, quoted in the
cooperation to contending tender
complete the that the constituted a
work on time, quoted rate firm value
but due to was based on accepted by
misrepresentati the Claimant’s the Railways
on, suppression own and could not
of facts and assessment, be treated as
failure of and that a rebate.
project delays arose Since the
management, from the claimant had
the rebate Claimant’s not attached
granted has no failure to any
justification. mobilize rigs, conditions to
Refund of the batching plant the rate
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rebate of 19% and offered, the
amounting to manpower, claim was
Rs. except for found not
1,33,32,164/- minor delay in maintainable
upto Bill No CC- handing over and was
32 dated encroached rejected.
01.02.2006 is portions for
sought for from which
the Respondent. extension was
granted.
Claim Refund of The Claimant The The Tribunal
11 recovery towards submits that the Respondent found that
cost of excess Respondent has sought wastage for
consumption of recovered Rs. rejection of operational
cement 5,80,422/- for the claim, procedures
alleged excess contending like priming
cement that excess and testing is
consumption, cement an
despite the consumption "indispensabl
Claimant of 2477 bags e" and
demonstrating arose due to "inevitable"
that usage was wastage, pipe part of the
within the choking, and work. The
supplied finishing Respondent's
quantities. works. It is own
Refund of the further admission of
recovered sum contended cement use
is sought. that recovery, for "touch up
including works" and
penalty, was "choking of
rightly made, pipeline"
and that the supported
Claimant had this.
signed the At the same
material time, the
reconciliation Tribunal
statements found the
and furnished Claimant
no-claim partly at fault
certificates. for not
keeping
separate
records of
cement used
for priming,
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which led to
confusion.
Considering
this shared
responsibility,
the Tribunal
ordered 50%
reimburseme
nt of the
recovered
amount,
awarding Rs.
2,72,829/-.
Claim Loss of business The Claimant The The majority
12 submits that Respondent held that the
delay of more has sought Respondent’s
than 30 months rejection of withholding
in execution due the claim, of funds
to the contending caused the
Respondent’s that delays claimant a
breach caused were caused financial loss
late return of solely by the from erosion
deposits and Claimant’s of money
guarantees, failure to value due to
resulting in a mobilize inflation.
loss of potential materials, Applying an
profits of Rs. skilled Annual
60,00,000 /- manpower and Monetary
from alternate poor day to Appreciation
projects. day Rate (AMAR)
management. of 11.08%
(derived from
the average
SBI lending
rate) to the
withheld
sums, the
majority
calculated
compensation
at Rs.
4,40,370/-.
One
arbitrator
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dissented,
awarding NIL
on the
grounds that
the claim was
speculative,
the contract
barred
interest on
guarantees
and no proof
of potential
profit
existed.
Accordingly,
by majority,
the Tribunal
awarded Rs.
4,40,370/-
for the
money that
was wrongly
withheld.
Claim Interest charges The Respondent The The claim for
13 on the amount of unduly delayed Respondent interest on
payment of the
final bill and final bill and
has sought delayed
security deposit retention of the rejection of release of
security deposit the claim, security
and performance contending deposit
guarantee, that delay in amounts to
depriving the
Claimant of rightful
final payment double
funds. The was solely due compensation
Respondent is to the and is barred
liable to pay Claimant’s under Clause
interest of defaults in 16(3) of the
Rs.8,13,935/-
(Rs.1,46,227 on providing a GCC, which
the final bill and site engineer, expressly
Rs.6,67,708 on finalising prohibits
security/guarantee) measurements payment of
at 18% p.a. from , and scrutiny interest on
due dates to actual
payment from of documents. amounts due
10.12.2004 to It is urged to the
03.02.2006. that no contractor.
interest is Since this
payable. clause
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governs the
contract, the
tribunal holds
that the
claimant’s
demand for
interest on
delayed
payment of
the final bill
is untenable
and therefore
rejected.
