Bangalore District Court
Union Of India vs M/S Nsc Projects Pvt Ltd on 19 October, 2024
KABC170007282023
IN THE COURT OF LXXXIII ADDL. CITY CIVIL & SESSIONS JUDGE,
COMMERCIAL COURT, BENGALURU (CCH-84)
Present: Sri S. Sudindranath, LL.M., M.B.L.,
LXXXIII ADDL. CITY CIVIL & SESSIONS JUDGE
BENGALURU.
COM.AP.No.37/2023
Dated on this 19th day of October 2024
Petitioner Union of India,
Represented by Chief Engineer
(Air Force) Bengaluru,
Military Engineer Services,
No.2, DC Area, MES Road,
Yeshwanthpur,
Bengaluru-560022.
(By Sri.Kumar M.N, Advocate)
// versus //
Respondent M/s. NSC Projects Private Limited,
L-87, Street No.07-C,
Mahipalpur Extension,
New Delhi-110037.
(By Sri.Princy Ponnan, Advocate)
Date of Institution of suit : 09/03/2023
Nature of the suit : Construction and
infrastructure
contracts, including
tenders
Date of commencement of :
recording of the evidence --
Date on which the : 19/10/2024
Judgment was pronounced.
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CT 1390_Com.AP.37-2023_Judgment.doc
KABC170007282023
: Year Month/ Day/s
Total duration /s s
01 07 10
JUDGMENT
This is a petition under Section 34 of the Arbitration and Conciliation Act filed by the respondent before the Arbitral Tribunal (Union of India), challenging the arbitral award passed by the learned sole arbitrator [Sri. Ashok Khurana, Former DG CPWD] dated 30-11-2022, partly allowing the claim of Respondent herein in AC 18-2020 and rejecting the counterclaim of the petitioner herein.
2. On issuance of notice to the respondent [Claimant before Arbitral Tribunal], the respondent has entered appearance through counsel and filed detailed objections to the present petition.
3. Thereafter, I have heard the arguments of both sides. On behalf of the petitioner, Shri Kumar M.N., learned Advocate and Central Government Senior Panel Counsel, has submitted arguments. On behalf of Respondent, Sri Dhyan Chinnappa, Learned Senior Counsel, has addressed 3 CT 1390_Com.AP.37-2023_Judgment.doc KABC170007282023 arguments on the point of law, as to whether Clause 11C of the contract between the parties precludes awarding of the claims related to prolongation of the contract. On all other points, counsel on record has addressed arguments for the respondent. In addition, Learned Counsel for Respondent has filed written arguments on 19-09-2024 [after matter was reserved for Judgment] and I have perused the same.
4. I have perused the records of the case.
5. The only point that arises for my consideration is :-
Whether the impugned arbitral award dated 30-11-2022 passed by learned sole arbitrator, namely Shri Ashok Khurana, former DG CPWD in AC 18 of 2020, partly allowing the claim of the respondent herein and rejecting the counterclaim of the petitioner, calls for interference under Section 34 of the Arbitration and Conciliation Act?
6. My answer to the above point is as per the finding for the following :-
REASONS
7. The facts in brief are that, the petitioner herein, [hereinafter referred to as Union of India (UOI) for short], awarded the work of completion of incomplete items for 4 CT 1390_Com.AP.37-2023_Judgment.doc KABC170007282023 widening of taxi tracks and resurfacing of runways, including construction of roads, culverts, and drainage system in the airfield at Tambaram, to the respondent herein, [hereinafter referred to as the claimant or contractor as the context requires], under letter of award dated 23-11-2015 and a formal written contract was also entered into between the parties in respect of the same dated 14-1-2016. Under the contract, the stipulated time period for completion of the work was 9 months starting from 11-1-2016 and ending on 10-10- 2016. However, admittedly, the work was completed with a delay of 20 months on 15-6-2018, on the basis of extensions granted from time to time by UOI.
8. Disputes arose between the parties arising out of the said contract which contained an arbitration clause. Consequently, on 12-1-2019, the claimant / contractor invoked the arbitration clause and made a request for the appointment of an arbitrator. Alleging that UOI has not appointed arbitrator within stipulated period, the claimant approached the Hon'ble High Court of Karnataka in CMP 129 of 2019, seeking appointment of arbitrator under Section 11 5 CT 1390_Com.AP.37-2023_Judgment.doc KABC170007282023 of the Act. The Hon'ble High Court of Karnataka, by orders dated 8-11-2019, appointed Lt. Col. (Retd.) A. N. Karumbaiah, former Chief Engineer, HAL, as sole arbitrator, to decide the dispute between the parties. Both parties filed their pleadings before the said learned arbitrator. However, on 31-8-2020, the said learned sole arbitrator resigned. Consequently, by orders dated 15-1-2021, the Hon'ble High Court appointed Shri Ashok Khurana, former DG CPWD, as sole arbitrator, who entered upon the reference and who has passed the impugned arbitral award.
9. The case of the claimant in its claim petition essentially was that, the claimant / contractor had geared up and deployed requisite resources and mobilized manpower, material, and finances at the site to achieve the completion of the work within the stipulated period. But the UOI failed to hand over an encumbrance-free site within two weeks as stipulated and instead released the site on a piecemeal basis and most of the site was kept on hold due to hindrances. Apart from this, non-availability of drawings was another hindrance which is exclusively attributable to the UOI. At 6 CT 1390_Com.AP.37-2023_Judgment.doc KABC170007282023 paragraph 4.12 of the claim petition, the claimant stated the various hindrances and reasons for the delay in completion of the project by 20 months which are not attributable to the claimant but attributable to the UOI as follows:
- Delay in issue of work order
- Delay in handing over encumbrance-free site
- Delay due to amounts withheld without any justification
- Delay due to flooding of the area
- Delay in start of work on runway 12/30 due to want of decision
- Delay in decision to start the work of milling and other works on Runway 30 and PTT site
- Delay due to scarcity of aggregates and sand due to closure of mines
- Delay due to non-availability of funds
- Delay in supply of layout plan for cable route
- Delay in issue of GFS drawings for UG sump Hume piper drain
- Delay in decision for new external road at 30 end, culvert design and drawing, etc.
- Delay due to Vardha cyclone
- Delay in approval of DO for extra items
- Delay in payment of RAR bills and escalation bills.
10. In paragraph 4.14 of the Statement of Claim, the details of the dates on which extension of time was granted by UOI 7 CT 1390_Com.AP.37-2023_Judgment.doc KABC170007282023 are stated as follows. Under letter dated 28-11-2016, extension was given up to 10-05-2017. Again, time was extended up to 31-10-2017 by a letter dated 18-7-2017. By letter dated 18-1-2018, time was extended up to 24-3-2018. Finally, by letter dated 11-4-2018, time was extended till 15- 6-2018 on which date the entire work was completed, and the project was completed by the contractor. It is highlighted that the extension was given by UOI without levy of compensation since the hindrance and delay were attributable to the UOI and not to the claimant.
