Himachal Pradesh High Court
Aggarwal And Company vs State Of H.P. on 21 June, 1999
Equivalent citations: AIR2000HP1
Author: R.L. Khurana
Bench: R.L. Khurana
ORDER R.L. Khurana, J.
1. The work of "LSWW Solan (SH: Providing and laying of 200mm dia MSERW pipes in rising main in all the stages)"
including the total cost of Rs. 32,35,685/-against agreement No. 22 of 1986-87 was awarded to Messrs. Aggarwal and Company, hereinafter referred to as the plaintiff on 9-2-1987. The work was to be completed within six months, that is, by 24-8-1987. Since the work could not be completed within the stipulated period action was taken against the plaintiff in terms of Clause 2 of the agreement by levy of compensation at the rate of 10% of the contract amount. The plaintiff in spite of such action did not execute the work. Therefore, acting under Clause 3(a) of the agreement, the defendant rescind the contract and forfeited the security of Rs. 1,00,000/- deposited by the plaintiff at the time of allotment of work in his favour.
2. The action of the defendant resulted into a dispute. Consequently, the plaintiff sought for reference of dispute to arbitration within the meaning of Clause 25 of the agreement. The Engineer-in-Chief of the defendant acting under Clause 25 of the agreement vide his office order dated 17-5-1990 appointed Shri R. K. Kaura, the then Superintending Engineer, Arbitration Cell. H.P.P.W.D.. Solan as the sole Arbitrator to go into the dispute between the parties and make his award.
3. Shri R. K. Kaura, before he could make his award resigned. Consequently, Shri D. N. Handa, Superintending Engineer, came to be appointed as sole Arbitrator vide office order dated 28-5-1992. Shri D. N. Handa also resigned and in his place Shri S. S. Juneja, Superintending Engineer was appointed as sole Arbitrator vide order dated 4-6-1993. The Arbitrator so appointed after having gone into the dispute between the parties, made his award on 21 -5-1994 in the following terms :--
Claims of the plaintiff Claim No. Claim Amount awarded
1.
Levy of 10% compensation amount to Rs. 3.23,568/-.
Nil. The claim held to be not arbitrable.
2. Refund of security deposit of Rs. 1 ,00.000/-.
Rs. 1,00,000/-.
3. Interest on the amount of security deposit amounting to Rs. 57,750/- at the rate of 18% per annum from 24-4-1987 till 10-7-1990 the date of filling of claim petition.
Interest amounting to Rs.31.667/- at the rate of 10% per annum.
4. Loss of anticipated profits at the rate of 15% on the value of the work taken out of the hands of the plaintiff Rs. 1,76.250/-
Nil
5. Damages suffered by the plaintiff on account of their failure to lift material from the manufacturers in spite of orders placed Rs. 30,000/-
Nil
6. Damages suffered by the plaintiff on amount of prolonga tic of contract beyond the stipulated date of completion 23-8-1987 till the date of rescission of the work, i.e., 12-10-1989 26 months at the rate of Rs. 1500/- per month = Rs.
52,000/-
Nil
7. Damages suffered by the plaintiff on account of delayed payments which are tq be calculated as interest at the rate of 18% on the delayed payments.
Rs. 15,000/-
COUNTER-CLAIMS OF THE DEFENDANT
1. Refund of excess payments made towards the 1 st five running bills Rs. 5.34.578/-
Nil
2. Compensation of Rs. 3,23,568/- as assessed under clause-2 of the agreement.
NIL. The claim held to be not arbitrable.
3. Forfeiture of amount of security under clause 3(a) of the agreement Rs. 1,00,000/-
Nil
4. Resultantly, a net award for a sum of Rs. 1,46,667/- was made in favour of the plaintiff and against the defendant.
5. The award dated 21-5-1994 was filed in this Court by the Arbitrator for being made the rule of the Court. The same came to be registered as Civil Suit No. 189 of 1994. Objections under Section 30/33, Arbitration Act, 1940 (for short, the Act) were preferred by the defendant.
