Delhi High Court
Bhel vs V.D.Swami & Company on 15 July, 2009
Author: Shiv Narayan Dhingra
Bench: Shiv Narayan Dhingra
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Date of Reserve: 24.4.2009
Date of Order: 15.7.2009
OMP No. 215/2001
% 15.7.2009
BHEL ... Petitioner
Through: Mr. J.C.Seth, Advocate
Versus
V.D.Swami & Company ... Respondents
Through: Nemo
JUSTICE SHIV NARAYAN DHINGRA
1. Whether reporters of local papers may be allowed to see the judgment? Yes.
2. To be referred to the reporter or not? Yes.
3. Whether judgment should be reported in Digest? Yes.
JUDGMENT
By this petition under Section 34 of the Arbitration & Conciliation Act the petitioner (BHEL) has assailed an award dated 17.4.2001 passed by the Sole Arbitrator Mr. C.N.Garg on various grounds including ground of bias and mala fides. During pendency of arbitration proceedings before the Sole Arbitrator, the petitioner herein had filed an application before the Arbitrator requesting him to recuse himself from the proceedings complaining that he was biased against the petitioner and the petitioner was apprehensive that it would not get justice at the hands of the Arbitrator. It was alleged that the Arbitrator was favorably disposed towards the respondent/claimant and the Arbitrator himself used to argue the case on behalf of the claimant and would find faults with every document and every submission and even with the statute relied upon OMP No. 215/2001 BHEL v. V.D.Swami & Company Page 1 of 30 by the petitioner. It was also submitted that the Arbitrator shifted the venue of the arbitration on 17th and 18th July, 1998 to Chennai at the instance of claimant though the contract provided that proceedings would be held at Delhi. There was no ostensible nexus/basis in holding of proceedings at Chennai except that the Arbitrator wanted to develop intimacy with the top management of the claimant viz. M/s V.D.Swami & Company. It was also alleged that the head office of petitioner was in Delhi and it could conveniently arrange travel tickets for Arbitrator from Delhi to Chennai, yet the Arbitrator directed claimant to make his travel arrangements to Chennai, as the Arbitrator wanted to go to Chennai along with wife. He and his wife availed hospitality of the claimant at Chennai. The Arbitrator also charged double his daily fee than what he was charging at Delhi. The Arbitrator and his wife stayed in Hotel „Savera‟ at Chennai booked by the claimant where consultant of the claimant was also staying in nearby room. As a matter of chance, the petitioner‟s DGM and the Counsel for petitioner had also stayed in the same hotel and on seeing the DGM and the counsel for petitioner in the hotel, the Arbitrator shifted to „Residency‟ Hotel in Chennai on 16th July, 1998. He stayed with his wife even after the arbitration and enjoyed the hospitality of M/s V.D.Swami & Company (Claimant). It was also alleged that the learned Arbitrator during the proceedings was very courteous to the claimant and their consultant, but was very hostile to the petitioner and Counsel for the petitioner. He often shouted at the representatives of the petitioner, insulted them and repeatedly asked them to "get out" form the arbitration proceedings. He also tried to humiliate them in presence of the claimant‟s representatives and his behavior had been outrageous as he lost temper and shouted at the top of his voice during proceedings at petitioner‟s representatives. Even prior to 18th July, 1998 proceedings also the Arbitrator had shown partisan approach. The OMP No. 215/2001 BHEL v. V.D.Swami & Company Page 2 of 30 petitioner in a polite letter dated 19.1.1998 had pointed out "irregular conduct of arbitration proceedings" the instances of shouting etc. were not written there, lest the Arbitrator should get annoyed further. It was noticed that the Arbitrator and the consultant of the claimant would sometimes laugh and ridicule the officers of the petitioner. The Arbitrator used to find faults in documents and letters presented to him pointing out the "breaches" of the contract on part of the claimant. When this evidence was read before the Arbitrator he made mockery of the officers at the use of works in the documents like "bad workmanship", "backlog", "inadequate manpower", " labour turnout", "T&P", "prolonged delays"
etc.
2. There were various other serious allegations made in this letter against the Arbitrator, conduct of the Arbitrator and insults shown to the petitioner and its officers. Suffice it to say that the petitioner/applicant gave a detailed account of the alleged irregular conducting proceedings by the Arbitrator and his biased attitude against the petitioner and favoring claimant.
3. This application of the petitioner was accompanied by the affidavit of Mr. G.L.Sawhney, Advocate who was the associate of Mr. J.C.Seth, Advocate, main Counsel for the Petitioner. The application was also accompanied by affidavits of Mr. Mathew Ninan, Senior Manager (R&M) of the petitioner, who was participating in the arbitration proceedings and handling the arbitration case, supporting the allegations made in the application. The application was accompanied by documents showing enjoyment of hospitality by the Arbitrator Mr. C.N.Garg and his wife in Chennai of the Claimant and the effort of the learned Arbitrator to later on issue a pre-dated cheque in favour of M/s V.D.Swami & company of the payment of the hotel and a letter from the bank OMP No. 215/2001 BHEL v. V.D.Swami & Company Page 3 of 30 showing that this cheque was encashed after about 20 days on 20.8.1998 despite being a local cheque and allegedly received by the claimant on 29.7.1998. The learned Arbitrator dismissed the application made before him asking him to recuse from the proceedings. The petitioner thereafter filed a CWP-4190/1998 before this Court. On admission of this petition, the proceedings before the Arbitrator were stayed. The petition filed by the petitioner also challenged the vires of Section 13(3) & (4) of the Arbitration & Conciliation Act and made a prayer that the Arbitrator Mr. C.N.Garg be removed from the arbitration reference between petitioner and the claimant on the ground of bias. This court observed that the challenge regarding vires of Section 13(3) & (4) was based mainly on the ground that there was no provision in the Act for removal of the Arbitrator during arbitration proceedings where the Arbitrator was biased, under Section 13 of the Act, although such a provision was there in Section 11 of the Arbitration Act, 1940. It was also submitted that there was no remedy available to the party for challenging the award on the ground of bias and prejudice on the part of the Arbitrator. This Court observed that Section 13(5) gives a right to the party of challenging the award of Arbitrator under Section 34 and making a prayer for setting aside the award on the ground of bias of the Arbitrator and observed that in view of the scheme of the Act of 1996, there was no scope of interference during the pendency of the arbitration proceedings. The Court therefore observed that the grounds of bias, prejudice urged by the petitioner would have to be considered after the award was made by the Arbitrator and this could form part of the grounds of challenging the award. The Court therefore did not go into the allegations of bias and prejudice leveled against the Arbitrator at that stage and dismissed the petition vide order dated 29.9.2000. The petitioner assailed the order by way of an SLP before the OMP No. 215/2001 BHEL v. V.D.Swami & Company Page 4 of 30 Supreme Court. The SLP was disposed of by the Supreme Court observing that the petitioner in terms of the findings of the High Court would be at liberty to assail the award under Section 34 on the grounds of bias and prejudice. The question that a party will have to wait for a long period i.e. till decision of the Arbitrator to get the Arbitrator removed on the ground of bias and prejudice was not gone into by the Supreme Court and left open vide its order dated 15.1.2001.