11. After completion of the work, the claimant submitted a pre-final bill i.e., 12th RAR for Rs. 3,44,95,215 by letter dated 17-09-2018, but UOI has not made payment till date. It is noted that subsequently, during the proceedings before the learned sole arbitrator, the bill has been finalized by UOI and payment has been made. Due to non-payment of the bill amount as well as various other outstanding claims of the claimant which were not satisfied, by letter dated 12-1-2019, the claimant initiated arbitration by causing notice to UOI to appoint an arbitrator. In the statement of claims, various 8 CT 1390_Com.AP.37-2023_Judgment.doc KABC170007282023 claims were raised, but it is not necessary to refer to all the claims raised because most of the claims have either been withdrawn by the claimant or rejected by the learned arbitrator and therefore do not form the subject matter of the present petition. At this stage, it is only necessary to note the following claims which were raised since it is these claims that were subsequently allowed by the learned arbitrator under the impugned arbitral award;
- Claim No. 1 was for a sum of Rs. 1,77,51,119 towards work done. This claim in turn consists of four sub- claims, namely:
i) Balance amount towards work done.
ii) Refund of unlawful recovery towards milling work.
iii) Refund of excess recovery made in respect of HDPE pipe.
iv) Refund of recovery made for use of filler material cement instead of hydrated lime.
- Claim 2 has been withdrawn, and Claims 3 to 5 have been rejected by the impugned award, and therefore it is not really necessary to notice the same.
- Claim 6: Under Claim 6, the claimant sought recovery of Rs. 4,24,800 towards reimbursement of additional 9 CT 1390_Com.AP.37-2023_Judgment.doc KABC170007282023 tax, Swachh Bharat Cess and Krishi Kalyan Cess, levied after signing of the agreement.
- Claim No. 7 again need not be noticed since the same is rejected by the learned arbitrator.
- Claim No. 8 was for Rs. 4,08,36,809/= later modified to Rs. 4,56,32,705 towards on-site expenses like salary of staff, idleness, underutilization of T&P, plant equipment and machinery, and other miscellaneous expenses and off-site expenses like head office overheads, establishment, etc., due to prolongation of the contract.
- Claim 9 was for Rs. 34,03,125 towards idleness of milling machine.
- Claim 10 was withdrawn by the claimant and therefore need not be taken note of.
- Claim 11 was for recovery on account of filler material which is already part of Claim No. 1 and therefore need not be separately noticed.
- Claims No. 12 to 14 have been rejected by the learned arbitrator and therefore need not be detailed here.
- Claim 15 was for recovery of Rs. 73,90,340 towards interest at 18% per annum due to delay in payment of the RA bills during the pendency of the contract.
- Claims 16 to 18 were claims relating to interest and the cost of arbitration proceedings.
12. To the said claim petition, the UOI filed a detailed objection statement, contending that the delay in completion 10 CT 1390_Com.AP.37-2023_Judgment.doc KABC170007282023 of the work by 20 months was solely attributable to the claimant / contractor. This contention was sought to be buttressed by contending that extension of time was sought by the claimant on various grounds of hindrances from time to time, and each extension was given by UOI under Condition 11 with nil financial effect, which was signed and accepted by the claimant without reservation. Thereby, it was contended that, having accepted the extension of time subject to the condition that it is given with nil financial effect, now the claimant cannot turn around and contend that delay is attributable to UOI. It was contended that, the entire work site was handed over on 11-1-2016, and therefore the delay is not attributable to UOI but was due to poor planning by the contractor and delay in the deployment of T&P, machinery, labor, etc. As far as the allegation of the claimant regarding non-payment of the bill is concerned, it was contended that the 12th RAR was submitted in September 2018, after nearly three months from the date of completion, but it was returned to the claimant by the engineer in charge as it was without proper enclosures. It was taken back by the claimant to make the corrections and was resubmitted only on 4-12-2018, and 11 CT 1390_Com.AP.37-2023_Judgment.doc KABC170007282023 payment was made on 16-04-2019. The claimant initially submitted the bill for Rs. 3.44 crores, but after checking the mistakes, the bill was resubmitted for Rs. 1.77 crores, and after a technical check, it worked out to Rs. 1.42 crores, out of which Rs. 1.30 crores was paid on 16-04-2019. Therefore, Claim No. 1 for payment of the bill for work done was denied by the UOI.
13. The claims related to the prolongation of work were denied on the ground that under Clause 11 of the contract between the parties, the contractor cannot claim any compensation for the prolongation of the work. Denying all other averments of the claim petition and denying all other claims raised by the claimant, the UOI prayed for the dismissal of the petition. In addition, counterclaim was set up by UOI for payment of the cost of proceedings.
14. The claimant filed rejoinder reiterating the claim petition and modifying the value of certain claims.
15. On the basis of the rival pleadings of both sides, the learned arbitrator has framed the following issues [extracted at page 14 of the award]:
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1) Whether the claimant is entitled to its Claim Nos. 1, 3 to 9, and 11 to 15; if so, to what amount?
2) If the aforesaid issue is decided in favor of the claimant, whether the claimant is entitled to interest on the decided amounts, if so, at what rate and for what period?
3) The entitlement of the claimant/ respondent to the cost of arbitration proceedings, if so, what amount?
16. Before the learned arbitrator, both sides produced documents which are noticed at Paragraph 6.1 of the award at page 10-11. Then, the learned arbitrator heard the arguments of both sides and has passed the Impugned Arbitral Award dated 30-11-2022. In the Impugned Arbitral Award, firstly, the learned arbitrator has addressed the issue of who is responsible for delay in the completion of the work by 20 months. This question has been addressed by the learned arbitrator at Paragraph 19.2 from internal pages 49 to 54 of the award.
17. After taking note of the rival contentions of both sides, the learned arbitrator has referred to the voluminous 13 CT 1390_Com.AP.37-2023_Judgment.doc KABC170007282023 correspondence produced by the claimant and ultimately concluded at page 54 of the award that, out of the total delay of 20 months in the completion of the project, the delay due to the UOI is 13 months.
18. As a preliminary issue, the learned arbitrator has considered the contention of the UOI that any claim related to the prolongation of the work cannot be entertained in view of Clause 11 of the contract between the parties. In this regard, essentially, the learned arbitrator has held at Paragraph 19.1, page 49, that Condition 11A (vii), on which reliance was placed by UOI, stands deleted, and even otherwise, the Hon'ble Apex Court has held in Asian Tech Limited vs. Union of India that clauses such as 11A to 11C prevent only the department from considering claim for damages, but it does not prevent the arbitrator from awarding damages, which are otherwise payable by the employer on account of its breach of contract. Therefore, the said issue regarding Clause 11 of the contract was answered against UOI by holding that Clause 11 does not come in the way of awarding the claims for prolongation of the work.14
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19. Thereafter, the learned arbitrator has taken the claims raised in the claim petition one by one and awarded:
Rs. 29,74,261 for Claim No. 1, Rs. 4,24,800 for Claim No. 6, Rs. 3,18,75,194 for Claim No. 8, Rs. 17,01,563 for Claim No. 9, Rs. 36,80,210 for Claim No. 15,
20. The Learned arbitrator also awarded interest on the above sums at 9% p.a. from 1-3-2019 till the date of the award, which was quantified as a sum of Rs. 1,37,21,409, and also awarded future interest at 10% per annum from the date of the award till the date of payment, with the rider that in case the payment, including interest, is made within 3 months, no future interest will be payable.
21. The reasoning of the learned arbitrator in awarding each of the above heads of claims shall be considered infra while considering the challenge thereto by the petitioner herein / UOI.
22. Insofar as the claim for the cost of proceedings by the claimant and the counterclaim of the UOI for the cost of 15 CT 1390_Com.AP.37-2023_Judgment.doc KABC170007282023 proceedings is concerned, both were rejected, and it was held that the parties shall bear their own costs.
