Karnataka High Court
The Executive Engineer vs M/S Sudha Parimala on 17 August, 2012
Author: N.Ananda
Bench: N. Ananda
1
IN THE HIGH COURT OF KARNATAKA AT BANGALORE
DATED THIS THE 17TH DAY OF AUGUST 2012
BEFORE
THE HON'BLE MR.JUSTICE N. ANANDA
M.F.A.No.7264/2011(AA)
BETWEEN:
The Executive Engineer
Panchayathraj
Engineering Division
Ramanagar - 571 511. ... Appellant
(By Sri Sangamesh G.Patil, Additional Government Advocate)
AND:
1. M/s.Sudha Parimala
Plumbing & Sanitary Works
Engineers & Contractors
No.1297, 1-F Main Road
4th Cross, 2nd Phase
Girinagar, Bangalore - 560 085.
2. Sri T.G.Radhakrishna
Arbitrator
No.2989/G, 12th Main
HAL II Stage, Indiranagar
Bangalore - 560 008. ... Respondents
(By Sri Kamaleshwara Poojary, Advocate for M/s.Swarnakamal
Associates, Advocates for R1; Notice to R2 is dispensed with
v.c.o.dt.10.04.2012)
This appeal is filed under section 37(1) of the Arbitration
and Conciliation Act, 1996 to set aside the judgment dated
01.02.2011, passed in A.S.No.8/2009, on the file of VI Additional
City Civil Judge at Bangalore, dismissing the suit filed under
section 34 of the Arbitration and Conciliation Act, 1996 and etc.
This appeal having been heard and reserved for judgment
on 06.08.2012, coming on for pronouncement this day, the court
delivered the following:-
2
JUDGMENT
This appeal is preferred against the judgment of the court below, dismissing the suit filed by plaintiff to set aside the supplementary award passed by II-respondent on 21.08.2008.
2. The brief facts necessary for disposal of this appeal are as follows:-
The appellant entrusted execution of work of "providing water supply to four villages in Channapatna Taluk, Bangalore Rural District (BNG-7) under IRWS & ES world bank assisted project Phase-II" to I-respondent. In terms of contract, I-respondent was expected to execute the work of providing water supply to four villages. The total cost of execution was a sum of Rs.58,39,821/- and time stipulated for completion of work was 18 months. The appellant communicated to I-respondent regarding execution of work at bid price of Rs.58,39,821/- and the same was accepted by respondent on 21.08.1998, on which day, performance bank guarantee of Rs.2,91,991/- was enclosed to agreement along with additional bank guarantee of 3 Rs1,08,399/-. The work order was issued in terms of letter dated 21.08.1998. In terms of contract, appellant was expected to give possession of sites of all villages to Contractor, within 15 days from the date of issue of notice to proceed with the works viz 21.08.1998. The sites of work near Byadarahalli, C.B.Doddi and Krishnapura, were handed over within stipulated time. However, site of work at Iggalur village was handed over on 09.06.1999. Therefore, dispute arose between parties. This apart, when work was being executed by I-respondent, appellant suggested certain alterations and additional works. Therefore, I-respondent was before Arbitrator and raised following claims:-
"15.6.
a. Award rates as requested by me and extend the time for executing the work by one year from the date of settlement, or in the alternative, b. Close the contract in "as is where is stage"
and pay me i. all my pending bills ii. release my deposit amount and other amounts held in deposit and bank 4 guarantees additional performance guarantee etc and 15.7. Pay 25% extra on the work already got executed from me at lower rates keeping me in the dark about the contemplating changes inspite of my early warning. That in case these changes had been indicated to me in the beginning, would have not executed any work at all and the department without regard to the facts of the case and examining the concerned issues has threatened and obtained an undertaking under coercion which by itself is unjust, unfair and illegal. Hence he cannot standby such a forced undertaking."
3. The Arbitrator entered reference and passed an award by recording following findings:-
I. Both parties were responsible for breach of contract. II. The work spot of Iggalur village was not handed over on time, so also working drawings and designs were not handed over to I-respondent on time. III. In view of failure of appellant, I-respondent could not execute work at Iggalur village, which constituted major component of contract work amounting to Rs.22,00,000/- to 5 Rs.26,00,000/-, out of total contract work of Rs.58,39,821/- and this is compensation event in terms of clause 44.1(c) of section 3 of conditions of contract.