6. A learned single Judge of this Court vide judgment dated 13-12-1996 passed in O.M.P. No. 624 of 1994 in Civil Suit No. 189/ 94, partially allowed the objections preferred by the defendant and after setting aside the award remitted the case to the arbitrator for a fresh decision in accordance with law. The operative part of the judgment (paragraph 19) is in the following terms :--
"For the reasons recorded above, this objection petition is partially allowed. The impugned award of the Arbitrator is set aside and the case is remanded back to him for a fresh decision in accordance with law in the light of the observations contained hereinbefore. The Arbitrator will give a fresh reasoned award in accordance with the contract agreement between the parties (Clause 25) on the following points :--
(a) whether compensation/penalty, though rightly held not arbitrable, in view of Clause 2 of the agreement it was liable to be adjusted with the amount awarded in the impugned award, and
(b) The contention of the parties regarding whether there is a bar under the contract agreement which makes the question of refund of forfeited security not arbitrable, be examined in the light of the contract agreement. The Arbitrator shall confine himself to the above two points only and shall not interfere with his findings as regards the other claims. He shall also not permit the parties to lead any additional evidence. However, he shall give sufficient opportunity of hearing and submitting written arguments, if so desired. In the circumstances, there will be no order as to costs."
7. On the case having been remitted to him, after hearing the parties afresh, the Arbitrator has returned his findings on the abovesaid two points vide his award dated 30-9-1997, The Arbitrator decided the two points against the defendant as under :--
Point No. 1.
Therefore, Clause 2 specifies the time to be essence of the contract. Since Clause 2 was not invoked within the stipulation date of completion and compensation was imposed by the respondent-Executive Engineer at his own level. But as per Law laid down by the Apex Court in the case of Vishwanath Sood v. Union of India, AIR 1989 SC 952, levy of compensation under Clause 2 has to be the considered opinion of the Superintending Engineer. It is not proved on record that the Superintending Engineer has given his considered opinion at any stage, therefore, imposition of compensation under Clause 2 is illegal and unjustified and liable to be waived off. Therefore, neither deduction can be made from the awarded amount nor can be recovered from the claimant-contractor."
Point No. 2 :
"No finality under Clause 3 has been attached to the action of Engineer-in-charge except in respect of notice in writing, therefore, first of all Engineer-in-charge has to establish that the Contractor is liable for action. In this case the breach and the repudiation of the contract has been proved on the part of the respondent-Executive Engineer. Therefore, forfeiture of security is unjustified and illegal and liable to be released in favour of the claimant-contractor."
8. The award dated 30-9-1997 has been filed in this Court for being made the rule of the Court.
9. Notices of the award having been filed by the Arbitrator for being made the rule of the Court Were Issued to the parties. While no objections were preferred by the plaintiff, the defendant has preferred objections under Section 30/33 of the Act to the award being made the rule of the Court. Such objections have been registered as OMP No. 48 of 1998.
10. The defendant has averred that the Arbitrator has misconducted himself and the proceedings inasmuch as he has travelled beyond the scope of reference while answering the two points remitted for decision to him by the Court vide Judgment dated 13-12-1996. It has further been averred that since the award has been made after expiry of the stipulated period, in the absence of extension of such period either by the Court or with the consent of the parties, the same is bad and liable to be set aside.
11. The plaintiff while resisting the objections has raised an objection that the objections under Section 30/33 of the Act are not maintainable in view of the coming into force of the Arbitration and Conciliation Act, 1996.
12. On the pleadings of the parties, the following issues were framed on 29-6-1998 :--
1. Whether the objections under Sections 30 and 33 of Arbitration Act. 1940 are not maintainable, as alleged? OPR.
2. If issue No. 1 is decided against the respondent, whether the Arbitrator has misconducted himself and the proceedings as alleged, if so to what effect? OPO.
3. Relief.
13. 1 have heard the learned counsel for the parties and have also gone through the record of the case. My findings on the above issues are as under :--
ISSUE No. 1:
14. During the course of hearing the present issue was not pressed by the learned counsel for the plaintiff. The same is as such decided against the plaintiff.
ISSUE No.2 :
15. The first contention raised on behalf of the defendant is that the Arbitrator has misconducted himself and the proceedings inasmuch as the award was made after the expiry of the period of four months as prescribed under the law.
16. On the award having been remitted to him, the arbitrator entered upon the reference on 16-1-1997. The award was made on 30-9-1997, admittedly after the expiry of the requisite period of four months from the date the arbitrator entered upon the reference.