23. Aggrieved by the awarding of the above Claim Nos. 1, 8, 9, 15, 16, and 17, the UOI, which was the respondent in the arbitral proceedings, is before this court in this Section 34 petition.
24. In the present petition, the principal ground raised is that, the learned arbitrator committed a patent illegality and error on the face of the record in holding that Condition 11A
(vii) has been deleted and by ignoring the binding law laid down by the Hon'ble Apex Court in Ramnath International Private Limited vs. Union of India (2007) 2 SCC 453, which holds that, in the face of clauses such as Clause 11A(vii) read with Clause 11C, no claim for the prolongation of the contract can be considered.
25. It is contended at Paragraph 15 of the petition that the extension of time was granted under Condition 11 of the general conditions of the contract, which clearly stipulates that the contractor is not entitled to any compensation during the extended period of the contract. Therefore, it is contended 16 CT 1390_Com.AP.37-2023_Judgment.doc KABC170007282023 that the award insofar as awarding Claim Nos. 8 and 9 is unsustainable and patently illegal.
26. Apart from this, the other subsidiary contentions raised in the present petition are that the sub-claim towards the recovery of milling work, which is part of Claim No. 1, is wrongly awarded for a sum of Rs. 10,23,563 since it is contrary to the item rate fixed in Serial No. 148 of the agreement. Similarly, the awarding of Rs. 3,40,547 towards the HDPE pipe is contrary to the rate fixed in Serial No. 96 of the BOQ and the awarding of Rs. 16,10,151 towards filler material (towards usage of cement instead of lime as filler material) is contrary to Serial No. 34 of the BOQ.
27. Another contention raised is that the awarding of Claim No. 9, towards idleness of the milling machine, amounting to Rs. 17,01,563, is contrary to Condition No. 34 of the general conditions of the contract, which does not allow idleness charges. The awarding of Rs. 36,80,210 for the delay in payment of RARs is contended to be contrary to Condition 64 of the general conditions of the contract, which does not fix any time period for payment of running bills. 17
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28. Another contention raised is that the claimant had not placed any material before the arbitral tribunal to prove that it was the UOI which was responsible for the delay in the execution of the work. In the absence of proving the same, it is contended that the claimant cannot take advantage of its own wrong in prolonging the work and claim compensation for prolongation. With these various contentions, the petitioner / UOI has prayed for setting aside the impugned arbitral award.
29. All these contentions are stoutly denied in the objections filed to the present petition by the respondent herein, who was the claimant before the arbitral tribunal. In the objections to the present petition, it is contended that this court cannot sit in appeal over the arbitral award and reappraisal of evidence for the purpose of coming to different conclusions is not permitted. It is contended that, the very fact that UOI granted extension of time without levy of compensation is an acknowledgment that the delay is not attributable to the claimant but is attributable to UOI. It is contended that the plea raised in the present petition that 18 CT 1390_Com.AP.37-2023_Judgment.doc KABC170007282023 clause 11A (vii) is retained in the contract is false and untenable because the UOI itself filed relevant conditions as Ex. GP34 wherein condition 11A (vii) was shown as struck off under Amendment No. 24. So far as the recovery for milling work is concerned, it is contended that, due to the existing inferior layer of DAC and DBM at the site, the UOI had instructed the claimant for milling and relaying the same. Accordingly, the claimant / contractor on 4-2-2007 submitted rate analysis for executing such additional work at Rs. 2210 per CUM. Thereafter work was taken up and completed under the supervision of the UOI officials. And UOI, towards such additional work, considered a payment rate of Rs. 1155.7 per CUM for 1560 CUM and also made the payment but thereafter turned around and made an arbitrary recovery in the 11th RAR bill at Rs. 500 per CUM and the said the recovery was unlawful, and therefore it is contended that the learned arbitrator was correct in allowing the claim for recovery of the said sum. Insofar as claim No. 15, whereby interest is levied for delayed payment, it is contended that condition 64 of GCC does not contain a bar for payment of interest on account of delayed payment. It is contended that 19 CT 1390_Com.AP.37-2023_Judgment.doc KABC170007282023 the bills had to be cleared within a reasonable time as otherwise the whole concept of monthly running account payment is rendered meaningless. Thereby, it is contended that the learned arbitrator was correct in awarding interest for delayed payment of the bills. Denying all other contentions raised in the petition, the respondent herein, namely the claimant before the arbitral tribunal, has prayed for dismissal of the present petition.
30. Learned counsels for both sides have argued in line with the contentions taken in their respective pleadings before the arbitral tribunal and before this court. In addition, as noted supra, for the respondent, learned Senior Counsel Shri. Dhyan Chinnappa has made submissions on the question of law as to whether Clause 11A (vii) and 11C would be a bar for awarding claims for prolongation of the contract, and the rulings relied upon in this regard are considered infra.
31. Having considered the rival contentions of both sides and the material on record, at the outset, it is to be noted that there is no dispute between the parties that the claimant / contractor was awarded the work for completion of 20 CT 1390_Com.AP.37-2023_Judgment.doc KABC170007282023 incomplete items, for widening of taxi tracks and resurfacing of runways, including construction of roads, culverts, and drainage systems in the airfield at Tambaram by petitioner / UOI. There is also no dispute that, whereas the said work had to be completed on 10-10-2016, it was ultimately completed only on 15-06-2018, viz. with a delay of 20 months.
32. There is serious dispute between the parties as to which party was responsible for the delay in completion of the work. According to the claimant / contractor, it was the employer [UOI] who was responsible for the delay since hindrance-free site was not given, and there was also a delay in issuing drawings and delay in taking decisions regarding various matters. On the contrary, the UOI / employer contends that the entire site was handed over on 11-1-2016 and there was no hindrance or delay attributable to the UOI and instead it was the contractor who sought for extension from time to time citing various hindrances, and time was extended with nil financial consequences, which was accepted by the claimant without reservations. In reply, the contractor 21 CT 1390_Com.AP.37-2023_Judgment.doc KABC170007282023 contends that the very fact that time was extended without imposing penalty or compensation shows that it was the employer who was responsible for the delay.
33. With regard to this vital aspect as to who was responsible for the delay in completion of the project by 20 months, the Learned Arbitrator has recorded detailed findings at paragraph 19.2 from page 49 to 54 of the impugned award. The analysis of the findings of the learned arbitrator is contained at paragraph 19.2.3, from page 50 onwards.
34. If the reasoning of the Learned Arbitrator in this regard is looked into, it is seen that the Learned Arbitrator has firstly observed at the top of page 51 of the award that the main job of the claimant / contractor was the completion of incomplete items of resurfacing of the runway and widening of taxi tracks which were left incomplete by the earlier contractor and this mainly involved bituminous work on the runway and taxi tracks. Then the Learned Arbitrator refers to certain correspondence made by the claimant and then observes at page 52 that the above correspondence shows that the claimant raised the issue of the importance of the quality of 22 CT 1390_Com.AP.37-2023_Judgment.doc KABC170007282023 the existing work of the runway and taxi tracks on which the claimant had to overlay the new bituminous work and has asked the UOI to mark the areas of bituminous work to be removed by use of a milling machine. Then the Learned Arbitrator refers to another correspondence made by the claimant and observes that the said correspondence shows that the milling machine was brought to the site in January 2017, trial tested on 21-2-2017 and the claimant was awaiting an order from the UOI for demarcation to remove the existing bituminous layer by using milling machine. Then the Learned Arbitrator refers to another correspondence between the parties and observes that the claimant has taken up the issue of defective work in April 2016. After the lapse of 11 months, in March 2017, MAS Bangalore has written to headquarters in Delhi for their approval to test the defective work. Thereafter few other correspondences between the parties are referred to and the ultimate analysis of the Learned Arbitrator is contained at the bottom of page 54, wherein the Learned Arbitrator has concluded as follows;
"From the above, it can be seen that due to the bad quality of the work done by the 23 CT 1390_Com.AP.37-2023_Judgment.doc KABC170007282023 earlier contractor, how the work prolonged. That is why the respondent granted an extension of time to the claimant without the levy of compensation. Apart from the delays listed above, the AT observes that there has been a delay of about 7 months due to the delay in the design mix for the bituminous work, the delay due to the non-availability of stone aggregate, the delay in setting up the bituminous plant, and the delay due to the Vardah cyclone in December 2016, which are not attributable to the respondent. Hence, the net delay on the part of the respondent is assessed as 13 months."