8.The learned counsel for the claimant submitted that the findings that
were rendered by the Arbitral Tribunal insofar as Claim Nos.1, 2, 3, 5, 6 and 7
are concerned, it is unintelligible and it suffers from perversity and the same is
liable to be interfered by this Court. The learned counsel in order to substantiate
his submission, relied upon the following judgments:
a) Associate Builders .Vs. Delhi Development
Authority reported in (2015) 3 SCC 49
b) Ssangyong Engineering & Construction Company
Limited Vs. National Highways Authority of India (NHAI)
reported in (2019) 15 SCC 131
c) Dyna Technologies (P) Ltd. v. Crompton Greaves
Ltd., reported in (2019) 20 SCC 1
d) Gayatri Balasamy v. ISG Novasoft Technologies
Ltd., reported in (2025) 7 SCC 1
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9.Per contra, the learned Standing Counsel appearing on behalf of the
Southern Railways justified the findings rendered by the Arbitral Tribunal
insofar as all the claims are concerned except Claim Nos.5, 8 and 12 are
concerned. The learned Standing Counsel further submitted that out of the total
claim amount of Rs.45,33,700/-, already the Southern Railways has paid a sum
of Rs.36,00,000/- to the claimant.
10.This Court has carefully considered the submissions made on either
side and the materials available on record.
11.Insofar as the Judicial approach that is expected while dealing with a
petition under Section 34, it will be relevant to take note of the judgment of the
Apex Court in Associate Builders case referred supra and the relevant portion
is extracted hereunder:
28. In a recent judgment, ONGC Ltd. v. Western Geco
International Ltd. [(2014) 9 SCC 263 : (2014) 5 SCC (Civ) 12] ,
this Court added three other distinct and fundamental juristic
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principles which must be understood as a part and parcel of the
fundamental policy of Indian law. The Court held : (SCC pp. 278-
80, paras 35 & 38-40)
“35. What then would constitute the ‘fundamental policy of
Indian law’ is the question. The decision in ONGC [(2003) 5 SCC
705 : AIR 2003 SC 2629] does not elaborate that aspect. Even
so, the expression must, in our opinion, include all such
fundamental principles as providing a basis for administration of
justice and enforcement of law in this country. Without meaning
to exhaustively enumerate the purport of the expression
‘fundamental policy of Indian law’, we may refer to three distinct
and fundamental juristic principles that must necessarily be
understood as a part and parcel of the fundamental policy of
Indian law. The first and foremost is the principle that in every
determination whether by a court or other authority that affects
the rights of a citizen or leads to any civil consequences, the
court or authority concerned is bound to adopt what is in legal
parlance called a ‘judicial approach’ in the matter. The duty to
adopt a judicial approach arises from the very nature of the
power exercised by the court or the authority does not have to be
separately or additionally enjoined upon the fora concerned.
What must be remembered is that the importance of a judicial
approach in judicial and quasi-judicial determination lies in the
fact that so long as the court, tribunal or the authority exercising
powers that affect the rights or obligations of the parties before
them shows fidelity to judicial approach, they cannot act in an
arbitrary, capricious or whimsical manner. Judicial approach
ensures that the authority acts bona fide and deals with the
subject in a fair, reasonable and objective manner and that its
decision is not actuated by any extraneous consideration. Judicial
approach in that sense acts as a check against flaws and faults
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that can render the decision of a court, tribunal or authority
vulnerable to challenge.
***
38. Equally important and indeed fundamental to the policy
of Indian law is the principle that a court and so also a quasi-
judicial authority must, while determining the rights and
obligations of parties before it, do so in accordance with the
principles of natural justice. Besides the celebrated audi alteram
partem rule one of the facets of the principles of natural justice is
that the court/authority deciding the matter must apply its mind to
the attendant facts and circumstances while taking a view one
way or the other. Non-application of mind is a defect that is fatal
to any adjudication. Application of mind is best demonstrated by
disclosure of the mind and disclosure of mind is best done by
recording reasons in support of the decision which the court or
authority is taking. The requirement that an adjudicatory authority
must apply its mind is, in that view, so deeply embedded in our
jurisprudence that it can be described as a fundamental policy of
Indian law.
39. No less important is the principle now recognised as a
salutary juristic fundamental in administrative law that a decision
which is perverse or so irrational that no reasonable person
would have arrived at the same will not be sustained in a court of
law. Perversity or irrationality of decisions is tested on the
touchstone of Wednesbury [Associated Provincial Picture Houses
Ltd. v. Wednesbury Corpn., (1948) 1 KB 223 : (1947) 2 All ER
680 (CA)] principle of reasonableness. Decisions that fall short of
the standards of reasonableness are open to challenge in a court
of law often in writ jurisdiction of the superior courts but no less in
statutory processes wherever the same are available.