4. After vacation of stay of proceedings, the Arbitrator further proceeded with the arbitration and gave the impugned award which is subject matter of challenge by the petitioner on dual grounds, of bias as well as the award being contrary to the provisions of the contract.
5. Indian Oil Corporation Limited had decided to set up a refinery at Panipat. For this refinery the petitioner company, had floated a tender for erection, testing and commissioning of 3X160 TPH Boilers. The respondent M/s V.D.Swami & Company Ltd. was the successful bidder for this contract and a contract for the value of Rs.2,58,60,740/- was issued in favour of the respondent for erection, testing and commissioning of the three Boilers. Initially, the petitioner was given work of SG Package alone however later on the petitioner was also awarded the work of Power Cycle Piping (PCP) Package also. Although the tender document provided for an overrun cost of Rs.30,000/- p.m. after four months of last date of execution of work subject to other terms and conditions as provided in the contract, the respondent in its tender had put a condition of overrun cost of Rs.1 lac p.m. He subsequently agreed to 5% discount and the overrun charges thus agreed between the parties was Rs.95,000/- p.m. subject to all other terms and conditions as mentioned in the tender document. The award of work initially for SG Package was done @ OMP No. 215/2001 BHEL v. V.D.Swami & Company Page 5 of 30 Rs.5749.40 per MT vide letter dated 12.8.1994 issued by the petitioner to the respondent. The award was for commissioning, trial, operation and handing over of 3X160 TPH boilers (SG package alone - 3147 MT) including final painting and any other work as detailed in tender specifications. The man hour rate for extra work was agreed at Rs.25/-. However, vide letter dated 13.10.1994 the respondent was also awarded Power Cycle piping package as well and he was informed that rates and conditions for SG and PCP packages together would be applicable. It is to be noticed that in case the award was only for SG Package the rate applicable was Rs.5749.40 per MT however, the rate for SG & PCP packages together was Rs.6301.35 per MT. This was because working on PCP Package involved much higher cost and labour. The contract dated 12.8.1994 itself provided that tonnage rate for PCP package was Rs.14,535/- per MT and that is why the average rate for SG & PCP Package was considered as Rs.6301.35 per MT. The facts reveal that the respondent had executed only a part of SG package alone, but raised all bills and paid at composite rate.
6. The contract provided a time schedule for different stages of work and this time schedule was to be adhered to by the respondent/contractor and was crucial for the operation of the oil refinery the main project. The time schedule as provided in the contract is as under:
Milestones I Boiler II Boiler III Boiler Erection Start Zero Date 3 5 Drum Lifting 1.5 4.5 6.5 OMP No. 215/2001 BHEL v. V.D.Swami & Company Page 6 of 30 Hydrotest 9 12 14 Boiler Light Up 12 15 17 Acid Cleaning 13 16 18 Steam Blowing & SVF 14 17 19 Trial Operation & Handing Over 15 18 20
7. This time schedule was modified as per minutes of meeting held between the parties on 22.7.1994 as under:
Milestones I Boiler II Boiler III Boiler Erection Start Zero Date 3 5 Drum Lifting 1.5 4.5 6.5 Hydrotest 7 10 12 Boiler Light Up 10 13 15 Acid Cleaning 11 14 16 Steam Blowing & SVF 12 15 17 OMP No. 215/2001 BHEL v. V.D.Swami & Company Page 7 of 30 Trial Operation & Handing over 13 16 18
8. The zero date as mentioned in this time schedule was the date of commencement of the work viz. 30.9.1994 and figures denote the number of months after commencement of the work.
9. Record would show that before and after commencement of work there was exchange of lot of correspondence between the parties. The petitioner was not satisfied with the progress of the work as well as with the workmanship of the work. The petitioner had written several letters to the respondent regarding poor workmanship specifically in case of welding.
