Bangalore District Court
) The Chairman vs ) M/S.A.V.Paramashivan on 20 February, 2020
IN THE COURT OF THE VI ADDL. CITY CIVIL & SESSIONS JUDGE
AT BENGALURU CITY
(CCCH.11)
Dated this the 20th day of February, 2020
PRESENT: Sri. Rama Naik, B.Com., LL.B.,
VI Addl.City Civil & Sessions Judge,
Bengaluru City.
A.S.NO:109/2014
PETITIONERS/ 1) THE CHAIRMAN
PLAINTIFFS M/s.Fouress Engineering (India) Ltd
Mahalakshmi Chambers,
No.22, Bhulabai Desai Road,
Mumbai.
2) M/S.FOURESS ENGINEERING (INDIA) LTD
Plot No.2, Phase II,
Peenya Industrial Area,
Bengaluru -560 058.
3) MRS.SMITA SHETTY,
Managing Director
M/s.Fouress Engineering (India) Ltd
Plot No.2, Phase II,
Peenya Industrial Area,
Bengaluru -560 058.
4) MR.ARUN N.SHETTY,
Ex.Chief General Manager (HRD & Admn)
M/s.Fouress Engineering (India) Ltd
Plot No.2, Phase II,
Peenya Industrial Area,
Bengaluru -560 058.
[By Pleader Sri.M.K.Subrahmanya]
AS.109/2014
2
/Vs/
RESPONDENTS/ 1) M/S.A.V.PARAMASHIVAN
DEFENDANTS A Partnership firm having its Office
at No.70/73, Mind Space Apartment,
Ground Floor, Eranapalya,
Arabic College Post,
Bengaluru -560 095.
Reptd.by its Partner-Mr.P.Jayachandra.
[By Pleader Sri. K.Ranjan Kumar]
2) MR.I.S.ANTIN
Sole Arbitrator
Retired District Judge,
Arbitration Centre-Karnataka
Race Course Road,
Bengaluru -560 001.
[Arbitrator ]
JUDGMENT
This suit is filed under Section 34 of the Arbitration and Conciliation Act, 1996, by Plaintiffs/Petitioners for setting aside the arbitral award dated 23.07.2014 passed in AC No.21/2013 by the learned sole Arbitrator/Defendant No.2.
2) Facts, in brief, as stated in the plaint, are that, Plaintiffs called 'Tender' for civil works and AS.109/2014 3 structural works relating to store and fabrication extension and painting booth, in the manufacturing premises at Peenya, Bengaluru. 1st Defendant submitted quotation, which was accepted by Plaintiffs. Letter of Intent dated 08.11.2010 was issued by Plaintiffs. As per Letter of Intent, total value of the order was fixed at Rs.4,44,39,506=42. Plaintiffs executed Articles of Agreement dated 17.12.2010, governing the terms and conditions of the work. M/s.Vestian Global Work Place Services Pvt. Ltd., was appointed as Project Management Consultant [PMC] to supervise the work, check the quality of work, etc. Plaintiffs issued Work Order dated 24.06.2010 to M/s.Chandrakant and Nayak for co-ordinating and integration of various aspects of the project with PMC and supervision at the site, including certification of bills presented by PMC/Defendant No.1.
AS.109/2014 4
3) It is stated that, RA bills No.1 to 4 merged with fifth RA and final bill, in view of carry forward procedure in the preparation of bills. Basic Invoice value is Rs.5,58,37,953=09; VAT is Rs.27,91,899=07; Service Tax is Rs.19,15,240=55; total bill value is Rs.6,05,45,092=70, Advance amount paid is Rs.3,49,47,507=03; TDS is Rs.12,55,048=00; Retention amount is Rs.24,32,750=18; canteen/other deductions is Rs.5,122=00; Net amount paid to the contractor/Defendant No.1 is Rs.5,68,52,173=74 as per the document.
4) It is stated that, 1st Defendant by a legal notice dated 11.02.2013 claimed to release actual retention amount of Rs.24,32,751=00 and payment due as per the bills. Plaintiffs sent reply dated 18.02.2013, rejecting the claim of 1 st Defendant. Thereafter, by an order dated 29.08.2013 passed in CMP No.95/2013 by the Hon'ble High Court of AS.109/2014 5 Karnataka, 2nd Defendant was appointed as sole Arbitrator to adjudicate the dispute between the parties and impugned award came to be passed by 2nd Defendant.
5) Plaintiffs have challenged the award on the following grounds :
(a) Arbitrator ignored the terms and conditions stipulated in the Contract dated 17.12.2010, which are binding on the contracting parties. Arbitrator has acted beyond the terms of the said contract and traveled beyond jurisdiction, hence, this Court is required to go into the said matter. Arbitrator cannot award any amount which is ruled out or prohibited by the terms of agreement. Arbitrator could not have acted contrary to the terms and stipulations contained in the contract dated 17.12.2010.
(b) Departure from contract amounts to not only manifest disregard of the authority of the Arbitrator or misconduct AS.109/2014 6 on his part, but it also tantamount to a malafide action. A conscious disregard of law or provisions of the contract from which Arbitrator has derived his authority, vitiates the award.
(c) 1st Defendant is not entitled balance payment on fifth and final bill for civil work and fabrication bay of Rs.27,00,932=12. Said claim is beyond the scope of the agreement dated 17.12.2010. Arbitrator erroneously, unlawfully and contrary to the Agreement awarded Rs.27,00,932=12 towards balance payment on 5 th and final bill for civil work and fabrication bay. Arbitrator failed to note that in the 5th and final bill, there is no mention of Rs.27,00,932=12 including VAT, as claimed in Para 25 1(a) of the claim petition. Said amount is claimed before the Arbitral Tribunal without any basis.
It is totally a false claim made by 1 st Defendant to make wrongful gain and the claim is untenable and totally misconceived. 1st Defendant submitted 5th and final bill on 02.11.2011. As per AS.109/2014 7 Sl.No.7 of the said bill, net contract value is for Rs.6,29,18,413=12. In the said 5th and final bill, Rs.27,00,932=12, as claimed in Para 25 1(a) of the claim petition, for civil work of stores and fabrication bay is not included at all. By looking into the 5th bill and final bill, it is clear that, the claim of Rs.27,00,932=12 including VAT, as claimed in Para 25 1(a) is outside the final bill amount. Therefore, said claim is beyond the scope of Agreement dated 17.12.2010. 1st Defendant misrepresented before the Tribunal and claimed balance payment on 5th and final bill in Para 25 1(a) of the claim petition.