(Emphasis Supplied)
35. The first two sentences of above Paragraph contain the entire reasoning of the Learned Arbitrator regarding the cause for delay in completion of the work. The remaining sentences of said paragraph are regarding the delay of 7 months which is not attributable to UOI and for that reason after deducting 7 months from the total delay of 20 months, the Learned Arbitrator has held that the delay attributable to UOI is 13 months.
36. From the above reasoning of the Learned Arbitrator, it appears the Learned Arbitrator has essentially reasoned that the delay in completion of the work was due to the inferior quality of work by the earlier contractor. By holding so, the 24 CT 1390_Com.AP.37-2023_Judgment.doc KABC170007282023 Learned Arbitrator has made out a case which is not even set up by the claimant in the claim statement.
37. As noted supra, the essential pleading of the claimant regarding the cause for delay is the delay in handing over of hindrance-free site and non-availability of drawings and decisions. These reasons are stated at paragraph 4.7 and 4.11 of the claim statement. In paragraph 4.12 of the claim statement, the reasons for the delay in completion of the work are given serially (extracted supra), but nowhere is it stated that the delay was due to inferior work done by the earlier contractor.
38. In fact, this cannot be an acceptable reason for the delay because it is expected that the contractor inspected the work site before bidding for the tender and before accepting the letter of award and was aware of quality of work done by earlier contractor and therefore, having accepted the work of completion of pending works, the contractor cannot turn around and claim that, delay is caused due to inferior quality of work of earlier contractor.
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39. The learned arbitrator pointedly observes that when the claimant took up the issue of defective work in April 2016, after the lapse of 11 months, in March 2017, the MES Bangalore wrote to the HQ in Delhi for their approval to test the defective work. In other words, the learned arbitrator attributes a delay of 11 months to the lack of decision. However, this is not at all set up by the claimant as a cause for the delay. The only delay in decision is serial number (vi) of paragraph 4.12 i.e., delay in decision to start the work of milling and other works on runway 30 and PTT side, and serial number (xi) i.e. delay in decision for the external road at 30 End, culvert design and drawing, etc.
40. These specific reasons raised by the claimant in the claim petition have not at all been considered by the learned arbitrator. Instead of considering each reason raised by claimant separately and attributing the delay for each reason, in a haphazard manner, some correspondence is referred to between the parties and, without even recording a specific decision as to how many days or months delay was caused due to the lapse on the part of the UOI, the learned arbitrator 26 CT 1390_Com.AP.37-2023_Judgment.doc KABC170007282023 simply records the finding that the reasons for the delay which are not attributable to the UOI is 7 months, and from this, jumps to the conclusion that the reason for delay attributable to the UOI is 13 months after deducting 7 months from the total delay of 20 months.
41. In fact, it was expected of the claimant to clearly plead in the claim statement the period of delay attributable to each reason cited in paragraph 4.12. The claimant has not pleaded the period of delay caused by each reason separately. The learned arbitrator has also not considered each reason separately.
42. In fact, one of the principal reasons cited by the claimant is the delay in handing over of encumbrance-free site. In this regard, the specific contention of the UOI is that the site was handed over on 11.1.2016 itself. This is virtually admitted by the claimant in the objections filed to the present petition at paragraph 3, wherein it is stated as follows:
"Thus, the respondent itself had handed over the site only on 11.1.2016, and therefore the date of commencement had to be rescheduled / refixed due to the petitioner's default."27
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43. Hence, it is admitted that the site was handed over on 11.1.2016. Of course, this is only an admission that the site was handed over, and it is not an admission that hindrance- free site was handed over.
44. However, when the main contention raised by the claimant in the claim statement for delay was non-handing over of hindrance-free site, it was expected of the learned arbitrator to at least consider the said reason and consider the contention of the UOI that hindrance-free site was handed over on 11.1.2016 and give a decision in this regard. No such attempt has been made by the learned arbitrator to consider each reason separately and attribute and quantify the delay caused by each reason. On the other hand, as noted above, in a haphazard manner, without even recording the finding as to the period of delay caused due to default of the UOI, and instead, in a subjective and arbitrary manner, it is held that the delay not attributable to the UOI is 7 months, and from that, the learned arbitrator jumps to the conclusion that the delay attributable to the respondent / UOI, is 13 months by deducting 7 months from 20 months.
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45. Therefore, virtually there is no reasoning of the learned arbitrator for the conclusion that, the delay attributable to UOI is 13 months. Lack of reasoning is a ground to set aside an award as per law laid down by Hon'ble Apex Court in Dyna Technologies (P) Ltd. v. Crompton Greaves Ltd., (2019) 20 SCC 1 : 2019 SCC OnLine SC 1656 at page 14, as follows;
34. The mandate under Section 31(3) of the Arbitration Act is to have reasoning which is intelligible and adequate and, which can in appropriate cases be even implied by the courts from a fair reading of the award and documents referred to thereunder, if the need be. The aforesaid provision does not require an elaborate judgment to be passed by the arbitrators having regard to the speedy resolution of dispute.
35. When we consider the requirement of a reasoned order, three characteristics of a reasoned order can be fathomed. They are:
proper, intelligible and adequate. If the reasonings in the order are improper, they reveal a flaw in the decision-making process. If the challenge to an award is based on impropriety or perversity in the reasoning, then it can be challenged strictly on the grounds provided under Section 34 of the Arbitration Act. If the challenge to an award is based on the ground that the same is unintelligible, the same would be equivalent of providing no reasons at all. Coming to the last aspect concerning the challenge on adequacy of reasons, the Court while exercising jurisdiction under Section 34 has to adjudicate the validity of such 29 CT 1390_Com.AP.37-2023_Judgment.doc KABC170007282023 an award based on the degree of particularity of reasoning required having regard to the nature of issues falling for consideration. The degree of particularity cannot be stated in a precise manner as the same would depend on the complexity of the issue. Even if the Court comes to a conclusion that there were gaps in the reasoning for the conclusions reached by the Tribunal, the Court needs to have regard to the documents submitted by the parties and the contentions raised before the Tribunal so that awards with inadequate reasons are not set aside in casual and cavalier manner. On the other hand, ordinarily unintelligible awards are to be set aside, subject to party autonomy to do away with the reasoned award. Therefore, the courts are required to be careful while distinguishing between inadequacy of reasons in an award and unintelligible awards.
42. From the facts, we can only state that from a perusal of the award, in the facts and circumstances of the case, it has been rendered without reasons. However, the muddled and confused form of the award has invited the High Court to state that the arbitrator has merely restated the contentions of both parties. From a perusal of the award, the inadequate reasoning and basing the award on the approval of the respondent herein cannot be stated to be appropriate considering the complexity of the issue involved herein, and accordingly the award is unintelligible and cannot be sustained.