The award passed by Arbitrator on 09.03.2000 reads thus:-
"23.1.2. Therefore it is held that there has been breaches of contract conditions on both sides but breaches of the contract conditions by the respondents have seriously vitiated the contract and fully responsible for slow progress of the work. Claims for allowing higher rates based on prevailing prices and granting extension of time to the claimants are rejected.
23.2. Claimants request that the work done to be finalised in "As is where is condition" is accepted. Payment for materials, made at 75% m or at part rate at present shall be made at full rates worked out on the basis of rate analysis.
The claimants shall act responsibly and hand over all the materials rightfully owned by the Employer within 15 days of the date of this award.
23.3. The claim for payment of 25% extra rates for work done in other villages is rejected, as no evidence 6 substantiating the claims was made before the Adjudicator / arbitrator.
23.4. Liquidated damages recovered, security deposit performance guarantee additional performance guarantee shall be released forthwith.
23.5. Compensation claimed for Iggalur "Work at 20% amounting to R.26,79,394/- and interest @ 24% from 01.10.98 upto the date of payment are rejected as their claims are not based on any agreemental stipulations.
23.6. The claimants have advanced arguments (Ex. C-
22) that they could have achieved a progress of Rs.58 lakhs during the contract period they have been able to achieve only Rs.20 lakhs; they have suffered a productivity loss of nearly Rs.38 lakhs due to respondents omission and commissions; even at the minimum profit of 15% and overhead charges of 15% they have suffered losses to the extent of nearly Rs.12.9 lakhs for no fault on their part and therefore they need to be compensated to the extent of Rs.12.9 lakhs along with 24% interest. This claim is also rejected.
23.7. It is also directed that finalisation of works already carried out, refund of liquidated damages, 7 performance guarantees, withheld amount etc shall be effected within 30 days of this Award dated 09.03.2000 failing which the respondents shall pay simple interest @ 18% per annum from the date it because due till the payment is made."
Against the award dated 09.03.2000 (hereinafter referred as 'first award'), I-respondent was before trial court in A.S.No.43/2000. The appellant entered appearance in A.S.No.43/2000 and contested the case.
4. On 06.09.2007, the learned trial Judge passed the order under section 34 of Arbitration & Conciliation Act (for short, 'the Act'), operative portion of which reads thus:-
"Though the award passed by the defendant no.2, the learned Arbitrator is confirmed, it is remanded back to the learned Arbitrator to work out the exact amount of compensation and the payments, which the plaintiff is entitled to from defendant no.1."
Thereafter, supplementary award (which should have been termed as modified award) was made on 21.08.2008. In the supplementary award, Arbitrator has classified payments due by appellant to I-respondent under the caption 8 "payments due to claimant-respondent (other than compensation) and "amount of compensation awarded to claimant on account of breach of contract by appellant".
The payments due to claimant (Contractor) (other than compensation) are stated thus:-
Amount Amount
Sl. Nature of claim by Reasons for the
claimed Awarded
No the claimant award
(Rs.) (Rs.)
Balance amount As has been
1 due for the work 4,99,679 4,99,679 explained in paras 12
executed to 19 above
The defendant has
accepted this amount
Refund of Security as due to the
2 1,22,526 1,22,526
Deposit claimants vide his
letter No.33 dated
4.4.2008
Refund of liquidated
3 damages wrongly 46,000 46,000 -
deducted
Mobilisation
4 1,46,100 1,46,100 -
Advance
Performance
5 1,96,414 1,96,414 -
guarantee
The claimants have
not adduced any
Additional cost to
proof for this claim.
be paid for
6 17,572 Nil The defendants have
materials handed
not admitted the
over by claimants
claim. Therefore, this
claim is rejected.
Total 10,10,719
The cost of materials
LESS : Cost of
not handed over by
materials not
the claimants is in
handed over by the 3,14,718 3,14,718
dispute. The
claimants to
defendants have
defendants
claimed that the cost
9
is Rs.3,97,191 on the
basis of full B.O.Q.
rates. The claimants
contend that the
defendants had not
paid the full B.O.Q.
rates and that they
had paid only part
rates or 75% rates
and therefore, the
defendants claim can
only be Rs.3,14,718.
On verification of the
evidences before me, I
find that the
defendants have paid
only 75% rates or
part rates in the 10th
bill, whereas in the
claim statement
submitted by them,
vide E.E's memo
No.491-95 dated
2.6.08, the cost of
materials is
calculated at full
B.O.Q. rates. Thus,
the defendants' claim
is found to be inflated
and wrong and
therefore rejected.