17. A perusal of the record shows that during the aforesaid period between 16-1- 1997 to 30-9-1997 as many as three hearings were held respectively on 4-3-1997, 2-5-1997 and 6-9-1997. The defendant has been taking part in such hearings and proceedings without any objection.
18. In Prasun Roy v. The Calcutta Metropolitan Development Authority, AIR 1988 SC 205, it was held that where a party is aware that by reason of some disability the matter is legally incapable of being submitted to arbitration, participates in the arbitration proceedings without protest and fully avails of the entire arbitration proceedings cannot be permitted to challenge such arbitration proceedings at a subsequent stage on finding that the award has gone against him. Long participation and acquiescence in the proceedings preclude such a party from contending that the proceedings were without jurisdiction. To the similar effect it was held in N. Chellappan v. Secretary, Kerala State Electricity Board, AIR 1975 SC 230.
19. Therefore, in the present case as well, since the defendant has been taking part in the arbitration proceedings without any protest and has availed of the entire arbitration proceedings, it is not open to the defendant to challenge the award on the ground that the same was made after the expiry of the stipulated period.
20. The second contention raised on behalf of the defendant is that question of imposition of penalty/compensation under Clause 2 of the agreement was not arbitrable and as such the Arbitrator has misconducted himself and the proceedings by awarding "nil amount" in favour of the defendant as against the sum of Rs. 3,23,568/- claimed.
21. The learned counsel for the plaintiff, on the other hand, has contended that the defendant itself had raised a claim before the Arbitrator with regard to the amount of penalty/compensation of Rs. 3,23,568/- alleged to have been imposed under Clause 2 of the agreement and thereby had submitted to the jurisdiction of the Arbitrator. Therefore, it is not open to the defendant to say that the Arbitrator had no Jurisdiction in the matter. It was further contended that under Clause 2 of the agreement it was only the Superintending Engineer who could have levied the penalty. However, the penalty was levied by the Executive Engineer, who was not competent to do so and as such the Arbitrator rightly did not award any amount in favour of the defendant. Further contention raised by the plaintiff is that the question whether the penalty imposed under Clause 2 of the agreement was liable to be adjusted against the amount awarded in favour of the plaintiff vide award dated 21 -5-1994, was specifically referred to the arbitrator by this Court vide judgment dated 13-12-1996 passed in Civil Suit No. 189 of 1994, therefore, the learned arbitrator cannot be said to have acted beyond the scope of reference and/or jurisdiction.
Clause 2 of the agreement provides :--
"The time allowed for carrying out the work as entered in the tender shall be strictly observed by the contractor and shall be deemed to be the essence of the contract on the part of the contractor and shall be reckoned from the fifteen day after the date on which order to commence the work is issued to the contractor. The work shall throughout the stipulated period of the contractor be produced with all due diligence and the contractor shall pay as compensation an amount equal to one per cent, or such smaller amount as the Superintending Engineer (whose decision in writing shall be final) may decide on the amount of the tendered amount the whole work as shown in the tender, for very day that the work remains uncommenced or unfinished, after the proper dates. And further, to ensure good progress during the execution of the work, the contractor shall be bound in all cases in which the time allowed for any work exceeds one month (save for special jobs to complete one eight of the whole of the work before one-fourth of the whole time allowed under the contract has elapsed three-eight of the work before one-half of such time has elapsed and three-fourth of the work, before three-fourth of such time as has elapsed. However, for special jobs if a time schedule has been submitted by the contractor and the same has been accepted by Engineer-In-charge, the contractor shall comply with the said time schedule. In the event of the contractor failing to comply with this condition he shall be liable to pay as compensation an amount equal to one per cent or such smaller amount as the Superintending Engineer (whose decision in writing shall be final) may decide on the said tendered cost of the whole work for every day that the due quantity of work remains incomplete; Provided always that the entire amount of compensation to be paid under the provisions this clause shall not exceed ten per cent, on the tendered cost of the work as shown in the tender."
22. A bare perusal of the above clause shows that the amount of penalty to be imposed has to be determined and decided by the Superintending Engineer, whose decision in writing shall be final.
23. Admittedly, in the present case, the amount of penalty of Rs. 3,23,568/- under the above clause was determined and assessed by the Executive Engineer and not by the Superintending Engineer. Therefore, since the penalty was imposed by an authority not competent to do so, the Arbitrator rightly disallowed the claim of the defendant on this ground.