(Emphasis Supplied)
46. In the absence of proper reasoning and in view of the arbitrary and subjective manner in which the decision is reached, it has to be held that the finding of the learned 30 CT 1390_Com.AP.37-2023_Judgment.doc KABC170007282023 arbitrator at the bottom of page 54 of the award, holding that the delay attributable to UOI is 13 months, is without proper reasons and is liable to be set aside on this ground.
47. I now propose to deal with each claim which has been awarded by the learned arbitrator and consider the contentions of the Petitioner / UOI against such claims.
48. Claim No. 1 is partly allowed by Learned Arbitrator by awarding Rs. 29,74,261. Claim No. 1 consists of four sub- claims, which are listed at the bottom of page 58 of the award, i.e., work done but not paid, DO for milling work, DO for price variation, use of 160 mm HDPE semi-perforated drain pipe, DO in respect of filler material as cement in lieu of lime.
49. Sub-Claim 1 is disallowed since at the bottom of page 60 of the award, towards sub-claim No. 1, nil amount is awarded.
50. Towards sub-claim No. ii, sum of Rs. 10,23,563 is awarded, i.e., the amount which was initially paid for use of 31 CT 1390_Com.AP.37-2023_Judgment.doc KABC170007282023 milling machine which was deducted in subsequent running bill.
51. In this regard, the contentions of the Petitioner / UOI against awarding of sub-claim No. 2 is raised at paragraph 17 of the Petition wherein it is contended that awarding of said sum is contrary to item rate fixed at serial number 148 of the agreement. The Learned Counsel for Petitioner in this regard argued that the serial number 148 of BOQ provides for demolition of existing bituminous macadam surfaces and disposing of the material to a distance exceeding 1.5 km but not exceeding 5 km and depositing as directed. It was submitted that, it is for doing this work that milling machine was used. It was argued that, it is the discretion of the contractor how the said work is done and whether the said work is done manually or by using milling machine is at the discretion of the contractor and whether milling machine is used or work is done in any other manner, the contractor is only entitled to the amount as specified in the BOQ and therefore it was argued that the contractor is not entitled to claim extra amount for using milling machine and therefore, 32 CT 1390_Com.AP.37-2023_Judgment.doc KABC170007282023 the excess amount paid was rightly recovered under the 11 th R.A. Bill and learned arbitrator committed error in ordering for recovery of the said deducted amount.
52. Per Contra, Learned Counsel for Claimant / Contractor argued that it was at the request and on the direction of the UOI that milling machine was used for doing the work and when rate analysis was given, same was accepted without denying the same and accordingly amount was also paid under the 10th R.A. Bill and thereafter, without issuing any notice, the UOI was not justified in recovering the amount under the 11th R.A. Bill on the ground that excess amount is paid.
53. In this regard, the learned arbitrator's findings are at pages 62 to 64 of the award wherein the learned arbitrator has specifically noted that the UOI themselves ordered as per the site order instruction dated 12-12-2016 directing the contractor to carry out the runway replacing work. In this regard, the learned arbitrator has observed that it was in response to site order instruction dated 12-12-2016 of UOI that claimant purchased milling machine and brought the 33 CT 1390_Com.AP.37-2023_Judgment.doc KABC170007282023 same to site and testing was also done and trial operation of the milling machine was also carried out in the presence of officials of UOI and the contractor submitted rate analysis for the milling work for Rs. 2210 per C.U.M. as per Ex. C-73 for which the UOI has not commented or refuted in respect of the rate analysis and accordingly in the 10 th R.A. Bill, UOI paid the amount for additional work at Rs. 1155.71 per C.U.M. for 1561 C.U.M. and same was accepted by the claimant / contractor but thereafter UOI made recovery in the 11 th R.A. Bill and the learned arbitrator observed that recovery after getting completion of additional work without serving notice is not fair and justified. Thereafter, after referring to the nomenclature of BOQ Item No. 148, the learned arbitrator has observed that nowhere the said item mentions use of milling machine for demolition of existing bituminous macadam surfaces and it is admitted fact that demolition of existing bituminous macadam surface has been carried out at site by using milling machine and not by other means and ultimately on this basis the learned arbitrator has concluded that the excess amount towards milling machine was rightly paid under the 10th R.A. Bill and therefore the recovery of the 34 CT 1390_Com.AP.37-2023_Judgment.doc KABC170007282023 same under the 11th R.A. Bill is unjustified and on that basis awarded sub-claim (ii) for Rs. 10,23,563.
54. In this regard, having considered the rival contentions of both sides and also having considered the findings of the learned arbitrator, there is no doubt that, as observed by the learned arbitrator himself, the BOQ No. 148 does not mention that work has to be done with milling machine. In the Site Order Instructions dated 12-12-2016 referred to by the learned arbitrator at page 62 of the award also, the UOI has nowhere mentioned that the work should be done by using milling machine. Therefore, as rightly argued by learned counsel for petitioner / UOI, it was up to the contractor to complete the work in any manner, whether by using milling machine or by any other means and simply because milling machine is used to do the work, the contractor claimant cannot claim excess amount for use of milling machine because it is included within the BOQ rates.
55. However, learned arbitrator has made a very pertinent observation at page 63 of the award that when contractor submitted rate analysis as per Ex. C-73 for Rs. 2210 per 35 CT 1390_Com.AP.37-2023_Judgment.doc KABC170007282023 CUM, the UOI has not commented or refuted on the same and in token of having accepted the rate analysis, also paid the amount as per the rate analysis under the 10th RA Bill. This is a purely factual finding recorded by the learned arbitrator on the basis of the material on record and therefore same cannot be interfered with by this court in Section 34 Petition.
56. Once this finding of the learned arbitrator is accepted, it follows that although the work done by milling machine was included under the BOQ item number 148, the fact remains that there is a subsequent arrangement between the parties whereby under Ex. C-73, the contractor has submitted rate analysis which has been accepted by the UOI by making payment of excess amount at the rate of Rs. 1155.71 per CUM under 10th RA Bill. Having accepted the said arrangement, the UOI was certainly not justified in subsequently recovering the said amount on the ground that excess amount has been paid. Therefore, the finding of the learned arbitrator is in consonance with law and cannot be interfered with by this court. Accordingly, I reject the contention of the petitioner / UOI that learned arbitrator 36 CT 1390_Com.AP.37-2023_Judgment.doc KABC170007282023 committed patent error in awarding Rs. 10,23,563 towards Claim 1 (ii).
57. In so far as subclaim 3 of claim 1 is concerned, it is for recovery of Rs. 3,40,547 which was deducted by UOI towards HDPE pipe. In this regard, the findings of the Learned Arbitrator is at pages 64 to 66 of the award. The principal contention raised in the present petition against awarding of the said claim is found at paragraph 17 of the petition wherein it is contended that the awarding of said claim is contrary to rate fixed at serial No. 96 of BOQ. It is to be noted that, said sum was deducted in the running bill towards price variation for providing HDPE pipe 160 mm conforming to IS 4894-1995 in lieu of IS 14333-1996. In this regard, the Learned arbitrator has observed at the top of page 66 of the award that it was for the UOI to provide the right quality ISI marked pipe free of cost to the claimant as per item no. 97 and nowhere has it been provided in the contract that the claimant will have to procure and fix HDPE pipe 160 mm conforming to IS 14333 as per BOQ serial item no. 96 nor was any instruction to this effect issued to the claimant 37 CT 1390_Com.AP.37-2023_Judgment.doc KABC170007282023 during execution of the contract. These factual findings recorded by the learned arbitral tribunal have not been disputed in the present petition. Therefore, when there was no requirement to use a particular type of HDPE pipe, after completion of the work, the UOI was not justified in recovering the sum of Rs 3,40,547 towards a different kind of pipe used in the work. Therefore, the said recovery was unlawful and the Learned arbitrator was correct in awarding the said claim, and therefore there is no illegality in the said finding of the Learned arbitrator and the same does not call for interference in the present petition.