Claimant's claim is
found correct.
Payments due other
than compensation
Net amount payable
to claimants by 6,96,101
defendants
Rounded off 6,96,000
Under caption "amount of compensation awarded to claimant-contractor on account of breach of contract by 10 appellant-defendant", Arbitrator awarded a sum of Rs.3,83,654/- towards infructuous overhead expenses and a similar amount of Rs.3,83,654/- towards loss of profit. Thereafter, appellant was before trial court in A.S.No.8/2009. The learned Judge in terms of judgment dated 01.02.2011, dismissed the suit holding that appellant has failed to make out grounds to set aside supplementary award dated 21.08.2008. Therefore, appellant is before this court.
5. I have heard learned Additional Government Advocate for State and learned counsel for I-respondent.
6. The learned Additional Government Advocate has made following submissions:-
I. The Arbitrator while passing the impugned supplementary award has ignored the order dated 06.09.2007, passed by trial court in A.S.No.43/2000, wherein the matter was remanded to Arbitrator to work out the exact amount of compensation payable on compensation 11 event and payments, which plaintiff is entitled to from I-defendant (appellant).
II. The Arbitrator should have determined compensation only in respect of compensation event viz delay in handing over execution work site at Iggalur Village due to which work could not be executed by I-respondent and Arbitrator should have determined the amount payable to Contractor towards work done by I-respondent-contractor, in terms of para 23.2 of the award dated 21.08.2008, which reads thus:-
23.2. Claimants request that the work done to be finalised in "As is where is condition" is accepted. Payment for materials, made at 75% m or at part rate at present shall be made at full rates worked out on the basis of rate analysis.
The claimants shall act responsibly and hand over all the materials rightfully owned by the Employer within 15 days of the date of this award.
III. The Arbitrator has reopened entire dispute and made supplementary award by setting aside the findings recorded in first award dated 09.03.2000.
12IV. The Arbitrator has erroneously held that final bill prepared by M/s.Globe Consultants, is contrary to terms of contract. The Arbitrator has determined payments due to claimant-Contractor (other than compensation), without there being any evidence. The Arbitrator has determined compensation payable to I-respondent-contractor for Iggalur work under two captions viz "loss due to infructuous overhead expenses" and "loss of profit". This is contrary to the findings recorded in original award dated 09.03.2000 in paragraphs 23.5 & 23.6, reading as hereunder:-
23.5. Compensation claimed for Iggalur "Work at 20% amounting to Rs.26,79,394/- and interest @ 24% from 01.10.98 upto the date of payment are rejected as their claims are not based on any agreemental stipulations. 23.6. The claimants have advanced arguments (Ex.C-22) that they could have achieved a progress of Rs.58 lakhs during the contract period they have been able to achieve only Rs.20 lakhs; they have suffered a productivity loss of nearly Rs.38 lakhs due to respondents omission and commissions; even at the minimum profit of 15% and overhead charges of 15% they have 13 suffered losses to the extent of nearly Rs.12.9 lakhs for no fault on their part and therefore they need to be compensated to the extent of Rs.12.9 lakhs along with 24% interest. This claim is also rejected.
V. The Arbitrator having rejected the claim for compensation in original award dated 09.03.2000 should not have awarded the same under the guise of determining compensation in respect of "compensation events". VI. The learned trial Judge, without considering all these material aspects by referring to certain judgments of Supreme Court has held that the court cannot interfere with the supplementary award.
7. The learned counsel for I-respondent, relying on following decisions:-
I. AIR 1971 SC 1646 (in the case of the President, Union of India and another Vs. Kalinga Construction Co. (P) Ltd.) 14 II. ILR 2011 KAR 3051 (in the case of Union of India, Telecom Civil Division No.II Vs. M/s.Nabin Designers and Constructors (P) Ltd.) III. AIR 2011 SC 2477 (in the case of M/s.J.G.Engineers Pvt. Ltd. Vs. Union of India & Anr.) IV. (2003) 7 SCC 396 (in the case of State of U.P. Vs. Allied Constructions) V. AIR 2007 (NOC) 381 (Mad) (in the case of N.Srinivasulu Reddy Vs. The Southern Railway, Chennai & Ors.) has made following submissions:-
I. In a proceeding to set aside the award, the court cannot sit in appeal over award by re-appreciating the evidence and cannot express its view to hold that conclusions arrived at by Arbitrator are wrong.