(d) Clause 14.8 of Ex.P.2 prohibits Defendant No.1 to make fresh claim.
Employer shall not be liable to Defendant No.1 for any matter or things arising out of or in connection with the contract or execution of works, unless Defendant No.1 shall have included a claim in respect thereof in its final bill.
Plaintiffs are not liable to pay
AS.109/2014
8
Rs.27,00,932=12, along with 18%
interest, as claimed in Para 25 1(a) of the claim petition. Arbitrator without considering Clause 14.4, 14.6 and 14.8 of the Agreement dated 17.12.2010, illegally and wrongly awarded Rs.27,00,932=12 to 1st Defendant. Arbitrator ignored the said clauses contained in the Agreement dated 17.12.2010, while passing impugned award.
(e) Arbitrator has erroneously awarded Rs.6,46,767=46 towards balance payment for structural steel works and stores and fabrication work. In the 5th and final bill, there is no mention of Rs.6,46,767=46, including VAT, as claimed in Para 25 1(b) of claim petition. Said amount is claimed before the Tribunal and the claim is untenable and totally misconceived. In the said 5 th and final bill, Rs.6,46,767=46, as claimed in Para 25 1(b) for civil work of stores and fabrication bay, is not included at all.
AS.109/2014
9
(f) Arbitrator without considering
clause 14.4, 14.6 and 14.8 of the
Agreement dated 17.12.2010,
mechanically accepted the claim of the contractor. In other words, the Arbitrator verbatim accepted the claim made in Para 25 1(a) and 1(b) of claim statement, without giving any justification for the same, while passing the impugned award.
(g) 1st Defendant has not produced any bills or invoices or documents and any proof to establish such claim of Rs.27,00,932=12 and Rs.6,46,767=46 before the Tribunal. Arbitrator has awarded Rs.27,00,932=12 and Rs.6,46,767=46 without any bills, invoices and proof of such claims. Arbitrator has not examined the said claims made by 1st Defendant with reference to the specific clauses contained in Agreement dated 17.12.2010. Hence, the award is erroneous in law and amounts to misconduct on the part of Arbitrator.
AS.109/2014 10
(h) Arbitrator neither examined the claim made by Defendant No.1 with reference to 5th and final bill, in respect of claim made in Para 25 1(a) and 1(b) of claim petition nor recorded the findings, based on Clauses 14.4, 14.6 and 14.8 of the Agreement dated 17.12.2010. Arbitrator did not record the valid reasons while allowing claim made in Para 25 1(a) and 1(b) of the claim petition filed by 1st Defendant. Findings of the Arbitrator are erroneous and contrary to law and as such, amounts to misconduct.
(i) Mere submission of 5th and final bill shall not entitle the 1st Defendant to claim the whole amount. As per Clause 14.8 of the Agreement, claim shall be subject to scrutiny and assessment that the employer may in its sole discretion decide. Therefore, 1st Defendant is not entitled to Rs.6,29,18,413=12 claimed in the 5th and final bill. Mr.Nayak certified the 5th and final RA bill after scrutiny of the bill for Rs.6,10,96,617=30. As such, the award AS.109/2014 11 made by the Arbitrator as per claim made in Para 25(1)(a) and 1(b) is contrary to the contract.
(j) 1st Defendant has claimed Rs.26,26,548=47 as retention amount in Para 25, clause 2 of the claim petition. Total payment made to 1 st Defendant including 5th and final bill is Rs.5,68,52,173=74 towards main contract. 5% of the said amount comes to Rs.24,32,750=18, as Retention money. Towards canteen, amount paid by Defendant company is Rs.19,61,729=73. 5% of the said amount comes to Rs.94,282=00.
Canteen work is outside the scope of the Agreement dated 17.12.2010.
Hence, the Arbitrator cannot grant retention account in respect of the canteen work. In fact, 1st Defendant got issued legal notice dated 11.02.2013 to Plaintiff, wherein, the actual retention amount is mentioned as Rs.24,32,751=00. As such, the award passed by the Arbitrator directing the Plaintiffs to pay retention amount of AS.109/2014 12 Rs.26,26,548-47 is totally wrong and unlawful.
(k) There is no clause in the Agreement dated 17.12.2010 to pay 12% interest per annum to 1st Defendant.
(l) In view of various correspondences between 1st Defendant and Mr.Nagesh Nayak and conduct on the part of the 1st Defendant, 1st Defendant is estopped from questioning the authority of Mr.Nayak for certifying the RA bills submitted by 1st Defendant. The act of 1st Defendant clearly establishes that, 1st Defendant accepted the certificate issued by Mr.Nagesh Nayak without any demur, from 1st RA bill to IV RA bill. The conduct of 1st Defendant clearly shows that he has not objected when Mr.Nayak certified RA bills 1 to 4 and collected all payment from Defendant Company without any kind of protest.
(m) 1st Defendant accepted the appointment of Mr.Nagesh Nayak for certification of final bill, since PMC AS.109/2014 13 abandoned the service, as admitted in Para 10 of the claim petition. Arbitrator totally ignored the admitted facts made in claim statement made by the contractor and unnecessarily discussed the right of Mr.Nagesh Nayak in certification of bills, while passing impugned award.
For all these reasons, Plaintiffs pray for setting aside the impugned award.