58. Subclaim 4 of item 1 is for recovery of Rs. 16,10,151, which was deducted for using cement as a filler instead of lime. In this regard, the contention raised at paragraph 17 of the petition is that the said finding of the learned arbitrator awarding the said claim is contrary to serial No. 34 of BOQ. The finding of the learned arbitrator in this regard is found at pages 66 to 70 of the arbitral award. Essentially, UOI deducted Rs. 16,10,151 from the RA bill on the ground that cement was used as filler material instead of hydrated lime. 38
CT 1390_Com.AP.37-2023_Judgment.doc KABC170007282023 On facts, the arbitral tribunal has found that, in fact, the price of cement was higher than that of hydrated lime as per the table found at page 69 of the arbitral award. Therefore, by using cement instead of lime as filler, in fact, the contractor has sustained expenditure of Rs. 31,38,466, whereas if lime had been used, it would have costed only Rs. 17,27,319. Therefore, the Learned Arbitrator has concluded that, in fact, it is the contractor who has incurred higher expenditure of Rs. 14 lakh and odd, by using cement as filler material instead of hydrated lime. Such being the case, when in fact the contractor has sustained higher expenditure by using a different kind of material as filler, there is no question of UOI deducting Rs. 16,10,151 for such usage of a different material as filler. On this ground, the Learned Arbitrator has held that the said deduction made in the running bill is unlawful and ordered the recovery of the same by awarding the said claim for recovery of Rs. 16,10,151. Since this is a purely factual finding recorded by the Learned Arbitrator, the same does not call for interference in the present petition.
59. Accordingly, since subclaim No. 1 has been refused and subclaims No. 2 to 4 have been held to be rightly awarded by 39 CT 1390_Com.AP.37-2023_Judgment.doc KABC170007282023 the learned arbitrator, I conclude by holding that awarding of claim No. 1 by the learned arbitrator is in accordance with law and does not call for interference in the present petition.
60. As already noted, Claim No. 2 has been withdrawn by the claimant and Claims No. 3 to 5 have been rejected by the learned arbitrator and the rejection of the above claims have not been challenged by the contractor / respondent herein by filing a separate section 34 petition. Therefore, the rejection of these claims has attained finality and there is no need to consider the same.
61. Insofar as Claim No. 6 is concerned, the Learned Arbitrator has awarded Rs. 4,24,800 towards reimbursement of additional tax levied after signing of the agreement. This is in view of the terms of the agreement, whereby UOI undertook to indemnify the contractor for any excess tax which is levied subsequent to the date of the contract. Anyhow, the awarding of this claim is not challenged in the present petition, and therefore the same has attained finality and need not be considered in the present petition.
40
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62. Claim No. 7 has been rejected and therefore, need not be considered.
Claim No. 8 and 9
63. Under Claim No. 8, the Learned Arbitrator has awarded Rs. 3,18,75,194 for on-site and off-site expenses due to the prolongation of the contract. Under Claim No. 9, the Learned Arbitrator has awarded Rs. 17,01,563 towards idleness of the milling machine.
64. I have already held supra that the finding of the Learned Arbitrator that the delay of 13 months is attributable to UOI is totally bereft of reasons and is a non-speaking order and therefore, liable to be set aside as per law laid down in Dyna Technologies (P) Ltd. v. Crompton Greaves Ltd., (2019) 20 SCC 1.
65. Once this conclusion is reached and it is held that, the finding of the Learned Arbitrator that, UOI was responsible for delay of 13 months is set aside, there is no question of the contractor claiming compensation for the prolongation of the contract because awarding compensation for prolongation of 41 CT 1390_Com.AP.37-2023_Judgment.doc KABC170007282023 the contract depends upon the contractor proving that the delay is attributable to the fault of the UOI. When the finding of the Learned Arbitrator on this vital aspect is bereft of reasoning and is liable to be interfered with on the ground of patent illegality, the question of awarding compensation for prolongation of the contract does not arise.
66. For the sake of argument, even if the finding of the Learned Arbitrator that the delay of 13 months is attributable to UOI is accepted, even then compensation for prolongation of the contract could not have been awarded by the learned arbitrator in the face of Clause 11 of the contract between the parties.
67. At this stage, it is to be noted that one of the serious contentions raised in the present petition is that the finding of the learned arbitrator regarding the deletion of Clause 11A
(vii) is illegal and contrary to the records. It is the contention of the petitioner that it is only Amendment No. 1 to 17 which applies to the contract between the parties, whereas Clause 11A(vii) has been deleted by Amendment No. 24, which was inapplicable to the contract, and therefore it is contended by 42 CT 1390_Com.AP.37-2023_Judgment.doc KABC170007282023 the petitioner / UOI that the finding of the Learned Arbitrator that reliance upon 11A(vii) by UOI is misplaced, since the said clause itself has been deleted, is an illegal finding and contrary to the records. In the reply filed by the respondent / contractor in the present petition, it is contended that the UOI itself filed the relevant condition as Ex. GP 34 before the Learned Arbitrator, which specifically showed Condition 11A(vii) as struck off under Amendment No. 24, and therefore it is contended that a false plea is taken up that Condition 11A(vii) was never deleted and is applicable to the contract between the parties.
68. In my view, it is not necessary to go into the question of whether Clause 11A(vii) was deleted or not in the contract applicable to the parties for the simple reason that, even accepting that said clause has been deleted by Amendment No. 24, the amended clause is not very much different from un-amended clause in so far as claim by contractor for prolongation is concerned.
69. At pages 46 and 47 of the award, in a tabular form, the effect of Amendment No. 24 on Clause 11 is stated as follows;
43
CT 1390_Com.AP.37-2023_Judgment.doc KABC170007282023 (a ) Condition 11A subpara i to vii Existing contents of subpara i to vii shall be replaced as under with para i to iv.
i) By reason of civil commotion, local
combination of workmen, strike, or
lockout affecting any of the trades
employed on the work; or
ii) By reason of delay on the part of
nominated subcontractors or nominated suppliers, which the contractor has, in the opinion of the GE, taken all practicable steps to avoid or reduce; or
iii) By reason of delay on the part of contractors or tradesmen engaged by the government in executing works not forming part of the contract, or
iv) by reason of any other cause except force majeure, which, in the absolute discretion of the accepting officer, is beyond the contractor's control.
(b ) Condition 11A, last subpara, line 2, For : GE Read : accepting officer.
(b ) Condition 11B, last but third line from the end.
For : GE Read : accepting officer.
(c ) Condition No. 11C The exisisting contents shall be substituted as under:
(C ) Extension of time, if due, shall be granted within 45 days of receipt of request from the contractor along with supporting documents, but before the expiry of the original / extended period of completion.