II. The courts can interfere with the award only if there is lack or want of jurisdiction or violation of principles of natural justice.15
III. The construction of contract is a matter within the jurisdiction of Arbitrator, unless one or the other conditions under section 30 of the Act is satisfied, the award cannot be set aside. The award cannot be questioned on the ground of errors on the face of the award, even if it contains no reasons.
8. After hearing learned counsel for parties and on consideration of first award dated 09.03.2000 and the order made by trial court in A.S.No.43/2000 dated 06.09.2007 and supplementary award dated 21.08.2008 and the impugned order made by trial court on 01.02.2011, I deem it proper to raise following points for determination:-
(1) Whether trial court has failed to exercise its power vested under section 34 of the Act and trial court was justified in refusing to set aside the supplementary award?
(2) Whether the impugned supplementary award calls for interference?
(3) What order?"16
9. Before answering above questions, it will be useful to refer to the judgment of the Supreme Court, reported in AIR 2003 SC 2629 (in the case of Oil and Natural Gas Corporation Ltd. Vs. SAW Pipes Ltd.) to find out limitations of judicial review of arbitration order and grounds for interference by the court.
In the aforestated judgment, the Supreme Court has held:-
"CONCLUSIONS In the result, it is held that:-
A. (1) The Court can set aside the arbitral award under Section 34(2) of the Act if the party making the application furnishes proof that:-
(i) a party was under some incapacity, or
(ii) the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law for the time being in force; or
(iii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or
(iv) the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains 17 decisions on matters beyond the scope of the submission to arbitration;
2) The Court may set aside the award:-
(i) (a) if the composition of the arbitral tribunal was not in accordance with the agreement of the parties,
(b) failing such agreement, the composition of the arbitral tribunal was not in accordance with Part-I of the Act.
(ii) if the arbitral procedure was not in accordance with:-
(a) the agreement of the parties, or
(b) failing such agreement, the arbitral procedure was not in accordance with Part-I of the Act.
However, exception for setting aside the award on the ground of composition of arbitral tribunal or illegality of arbitral procedure is that the agreement should not be in conflict with the provisions of Part-I of the Act from which parties cannot derogate.
(c) If the award passed by the arbitral tribunal is in contravention of provisions of the Act or any other substantive law governing the parties or is against the terms of the contract.
(3) The award could be set aside if it is against the public policy of India, that is to say, if it is contrary to:-
(a) fundamental policy of Indian law; 18
(b) the interest of India; or
(c) justice or morality, or
(d) if it is patently illegal.
(4) It could be challenged:-
(a) as provided under Section 13(5); and
(b) Section 16(6) of the Act."
10. In the supplementary award, the Arbitrator has awarded payments due by appellant to I-respondent- Contractor under caption "payments due to claimant- respondent (other than compensation)", which are stated thus:-
Amount Amount
Sl. Nature of claim by Reasons for the
claimed Awarded
No the claimant award
(Rs.) (Rs.)
Balance amount As has been
1 due for the work 4,99,679 4,99,679 explained in paras 12
executed to 19 above
The defendant has
accepted this amount
Refund of Security as due to the
2 1,22,526 1,22,526
Deposit claimants vide his
letter No.33 dated
4.4.2008
Refund of liquidated
3 damages wrongly 46,000 46,000 -
deducted
Mobilisation
4 1,46,100 1,46,100 -
Advance
Performance
5 1,96,414 1,96,414 -
guarantee
19
The claimants have
not adduced any
Additional cost to
proof for this claim.
be paid for
6 17,572 Nil The defendants have
materials handed
not admitted the
over by claimants
claim. Therefore, this
claim is rejected.
Total 10,10,719
The cost of materials
not handed over by
the claimants is in
dispute. The
defendants have
claimed that the cost
is Rs.3,97,191 on the
LESS : Cost of
basis of full B.O.Q.
materials not
rates. The claimants
handed over by the 3,14,718 3,14,718
contend that the
claimants to
defendants had not
defendants
paid the full B.O.Q.
rates and that they
had paid only part
rates or 75% rates
and therefore, the
defendants claim can
only be Rs.3,14,718.
On verification of the
evidences before me, I
find that the
defendants have paid
only 75% rates or
part rates in the 10th
bill, whereas in the
claim statement
submitted by them,
vide E.E's memo
No.491-95 dated
2.6.08, the cost of
materials is
calculated at full
B.O.Q. rates. Thus,
the defendants' claim
is found to be inflated
and wrong and
20
therefore rejected.