6) On service of summons, Defendant No.1 entered appearance through his counsel and filed statement of objections denying the plaint averments in general and para-wise and contended that, he had not specifically mentioned the amount of Rs.27,00,932=12 and Rs.6,46,767=45 in the 5 th and final bill, the 5th and final bill is inclusive of said sum as explained at Para 41 of his evidence affidavit. Claim made by him is absolutely justified and Plaintiffs cannot find any fault. Plaintiffs have AS.109/2014 14 wrongly taken the amount paid to him as the net amount and have calculated 5% of said amount as Retention amount which is done with an intention to mislead the Court. Calculation done by Plaintiffs is absolutely wrong, as 5% of Rs.5,58,52,173=74 comes to Rs.27,91,897=65. Retention amount claimed by Defendant is Rs.26,26,548=47, which is arrived after deducting the payment made by Plaintiffs towards the same on the net amount raised by him. He claimed a sum of Rs.5,80,26,810=98 (excluding VAT & Service Tax) under 5th and final bill and therefore, Retention amount has to be calculated at 5% of the said amount, which comes to Rs.29,01,340-55. Balance amount after deduction of what is paid by Plaintiffs is the final retention amount, which is required to be paid by Plaintiffs which comes to Rs.26,26,548=47 and same was claimed before the Tribunal. Therefore, there is no irregularity in the award passed in respect of Claim No.25(2) of Claim AS.109/2014 15 petition. Scope of application under Section 34 of the Arbitration and Conciliation Act, is very limited.
7) It is stated that, only part of the award can be set-aside which are not falling within the terms of submission to arbitration and contains decisions on matters beyond the scope of the submission to arbitration. All the claims made by him are well within the terms of submission to the Arbitration and none of the claims are beyond the scope of submission to Arbitration. Therefore, the claims made by him cannot be questioned in this suit and prays for dismissal of suit with costs.
8) Heard. Perused the records and also, reply argument submitted by Plaintiffs and written arguments submitted by Defendant No.1.
9) Points that arise for my consideration are :
(1) Whether Plaintiffs prove any of the grounds as enumerated in Section 34 of the Arbitration and AS.109/2014 16 Conciliation Act, 1996, to set aside the impugned award dated 23.07.2014?
(2) What Order?
10) My answer to above points are :
Point No.1 - Partly in the Affirmative;
Point No.2 - As per final order, for the following :
REASONS
11) POINT NO.1 : This suit came to be filed by Plaintiffs [Respondents before the learned Arbitrator] for setting aside the arbitral award dated 23.07.2014 passed in AC No.21/2013 by sole Arbitrator/Defendant No.2, whereby, learned Arbitrator was pleased to award a sum of Rs.27,00,932.12 and Rs.6,46,767.46 towards balance payment of 5th and final bill and Rs.26,26,548.47 towards retention amount in favour of Defendant No.1 [Claimant before the learned Arbitrator] against Plaintiffs.
AS.109/2014 17
12) Plaintiffs contend that, 1st Defendant claimed before learned Arbitrator imaginary amounts of Rs.27,00,932.12 and Rs.6,46,746.46. Arbitrator mechanically awarded the said amounts without referring to any documents and without assigning any reasons. No reference made in the award regarding payment of final bill amount while deciding Issue No.3 and 4. Arbitrator has not taken into account the final bill amount of Rs.6,29,16,413.12 and certified amount of Rs.6,10,96,617.30 and net amount of Rs.5,68,52,173.14 paid to 1st Defendant, while passing the award. Plaintiffs settled the 5 th and final bill as per Ex.R.40. Without discussing the net payment made by Plaintiffs, the Arbitrator awarded Rs.27,00,932.12 and Rs.6,46,767.95 in the name of balance final bill amount.
AS.109/2014 18
13) It is contended that, 1st Defendant got issued legal notice dated 11.02.2013 at Ex.P.41, wherein, he claimed actual retention amount of Rs.24,32,751.00. Arbitrator failed to consider the actual retention amount claimed in the legal notice of 1st Defendant. Arbitrator, without referring to Ex.P.41, legal notice and Ex.R.40, statement of payments made to 1st Defendant, passed award of Rs.26,26,548.47 towards retention amount without assigning any reasons, hence, award, on the face of it, is patently illegal.
14) It is contended that, Arbitrator awarded the amount in favour of Defendant No.1 disregarding the terms of Agreement. Award made in favour of Defendant No.1 is beyond the scope of Agreement. Award passed is in contravention of Section 28(3) of the Arbitration and Conciliation Act, 1996. While passing the award, Arbitrator ignored Clause 14.8 of the Agreement. Award is not supported by AS.109/2014 19 reasons as contemplated under Section 31 of the Arbitration and Conciliation Act, 1996. Thus, award is contrary to fundamental Policy of India.
15) On the other hand, Defendant No.1 contends that, after completion of the work, Defendant No.1 raised 5th and final bill dated 02.11.2011 aggregating to sum of Rs.6,29,18,413.12 and submitted the same to the Project Management Consultant [PMC]. Before certifying the 5 th and final bill, PMC abandoned the work site. After frequent emails, letters, oral requests and persistent follow up, 5th and final bill was certified by Plaintiffs' representative, Mr.Nagesh Nayak on 02.07.2012. Plaintiffs passed the 5 th and final bill for an aggregate amount of Rs.6,10,96,617.30 as against an amount of Rs.6,29,18,413.12 as claimed by Defendant No.1.
AS.109/2014 20
16) It is contended that, though Defendant No.1 had not specifically mentioned the amount of Rs.27,00,932.12 and Rs.6,46,767.45 in the 5 th and final bill, claimed under Para 25(1)(a) and (b) of claim statement, the 5th and final bill is inclusive of the said sum as explained at Para 41 of the evidence affidavit of Defendant No.1. Plain reading of 5th and final bill discloses that Plaintiffs were due in a sum of Rs.18,21,795.82 to 1 st Defendant including VAT and Service tax, which when calculated with interest comes to the amount claimed by Defendant No.1. Learned Arbitrator has discussed the same in detail in the award regarding veracity of the claim of Defendant No.1 and accepted the same. Fact finding of Claims No.1 and 2 by learned Arbitrator cannot be questioned in this suit, unless and until the ingredients of Section 34 are satisfied with.
AS.109/2014 21
17) It is further contended that, calculation done by Plaintiff No.1 regarding retention amount is wrong. Retention amount claimed by Defendant No.1 is Rs.26,26,548.47 which is arrived after deducting the payment made by Plaintiffs.
Defendant No.1 claimed a sum of Rs.5,80,26,810.98 excluding VAT and service tax under the 5th and final bill and therefore retention amount has to be calculated at 5% of Rs.5,80,26,810.98, which comes to Rs.29,01,340.55. Balance amount after deduction is the final retention which comes to Rs.26,26,548.47. Hence, there is no irregularity in the award passed in respect of Claim No.25(2) of the claim petition.