40. It is neither necessary nor proper for us to attempt an
exhaustive enumeration of what would constitute the fundamental
policy of Indian law nor is it possible to place the expression in
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the straitjacket of a definition. What is important in the context of
the case at hand is that if on facts proved before them the
arbitrators fail to draw an inference which ought to have been
drawn or if they have drawn an inference which is on the face of
it, untenable resulting in miscarriage of justice, the adjudication
even when made by an Arbitral Tribunal that enjoys considerable
latitude and play at the joints in making awards will be open to
challenge and may be cast away or modified depending upon
whether the offending part is or is not severable from the rest.”
12.It is also relevant to take note of the judgment of the Apex Court in
Ssangyong Engineering & Construction Company case referred supra and
the relevant portion is extracted hereunder:
76. However, when it comes to the public policy of India,
argument based upon "most basic notions of justice", it is clear
that this ground can be attracted only in very exceptional
circumstances when the conscience of the Court is shocked by
infraction of fundamental notions or principles of justice. It can be
seen that the formula that was applied by the agreement
continued to be applied till February 2013 - in short, it is not
correct to say that the formula under the agreement could not be
applied in view of the Ministry's change in the base indices from
1993-1994 to 2004-2005. Further, in order to apply a linking
factor, a Circular, unilaterally issued by one party, cannot possibly
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bind the other party to the agreement without that other party's
consent. Indeed, the Circular itself expressly stipulates that it
cannot apply unless the contractors furnish an
undertaking/affidavit that the price adjustment under the Circular
is acceptable to them. We have seen how the appellant gave
such undertaking only conditionally and without prejudice to its
argument that the Circular does not and cannot apply. This being
the case, it is clear that the majority award has created a new
contract for the parties by applying the said unilateral Circular and
by substituting a workable formula under the agreement by
another formula dehors the agreement. This being the case, a
fundamental principle of justice has been breached, namely, that
a unilateral addition or alteration of a contract can never be
foisted upon an unwilling party, nor can a party to the agreement
be liable to perform a bargain not entered into with the other
party. Clearly, such a course of conduct would be contrary to
fundamental principles of justice as followed in this country, and
shocks the conscience of this Court. However, we repeat that this
ground is available only in very exceptional circumstances, such
as the fact situation in the present case. Under no circumstance
can any court interfere with an arbitral award on the ground that
justice has not been done in the opinion of the Court. That would
be an entry into the merits of the dispute which, as we have seen,
is contrary to the ethos of Section 34 of the 1996 Act, as has
been noted earlier in this judgment.
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13.Insofar as the scope of Section 31 and the triple test applied in Dyna
Technologies case referred supra, the relevant portions are extracted hereunder:
34.The mandate under Section 31(3) of the Arbitration Act is to
have reasoning which is intelligible and adequate and, which can in
appropriate cases be even implied by the courts from a fair reading of
the award and documents referred to thereunder, if the need be. The
aforesaid provision does not require an elaborate judgment to be
passed by the arbitrators having regard to the speedy resolution of
dispute.
35. When we consider the requirement of a reasoned order,
three characteristics of a reasoned order can be fathomed. They are:
proper, intelligible and adequate. If the reasonings in the order are
improper, they reveal a flaw in the decision-making process. If the
challenge to an award is based on impropriety or perversity in the
reasoning, then it can be challenged strictly on the grounds provided
under Section 34 of the Arbitration Act. If the challenge to an award is
based on the ground that the same is unintelligible, the same would be
equivalent of providing no reasons at all. Coming to the last aspect
concerning the challenge on adequacy of reasons, the Court while
exercising jurisdiction under Section 34 has to adjudicate the validity of
such an award based on the degree of particularity of reasoning
required having regard to the nature of issues falling for consideration.
The degree of particularity cannot be stated in a precise manner as the
same would depend on the complexity of the issue. Even if the Court
comes to a conclusion that there were gaps in the reasoning for the
conclusions reached by the Tribunal, the Court needs to have regard to
the documents submitted by the parties and the contentions raised
before the Tribunal so that awards with inadequate reasons are not set
aside in casual and cavalier manner. On the other hand, ordinarily
unintelligible awards are to be set aside, subject to party autonomy to
do away with the reasoned award. Therefore, the courts are required to
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be careful while distinguishing between inadequacy of reasons in an
award and unintelligible awards.