Claimant's claim is
found correct.
Payments due other
than compensation
Net amount payable
to claimants by 6,96,101
defendants
Rounded off 6,96,000
11. In the supplementary award, Arbitrator has assigned following reasons to award payments as aforestated:-
"43. Consequent to this decision, not to accord any recognition to the said minus final bill prepared by an unauthorized private firm, the matter reverts to status-quo ante. The action taken by the Executive Engineer in April, 2000 needs a fresh look. I now proceed to work out the exact amounts of the payments due to the claimants as directed by the Hon'ble Court. The very first claim of the claimants is payment for the work carried out. They have claimed Rs.4,99,679/-.
44. The defendants have not contested this claim directly. Instead, they have contended that the private firm M/s.Globe Consultants have prepared the final bill for an amount of Rs.(-)1,10,494/-. The defendant Executive Engineer has already taken action to recover the 21 said sum for Rs.1,10,494/- from other sums due to the claimants. Thus this claim has now become a tangled issue.
45. The so called minus final bill prepared by the private firm has been held as invalid. There is no other final bill in existence. To further complicate matters, the work done by the claimants has been over laid with further work by a second agency. Therefore, fresh measurements of the claimants work cannot be taken now as has been stated by the defendants in para 15 of their counter statement dated 04.04.2008.
46. In order to solve this problem, the claimants have suggested and offered that the 10th Running Bill, which has been prepared, checked and certified by the defendants themselves and paid to the claimants at part rates on 14.01.2000 may now be re-assessed at full agreement rates and the difference be paid to them as final settlement of their claim. I find the claimants offer is not only reasonable and just but also the only way to find a solution.
47. The defendant Executive Engineer has not offered his comment regarding the offer of the 22 claimants nor has he furnished his own estimate of the value of the work. After taking action to enforce the minus final bill against the claimants, the defendants have kept silent.
48. The claimants themselves now carried out the exercise of updating the 10th Running Bill as full agreement rates and to work out the balance amount due to them. It comes to Rs.4,99,679/-. The claimants have enclosed the updated bill in seven sheets to his written arguments dated 24.01.2008. I have examined this bill and accepted the updated 10th Running Bill as submitted by the claimants as the only evidence before me and have decided to give my award accordingly.
49. Now in compliance with the orders of the Hon'ble Court, I, T.G.Radhakrishna, Chief Engineer (Retd.), Sole Arbitrator, do hereby make my award as to the exact amounts, first of payments and next of compensation payable by the defendants to the claimants as under."
12. The Arbitrator has awarded a sum of Rs.4,99,679/- towards balance amount due for the work executed. The representative of appellant had not contested this claim 23 before Arbitrator. The Arbitrator has taken into consideration the rates applied to prepare X running bill, which in fact was accepted and paid by appellant to I-respondent-Contractor. The Arbitrator has taken into consideration that 25% of amount due under bills I to X had been withheld by appellant. Therefore, there are no reasons to interfere with this part of award.
13. The Arbitrator has directed to refund security deposit, liquidated damages wrongly deducted, mobilisation advance and performance guarantee. Therefore, there are no reasons to interfere with these findings.
14. The Arbitrator has determined cost of materials not handed over by Contractor (I-respondent) to appellant at Rs.3,14,718/-. The appellant has claimed that cost of materials not handed over by I-respondent-Contractor to appellant is a sum of Rs.3,97,191/-, on the basis of full BOQ rates. For the first time, I-respondent-Contractor has contended that appellant had not been paid full BOQ rates and they are liable to pay 75% of cost of material not handed over to appellant. In the claim made in original award, this contention was not raised by I-respondent-Contractor. 24 Therefore, the Arbitrator was not justified in determining the cost of materials not handed over by Contractor to appellant at Rs.3,14,718/-. Thus payment due to Contractor (other than compensation) would be a sum of Rs.6,13,528/-.
15. The next part of supplementary award relates to "payments due to Contractor on account of breach of contract by appellant".
16. In the first award dated 09.03.2000, at paragraph 23.1.2, Arbitrator has held:-
"23.1.2. Therefore it is held that there has been breaches of contract conditions on both sides but breaches of the contract conditions by the respondents have seriously vitiated the contract and fully responsible for slow progress of the work. Claims for allowing higher rates based on prevailing prices and granting extension of time to the claimants are rejected."