10. The fabrication and erection work was to be done by the contractor/claimant and entire material was to be supplied by the petitioner. In the fabrication/erection work welding is usually the most important and crucial part of the work because it is welding by which several parts are properly connected, erected and fabricated. The contract contained detailed provisions in respect of welding, heat treatment, radiography and other non destructive tests involved in the erection of the equipments. It was specifically provided in the contract vide clauses 44.1 to 44.36 that all pressure parts were to be erected in conformity with the provisions of Indian Boiler Regulations / ASME IX and as may be directed as per any other standards/specifications in practice in BHEL. It was also provided that welding of pressure parts and high tensile structural steel shall be done by certified high pressure welders who possessed valid certificate of CIB of the State in which equipment is erected as per provision of IBR. The HP welder possessing such certificate was to appear well in advance before expiry OMP No. 215/2001 BHEL v. V.D.Swami & Company Page 8 of 30 of his valid certificate for re-qualification test as per provisions of IBR. All welders including tack welder, structural and high pressure welder were to be tested as per ASME Section IX / IBR and approved by BHEL Engineer before they could be actually engaged on work though they may possess the IBR Certificate. The record of qualifications of the welders was to be maintained by the contractor in the proforma given by BHEL Engineer. The petitioner also prescribed that the root run welding of all joints of tubes/pipes, instrumentation tapping points etc. would be done by TIG welding process and subsequent welding would be done as per welding schedule and instructions. Complete penetration of welding was to be achieved and all welding joints were to be subject to acceptance by the Engineer. It was specifically provided that Engineer may stop the work of welding if there was a high percentage of rejections of joints welded by a particular welder affecting the quality of welding adversely in the opinion of the Engineer, despite that the welder had passed the test as prescribed. The welder having qualification would not relieve the contractor of contractual obligation to check the performance of the welder. The petitioner not only prescribed the qualifications of the welders and the quality of welding but even prescribed the quality of electrodes to be used during welding to ensure that the quality of work did not suffer and clause 44.10 prescribed about the quality of electrodes. Clause 44.11 and 44.12 provided for the test including radiography tests of the welding joints to be conducted after welding of tubes, pipes etc. in the erection work. These tests were to be conducted by the contractor in accordance with instructions of the Engineer. It was provided that technical particulars and specifications of these tests and all radiography work had to be done in accordance with ASME, IBR or ISO as specified by BHEL. It was provided that Iridium-192 shall be used by the contractor for radiography work. It was OMP No. 215/2001 BHEL v. V.D.Swami & Company Page 9 of 30 specifically provided that all radiographs shall be free from mechanical, chemical or process marks to the extent they should not confuse the radiographic image and defect finding. Penetrameter as per ASME or ISO must be used for each exposure. The contractor was specifically notified that 100% radiography shall be done on all pressure parts, welding joints at the initial stage and subsequently radiographic inspection shall be done on the basis of quality of welding. There were detailed specifications and instructions given to the contractor in clauses other than what have been mentioned above in respect of welding and testing of welding.
11. During the continuation of work, dispute arose between the parties in respect of the quality of work and the contractor lagging behind the schedule. The petitioner wrote several letters to the respondent/contractor in respect of the lagging in time schedule, unsatisfactory progress and quality of work. The respondent/contractor also wrote letters to the petitioner regarding its stand. Joint meetings of the petitioner‟s Engineer and respondent‟s representative took place during the progress of the work and minutes of meetings were prepared where both the sites gave their stand. These minutes were signed jointly by the parties. A perusal of record would show that while the petitioner had been time and again telling the respondent that the respondent had not employed the appropriate number of persons and was not keeping progress of the work in accordance with the contract, the respondent had been assuring that it shall be doing the needful.
12. The contract was running behind time. The contractor started asking for overrun charges whereas the petitioner told the contractor that it had not maintained the time schedule of the contract and it was its fault due to which OMP No. 215/2001 BHEL v. V.D.Swami & Company Page 10 of 30 the contract was behind schedule and in terms of the specific clauses of contract, the respondent was not entitled for overrun charges. The petitioner, in response to contractors demand for extension of time of the contract and for payment of overrun charges, wrote to the contractor vide letter dated 10.9.1996 that the claim of overrun charges was not justified and payable in view of the contractual obligations. It was stated that the contractor should complete all balance work giving a time bound program. The contractor had asked for extension of time upto 29th April, 1997 and had also asked for payment of Rs.95,000 p.m. from July, 1996 as overrun charges vide a letter dated 4th/6th July, 1996. The contractor had written in this letter that the period of completion of contract had got prolonged for the reasons beyond the control of the contractor and not attributable to the contractor therefore it wanted that the time of contract to be extended and overrun charges to be paid. Thereafter meetings between the parties took place on 29th August, 1996 it seems no solution was found in this meeting and ultimately on 10.9.1996 petitioner wrote to the respondent/contractor that the delay was due to the factors attributable to the contractor therefore it was not entitled for overrun charges regarding extension of time. The petitioner asked the respondent to give a time bound program and complete the work within that time bound program. Instead of giving a time bound program for completing the work on 11.9.1996, i.e. next day, the respondent put a notice on the site to the following effect:
NOTICE We have been carrying our activity of erection, testing and commissioning of boilers and PCP package at Panipat Refinery project, Panipat, under a contract awarded to us by M/s BHEL NOIDA. Under normal circumstances the work would have ended by end of July, 1996, however, due to certain reasons the principals are not able to fulfill their obligations of supplying materials etc. as OMP No. 215/2001 BHEL v. V.D.Swami & Company Page 11 of 30 per schedule and resultantly the contract not extended beyond the schedule period.
The principals have further declined to honour their obligations to consider payment of over run charges in the extended period. Thus we are forced to decide to wind up the Panipat site.
It is informed to every workman employed on our behalf at the above site that we will be closing the site by 10 th October, 1996, therefore, please take notice that services of such workmen shall not be required from 11.10.1996.
The final dues of the concerned workmen shall be cleared in due course after considering the balance notice period, if any, during site office working hours.
Project Manager
13. After putting this notice the respondent left the site. It is under these circumstances that the petitioner got the rest of the work done through other contractor and the dispute between the parties was referred to the Arbitrator.