(D ) No claim in respect of compensation or otherwise for idle labor and/or idle machinery etc., and/or business loss or any such loss, 44 CT 1390_Com.AP.37-2023_Judgment.doc KABC170007282023 howsoever arising as a result of extension granted under Condition A and B above, shall be admissible. The decision on reason and quantum of extension shall be final and binding.
70. Clause 11A to C before Amendment No. 24 is forthcoming from the document marked as Ex. RD-7, which is the general conditions of contract and is as follows (Proper Page 2116 of Arbitration Records):
Clause 11 : Time, delay and extension. (A ) Time is of the essence of the contract and is specified in the contract documents or in each individual work order.
As soon as possible after the contract is let or any substantial work order is placed and before work under it begins, the GE and contractor shall agree upon a time and progress chart. The chart shall be prepared in direct relation to the time stated in the contract documents or the works order for completion of the individual items thereof and/or the contract or works order as a whole. It shall indicate the forecast of the dates for commencement and completion of the various trade processes or sections of the work, and shall be amended as may be required by agreement between G.E. and the contractor, within the limitation of time imposed in the contract documents or works order. If the works be delayed:
(i ) by force majeure;
(ii ) by reason of abnormally bad weather; or (iii ) by reason of serious loss or damage by fire, or (iv ) by reason of civil commotion, local combination of workmen, strike, or lockout 45 CT 1390_Com.AP.37-2023_Judgment.doc KABC170007282023 affecting any of the trades employed on the work; or (v ) by reason of delay on part of nominated subcontractors or nominated suppliers, which the contractor has, in the opinion of the GE, taken all practicable steps to avoid or reduce; or (vi ) by reason of delay on the part of contractors or tradesmen engaged by the government in executing works not forming part of the contract; or (vii ) by reason of any other cause which, in the absolute discretion of the accepting officer, is beyond the contractor's control; then in such a case, the officer hereinafter mentioned may make a fair and reasonable extension in the completion dates of individual items or groups of items of works for which separate periods of completion are mentioned in the contract documents or works order as applicable.
Upon the happening of any event causing delay, the contractor shall immediately, but not later than 30 days of the happening of the event, give notice thereof in writing to the GE, but shall nevertheless use constantly his best endeavor to prevent or make good the delay, and shall do all that may reasonably be required to the satisfaction of the GE to proceed with the works. Extension of time shall be granted as under; (a ) by GE for all term contracts and (b ) by the accepting officer of the contract for all other contracts.
In case the contractor fails to notify the GE of the happening of an event causing delay within the period of 30 days stipulated in subpara 3 above, he shall forfeit his right to claim extension of time for the delay caused due to such event. Extension of time as granted above shall be communicated to the contractor by the GE in writing and shall be final and binding, provided that in case of contracts other than term contracts accepted by 46 CT 1390_Com.AP.37-2023_Judgment.doc KABC170007282023 the GE, in the event of the contractor not agreeing to the extension granted by the GE, the matter shall be referred to the CWE whose decision shall be final and binding.
(B ) If the works be delayed :-
(a ) by reason of non-availability of government stores shown in Schedule E, or (b ) by reason of non-availability or breakdown of government tools and plant listed in Schedule C, then, in such an event, notwithstanding the provisions hereinbefore contained, the accepting officer may, in his discretion, grant such extension of time as may appear reasonable to him, and the same shall be communicated to the contractor by the GE in writing. The decision so communicated shall be final and binding, and the contractor shall be bound to complete the works within such extended time.
(C ) No claim in respect of compensation or otherwise, however, arising as a result of an extension granted under condition A and B above, shall be admitted."
71. According to the UOI, it is the above Clause 11A to C (before Amendment No. 24) which is applicable to the contract between the parties. However, as noted supra and as accepted by the learned arbitrator, Amendment No. 24 is applicable to the contract between the parties, and the changes brought about by Amendment No. 24 has already been noted supra.
72. Even accepting the contention of the contractor that Amendment No. 24 is applicable, it will not have any serious 47 CT 1390_Com.AP.37-2023_Judgment.doc KABC170007282023 bearing on the present case. This is because although by Amendment No. 24, Condition i to vii has been substituted by i to iv, virtually Condition 11A(vii) is equivalent to Condition 11A (iv), which is introduced by Amendment No. 24. Similarly, Condition 11C before the amendment No. 24 is equivalent to Condition 11D after Amendment No. 24. To fully appreciate this position, it is necessary to view the relevant portions of Clause before and after Amendment No. 24, as follows;
Before Amendment No. 24 After Amendment No. 24
11A (vii) : If the works be 11A (iv) If the works be delayed by reason of any delayed by reason of any other cause which, in the other cause (except force absolute discretion of the majeure), which, in the accepting officer, is absolute discretion of the beyond the contractor's accepting officer, is beyond control the contractor's control
73. In other words, Clause 11A(vii) before Amendment No. 24 is the same as Clause 11A(iv) after Amendment No. 24, except for the insertion of the words "except force majeure,"
which has no bearing on the present case.
74. Similarly, Clause 11C (before amendment) and Clause 11D (after amendment) may be compared as follows:48
CT 1390_Com.AP.37-2023_Judgment.doc KABC170007282023 Before Amendment No. 24 After Amendment No. 24 11C : No claim in respect of 11D: No claim in respect of compensation or otherwise, compensation or otherwise howsoever arising, as a for idle labor and/or idle result of extension granted machinery etc., and for under Condition A and B business loss or any such above, shall be admitted loss, howsoever arising as a result of extension granted under Condition A and B above, shall be admissible. The decision on reason and quantum of extension shall be final and binding.
75. In other words, due to Amendment No. 24, the bar against seeking compensation for extension granted under Condition A and B has been expanded and made much more comprehensive than it was earlier to Amendment No. 24.
Therefore, even accepting the case of the contractor that Amendment No. 24 applied to the general conditions of the contract between the parties, it only means that the bar against seeking compensation due to the extension granted, has become much more comprehensive than it was earlier.
76. In the case on hand, the various extensions which have been granted to the contractor are at Ex. GP50 (Page 2141 of Arbitration Records). Each of the extensions is granted under 49 CT 1390_Com.AP.37-2023_Judgment.doc KABC170007282023 Condition 11A(vii), with the further rider that the financial effect due to the above extension is nil as per Clause 11 Sub- Para C of General Conditions of Contract. Be it noted that, mere wrong mentioning of the provision as Clause 11A (vii) instead of Clause 11A(iv) and 11C instead of 11D is immaterial because the court is always concerned with the substance rather than the form. Therefore, mere wrong mentioning of the clause is immaterial.
77. Anyhow, from Ex. GP50, it is clear that the extension was given under Clause 11A. Therefore, Clause 11C applies with full force and makes it clear that where extension is given under 11A, no claim for compensation, either for idle labor or idle machinery or under any other head for the extension, viz. for prolongation, can be entertained. Therefore, the finding of the learned arbitrator that Clause 11A(vii) is deleted by Amendment No. 24 is totally immaterial, and whether before Amendment No. 24 or after Amendment No. 24, the essence of the general condition Clause 11A to C remains the same, barring any claim for compensation for prolongation of the contract. 50
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78. This is sought to be got over by the learned arbitrator by relying upon proposition of law that, the bar of the nature contained in Clause 11A to C is a bar upon the department and does not only prevent the department from granting damages, but it does not prevent the arbitrator from awarding damages.