17. Therefore, in the supplementary award dated 21.08.2008, Arbitrator should not have proceeded on the assumption that compensation has to be awarded to Contractor on account of breach of contract by appellant. 25 The Arbitrator should have restricted the award to compensation event as directed in A.S.No.43/2000 dated 06.09.2007. The parties to arbitration and Arbitrator were bound by the order made in A.S.No.43/2000 dated 06.09.2007, the operative portion of which reads thus:-
"Though the award passed by the Defendant No.2, the learned Arbitrator is confirmed, it is remanded back to the learned Arbitrator to work out the exact amount of compensation and the payments, which the Plaintiff is entitled to from Defendant No.1."
In the original award dated 09.03.2000, at paragraph 16.1 and 16.3, Arbitrator has held:-
"16.1. Thus primafacie site of Iggalur Village was changed and new site handed over on 09.06.1999 is established. Section 3 conditions of Contract clause 21.1 deals with possession of site. This clearly states that "The employer shall give possession of all parts of the site to the contractor, if possession of a part is not given by the date stated in the contract Data, the employer is deemed to have delayed the start of the relevant activities and this will be Compensation Event.26
16.3. But the respondents have submitted that they have handed over the sites on 20.07.1998 itself for three villages and for one village namely Iggalur on 9.6.99, that too, only in respect of OHT. It is not clear whether 21.08.98 or 3.9.98 to be considered as the date of issue of notice to proceed with the work as both carry identical instructions. Considering 21.08.98 as the date of issue of the notice, the handing over of Iggalur site on 9.6.99 is beyond 15 days. As part of the site was not handed over in time, as per clause 21.1 of Section 3, this has to be treated as Compensation Event."
18. The Arbitrator has awarded compensation of Rs.3,83,654/- towards "loss of infructuous overhead expenses and similar amount towards "loss of profit".
19. The I-respondent-Contractor was entitled to compensation in respect of compensation event in terms of order made by the learned trial Judge in A.S.No.43/2000 dated 06.09.2007. In the original award, I-respondent- Contractor had raised following claims:- 27
"a. Award rates as requested by me and extend the time for executing the work by one year from the date of settlement, or in the alternative, b. Close the contract in "as is where is stage"
and pay me i. all my pending bills ii. release my deposit amount and other amounts held in deposit and bank guarantees additional performance guarantee etc."
The Contractor had not raised any claim that he had accumulated men and material to execute work near Iggalur Village, which is held to be a compensation event. The Arbitrator has awarded a sum of Rs.3,83,654/- towards "loss of infructuous overhead expenses", in the absence of any claim or evidence that Contractor had incurred infructuous overhead expenses. The award of a sum of Rs.3,83,654/- towards "loss of infructuous overhead expenses" is a transgression of remand order made in A.S.No.43/2000 dated 06.09.2007. Therefore, this part of award cannot be sustained.
28
The Arbitrator has awarded a sum of Rs.3,83,654/- towards "loss of profit". In the original award dated 09.03.2000 at paragraph 17.7, Arbitrator has held:-
"17.7. There is failure on the part of the Respondents to hand over site specific workings drawings in the case of Iggalur Village, which is a major component of the contract work, accounting for nearly Rs.22 lakhs to Rs.26 lakhs out of the total amount out of Rs.58.398 lakhs. It is a Compensation Event in terms of clause 44.1(c) of section 3 - Conditions of Contracts."
20. In the discussion made supra, I have narrated the circumstances under which work at Iggalur Village could not be executed by I-respondent-Contractor. As per the Arbitrator, cost of work near Iggalur Village was nearly Rs.22 lakhs to Rs.26 lakhs.
21. The Arbitrator following the judgment of the Supreme Court, reported in AIR 1977 SC 1481 and Government Circular No.PWD CRM 96 (Part) dated 18.09.2002, approved with effect from 01.11.2002 has held that 10% profit is provided while approving standard rate analysis for 29 buildings, roads and bridges. Therefore, Arbitrator has awarded 10% profit of costs of work.
22. In paragraph 17.7 of original award, Arbitrator has held that total cost of work at Iggalur Village was Rs.22 laks to Rs.26 lakhs. Even if maximum figure determined by Arbitrator is taken into consideration, I-respondent- Contractor would be entitled to "loss of profit" at 10% on a sum of Rs.26 lakhs. In other words, I-respondent- Contractor is entitled to compensation of Rs.2,60,000/- under the head "loss of profit".