14. Before the learned Arbitrator claimant and the petitioner both filed their claims and counter claims and the Arbitrator framed following issues:
Issue No.1 Claimant (VDS) Whether the Respondent (BHEL) failed to supply all inputs within time to enable the claimant to complete the works of the contract within the original contemplated period of contract and if there is delay what is the effect?
Issue No.2 Claimant (VDS) Whether the Respondent (BHEL) failed to extend the contract and is deemed to have abandoned the contract unilaterally?
Issue No.3 Respondent (BHEL) Whether the Claimant (VDS) abandoned the contract and would up its works at the site and if so, what is the effect?
Issue No.4 Claimant (VDS) OMP No. 215/2001 BHEL v. V.D.Swami & Company Page 12 of 30 Whether the Respondent (BHEL) have any right under the contract in such an event and whether the claimant (VDS) is entitled to compensation and damages?
Issue No.5 Respondent (BHEL) Whether the Respondent (BHEL) could make risk purchases at the cost of the Claimant (VDS)?
Issue No.6 Respondent (BHEL) Whether the Claimant (VDS) has failed to perform the contract as per schedule?
Issue No.7 Claimant (VDS) Whether the Respondent (BHEL) have any right to withhold any amount from the bills of the Claimant (VDS) without proper justification?
Issue No.8 Claimant (VDS) Whether the following claims of the Claimant (VDS) could be allowed and if so to what extent?
i) Claim No.1: Release of payment against final bill of Rs.54,47,116,95/-
ii) Claim No.2: Under utilization of overhead and mobilization of Rs.30.46 lac
iii) Claim No.3: Under utilization of mobilization/overheads for the period after the original completion date of the contract of Rs.5.83 lac
iv) Claim No.4: Loss of profit of Rs.4.76 lac
v) Claim No.5: Infructuous expenditure incurred due to non completion of the work due to the breach of contract by the Respondent (BHEL) of Rs.20.60 lac
vi) Claim No.6: Double handling of structure due to non-
availability of fronts and approach roads of Rs.7,96,720/-
vii) Claim No.7: Extra expenditure due to third party inspection of Rs.16.33 lac
viii) Claim No.8: Increase in rates towards compensation and damages due to breaches of contract of Rs.40.82 lac
ix) Claim No.9: Escalation on account of material of Rs.16.33 lac.
OMP No. 215/2001 BHEL v. V.D.Swami & Company Page 13 of 30
x) Claim No.10: Release of payment withheld against
multiplying factor of Rs.22.07 lac
xi) Claim No.11: Release of outstanding payment
a) Payment against R.A. already passed Rs.9,58,400.81
b) 1) R.A. bills submitted and pending with
the Respondent (BHEL) for payment Rs.92,032.26
2) Escalation bills Rs.1,79,786.32
c) Extra items bills Rs.3,16,000.00
d) PCP structural fabrications Rs.42,847.75
xii) Claim No.12: Idle Charges of Rs.42,00,600/-
xiii) Claim No.13: Interest @ 18% till the date of payment i.e. antelite, pendentelite, post lite on all payment.
xiv) Claim No.14: Cost of arbitration
Issue No.9 Respondent (BHEL)
Whether the following counter claims of the Respondent (BHEL) could be allowed and if so to what extent?
i) Counter Claim No.1: Claim towards reimbursement of expenditure incurred for completion of balance work at the risk and cost of the Claimant (VDS) of Rs.1,11,73,007/-
ii) Counter Claim No.2: Claim towards expenditure for rework/rectification of bad workmanship left by the Claimant (VDS) of Rs.12,02,110/-
iii) Counter Claim No.3 : Claim towards expenses incurred for processing reward of left over works by the Claimant (VDS) to other agencies of Rs.6,19,247.50/-
iv) Counter Claim No.4: Claim towards outstanding
mobilization advance of Rs.2,00,163.40/-
v) Counter Claim No.5: Claim towards non refund of
advance provided by the Respondent (BHEL) to Claimant (VDS) of Rs.4,04,886.70/-
vi) Counter Claim No.6: Claim towards additional expenditure incurred due to deployment of the Respondent (BHEL) manpower, tools and plants at site beyond the contract period of Rs.4,49,64,339.14/-
OMP No. 215/2001 BHEL v. V.D.Swami & Company Page 14 of 30
vii) Counter Claim No.7: Claim towards under utilization of the Respondent (BHEL) T & P during the contract period by the Claimant 9vdS) of Rs.50,72,328.01/-
viii) Counter Claim No.8: Claim towards deployment of manpower by the Respondent (BHEL) during initial delay of 34 days by the Claimant (VDS) of Rs.15,59,165.29/-
ix) Counter Claim No. 9: Claim towards manpower
deployed for remeasuring of work done by the Claimant
(VDS) of Rs.14,750.00/-
x) Counter Claim No.10: Claim towards loss/damage of
Plant materials drawn in excess by the Claimant (VDS) of Rs.20,84,400/-
xi) Counter Claim No.11: Claim towards damages/loss of tools and plants issued to the Claimant (VDS) of Rs.5,67,320/-
xii) Counter Claim No. 12: Claim towards Liquidated
Damages of Rs.25,86,074.00
xiii) Counter Claim No.13: Claim towards extension of bank
guarantee charges furnished to IOCL of Rs.61,203/-
xiv) Counter Claim No.14: Claim towards interest of deficit
turnover of the Respondent (BHEL) due to delay in
execution of work by the Claimant (VDS) of Rs.51,84,116.25
xv) Counter Claim No.15: Claim towards misc. recoveries due from the Claimant (VDS) of Rs.2,06,675/-
xvi) Counter Claim No.16: Compensation claim towards non-vacation of premises of Rs.2,03,950/-
xvii) Counter Claim No.17: Claim towards loss of goodwill of
Rs.2,00,00,000.00
xviii) Counter Claim No.18: Claim towards legal and
arbitration expenses.