18) Being the contentions of the respective parties, learned counsel for Defendant No.1 is pleased to submit that, Plaintiffs are asking this Court to probe into the mental process of the AS.109/2014 22 learned Arbitrator, which is not permissible and in the guise of a suit under Section 34 of the Arbitration and Conciliation Act, Plaintiffs are seeking to re-appreciate the entire evidence and the method adopted by the learned Arbitrator in coming to the conclusion and the findings given.
19) On the other hand, learned counsel for Plaintiffs is pleased to submit that, there is no provision that Courts have to be slow in interfering with the arbitral award, even if the conclusions are perverse and the very basis of the award is wrong.
20) At this juncture, it is relevant to take cognizance of the ratio laid down in Associate Builders Vs. Delhi Development Authority [(2015) 3 SCC 49]. The Hon'ble Supreme Court was pleased to hold that, "merits of arbitral award can be assailed only when it is in conflict with Public Policy of India". In Para-17 of the judgment, AS.109/2014 23 it is held that, ".....none of the grounds contained in sub-section (2)(a) of Section 34 deal with the merits of the decision rendered by an arbitral award. It is only when we come to the award being in conflict with the public policy of India that the merits of an arbitral award are to be looked into under certain specified circumstances". In the judgment supra, it is held that, "Heads of Public Policy of India" are :
(I) Fundamental policy of Indian law, which includes (i) compliance with statutes and judicial precedents; (ii) need for judicial approach; (iii) natural justice compliance and (iv) Wednesbury reasonableness.
(II) Interest of India (III Justice or Morality (IV) Patent Illegality, which includes, (i) contravention of substantive law of India;
(ii) contravention of Arbitration and Conciliation Act, 1996; (iii) contravention of the terms of the contract"
AS.109/2014 24
21) Caution in applying all the heads/sub-heads of Public Policy Test has been stated as follows :
"It must clearly be understood that when a court is applying the "public policy" test to an arbitration award, it does not act as a court of appeal and consequently errors of fact cannot be corrected. A possible view by the arbitrator on facts has necessarily to pass muster as the arbitrator is the ultimate master of the quantity and quality of evidence to be relied upon when he delivers his arbitral award. Thus an award based on little evidence or on evidence which does not measure up in quality to a trained legal mind would not be held to be invalid on this score. Once it is found that the arbitrators approach is not arbitrary or capricious, then he is the last word on facts".
22) Thus, it has been understood that, merits of arbitral award can be assailed under the heads of 'Public Policy of India' and when a court in applying the Public Policy test, it does not act as a court of appeal and consequently errors of fact cannot be corrected and possible view by the Arbitrator on facts has to be honoured. Having regard to the legal dictum laid down in the judgment supra, the contentions of the parties have to be assailed.
AS.109/2014 25
23) Plaintiffs' contention is that, the learned Arbitrator mechanically awarded imaginary bills of Rs.27,00,932.12 and Rs.6,46,767.46 claimed by 1 st Defendant without referring to any documents and without assigning any reasons in contravention of Section 28(3) of the Arbitration and Conciliation Act, 1996. Learned Arbitrator, while passing the award, ignored Clause 14.8 of the Agreement. Defendant No.1 contends that, though Defendant No.1 had not specifically mentioned the said amount of Rs.27,00,932.12 and Rs.6,46,767.46 in 5th and final bill, the 5th and final bill is inclusive of said amount as explained at Para 41 of the evidence affidavit of Defendant No.1 and veracity of his claim has been detailed in the award.
24) In Page-63 of the award, learned Arbitrator has held as follows :
"The conclusion the foregoing discussion points to is that the claim of the contractor merits to be allowed only to the extent of the final bill and the retention amount since the Claimant has substantiated his claim to AS.109/2014 26 such entitlement by both oral and documentary evidence. The claims covered by issues 3 and 4 being the entitlement under 5th and final bill merit to be allowed. As for the claims falling outside the final bill, the Claimant would concede that there was no impediment to include any of the claims mentioned in Para 25 of the claim petition in the final bill. Therefore, other claims mentioned at Para 25 of the claim petition and falling outside the scope of the final bill merit to be dismissed and are accordingly dismissed."
(underlined by me)
25) Learned Arbitrator has come to the conclusion that, Rs.27,00,932.12 and Rs.6,46,767.46 claimed by 1st Defendant under Claim No.1(a) and (b) in his claim statement are part of 5th and final bill amount and thereby upheld the contention of 1st Defendant that though 1st Defendant had not specifically mentioned the amount of Rs.27,00,932.12 and Rs.6,46,767=46 in 5th and final bill, the 5th and final bill is inclusive of the said sum.
26) 1st Defendant, in his written statement, has specifically averred that, Plaintiffs had passed the AS.109/2014 27 bill for an aggregate amount of Rs.6,10,96,617.30 as against an amount of Rs.6,29,18,413.12 claimed by Defendant No.1. Claim statement of 1st Defendant contains similar assertions. Para-9 of claim statement reads thus :
"9. .....Subsequent to the completion of the work, the Claimant raised 5th and final bill dated 2.11.2011 aggregating to sum of Rs.6,29,18,413.12. ...."
27) 1st Defendant, in his affidavit evidence, has emphatically deposed that, "subsequent to the completion of the work, 1st Defendant raised 5th and final bill dated 02.11.2011 aggregating to sum of Rs.6,29,18,413.12". Apart from this, 1st Defendant has claimed Rs.27,00,932.12 and Rs.6,46,767.46 under Claim No.1(a) and (b) in the claim statement and the affidavit evidence contending that, said amounts are balance payment of the 5 th and final bill. Learned Arbitrator has come to the conclusion that, claim of Defendant No.1 under Claim No.1(a) and (b) is not beyond the 5th and final bill and said AS.109/2014 28 claims are inclusive in 5th and final bill and thereby, learned Arbitrator upheld the contention of 1 st Defendant that, his claim under Claim No.1(a) and
(b) is inclusive in 5th and final bill. In the light of the conclusion of the learned Arbitrator and contentions of 1st Defendant, it is relevant to look at Exs R.40 and R.43.