24. Much reliance was placed by the learned counsel for the defendant on the ratio laid down by the Apex Court in Vishwanath Sood v. Union of India, AIR 1989 SC 952, wherein it was held that the Arbitrator has no jurisdiction while adjudicating the claim of compensation levied under Clause 2 of the agreement,
25. What the Apex Court held is that the matter as to amount of compensation to be levied under Clause 2 of the agreement cannot be referred to Arbitrator. In other words, the quantum of compensation levied under Clause 2 is not arbitrable. However, the competency of the authority imposing and assessing such amount of penalty/ compensation can always be looked into by the Arbitrator before allowing or disallowing such claim. In this regard the following observations made by the Apex Court in Vishwanath Sood's case (AIR 1989 SC 952) (supra) are noteworthy (at Pp. 957 and 958 of AIR) :--
"....... The decision of the Superintending Engineer, it seems to us, is in the nature of a considered decision which he has to arrive at after considering the various mitigating circumstances that may be pleaded by the contractor or his plea that he is not liable to pay compensation at all under this claused . In our opinion the question regarding the amount of compensation leviable under Clause 2 has to be decided only by the Superintending Engineer and no one else."
26. In State of H. P. v. Himachal Construction Corporation, Civil Suit No. 44 of 1994, decided on 19-12-1996 also the amount of penalty/compensation under Clause 2 of the agreement was Imposed by the Executive Engineer and not by the Superintending Engineer. The Arbitrator did not allow the claim on this ground. The award was approved by this Court and it was held that the amount of penalty/compensation having been imposed by the Executive Engineer was not permissible.
27. In Rameshwar Dyal v. State of H. P., Civil Suit No. 101 of 1991 decided on 18-12-1992, it was held that the decision of the Executive Engineer is not the one envisaged under Clause 2 of the agreement and no finality is attached thereto.
28. Therefore, the Arbitrator cannot be said to have acted beyond the scope of his jurisdiction or to have misconducted himself and the proceedings in disallowing the claim of the defendant based on Clause 2 of the agreement.
29. The learned counsel for the defendant lastly contended that in view of the bar under the contract agreement the question of forfeiture of amount of security was not arbitrable. Therefore, the Arbitrator has acted beyond the scope of reference and his juris-diction.
30. Clause 3(a) of the agreement deals with the forfeiture of amount of security. It provides :--
"To determine or rescind the contract as aforesaid (of which termination or rescission notice in writing to the contractor under the hand of the Engineer-in-charge shall be conclusive evidence). Upon such determination or rescission the security deposit of the contractor shall be liable to be forfeited and shall be absolutely at the disposal of Government."
31. A bare perusal of the above provision shows that no finality has been attached to the order of Engineer-in-charge forfeiting the amount of security deposit. Therefore, the question of forfeiture cannot be said to be non-arbitrable.
32. There is another aspect of the case. The defendant himself raised a counterclaim in this regard before the Arbitrator. Therefore, having itself referred the question to arbitration, it is not open to the defendant to contend that such dispute was not arbitrable.
33. The Arbitrator while allowing claim No. 2 of the plaintiff with regard to the refund of security amount in his award dated 21-5-1994 had held that the rescission of the contract agreement by the defendant was not in order since the department was itself to be blamed for the delay in the execution of the work. Such findings of the Arbitrator were upheld by this Court vide judgment dated 13-12-1996. On this ground also the defendant is debarred from agitating the question.
34. Therefore, on the facts and in the circumstances of the case, it cannot be said that the Arbitrator has misconducted himself or the proceedings. The issue is decided against the defendant.
RELIEF :
35. As a result of the above findings, the objections to the award being OMP No. 48 of 1998 preferred by the defendant are dismissed with no order as to costs.
Civil Suit No.79 of 1997:
36. Consequent upon the dismissal of the objections, the award dated 30-9-1997 read with the award dated 21-5-1994 is made the rule of the Court and a decree in terms thereof for a sum of Rs. 1,46,667/- is passed in favour of the plaintiff and against the defendant. The plaintiff shall also be entitled to interest on the decretal amount at the rate of 12% per annum from the date of the award that is. 30-9-1997 till the date of payment/realisation of the amount. Parties to bear their own costs.