Union Of India And 2 Others vs M/S. B.R. Enterprises And Another
2023 Latest Caselaw 3977 Tel

     THE HONOURABLE SMT. JUSTICE M.G.PRIYADARSINI

         Civil Miscellaneous Appeal No.1007 OF 2008

JUDGMENT:

Aggrieved by the judgment dated 05.05.2006 (hereinafter

will be referred as 'impugned judgment') in O.P.No.1929 of 2002

on the file of learned XIV Additional Chief Judge, City Civil

Court, Hyderabad, the respondents filed the present Civil

Miscellaneous Appeal to set aside the impugned judgment.

2. For the sake of convenience, hereinafter, the parties will

be referred as per their array before the learned XIV Additional

Chief Judge, City Civil Court, Hyderabad.

3. The brief facts of the case as can be seen from the record

available before this Court are as under:

a) The claimant undertook a contract from the department

to repair and re-erect the sheds in military campus for

Rs.15,77,944.22 paise. The claimant commenced the work on

14.07.1997 and he has to complete the work by 13.07.1998.

However, the respondent extended the time twice i.e., by

31.08.1998 and 28.09.1998. However, the claimant stopped

the work, as such the department issued notices calling up the

claimant to execute the remaining work and threatening to 2 MGP,J CMA_1007_2008

cancel the contract. The department requested the claimant to

start the work and complete the same but the claimant failed to

do so, however, indulging in correspondence. Ultimately, the

contract was cancelled by the department under clause 54 of

the General Conditions of the Contract with effect from

08.02.1999 by the first respondent. An instruction was given to

the claimant to be present for taking inventory of the material

from the spot. The claimant protested the cancellation of

contract and sought for payment of final bill. The department

took inventory of material and entrusted the remaining work to

a third party. The department did not even pay the final bill of

the claimant as they have got a right to recover any loss suffered

by them by entrusting the work to third party. Though the

claimant requested the department to appoint an Arbitrator, the

Department failed to appoint Arbitrator, as such, the Claimant

approached the High Court for appointment of Arbitrator by

Arbitration Application No.40/2000. The respondent No.4 was

appointed by this Court as an Arbitrator, wherein the claimant

filed claim statement alleging that the department committed

breach of contract and that he is entitled to claim of

Rs.18,00,000/-. The Department filed counter denying that

they are responsible for breach of contract and alleging that

claimant himself was responsible for breach of contract. Apart 3 MGP,J CMA_1007_2008

from denying the averments of the claimant in the claim

application, the department has made eight counter claims

under different heads. the learned Arbitrator framed as many as

20 issues and awarded some amounts in favour of the claimant

and some amounts in favour of the department and after

adjusting the claim and counter claims, it was held that the

claimant himself has to pay Rs.4,29,355/- with interest @ 6%

per annum from 31.01.2001 till realization in favour of the

department, Rs.5,000/- towards costs of reference in favour of

the department, Rs.2,500/- towards reimbursement of share of

the secretarial expenses in favour of the department,

Rs.75,000/- towards Arbitrator's fee and Rs.2,500/- towards his

share of secretarial expenses.

4. Aggrieved by the Award, dated 24.06.2002 passed by the

Respondent No.4, the claimant has filed O.P.No.1929 of 2002

under Section 34 of the Arbitration and Conciliation Act, 1996

(hereinafter will be referred as 'the Act'), which was allowed in

part by ordering that the amount payable by the claimant to the

department is reduced to Rs.2,79,355/- with interest @ 6% per

annum from 31.01.2001 till the date of realization. Aggrieved

by the same, the Department filed the present Civil

Miscellaneous Appeal to set aside the impugned order.

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5.    Heard both sides and perused the record.

6. The first and foremost contention of the learned counsel

for the Department/Appellant is that learned Judge erred in

holding that the Arbitrator is not justified in awarding

Rs.1,50,000/- as damages for the delay in execution of the

work, which is contrary to the condition No.50 of the General

Conditions of Contract and the Arbitrator after considering all

the aspects only awarded Rs.1,50,000/- towards damages. It is

seen that the learned Arbitrator i.e., Respondent No.4 in his

Award dated 24.06.2002 has directed the claimant to pay

Rs.4,29,355/- which includes the damages to a tune of

Rs.1,50,000/-. Thereafter, the learned XIV Additional Chief

Judge, Hyderabad has set aside the said award to the extent of

awarding Rs.1,50,000/- and thereby reduced the amount

payable by the claimant to the department from Rs.4,29,355/-

to Rs.2,79,355/-. Thus, the only grievance of the Department

in this appeal is setting aside the Award passed by respondent

No.4 to the extent of awarding Rs.1,50,000/-.