28) Ex.R.43 is covering letter dated 02.07.2012 addressed by Mr.Nagesh Nayak to Mr.Arun N. Shetty, Chief General Manager of Plaintiffs intimating the certification of 5th and final bill dated 02.11.2011. Accompanying 5th and final bill indicates that 1st Defendant submitted 5th and final bill of Rs.6,29,18,413.12 on 02.11.2011 and same was approved for an aggregate amount of Rs.6,10,96,617.30. After deduction of Rs.5,51,524.70, which amount was disallowed by Mr.Arun Shetty in Ex.R.43, total approved bill comes to Rs.6,05,45,092.70.
AS.109/2014 29
29) Ex.R.40 is statement of payments made to 1 st Defendant, which discloses the net amount paid to 1st Defendant, TDS, retention money and canteen and other deductions. As per Ex.R.40, net amount paid to 1st Defendant is Rs.5,68,52,173.74; TDS is Rs.12,55,048.00; Retention amount is Rs.24,32,750.18 and canteen and other charges is Rs.5,122/-; in all, Rs.6,05,45,092.92. Had the 5 th and final bill submitted by 1st Defendant not been certified and same was allowed in full, the difference amount would be Rs.18,19,795.82 [difference of final bill and approved amount i.e Rs.6,29,16,413.12
- 6,10,96,617.30] plus Rs.5,51,524.70 [amount disallowed by Mr.Arun Shetty], which comes to Rs.23,71,320.52. However, 1st Defendant claimed a sum of Rs.27,00,932.12 and Rs.6,46,767.46 under Claim No.1(a) and (b), which comes to Rs.33,47,699.58. Certainly, it goes to show that said amount claimed by 1st Defendant under Claim AS.109/2014 30 No.1(a) and (b) is not the balance amount of 5 th and final bill, it is an amount claimed beyond the 5 th and final bill. 1st Defendant is trying to claim said amount of Rs.33,47,699.58 saying that, 5 th and final bill is inclusive of the said amount. This is nothing but imaginary sums, which claim of 1 st Defendant is beyond the 5th and final bill. When fact being thus, the learned Arbitrator ought not to have held that, 1st Defendant succeeds only to the extent of the balance payable in the 5th and final bill.
30) At this juncture, it is relevant to take note of Clause 14.8 of the Agreement dated 17.12.2010 [Ex.P.2], which reads thus:
"14.8 Cessation of Employer's Liability The Employer shall not be liable to the Contractor for any matter or thing arising out of or in connection with the Contract or execution of the Works, unless the Contractor shall have included a claim in respect thereof in its Final Bill.
Mere inclusion of a claim in the Final Bill, shall not, as a matter of right, entitle the Contractor to such a claim. The said claim shall be subjected to such AS.109/2014 31 scrutiny and assessment that the Employer may, in its sole discretion, decide".
31) A bare reading of Clause 14.8 makes it clear that, the Contractor/Defendant No.1 shall have included all his claims in respect of the execution of work in his final bill. For the foregoing discussion, it is crystal clear that, the amount of Rs.27,00,932.12 and Rs.6,46,767.46 claimed under Claim Nos.1(a) and (b) are not the part of 5th and final bill and they are imaginary claims claimed beyond the first limb of Clause 14.8 of Agreement at Ex.P.2. Said amount has been awarded in contravention of Clause 14.8 of Agreement. Section 28(3) states that "while deciding and making an award, the Arbitral Tribunal shall in all cases, take into account the terms of the contract and trade usage applicable to the transaction". Section 28(3) makes it mandatory for Arbitrator to take into account the AS.109/2014 32 terms of the contract while deciding and making the award.
32) In ONGC Ltd. Vs. Saw Pipes Ltd., [(2003) 5 SCC 705], the Hon'ble Supreme Court was pleased to hold that :
"... Award could be set aside if it is contrary to: (a) fundamental policy of Indian law; or (b) the interest of India; or
(c) justice or morality; or (d) in addition, if it is patently illegal".
33) In Associate Builder's case, sated supra, it is held that, "contravention of substantive law of India; contravention of Arbitration and Conciliation Act, 1996; and contravention of terms of the contract would amount to patent illegality".
34) Learned Arbitrator, in the award, has held that, "Clause 14.8, Sri.Subramanyam contends, clearly operates as a bar to seek enforcement of any claim with regard to execution of the work by the Contractor/claimant not included in the final bill. I feel no hesitation to accept such AS.109/2014 33 contentions". Learned Arbitrator having held so, even awarded claim under Claim No.1(a) and (b) in favour of Defendant No.1.
35) In Sharma and Associates Contractors Private Limited Vs. Progressive Constructions Limited, [(2017) 5 SCC 743], the Hon'be Supreme court was pleased to hold that :
" .....A deliberate departure or conscious disregard of the contract not only manifests the disregard of his authority or misconduct on his part, but it may tantamount to legal mala fides as well. It is further settled in law that the arbitrator is not a conciliator and cannot ignore the law or misapply it in order to do what he thinks just and reasonable".
36) Coming to the improved version of 1 st Defendant in his written statement that, 5 th and final bill discloses that Plaintiffs were due in a sum of Rs.18,19,795.82 to 1st Defendant including VAT and service tax, which when calculated with interest comes to the amount claimed by 1st Defendant under Claim No.1(a) and (b) of claim AS.109/2014 34 statement. 1st Defendant having claimed the amount of Rs.27,00,932.12 and Rs.6,46,767.46 under Claim No.1(a) and (b) saying that 5 th and final bill is inclusive of said amount, now, he has contended that, non-approved amount of Rs. 18,19,795.82 when calculated with interest comes to the amount claimed by Defendant No.1 under Claim No.1(a) and (b) of claim petition. This contention of 1st Defendant further establishes the fact that, 1st Defendant's claim under Claim No.1(a) and (b) is not the inclusive claim of the 5 th and final bill as contended by 1st Defendant and it is a claim made beyond the 5th and final bill.