23. The Arbitrator has awarded compensation under the head "loss of profit" by simply accepting the figure submitted by I-respondent-Contractor under various heads by ignoring the findings recorded in the first award dated 09.03.2000. This approach of the Arbitrator is patently illegal. The Arbitrator had ignored the remand order made by trial court in A.S.No.43/2000 dated 06.09.2007. The Arbitrator should not have termed the subsequent award as supplementary award, in fact what was passed as supplementary 30 award by Arbitrator is a modified award passed at the first instance. The learned trial Judge, without noticing this patent illegality, relying on following judgments of the Supreme Court:-
I. AIR 2007 (NOC) 381 (MAD) (in the case of N.Srinivasulu Reddy Vs. The Southern Railway, Chennai & Others) II. (2003) 7 SCC 396 (in the case of State of U.P. Vs. Allied Constructions) III. AIR 1991 SC 945 (in the case of S.Harcharan Singh Vs. Union of India) IV. AIR 1990 SC 1340 (in the case of M/s.Hindu Builders Vs. Union of India) V. AIR 1987 SC 81 (in the case of M/s.Hindustan Tea Company Vs. M/s.K.Sashikant & Co., & another) has held that supplementary award (which in fact should have been a modified award) is not against law and award cannot be set aside.31
24. In view of the above discussion, there is some justification in submissions of learned Additional Government Advocate that in the supplementary award, the Arbitrator has ignored the remand order made in A.S.No.43/2000 dated 06.09.2007.
25. The learned counsel for Contractor (I-respondent) has relied on following decisions:-
I. AIR 1971 SC 1646 (in the case of the President, Union of India and another Vs. Kalinga Construction Co. (P) Ltd.) II. ILR 2011 KAR 3051 (in the case of Union of India, Telecom Civil Division No.II Vs. M/s.Nabin Designers and Constructors (P) Ltd.) III. AIR 2011 SC 2477 (in the case of M/s.J.G.Engineers Pvt. Ltd. Vs. Union of India & Anr.) IV. (2003) 7 SCC 396 (in the case of State of U.P. Vs. Allied Constructions) V. AIR 2007 (NOC) 381 (Mad) (in the case of N.Srinivasulu Reddy Vs. The Southern Railway, Chennai & Ors.) 32 The learned counsel for I-respondent has contended that there is no scope for this court to interfere with the supplementary award or the impugned order. Apart from this, learned counsel for I-respondent has not referred to original award and supplementary award to justify the supplementary award and the impugned order.
In none of the decisions relied upon by learned counsel for I-respondent-Contractor, there is any view which is contrary to the view taken by the Supreme Court in ONGC case, reported in AIR 2003 SC 2629. Therefore, I am of the considered opinion that trial court has failed to exercise its power vested under section 34 of the Act. Therefore, impugned order cannot be sustained and supplementary award needs modification.
Regarding Interest:-
26. In the original award dated 09.03.2000, Arbitrator has held that I-respondent-Contractor is entitled to interest at 18% per annum on the sum payable towards work executed by Contractor and finalised by the Department. However, in the supplementary award, Arbitrator has awarded interest at 33 24% per annum. The Arbitrator has no justification to enhance interest from 18% per annum to 24% per annum, more particularly when the I-respondent-Contractor had not shown any clause of contract, which would entitle him to claim interest at 24% per annum on compensation.
27. At this juncture, it is relevant to state that in A.S.No.43/2000 filed by I-respondent-Contractor, he had not challenged the rate of interest awarded at 18% per annum in the first award dated 09.03.2000. Therefore, the I-respondent-Contractor is entitled to interest at 18% per annum from 09.04.2000 (date of accrual of interest determined in the first award dated 09.03.2000) till the date of realisation.
28. In the result, I pass the following:-
ORDER The appeal is accepted in part. The supplementary award dated 21.08.2008 made by Arbitrator is modified as hereunder:-34
The I respondent-Contractor is entitled to a sum of Rs.6,13,528/- towards "payment due to Contractor (other than compensation)" and a sum of Rs.2,60,000/- towards "loss of profit". In all, I respondent-Contractor is entitled to a sum of Rs.8,73,528/- with interest at 18% per annum from 09.04.2000 (date of accural of interest determined in the first award dated 09.03.2000), till the date of realisation.
Sd/-
JUDGE SNN