Issue No.10. Respondent (BHEL)
Interest @ 18% till the date of payment i.e. ante lite, pendent lite, post lite on all the payment.
15. The learned Arbitrator decided issue No. 1 against the petitioner and in favour of the contractor holding that the petitioner had failed to supply the OMP No. 215/2001 BHEL v. V.D.Swami & Company Page 15 of 30 major inputs within the time schedule particularly De-Mineralized water (DM Water), foundations, boiler material etc. to enable the claimant to complete the work within the contemplated period of contract i.e. upto 29th March, 1996. The Arbitrator also held that because of this delay the petitioner herein was deemed to have committed breach of contract. The effect of breach of contract was that the claimant was eligible for compensation and damages as well as other claims.
16. While hearing objections under Section 34 of the Arbitration & Conciliation Act, this Court does not act as a Court of Appeal and does not re- appreciate the evidence, neither this Court in normal circumstances disturb a finding of fact. However, in this case, the petitioner had made specific allegations that the learned Arbitrator deliberately ignored all the documents and letters as well as the conditions of contract in order to pass an award against the petitioner as the learned Arbitrator was completely biased and made his intentions known before hand. Under these circumstances, this Court considered it proper to see if the learned Arbitrator had taken into account the evidence, the provisions of the contract between the parties and other material which was placed before him while considering the issues or not.
17. It is argued that the conclusions arrived at by the learned Arbitrator are totally bereft of the material and contrary to the contract and reflect the deep prejudice of the Arbitrator against the petitioner. The petitioner pointed out to around 200 letters written by the petitioner to the respondent during the progress of the contract showing that how the respondent was not employing properly trained workforce on the project and the project was getting delayed. The welders appointed by the contractor were not qualified and were not performing quality work, but the learned Arbitrator did not consider any of the documents of OMP No. 215/2001 BHEL v. V.D.Swami & Company Page 16 of 30 the petitioner. The learned Arbitrator was conducting two arbitrations simultaneously; one in respect of M/s V.D.Swami & Company and other in respect of M/s Delkon (India) Private Limited. In both the arbitrations disputes were in respect of erection of the boilers. In Delkon (India) Private Limited, the learned Arbitrator specifically mentioned at page 36 of the award that - "I, therefore, have to reject all the letters written by the Respondent to the Claimant complaining on poor progress and mobilization as they are not supported by any documents to show that the site was in fact ready and available and consequently the Claimant had defaulted in carrying out the ESP erection work. In other words, the Respondent had to take the blame for poor progress, if any, and the Respondent cannot derive support by merely producing letters written to the Claimant and withholding vital records which would throw light as to when the entire ESP site was in fact made ready".
18. The petitioner had made application before the learned Arbitrator for recusing himself from both these arbitrations as both the arbitrations were running simultaneously and conduct of the Arbitrator towards petitioner in both the matters was offending and shouting down the petitioner‟s officers. While in M/s Delkon award, the learned Arbitrator out rightly rejected all the letters on the ground that no material support was produced in respect of the contents of the letters, in this case he did not consider it necessary to refer to the letters of petitioner. It is not understood how an employer, who during the contract complains about the slow progress or about non employment of proper workman can produce material support. The attitude of the learned Arbitrator in other case as well as in this case has been as if Arbitrator was not to look into any evidence produced by the petitioner and this supports the allegations made by the OMP No. 215/2001 BHEL v. V.D.Swami & Company Page 17 of 30 petitioner that the learned Arbitrator on 18.7.1998 during proceedings remarked that he (Arbitrator) would not recognize even the minutes of meeting signed by both the parties. This attitude has been specifically mentioned in ground X in the petition and petitioner has also filed an affidavit of the General Manager in support.
19. The Arbitrator‟s entire observation about the delay on the part of the petitioner is in respect of DM Water. However, the record of the Arbitrator shows that the DM Water was not an issue at all between the petitioner and the respondent and this issue was never raised by the respondent with the petitioner during contract. The Arbitrator recorded that as per original schedule the hydro test was to be completed on 30.4.1995 and therefore DM Water should have been made available to the contractor on or before 30.4.1995. The learned Arbitrator though had been in the same department and worked at a senior level, perhaps had forgotten that hydro test could be conducted only when the boiler had reached the stage of conducting hydro test. Had the contractor reached the stage of testing, the contractor would have asked the petitioner to supply DM Water so that he could conduct the hydro test.
20. There are two portions in a Boiler - Drainable portion and Non- Drainable portion; Hydro test of complete Boiler i.e. of Drainable and Non- Drainable portions could be conducted only if the entire boiler had been erected and the stage had reached after erection of pressure parts related to Non- Drainable portion. The Arbitrator had not given a finding that the enter boiler including Non-Drainable portion had been completed by the contractor by April, 1995 and the hydro test could not be conducted because of non-availability of DM Water. Merely because the DM water was not made available to the OMP No. 215/2001 BHEL v. V.D.Swami & Company Page 18 of 30 contractor in April, 1995 would not have amounted to a breach of contract on the part of the petitioner. This would have amounted to a breach of contract on the part of the petitioner if the boiler had reached the stage of hydro test, which was to be conducted with the help of DM Water and the contractor had asked the petitioner to supply the DM Water and petitioner had failed to supply. The contractor had not even informed the petitioner in April, 1995 that he had reached the stage of hydro test and now DM Water should be supplied so that he could conduct the hydro test. In fact, the petitioner had to conduct hydro test of drainable portion alone only because the drainable portion of the boiler was made ready by the contractor. If the learned Arbitrator had paid attention to the documents, he would have found letter dated 15th July, 1995 written by the Engineer of NTPC to BHEL regarding conducting of hydro tests where it was specifically mentioned that hydraulic test for drainable portion only was offered by the contractor and NTPC informed that till date (15.7.1995) few jobs in both pressure part attachments works were still pending as on date. A list of pending works was attached with this letter for reference. Attention was also drawn to the previous letter pointing out to incomplete work and it was asked that this work should be got completed before going for full hydraulic test. The pending works mentioned were: verticality of water parcels, water wall alignment, coil clearance for economizer and superheater coils, pitch of the coils for superheaters, joint inspection protocol to hydraulic test. It was stated that BHEL should get arranged inspection after completion of balance log-sheets and getting the incomplete job done at the earliest (from contractor).