37) Having taken into subsequent contradictory contention of 1st Defendant, a question that arises is, whether 1st Defendant is entitled to claim an amount of Rs.18,19,795.82, which was disapproved by Mr.Nagesh Nayak, while certifying the bill, as if it were a claim under Claim No.1(a) AS.109/2014 35 and (b) of the claim statement. In this regard, it is necessary to assail second limb of Clause 14.8 of the Agreement. From perusal of Clause 14.8, it is clear that, bill submitted by 1st Defendant shall be subjected to such scrutiny and assessment that the Employer may in its sole discretion to decide. As per terms of the Agreement, every bill submitted by 1st Defendant shall be subjected to such scrutiny and assessment. Defendant No.1 contends that, after submission of 5th and final bill and after certification of 5th and final bill, PMC abandoned the work and in order to conclude the settlement of bills, Mr.Nagesh Nayak was asked to finalize the bill, but was never given power to re-certify the bill, which he did, as is evident from the bills produced by Defendant No.1. On the contrary, Plaintiffs contend that, Agreement dated 17.12.2010 did not deal with a surprise situation. Mr.Nagesh Nayak was appointed for certifying the 5 th and final bill, since PMC abandoned the work and stopped AS.109/2014 36 visiting the site before certifying the final bill dated 02.11.2011. As per Para 10 of claim petition of 1 st Defendant, it is categorically stated that, since PMC appointed by Plaintiffs abandoned itself from the job and was not available, the claimant agreed for certification of the final bill by Mr.Nagesh Nayak. Plaintiffs further contend that, 1st Defendant wrote a letter dated 17.02.2012 at Ex.R.17, wherein, decision for appointment of Mr.Nagesh Nayak to finalize the bill has been admitted by 1 st Defendant. Defendant No.1 now is estopped from questioning the authority of Mr.Nagesh Nayak, who was appointed for certifying the 5th and final bill submitted by 1st Defendant. Arbitrator has ignored all these facts and has held that Mr.Nagesh Nayak has no right to certify the 5th and final bill.
38) 1st Defendant, in his written statement, has emphatically averred that, "Subsequent to the completion of the work, Defendant No.1 raised 5 th AS.109/2014 37 and final bill dated 02.11.2011 aggregating to a sum of Rs.6,29,18,413.12 and submitted the same to the PMC. After submitting of the 5th and Final bill, the said PMC abandoned the site and therefore the 5th and Final bill was not certified. After frequent emails, letters, oral requests and persistent follow up, the 5th and Final bill was certified by the Plaintiffs representative, Mr.Nayak on 2.07.2012". Also, 1st Defendant, in his claim statement, has averred the same facts. Para-10 and 12 of Claim Statement reads thus :
" 10. It is relevant to state here that, as per the contract, the Claimant submitted his 5th and final bill for certification on 2.11.2011 to the PMC appointed by the Respondents. After submitting of the bill and before certification of the 5 th and final bill, the PMC Appointed by the Respondents abandoned himself from the job and was not at all available and therefore the 5th and final bill submitted by the Claimant was not approved resulting in delay in certifying the 5th and final bill which in turn resulted in delay in payment to the Claimant. ...."
12. ......... After frequent and persistent follow up, the 5th and final bill was certified by the respondent on 2.07.2012. The Respondents had passed the bill for an aggregate amount of Rs.6,10,96,617.30 as AS.109/2014 38 against an amount of Rs.6,29,18,413.12 claimed by the Claimant. .........."
39) From the pleadings of the parties and Ex.R.17, it is clear that, 1st Defendant submitted his 5th and final bill dated 02.11.2011 to PMC and after submitting the 5th and final bill and before its certification, PMC abandoned the site. Subsequently, due to persistent demand by 1 st Defendant, one M/s.Chandrakanth and Nayak was appointed to certify the 5th and final bill and after frequent and persistent follow up of 1 st Defendant, the 5th and final bill was certified by Mr.Nagesh Nayak and approved by Plaintiffs. However, 1 st Defendant, in his notes of argument, submitted that, after submission of 5th and final bill and after certification of 5th and final bill, PMC abandoned the work and in order to conclude settlement of bills, Mr.Nagesh Nayak was asked to finalize the bill, but was never given power to re-certify the bill. This submission of Defendant No.1 is against the AS.109/2014 39 pleadings made in the claim statement and written statement and contrary to Ex.R.17. Having admitted certification of final bill by Mr.Nagesh Nayak, now, 1st Defendant made an attempt to say that Mr.Nagesh Nayak was appointed for finalization of the bill and not for certification of the bill. Even though there makes no difference in both words, 1st Defendant tried to find out the difference. Even, if it is assumed that, there finds difference in both words, same cannot be taken into consideration, in view of admitted pleadings that, after submission of final bill and before its certification, PMC abandoned the work. Moreover, Ex.R.43 clearly establishes the fact that, accompanying 5th and final bill was certified by Mr.Nagesh Nayak. When fact being thus, there is no reason for 1st Defendant to contend that name of Mr.Nagesh Nayak is not named in the contract, he has no authority to certify the bill and only PMC should have certified the bill. 1St Defendant by his AS.109/2014 40 representation and conduct allowed Mr.Nagesh Nayak to certify the bill, now, he cannot be allowed to take a different stand, merely because certification of bill is not favoured to him. Any how, under Clause 14.8, it is mandatory to certify the bill and without certification, no bill can be passed. Be that as it may.
40) 1St Defendant never claimed before the learned Arbitrator difference of final bill and approved amount i.e. Rs.18,19,795.82. Instead, he claimed imaginary bill of Rs.27,00,932.12 and Rs.6,46,767.46 saying that as balance payment of 5th and final bill. When 1st Defendant has not claimed the difference amount of Rs.18,19,795.82, there was necessity for the learned Arbitrator to hold that appointment of Mr.Nagesh Nayak is neither based on relevant Agreement nor on the written and express consent of the Contractor. Over looking the pleadings in claim statement, AS.109/2014 41 deposition of 1st Defendant and Ex.R.17 make the learned Arbitrator to question the authority of Mr.Nagesh Nayak, who was appointed to certify the 5th and final bill at the instance of 1st Defendant.