14.Keeping the above principles in mind, this Court will test the
reasoning given by the Arbitral Tribunal and the decision arrived at for each
claim.
15.Insofar as the first claim is concerned, it is basically a claim made for
escalation in cost due to the delay in the completion of the work.
16.The Arbitral Tribunal came to a categorical conclusion that the nature
of work was such that it was highly unlikely that the work could have been
completed in 12 months. However, a time frame of 12 months was fixed under
the contract. The time was not the essence of the contract since the Southern
Railways was granting several time extensions under Clause 17(2) of GCC.
The Tribunal found that it is the Southern Railways which was responsible for
the delay. Having rendered such a finding, the Tribunal went on to apply, Price
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Variation Clause [PVC] formula for calculating the compensation for escalation
in cost.
17.In the considered view of this Court, the contract is of the year 2000
and the work was completed in the year 2004 and at that point of time, this PVC
formula was not even in force. This came into existence only in the year 2011.
Hence, as a fundamental principle, the Tribunal ought not to have applied the
PVC formula for a contract which came into existence much before the coming
into force of this formula. The error in applying this formula further gets even
more bad since both the parties were not put on notice and were not heard on
the application of the PVC formula. Therefore, it clearly amounts to violation
of principles of natural justice. If the claimant had been informed that the PVC
formula is going to be applied, atleast the claimant would have the opportunity
to oppose the same and the Tribunal should have considered the said objection.
Since this basic procedure was not followed, the Tribunal fell in error by
applying PVC formula for calculating the escalation in cost.
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18.Yet another error that was committed by the Tribunal is that the
Tribunal unilaterally without any basis fixed a period of 18 months as a
reasonable completion period. After doing so, the Tribunal took into
consideration only the period from 18.6.2001 for computation of escalation
cost.
19.There is yet another error committed by the Tribunal by apportioning a
delay of five months on the claimant. There was absolutely no scientific basis
for attributing this delay on the claimant and it was done merely on conjectures
and surmises. In the light of the above discussion, the compensation that was
computed under the heading escalation of cost suffers from patent illegality and
the reasoning is also unintelligible. Thus, there was no justification in limiting
the compensation amount to Rs.9,24,035/- under this head and the claimant will
be entitled for 30% increase in the rates by restricting the same to the quantum
of work done during the extended period and the amount claimed by the
claimant has to be necessarily awarded.
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20. The next claim pertains to the payment for the additional quantity of
coffer dam arrangements made by the claimant. Under this claim, the claimant
had provided necessary coffer dams in certain locations when the piles and tie
beams came within the close proximity to the canal necessitating creation of
working space by means of temporary coffer dams to arrest the flow of running
water as well as heavy seepage.
21.While deciding this issue, the Arbitral Tribunal has taken into
consideration an enquiry that was made from some persons who were residents
living adjacent to the site. If the Tribunal makes any such enquiry and relies
upon the statements made by those persons, obviously the claimant must be put
on notice and such statements cannot be recorded behind the back of the
claimant. This will clearly tantamount to violation of principles of natural
justice. When the claimant had made a claim for 1720 meters by providing all
the particulars, the Tribunal has restricted to 858.4389 meters and such
reduction has been made on mere conjectures and even the rates have been
reduced on ad hoc basis. This procedure followed by the Tribunal is in violation
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of Section 28(2) of the Act, which provides as follows:
28(2)
Th
e
only if the parties have expressly authorised it to do so.
22.Even in technical arbitrations, the arbitrators cannot render findings on
mere conjectures and on ad hoc basis. There must be some scientific basis for
rendering findings. If that is done, the Court cannot sit over such findings of a
specialist. In this case, the findings that have been rendered for Claim No.2 and
the final compensation arrived at clearly suffers from non compliance of Section
28(2) of the Act, violation of principles of natural justice, patent illegality and it
is also unintelligible. Therefore, the compensation that was claimed by the
claimant under this head has to be granted.