21. As per schedule, the contractor was to complete the erection of all the three units within 18 months of the start of the work, certified date of start of OMP No. 215/2001 BHEL v. V.D.Swami & Company Page 19 of 30 work was 30.9.1994, the milestone chart showed that the first boiler should have been erected and ready for hydro test by 30.4.1995, second boiler by 31.7.95 and third boiler should have been erected and for hydro test by 30.9.1995. The letter dated 26.6.1995 written by the NTPC to the petitioner regarding Unit-I reads as under:
PRCP: ME-3(C)/S-526/1704 To Shri R.Krishna Rao, General Manager (PSNR) M/s BHEL New Delhi-110-001 Dt.: 26.06.1995 Sub: SG execution of ICCL's PROPP.
As you are aware the Hydro-test of Unit-I Steam Generator of PRCPP has been planned during mid March 1995. However, due to problems such as delay in receipt of Bank tube expansion procedure, change in elevation of SCST lugs for SH coils, longer lengths of Furnace rear wall screen tubes, mismatch of bubble plates location etc. have resulted in delays in pressure parts erections.
At site, the mobilization for radiography of welded joints has been extremely poor since beginning. This has resulted in continuation of welding without timely evaluation of welder's performance. Now, when the repair rates of welder's are established, it is seen that the repair rates for some welder's is as much as 25 to 35%, while BHEL itself allows only 5% as acceptable standard. This calls for 100% radiography of all joints welded by such welders.
It is estimated that around 600-650 joints are to be radio graphed as of now and considering the present rates of radiography of 10- 15 joints per day, it will be delaying out hydro-test program inordinately. Further repairs are required to be carried out on the defective joints as and when identified.
In view of this, you are requested to personally look into the matter and ensure expeditious radiography of balance requirements as well as repairs such that the delay could be limited so as to target the hydro tests latest by 15.06.1995.
In this context, we would like to mention that the weekly review meetings at site, are also not being held regularly in view of non- OMP No. 215/2001 BHEL v. V.D.Swami & Company Page 20 of 30 availability of your site's representatives specifically when such vital issues related to achieving the project milestones are to be discussed. The zeal and dedication with which BHEL could achieve the drum-lifting milestones expeditiously appear missing now. We once again request you to look into this matter and ensure smooth timely progress.
Thanking you, Yours faithfully, For NTPC (K.G. Balachandra) Site Resident Manager
22. There were several defect reports about the welding points preceding this. The progress report showing the plan target and the achieved target was also before the learned Arbitrator which showed that while the plan target for December, 1994 was erection of 138.74 MT and the achieved target was 77.28 MT in respect of first boiler and January‟ 95 target was 108.57 MT while achieved was 36.5 MT. Erection target for first boiler in February‟ 95 was 133.2 MT and achieved was 80.16 MT, for March‟ 95, the target was 142 MT while achieved was 115.5 MT. This shows that the erection target fixed for the first boiler were regularly not met by the contractor each month and the work was behind schedule every month. These statements showing month-wise erection targets and achieved targets were placed before the learned Arbitrator however, the learned Arbitrator was very pleased to ignore all these material placed before him which was supported by the different letters written by the petitioner to the respondent about his lagging behind in achieving the target. Different letters were written about the defective workmanship and not putting of qualified welders on the job. On the other hand the learned Arbitrator despite the fact that the stage of hydro test had not even been achieved, discussed about the next OMP No. 215/2001 BHEL v. V.D.Swami & Company Page 21 of 30 two stages and observed that several materials required for light up, steam blowing and synchronization of all the three boilers were not available. The learned Arbitrator failed to appreciate that synchronization of all the three boilers would have arisen only when the contractor had completed the work of erection in respect of all the three boilers for hydro test. The learned Arbitrator had observed that the contractor pointed out that material for these stages was not available. One, these three stages had not reached; two, the petitioner placed on record several letters showing that plenty of material was lying on the spot unutilized for the stages which were in the progress and this material itself was not used by the contractor. The Arbitrator rejected the argument of the petitioner that since the contractor had not reached the stage of conducting hydro test the question of issue of material for further milestone did not arise. Though the Arbitrator had observed that a large number of letters were exchanged between the parties and the respondent complained about poor progress, lack of manpower, poor quality of work and there had been a number of meetings, but he considered that non-availability of DM Water made a big impact on the progress of work ignoring that in order to facilitate the progress of work, the petitioner had agreed to conduct limited hydro tests in respect of drainable portion of the boilers.
23. In fact the learned Arbitrator had not at all bothered to look into any of the documents filed by the petitioner concerning the progress of the work. Because of conduct of the contractor and non-completion of the boiler‟s work after this letter, it seems a joint audit of the work had taken place and the auditor noted that after making necessary connection of the drum to the superheater the complete unit may be offered for hydro test. This note was signed by auditors on OMP No. 215/2001 BHEL v. V.D.Swami & Company Page 22 of 30 14th December 1995. In February, 1996 the auditors found that the drum had now been connected with the superheater and the unit could now be offered for DM test.