41) Assuming that findings of the learned Arbitrator indicate that, Mr.Nagesh Nayak has no authority to certify the bill, at the most, learned Arbitrator ought to have awarded difference of final bill and approved bill i.e. Rs.18,19,795.82. Instead, learned Arbitrator has awarded imaginary bills of Rs.27,00,932.12 and Rs.6,46,767.46 under Claim No.1(a) and (b), assuming that said amounts are part and parcel of 5th and final bill, this really shocks the conscience of the court. In ONGC Vs. Saw Pipes Ltd., stated supra, it has been specifically held that, award could be set aside, if it is contrary to justice and morality. In Associate Builders' case, it is held that, "An award can be said to be against justice only when it shocks the AS.109/2014 42 conscience of the court". It is further held that, "it is settled law that where: (i) a finding is based on no evidence, or (ii) an Arbitral Tribunal takes into account something irrelevant to the decision which it arrives at; or (iii) ignores vital evidence in arriving at its decision, such decision would necessarily be perverse". It is, therefore, award in respect of Claim No.1(a) and (b) needs to be set aside, as the same is passed against justice and in contravention of Arbitration and Conciliation Act, 1996 and terms of the contract.
42) RETENTION AMOUNT - Plaintiffs contend that 1st Defendant claimed Rs.26,26,548.47 as retention amount in Para-25(2) of the claim petition. Actual retention amount held by Plaintiffs is Rs.24,32,750.18. Defendant No.1 got issued legal notice dated 11.02.2013 to Plaintiffs, wherein, 1st Defendant admitted the actual retention amount of Rs.24,32,751.00. Arbitrator, without verifying AS.109/2014 43 the documents, has mechanically awarded retention amount Rs.26,26,548.47 as claimed by 1 st Defendant, as such, award passed directing the Plaintiffs to pay retention amount of Rs.26,26,548.47 is totally illegal. On the contrary, 1st Defendant contends that, 1st Defendant claimed a sum of Rs.5,80,26,810.98 under the 5 th and final bill and therefore, retention amount has to be calculated at 5% of the said amount, which comes to Rs.29,01,340.55 and the balance amount after deduction of what is paid by Plaintiffs is the final retention amount, which comes to Rs.26,26,548.48. Therefore, there is no irregularity in the award passed in respect of Claim No.2 of the claim petition.
43) At this juncture, it is relevant to mention the findings of the learned Arbitrator in respect of retention amount. Relevant portions read thus :
" Page-53. .........................There are again two vital admissions of RW1 which cannot AS.109/2014 44 be lost sight of. He has admitted that he accepted to release the retention amount of Rs.24,32,751/- upon completion of defect liability period towards the fabrication bay by November 2012. He would also admit that he has not released the retention amount till date. However the witness would make a voluntary statement that as the contractor did not complete the project relating to fabrication bay, the retention amount was not released. ...."
"Page-58. As for retention amount payable to the claimant/contractor, the Learned Counsel for Claimant submits that the agreement provides for return of such amount without interest on the expiry of defect liability period. In view of the admission of RW.1 regarding his acceptance to release the retention amount of Rs.24,32,751/- upon completion of defect liability period towards the Fabrication Bay by November 2012, the Claimant become entitled to refund of retention amount."
44) Relevant portion of cross-examination of RW.1 is that :
"...... It is true that I have accepted to release the retention amount of Rs.24,32,751/- upon completion of defect liability period towards the fabrication bay by November 2012. We have not released that retention amount. ...."
45) Learned Arbitrator has appreciated the suggestions put by 1st Defendant [Claimant] to AS.109/2014 45 RW1, however, award is passed for Rs.26,26,548.47 towards retention amount as claimed in the claim petition, which makes it clear that, even though learned Arbitrator considered the retention amount as Rs.24,32,751/-, award is made for Rs.26,26,548.47 as claimed by 1st Defendant.
46) Having taken into consideration of legal notice dated 11.02.2013 at Ex.P.41 issued by 1 st Defendant to Plaintiffs, it is crystal clear that, 1 st Defendant has emphatically admitted that retention amount withheld by Plaintiffs is Rs.24,32,751.00. Relevant portion of Ex.P.41 reads thus :
" 5. My Client instructs me to inform you that the letter dated 31.10.2012 issued by you notices No.2, 3 & 4 is not correct, but at the same time with an intention to defer the release of Retention money of Rs.24,32,751.00. Even assuming that the subject Structure was handed over in November 2011, (actually completed in September 2011) completing all the works to the satisfaction of one and all, even then, the Retention amount of Rs.24,32,751.00, should have been released in November 2012 as per your own record."
AS.109/2014 46
47) 1st Defendant, having admitted the retention amount as Rs.24,32,751.00 in Ex.P.41, claimed Rs.26,26,548.47 in his claim statement. In written statement, Defendant No.1 has taken different stand that. retention amount when calculated, it comes to Rs.29,01,340.55 and after deduction of payments made by Plaintiffs, it comes to Rs.26,26,548.47. No such stand was taken in claim statement and no findings found in the arbitral award as such. This is the first time, 1st Defendant has taken said contention in order to overcome the difficulty in explaining the claim of retention amount of Rs.26,26,548.47. Ex.R.40, statement of payments made to contractor/Defendant No.1 clearly establishes the fact that Plaintiffs retained Rs.24,32,750.18 as retention money. As observed above, 1st Defendant submitted 5th and final bill for Rs.6,29,18,413.12. Bill approved by Architect, Mr.Nagesh Nayak for Rs.6,10,96,617.30. Bill AS.109/2014 47 disallowed by Mr.Arun Shetty is Rs.5,51,524/-. Total approved bill is Rs.6,05,45,092.70 [total bill approved by Architect, Mr.Nagesh Nayak minus amount disallowed by Mr.Arun Shetty]. In Ex.R.40, net paid amount is shown as Rs.5,58,52,173.74. Canteen deduction is mentioned as Rs.5,122/-. Retention amount is shown as Rs.24,32,750.18 and TDS is mentioned as Rs.12,55,048.00. Having calculated all these amounts, it comes to total approved bill of Rs.6,05,45,092.70. If retention amount is considered as Rs.26,26,548.47 as claimed by 1st Defendant, same is not tallying with total approved bill as mentioned in Ex.R.40. Hence, it is crystal clear that, Plaintiffs withheld a sum of Rs.24,32,750.18 as retention amount in total approved bill, which fact has been admitted by 1 st Defendant in Ex.P.41 and same has been suggested to RW.1 by 1st Defendant. Moreover, learned Arbitrator has observed said fact in the award, however, award is passed for Rs.26,26,518.47 as AS.109/2014 48 claimed by 1st Defendant without taking into consideration of Ex.R.40 and Ex.P.41. When actual retention amount of Rs.24,32,750.18 being an admitted fact, merely because award has been passed for Rs.26,26,548.47, it does not come in the way of setting aside valid part of the arbitral award, when modification of the award in respect of the particular claim is possible.