23.Insofar as the third claim is concerned, the claimant claimed
compensation for removal of station building works. This claim was made with
the support of the letter dated 22.02.2001 [Ex.P.14] entrusting station building
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works to the claimant. Despite this exhibit, the Tribunal without any reason
concluded that there is no reduction in scope merely because the over all
executed value exceeded 3.73 %. The Tribunal has gone to the extent of
holding that since there was no agreement for carrying out this work, there is no
justification for making the claim. This finding disregards the evidence
available and also it violates principles of natural justice. Moreover, the
findings of the Tribunal insofar as Claim No.3 is concerned suffers from patent
illegality due to ignorance of vital evidence. Accordingly, the claimant has
sought for 10% of the excluded work value of Rs.80,00,000/- amounting to
Rs.8,00,000/-. The quantum of compensation claimed by the claimant is
reasonable and it has some basis and it ought to have been granted by the
Tribunal.
24.The next issue pertains to Claim No.5 which has been put to challenge
both by the claimant as well as the Southern Railways. Claim No.5 pertains to
loss of profits and overheads. This claim was made due to prolongation and
variation in work. While discussing this claim, the entire finding has been
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rendered in favour of the claimant and the Tribunal also holds that the claimant
deserves to be compensated for the lost opportunity by way of reasonable
compensation. The compensation that has been arrived at for Claim No.5 is
reasonable and the view taken by the Tribunal is probable and plausible view.
Hence, no interference is warranted.
25.Insofar as Claim No.6 is concerned, it pertains to payments for other
works done not covered by the agreement. The Tribunal has rejected this claim
on the ground that till the final bill was submitted, the claimant did not even
make any claim under this head.
26.Clause 43(1) of GCC provides that the contractor shall prepare and
furnish the engineers once in every month an account giving full and detailed
particulars of all claims for any additional expenses to which the contractor may
consider himself entitled to and all the extra and additional works ordered by
the engineer. Since this condition was not complied with, this claim has been
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rejected. The view taken by the Tribunal is a possible and plausible view and
just because another view is possible for this Court, that is not a ground to
interfere under Section 34 of the Act.
27.Insofar as the Claim No.7 is concerned, it deals with compensation for
idle labour. The Tribunal has rendered a finding that since compensation has
been granted for Claim Nos.1 and 5, no separate compensation can be granted
for idle labour. Under this claim, the Tribunal ignored documentary evidence
on variation and prolongation which resulted in the machinery and labour being
kept idle due to respondent's failure to issue drawings. This Court must only
examine as to whether ignoring such evidence had any impact on the final
conclusion arrived at by the Tribunal. Claim No.1 pertained to escalation cost
and Claim No.5 pertained to loss of profits and overheads. The Tribunal felt
that since compensation is given under these heads, no separate compensation is
required under this head. This view taken by the Tribunal is a plausible view
which does not require the interference of this Court.
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28.Insofar as the findings rendered by the Tribunal for Claim Nos.8 - 13,
this Court finds that the reasoning given by the Tribunal does not suffer from
any perversity and the compensation that was fixed under Claim Nos.8, 9, 11
and 12 are reasonable. Therefore, the same does not warrant the interference of
this Court.
29.The upshot of the above discussion is that except Claim Nos.1, 2 and 3
where this Court has interfered with the award passed by the Arbitral Tribunal,
the findings rendered with respect to the other claims are hereby sustained.
30.The next issue is as to whether the invalid portion of the award is
severable from the valid portion of the award and the award can be modified.
Useful reference can be made to the judgment of the Apex Court in Gayatri
Balasamy v. ISG Novasoft Technologies Ltd reported in (2025) 7 SCC 1.
87. Accordingly, the questions of law referred to
by Gayatri Balasamy [Gayatri Balasamy v. ISG Novasoft
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Technologies Ltd., 2024 SCC OnLine SC 1681] are
answered by stating that the Court has a limited power
under Sections 34 and 37 of the 1996 Act to modify the
arbitral award. This limited power may be exercised under
the following circumstances:
87.1. When the award is severable, by severing the
“invalid” portion from the “valid” portion of the award, as held
in Part II of our Analysis;
87.2. By correcting any clerical, computational or
typographical errors which appear erroneous on the face of
the record, as held in Parts IV and V of our Analysis;
87.3. Post-award interest may be modified in some
circumstances as held in Part IX of our Analysis; and/or
87.4. Article 142 of the Constitution applies, albeit, the
power must be exercised with great care and caution and
within the limits of the constitutional power as outlined in
Part XII of our Analysis.