24. It is obvious that the learned Arbitrator deliberately ignored all material placed before him by the petitioner and gave findings contrary to record. He even ignored scores of letters written by the petitioner and inadequate man power employed by contractor and pointing out serious defects in welding of joints, repeated letters for rectification of welding. In the contract detailed specifications and directions were mentioned in para 10 of this order only because welding was most important feature of fabrication. The learned Arbitrator conducted grave misconduct by ignoring all the material placed before him by the petitioner, deliberately and malafidely. It is settled law that where the arbitrator fails to consider the relevant documents or ignores them, it vitiates the award (K.P.Poulose v. State of Kerala & Anr. (1975) 2 SCC 236). In M/s Sikkim Subba Associates v. State of Sikkim (2001) 5 SCC 629, the Supreme Court observed that ignoring very material and relevant documents vitiates the award and amounts to misconduct in law (also see Bharat Coking Coal Ltd. v. Annapurna Construction (2003) 8 SCC 154 and M/s Sathyanarayana Brothers (P) Ltd. v. Tamil Nadu Water Supply & Drainage Board (2004) 5 SCC 314).
25. It is apparent from the conduct of the learned Arbitrator that he was gravely biased and deliberately misconducted himself by ignoring the material documents placed before him by the petitioner.
26. Presuming, as held by the learned Arbitrator that there was delay in supply of material (DM Water) on the part of the petitioner, could this give a right OMP No. 215/2001 BHEL v. V.D.Swami & Company Page 23 of 30 to the contractor to walk out of the contract and abandon the contract? Clause 26.16 of the contract reads as under:
The contractor shall execute the work under the conditions usual to such power plant construction and in conjunction with numerous other operations at site. The contractor and his personnel shall cooperate and coordinate with other agencies at project site and proceed in a manner that shall help in the progress of work at site as a whole.
Clause 26.22 reads as under:
Contractor shall not stop work or abandon the site for whatsoever reason or dispute, excepting for force majeure conditions. All problems/disputes shall be separately discussed and settled without affecting the progress of work. Stoppage or abandonment of work, other than under force majeure conditions, shall be treated as breach of work of contract and dealt with accordingly.
27. In view of above two clauses of the contract, there could be no legal and justifiable ground available to the learned Arbitrator to hold that the contractor/claimant was justified in abandoning the work. It only seems that the allegations of the petitioner that the Arbitrator was bent upon passing the awards against the petitioner were justified. The Arbitrator was also determined not to look into the contract at all. It is true that the petitioner had told the respondent that the respondent was not entitled for overrun charges. It is not the case of the respondent that his running bills were not being cleared or he was not being made payment of the work done. The record shows that the petitioner was regularly making payments for the work done as per contract. If the contractor alleged that it was entitled for overrun charges and the petitioner considered that the respondent was not entitled for overrun charges, this dispute could have been referred to by the respondent for arbitration. But under the contract, the respondent had no right to abandon the work and leave the site on the ground that he was not being paid overrun charges. The other ground taken by the OMP No. 215/2001 BHEL v. V.D.Swami & Company Page 24 of 30 learned Arbitrator is that the petitioner had not given extension of time to the respondent. The learned Arbitrator did not read the letter written by the petitioner to the respondent in proper context wherein the petitioner had categorically told the respondent that he should give a time schedule/time bound program for completing the work. This only means that the respondent could have extension, had it specified that by which time he would be able to complete the work and given a time table for different stages of work. Thus, an extension was granted to the respondent/contractor for completing the work within the time schedule which the respondent would frame for himself. If the respondent was not ready and willing to give a time schedule and wanted only a blanket extension, how a fault could be found with the petitioner, neither the respondent on this pretext would have abandoned the work and left the site. In fact, the correspondence between the parties and the meetings held between the parties show that the petitioner had been asking the respondent to complete the work. If the petitioner wanted the respondent to abandon and leave the work, the contract period was over on 29.3.1996, the petitioner would have immediately asked the respondent to leave the site so that petitioner could get the work done from someone else. But instead, the petitioner had been holding meetings with the respondent in August, 1996 and trying to impress upon the respondent to finish the work within time schedule. This, in fact, amounts to granting an extension and showing that though the time was crucial but the contract of the respondent was not terminated for not completing the work within the time schedule. In terms of clause 25.3.3(a), the petitioner had to consider the contract terminated when the respondent abandoned the contract, in view of clause 25.3.3(b) which reads as under:
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25.3 To terminate the contract after due notice and forfeit the Security Deposit and recover the loss sustained in getting the balance work done through other agencies in addition to liquidated damages in the event of:
a. Contractor's continued poor progress.
b. Withdrawn from or abandonment of the work before
completion of the work.
c. .....................
28. The reliance placed by the learned Arbitrator on Hind Construction Contractors v. State of Maharashtra AIR 1979 SC 720 is also misconceived. In this case the Supreme Court had observed that when power vested in Executive Engineer to grant extension of time for completion of work on reasonable grounds with levying the penalty/compensation from contractor at specified rates, the time cannot be said to be essence of the contract and rescission of such a contract on the part of State Government without fixing further period making the time as essence and directing the contractor to complete the work was illegal.
Clearly, the situation in the case before the learned Arbitrator was altogether different. The employer (BHEL) in fact had written to the contractor after expiry of the initial time to give fixed time schedule/program within which, the contractor would be able to complete the work and stick to that schedule. That simply shows that employer had not rescinded the contract and wanted the contractor to complete the contract. On the other hand the contractor after receiving this letter abandoned the contract. I consider that conclusion arrived at by the learned Arbitrator smacks of his bias and in fact a vengeance on the petitioner. His observation that the contractor was justified in abandoning the work is contrary to contract and only speaks of his mala fide. In Steel Authority of India v. J.C.Budhiraja AIR 1999 SC 3275, the Supreme Court observed that deliberate departure by the Arbitrator from the contract amounts not only to manifest OMP No. 215/2001 BHEL v. V.D.Swami & Company Page 26 of 30 disregard of the authority or misconduct on his part but it may tantamount to mala fide action.