48) Plaintiffs contend that, for non-completion of the work, Plaintiffs are entitled to liquidated damages of 10% of the contract value of Rs.4,44,39,507.92 and the damages amount comes to Rs.44,43,950.80 as per Clause 7.8 of the Agreement. Therefore, the award passed by the learned Arbitrator with regard to liquidated damages granting meager amount of Rs.2,27,000/- with 12% interest per annum is incorrect and contrary to the terms of Clause 7.8 of the contract. On the other hand, 1st Defendant contends that, 1st AS.109/2014 49 Defendant had completed the entire work except the work of sliding door for the value of Rs.1,47,000/-, which was not included in the final bill. Learned Arbitrator discussed the said aspect of the matter and has rightly allowed 10% of the value of the work as additional liquidated damages.
49) In order to consider the contentions of the parties, it is necessary to take cognizance of Clause 7.8 of the Agreement at Ex.P.2. Clause 7.8 deals with 'Liquidated Damages for Delay'. It states that, the Contractor shall pay a liquidated damages to the employer at the rate per completed work as stated in Annexure-I. Annexure-I as to liquidated damages reads thus :
"4. Liquidated Damages Amount of Liquidated Damage for non- completion of Work within stipulated time is as below subject to a maximum of 10% of the Contract price. Total Period of contract has been divided into 3 milestones. These shall be mutually agreed with the successful tenderer".
AS.109/2014 50
50) A bare reading of above para, it is clear that, amount of liquidated damages for non-completion of work subject to maximum of 10% of the contract price. It does not indicate that 1 st Defendant is liable to pay liquidated damages on the contract price of completed work. It only signifies that liquidated damages can be claimed by Plaintiffs on the contract price of non-completed work only. If it is held that, 1st Defendant is liable to pay liquidated damages even on the contract price of completed work, which would amount to unjust enrichment to the Plaintiffs. Findings of the learned Arbitrator is relevant to consider. It is as follows :
" Page 61 of award : .................... It may be emphasized that RW3, the material witness for Respondent company would make significant admission in the course of his cross-examination that as per the minutes of the meeting dated 11.04.2012 reflected in Ex.P20 only two works remain to be completed the Claimant/contractor claims to have attended to one of such works and it has not been substantiated by Respondent that such work remained unattended till date. However, it is not in dispute that the contractor/Claimant did not attend to the work of sliding door for the value of Rs.1,47,000/-. The Claimant/contractor has AS.109/2014 51 not included this item in his final bill. Furthermore, he would assert in his evidence that such omission was solely due to negligence attributable to the Respondent company. Be that as it may. The Respondent, despite the fact of occupying the premises and starting the production is entitled to 10% of the value of such work, by way of liquidated damages. ................."
51) Learned Arbitrator has specifically held that, Plaintiffs are entitled to 10% of the value of said work by liquidated damages. As observed by the learned Arbitrator, the cost of the work remained unattended is Rs.1,47,000/-. It means, the contract price of non-completed work is Rs.1,47,000/-. 10% of the said amount comes to Rs.14,700/-. Learned Arbitrator has awarded Rs.15,000/- towards liquidated damages for non-completed work, which is in accordance with the terms of contract. When matter being thus, Plaintiffs' claim for liquidated damages at the rate of 10% of entire contract amount is against the terms of contract.
AS.109/2014 52
52) For the foregoing discussion, it is abundantly clear that, award in respect of Claim No.1(a) and
(b) is patently illegal and same requires to be set aside and there exists a finding in respect of actual retention amount in the arbitral award, which needs to be modified and rest of the award does not call for interference.
53) The Hon'ble Bombay high Court in M/s. R.S.Jiwani Vs. Government of India Undertaking, [Appeal No.245/2009, decided on 16-12-2009], was pleased to hold that :
38. ................. thus, we proceed to record our answers to the questions framed as follows :
1. The judicial discretion vested in the court in terms of the provisions of section 34 of the Arbitration and Conciliation Act, 1996 takes within its ambit power to set aside an award partly or wholly depending on the facts and circumstances of the given case. In our view, the provisions of section 34 read as a whole and in particular section 34(2) do not admit of interpretation which will divest the court of competent jurisdiction to apply the principle of severability to the award of the Arbitral Tribunal, legality of which is questioned before the court.
AS.109/2014 53 The Legislature has vested wide discretion in the court to set aside an award wholly or partly, of course, within the strict limitations stated in the said provisions. The scheme of the Act, the language of the provisions and the legislative intent does not support the view that judicial discretion of the court is intended to be whittled down by these provisions."
54) Thus, it is clear that, judicial discretion of the Court is not whittled down by the provisions of Section 34 of the Arbitration and Conciliation Act, 1996 to set aside the award partly or wholly depending on the facts and circumstances of the case. As such, partial setting aside of the award in respect of Claim No.1(a) and (b) is permissible. Accordingly, I answer the above point partly in the affirmative.
55) POINT NO.2 : In view of the foregoing discussion and answer to Point No.1, I pass the following :
AS.109/2014 54 ORDER (1) Suit filed by Plaintiffs under Section 34 of the Arbitration and Conciliation Act, 1996, for setting aside the arbitral award dated 23.07.2014 passed by learned sole Arbitrator in AC.21/2013; is hereby allowed in part.
(2) Award in respect of Claim No.1(a) and (b); is hereby set aside.
(3) Award in respect of retention amount claimed under Claim No.2 is modified to the extent of admitted amount of Rs.24,32,750.18.
(4) No order as to costs.
[Dictated to the Judgment Writer, transcribed and computerized by her, transcript thereof corrected and then pronounced by me in open Court, on this the 20th day of February, 2020.] [RAMA NAIK] VI Addl.City Civil & Sessions Judge Bengaluru City.