"5. Extent of judicial intervention.-Notwithstanding
anything contained in any other law for the time being in
force, in matters governed by this Part, no judicial authority
shall intervene except where so provided in this Part.
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31. Form and contents of arbitral award.-(1) An arbitral
award shall be made in writing and shall be signed by the
members of the Arbitral Tribunal.
(2) For the purposes of sub-section (1), in arbitral
proceedings with more than one arbitrator, the signatures of
the majority of all the members of the Arbitral Tribunal shall
be sufficient so long as the reason for any omitted signature
is stated.
(3) The arbitral award shall state the reasons upon
which it is based, unless-
(a) the parties have agreed that no reasons are to be given;
or
(b) the award is an arbitral award on agreed terms under
Section 30.
(4) The arbitral award shall state its date and the
place of arbitration as determined in accordance with
Section 20 and the award shall be deemed to have been
made at that place.
(5) After the arbitral award is made, a signed copy
shall be delivered to each party.
(6) The Arbitral Tribunal may, at any time during the
arbitral proceedings, make an interim arbitral award on any
matter with respect to which it may make a final arbitral
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award.
(7)(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 the
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 the cause of
action arose and the date on which the award is made.
(b) A sum directed to be paid by an arbitral award
shall, unless the award otherwise directs, carry interest at
the rate of two per cent higher than the current rate of
interest prevalent on the date of award, from the date of
award to the date of payment.
Explanation.-The expression "current rate of interest" shall
have the same meaning as assigned to it under clause (b) of
Section 2 of the Interest Act, 1978 (14 of 1978).
(8) The costs of an arbitration shall be fixed by the
Arbitral Tribunal in accordance with Section 31-A.
31.The interference into Claim Nos.1, 2 and 3 are certainly a severable
part and the award passed by the Arbitral Tribunal can be modified insofar as
Claim Nos.1, 2 and 3 are concerned.
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32.In the light of the above findings, insofar Claim No.1 is concerned,
the entire compensation sought for by the claimant with respect to increase of
30% of value of work done during the extended period for the quantum of work
done during the extended period is granted. Accordingly, compensation of
Rs.1,22,12,625/- has to be paid by the Southern Railways to the claimant under
this head.
33.Insofar as Claim No.2 is concerned, for payment of additional quantity
of coffer dam arrangements made, the claimant is entitled to be paid a total
compensation of Rs.96,95,000/- as claimed by the claimant.
34.Insofar as Claim No.3 is concerned, for payment towards removal of
station building works, the claimant is entitled to be paid a total compensation
of Rs.8,00,000/- as claimed by the claimant.
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35.In the result, OP.No.60 of 2018, filed by the Southern Railways is
dismissed. Arb.OP(Com.Div.).No.77 of 2021, filed by the claimant is partly
allowed and the decision arrived at by the Tribunal insofar as Claim Nos.1, 2
and 3 are concerned stands modified and there shall be a direction to the
Southern Railways to pay a compensation of Rs.1,22,12,625/- for
Claim No.1, a compensation of Rs.96,95,000/- for Claim No.2 and a
compensation of Rs.8,00,000/- for Claim No.3 and it shall be paid along with
interest at the rate of 18% p.a., from the date of filing of the petition i.e., from
10.7.2021 till the date of actual payment. These amounts shall be paid by the
Southern Railways to the Claimant within a period of eight (8) weeks from the
date of receipt of the order with interest. No costs.
23-09-2025
Index:Yes
Speaking
Neutral Citation:Yes
KP
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To
1.Engineering Products (I)
Limited, 3D, EC Chambers, No.92,
G.N.Chetty Street, T.Nagar,
Chennai-600 017.
2.Mr.S.Balachandran
Chief Electrical Engineer, Delhi Metro
Rail Corporation Limited, Kochi.
3.Mr.A.K.Sinha
Chief Palnning and Development
Engineer, Chennai-600 003.
4.Mr.K.Govindasai Babu
Deputy Financial Adviser and Chief
Accounts Officer, Headquarters Office,
Southern Railway, Chennai-600 003.
5.The Chief Engineer, Mtp (railways)
Southern Railways, Egmore,
Chennai 600 008
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N.ANAND VENKATESH J.
kp
AND
ARB O.P(COM.DIV.) NO. 77 OF 2021
...
23-09-2025
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