29. After holding that the breach of the contract was on the part of the petitioner and claimant i.e. Contractor was eligible for compensation and damages, the learned Arbitrator decided issues no. 2 to 5 together. Holding these issues against the petitioner, he justified the abandonment of the contract on the part of the contractor and held that it was petitioner (BHEL) who failed to extend the period of contract. He also held that the contractor would be entitled to compensation and damages and BHEL could not make risk purchase at the cost of the claimant. All these issues were decided against the petitioner as a consequence of his discussion in which he had not considered the evidence of the petitioner at all. His observation that in view of judgment of Supreme Court in Hind Construction Contractor‟s case (supra) the petitioner (BHEL) was deemed to have committed breach of contract and had no rights to apply risk purchase provisions shows his deliberate mis-interpretation of the law and the contract. He held that issue no. 6 (Whether the Claimant (VDS) has failed to perform contract as per schedule?) against the petitioner merely on the ground that claimant had failed to provide DM Water and not supplied the boiler material. He has given this finding in the teeth of several minutes of meetings, letters and material placed by the petitioner on record showing that the respondent had employed unqualified welders, the man-power put by the respondent on the spot was insufficient, the welding work done by the welders was of very poor quality which did not pass the necessary test and the contractor/respondent was repeatedly told about this.
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30. After holding in favour of the contractor that the contractor was not at all on fault, the learned Arbitrator allowed the claim of the contractor against balance amount of final bills to the tune of Rs.38,41,315/-, for refund of Security Deposit to the tune of Rs.13,00,540/- and also allowed a claim of under utilization of overhead and mobilization work to the tune of Rs.8.22 lac, loss of profit to the tune of Rs.4.30 lac, against extra expenditure due to third party inspection he allowed to the tune of Rs.3 lac, against Extra items bill to the tune of Rs.2,31,787.50 and awarded interest at the rate of 16% p.a. w.e.f. 13th May, 1997 till the date of award and 18% interest from the date of award till realization. The petitioner had raised 18 counter claims which were detailed in Issue No.10. While dealing with the counter claims of the petitioner, the learned Arbitrator made observation that since he had already held that it was petitioner, who failed to supply material and required inputs, the petitioner was deemed to have committed breach of contract and was not entitled to impose any risk and costs provisions nor impose any penalty. He therefore, rejected all the counter claims no. 1-18 of the petitioner without going into the details of these counter claims. Counter Claim No.2 was in respect of rectification of bad workmanship left behind by the Claimant. The learned Arbitrator himself observed about the defective workmanship complaints made by the petitioner and his attention was drawn by the petitioner during arbitration to the number of letters and joint inspections made in respect of the defective welding works and the welded parts not passing the mandatory tests, but he did not bother to consider this claim (counter) of the petitioner in respect of rectification of the defective workmanship. Counter Claim No.7 was in respect of under utilization of (BHEL) T&P during the contract period by the claimant and Counter Claim No. 8 was towards deployment of manpower by BHEL during initial period of 34 days. Counter OMP No. 215/2001 BHEL v. V.D.Swami & Company Page 28 of 30 Claim No.9 was in respect of manpower deployed for re-measuring of work done by the Claimant after the Claimant left the work. All these claims were independent of the breach of the contract. Even if it was held that the breach was on the part of the petitioner, the claim in respect of manpower deployed for re-measuring the work, claim in respect of manpower deployed by the petitioner during initial period and claim in respect of under utilization of T&P provided by the petitioner were required to be considered on the basis of material placed before him. Counter Claim no. 11 was in respect of loss / damages of tools and plants issued to the claimant and not returned/damaged. Claim no. 10 was also in respect of damage to the Plant materials drawn in excess by the Claimant. All these claims could have been considered only on the basis of material and were liable to be considered even in case of breach on the part of the petitioner. Summarily rejection of all these counter claims of petitioner by the Arbitrator without adverting to the plethora of material placed by the petitioner on record only reflects absolute bias of the learned Arbitrator, who was sitting with pre- disposed mind that he had to pass an award against the petitioner. There can be no other reason for not discussing the counter claims on merits and rejecting them summarily in one line.
31. A perusal of the proceedings conducted by the learned Arbitrator during the arbitration would also show that the learned Arbitrator was acting more as a Prosecutor than as a Judge. His queries made from time to time were only in the nature of prosecuting the claimant‟s case and many queries were beyond the purview of the arbitration. He was so much biased that he did not look at the documents of subsequent contract to the effect that the subsequent contractor was not given the contract for balance work immediately as held by him. The OMP No. 215/2001 BHEL v. V.D.Swami & Company Page 29 of 30 subsequent contractor was called into picture to rectify the work already done by the respondent. This rectification had to be got done on urgent basis because the project was of national importance and the oil refinery was to be completed in a time bound schedule. Before the petitioner could proceed further in awarding the contract to any third party the earlier work done by the respondent was to be rectified since it contained not one but several defects thus, initially the contract (after respondent abandoned the site) was given to UB Engineering for rectification and thereafter proper tenders were called for awarding remaining work, which was awarded following due process of tendering. The learned Arbitrator ignored the documents placed on record by the petitioner regarding awarding of remaining work to the subsequent contractor after following due process of tendering.
32. The petitioner in this case has sufficiently shown from the conduct of the proceedings by the Arbitrator, from his attitude towards petitioner and its officers about which affidavits have been filed by the petitioner and their advocates and from the decision rendered by the Arbitrator that the Arbitrator in this case was highly prejudiced and biased and acted in a mala fide manner. He deliberately ignored the entire evidence put forward by the petitioner and gave his award contrary to the terms of the contract. The award is liable to be set aside on these grounds and is hereby set aside.
July 15, 2009 SHIV NARAYAN DHINGRA, J.
vn
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