7. The Arbitrator i.e., respondent No.4 in his Award observed

that there was default on the part of claimant in concluding the

contract within specific time in spite of extending the time to

complete the work. Even the learned XIV Additional Chief 5 MGP,J CMA_1007_2008

Judge, Hyderabad in the impugned judgment observed that the

claimant could not complete the work in the schedule time and

there is negligence on the part of the claimant, who has

committed breach of contract. However, learned XIV Additional

Chief Judge, Hyderabad in the impugned judgment opined that

the quantum of damages to a tune of Rs.1,50,000/- awarded by

the learned Arbitrator was not justified as the Department failed

to submit any proof to show that it suffered damages to the

extent of Rs.1,50,000/-. It is to be seen that learned XIV

Additional Chief Judge, Hyderabad has not reduced the

damages but in fact completely exonerated the claimant from

paying damages. There is no explanation in the impugned order

as to why the claimant was completely exonerated from paying

damages, more particularly, when the learned XIV Additional

Chief Judge, Hyderabad observed in the impugned judgment

that the department suffered loss by re-entrusting the work to

third party.

8. Merely because the Arbitrator has awarded

Rs.2,04,052.60 paise towards extra expenditure incurred by the

Department for getting the left work completed through third

party, the claimant cannot be exonerated entirely from payment

of liquidated damages. As can be seen from the record, 6 MGP,J CMA_1007_2008

Condition No.50 of the General Conditions of contract between

the parties, there is a specific clause for fixing the liquidated

damages. No doubt, compensation payable under Sections 73,

74, 75 of the Contract Act is only for loss or damage caused by

the breach and not on account of the mere act of breach. If in

any case the breach has not resulted in or caused any loss or

damage to a party, compensation cannot be claimed. But in the

case on hand, there was breach of contract on the part of

claimant and the Department has also suffered loss to a tune of

Rs.2,04,052.60 paise.

9. Damages are a type of compensation granted to the party,

who has been harmed to allow them to reclaim their position

before the breach. Damages are claimed in different contracts

for a variety of reasons, including loss of profit, opportunity,

overheads, and so on. There are two sorts of damages i.e.,

liquidated and un-liquidated. The court may award un-

liquidated damages, the amount of which is not known ahead of

time. The term 'liquidated damage' is not specified in the Indian

Contract Act, 1872, however, Section 74 defines the parts that

make up the definition of liquidated damage. So, if a contract

states that a certain number will be awarded in the case of a

breach, the innocent party will be allowed to recover damages 7 MGP,J CMA_1007_2008

equal to or less than that amount, based on the facts and

circumstances of each case, up to the maximum amount stated

in the contract. As stated supra, there is specific condition

No.50 of the General Conditions of contract fixed the liquidated

damages. In such circumstances, the claimant is liable to pay

damages to the Department for breach of contract. Damages

are granted to compensate the injured party and, as a result, it

places the aggrieved party in the very same situation as it would

have been if the breach had not occurred. Thus, there is no

irregularity or infirmity in the Award passed by the learned

Arbitration while granting damages to a tune of Rs.1,50,000/-

in the Award, dated 24.06.2002.

10. The other contention of learned Government Pleader for

Arbitration representing the Department/appellant is that the

learned Judge agreed with the findings of Arbitrator, however,

interfered and set aside the award of Arbitrator exceeding the

scope for setting aside award under Section 34 of the

Arbitration and Conciliation Act as if he is sitting in appeal over

arbitrator award. It is further contented that the learned Judge

erred in observing that Apex Court in Oil and Nvatural Gas

Company Limited (ONGC) v. Saw Pipes Limited 1 certain

AIR 2003 SC Page 2629 8 MGP,J CMA_1007_2008

grounds for setting aside the award were added besides

whatever mentioned in Section 34 of the Arbitration and

Conciliation Act. In support of above contention, the learned

Government Pleader for Arbitration relied upon a decision in

the Project Director, National Highways No.45 E and 220

National Highways Authority of India v. M. Hakeem 2, the

Apex Court at paragraph Nos.40 and 46 held as follows:

"40. It can therefore be said that this question has now been settled finally by at least 3 decisions of this Court. Even otherwise, to state that the judicial trend appears to favour an interpretation that would read into Section 34 a power to modify, revise or vary the award would be to ignore the previous law contained in the 1940 Act; as also to ignore the fact that the 1996 Act was enacted based on the UNCITRAL Model Law on International Commercial Arbitration, 1985 which, as has been pointed out in Redfern and Hunter on International Arbitration, makes it clear that, given the limited judicial interference on extremely limited grounds not dealing with the merits of an award, the 'limited remedy' under Section 34 is co-terminus with the 'limited right', namely, either to set aside an award or remand the matter under the circumstances mentioned in Section 34 of the Arbitration Act, 1996.

46. Quite obviously if one were to include the power to modify an award in Section 34, one would be crossing the Lakshman Rekha and doing what, according to the justice of a case, ought to be done. In interpreting a statutory provision, a Judge must put himself in the shoes of Parliament and then ask whether Parliament intended this result. Parliament very clearly intended that no power of modification of an award exists in Section 34 of the Arbitration Act, 1996. It is only for Parliament

Laws (SC) 2021 7 20 9 MGP,J CMA_1007_2008

to amend the aforesaid provision in the light of the experience of the courts in the working of the Arbitration Act, 1996, and bring it in line with other legislations the world over."

11. The Apex Court in ONGC's case (supra) has enumerated

certain grounds to set aside the award passed by an Arbitrator

under Section 34 of the Act. However, in the case on hand,

none of the grounds mentioned in ONGC's case (supra) are

available for the learned XIV Additional Chief Judge, City Civil

Court, Hyderabad to set aside the Award passed by the

respondent No.4, more particularly with regard to damages

when there is specific condition that in case of default by either

of the parties, the party, which suffered loss is entitled for

damages. No doubt the Arbitrator awarded Rs.2,04,052.60

paise in favour of the Department as amount found due towards

extra expenditure incurred for getting left over work completed.

But there is no explanation as to what was the loss suffered by

the Department for non completion of the work within

stipulated period. In such circumstances, Condition No.50 of

the General Conditions of contract comes into picture and the

said condition stipulates that if the contractor fails to complete

the work within the time, the aggrieved is entitled for 10% of the

contract as liquidated damages. Therefore, the learned XIV

Additional Chief Judge, City Civil Court, Hyderabad ought not 10 MGP,J CMA_1007_2008

to have interfered with the findings of the learned Arbitrator so

far as awarding damages to the extent of Rs.1,50,000/- is

concerned, more particularly, when the scope and ambit of the

Court under Section 34 of the Act to interfere with Award

passed by the Arbitrator is limited until and unless the

irregularity goes to the root of the matter. In the case on hand,

there is no dispute that the contractor has committed breach of

contract for which the Arbitrator has awarded liquidated

damages in favour of the Department. Thus, on the face of the

record, there is no patent irregularity in the Award passed by

the learned Arbitrator.

12. In view of the above discussion, viewed from any angle,

there are no grounds at all to interfere with the findings of the

learned Arbitrator in the Award, dated 24.06.2002. Thus, the

learned XIV Additional Chief Judge, City Civil Court, Hyderabad

has committed an irregularity in modifying the Award, dated

24.06.2002, more particularly, when the scope and ambit of

interfering with the Award under Section 34 of the Act is very

restricted as stated supra. Hence, the Department is entitled

for liquidated damages to the tune of Rs.1,50,000/- towards

liquidated damages as rightly awarded by the learned

Arbitrator.

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                                                            CMA_1007_2008

13. Accordingly, the Civil Miscellaneous Appeal is allowed by

setting aside the judgment dated 05.05.2006 in O.P.No.1929 of

2002 on the file of learned XIV Additional Chief Judge, City Civil

Court, Hyderabad to the extent of exonerating the

claimant/contractor from paying liquidated damages of

Rs.1,50,000/- and thereby the Award dated 24.06.2002 passed

by the respondent No.4/learned Arbitrator is confirmed. There

shall be no order as to costs.

Pending Miscellaneous applications, if any, shall stand

closed.

                                      _______________________________
                                       JUSTICE M.G.PRIYADARSINI
Date:     15.11.2023
AS