79. In this regard, the learned arbitrator has held at page 49 of the award as follows;
"Thus, the position of law as laid down by the courts is that Condition 11C is only a bar against the Department in awarding a claim for damages, and does not disentitle the arbitrator to award such a claim if it is otherwise made out. The Condition 11A(vii) , which stands deleted, and it does not exist. Hence the Condition 11A(vii) or Condition 11C do not act as a bar to the maintainability of the claim for compensation and the preliminary objection is decided against the respondent."
80. Learned Counsel for UOI / Petitioner herein, has vehemently contended that the learned arbitrator has committed a patent illegality by refusing to follow the binding law laid down by Hon'ble Apex Court in Ramnath 51 CT 1390_Com.AP.37-2023_Judgment.doc KABC170007282023 International Construction Private Limited v. Union of India, reported in (2007) 2 SCC 453, wherein the law is laid down that Clause 11C is a complete bar for the contractor to claim compensation for prolongation of the contract. Per contra, in the written submissions filed by the Learned Counsel for Respondent herein, namely the contractor, it is contended that in Ramnath International, the Hon'ble Apex Court has not considered the earlier judgment in K.N. Satyapalan v. State of Kerala, reported in (2007) 13 SCC page 43. It is further contended that in Ramnath International, delay was found attributable to both parties, and that is a distinguishing factor which is absent in the present case. It is contended that, subsequent to Ramnath International, in Asian Tech Limited v. Union of India, reported in (2009) 10 SCC 354, Hon'ble Apex Court has held that a clause like 11 only prohibits the department from entertaining the claim, but it does not prohibit the arbitrator from entertaining it. This view has been followed in Bharat Drilling and Treatment Pvt. Ltd v. State of Jharkhand, reported in (2009) 16 SCC 705, and Port of Calcutta v. Engineers De. Space Age, reported in (1996) 1 SCC 516. 52
CT 1390_Com.AP.37-2023_Judgment.doc KABC170007282023
81. It is further contended in the written arguments that various High Courts, namely the Delhi High Court in Simplex v. UOI, IRCON International Limited v. GPT Rahee JV, DMRC v. J. Kumar, MBL Infrastructure Limited v. Delhi Metro Corporation, the Hon'ble Bombay High Court in UOI v. Suraj Infra and Hon'ble Madras High Court in K.S. Baburaj v. UOI and others, have held similar view. On this basis, Learned Counsel for Respondent argued that, Ramnath International is not the binding precedent, and this court should follow the law laid down in Satyapalan's judgment, which has been followed in the later rulings as contended supra.
82. In order to consider the question of whether the learned arbitrator can award damages for the prolongation of work in the teeth of a clause like 11C, which specifically prohibits any claim for compensation on account of extension, it is necessary to trace the law laid down by Hon'ble Apex Court in various rulings. Firstly, let me consider the law laid down in Ramnath International Construction Private Limited v. Union of India, reported in (2007) 2 SCC 453, which is relied upon by Learned Counsel for petitioner / UOI. 53
CT 1390_Com.AP.37-2023_Judgment.doc KABC170007282023 In said ruling, the Hon'ble Apex Court, at paragraph 11, has extracted clause 11A to C of the contract in the said case, which is identical to the clause 11A to C involved in the present case. At paragraph 12, the law is laid down as follows:
Ramnath International Construction (P) Ltd. v. Union of India, (2007) 2 SCC 453 : 2006 SCC OnLine SC 1377 at page 458
12. Clause (C) provides that where extensions have been granted by reason of the delays enumerated in clause (A) which were beyond the control of the contractor, or on account of the delays on the part of the employer specified in clause (B), the contractor is not entitled to make any claim either for compensation or otherwise, arising in whatsoever manner, as a result of such extensions. After enumerating certain delays, sub-clause (viii) of clause (A) specifically mentions delay on account of any other cause beyond the control of the contractor.
The causes for delays specified in clause (A), thus, encompass all delays over which the contractor has no control. This will necessarily include any delays attributable to the employer or any delay for which both the employer and the contractor are responsible. The contract thus provides that if there is any delay, attributable either to the contractor or the employer or to both, and the contractor seeks and obtains extension of time for execution on that account, he will not be entitled to claim compensation of any nature, on the ground of such delay, in addition to the extension of time obtained by him. Therefore, the claims for 54 CT 1390_Com.AP.37-2023_Judgment.doc KABC170007282023 compensation as a consequence of delays, that is Claim 24 of the Hangar Contract and Claims 13 to 16 of the Road Contract are barred by clause 11(C).
(Emphasis Supplied)
83. Therefore, the categorical law laid down in the above ruling is that in the teeth of clause 11C, no claim for compensation as a consequence of delay / prolongation / extension can be entertained.
84. It is relevant to note that in the above ruling of Ramnath International, Hon'ble Apex Court, at paragraph 15, has relied upon C.H. Ramalinga Reddy v. Superintending Engineer, reported in (1999) 9 SCC 610, as follows:
Ramnath International Construction (P) Ltd. v. Union of India, (2007) 2 SCC 453 :
2006 SCC OnLine SC 1377 at page 459
15. In Ch. Ramalinga Reddy v. Superintending Engineer [(1999) 9 SCC 610] , while considering the similar claim, this Court observed thus: (SCC p. 616, para 17) "17. Claim 8 was for 'payment of extra rates for work done beyond agreement time at schedule of rate prevailing at the time of execution'. The arbitrator awarded the sum of Rs 39,540. Clause 59 of the A.P. Standard Specifications, which applied to the contract between the parties, stated that no claim for compensation on account of 55 CT 1390_Com.AP.37-2023_Judgment.doc KABC170007282023 delays or hindrances to the work from any cause would lie except as therein defined.
The claim falls outside the defined exceptions. When extensions of time were granted to the appellant to complete the work, the respondents made it clear that no claim for compensation would lie. On both counts, therefore, Claim 8 was impermissible and the High Court was right in so holding."
(Emphasis Supplied)
85. It is relevant to note that C.H. Ramalinga Reddy is a judgment rendered by three judges of the Hon'ble Apex Court. Therefore, the law laid down in Ramnath International, which in turn relies upon a three-judge bench ruling in C.H. Ramalinga Reddy, is in favor of UOI, since the law laid down in the said rulings is that a clause such as 11C is a total bar for entertaining any claims based upon delay or prolongation.
86. On the other hand, Learned Counsel for the contractor / claimant relies upon K.N. Satyapalan v. State of Kerala, reported in (2007) 13 SCC, page 43. In Satyapalan case, the law is laid down at paragraphs 31 and 32 as follows;
K.N. Sathyapalan v. State of Kerala, (2007) 13 SCC 43 : 2006 SCC OnLine SC 1318 at page 51 56 CT 1390_Com.AP.37-2023_Judgment.doc KABC170007282023
31. The question which we are called upon to answer in the instant appeal is whether in the absence of any price escalation clause in the original agreement and a specific prohibition to the contrary in the supplemental agreement, the appellant could have made any claim on account of escalation of costs and whether the arbitrator exceeded his jurisdiction in allowing such claims as had been found by the High Court.
32. Ordinarily, the parties would be bound by the terms agreed upon in the contract, but in the event one of the parties to the contract is unable to fulfil its obligations under the contract which has a direct bearing on the work to be executed by the other party, the arbitrator is vested with the authority to compensate the second party for the extra costs incurred by him as a result of the failure of the first party to live up to its obligations. That is the distinguishing feature of cases of this nature and Alopi Parshad case [(1960) 2 SCR 793 : AIR 1960 SC 588] and also Patel Engg. case [(2004) 10 SCC 566] . As was pointed out by Mr Dave, the said principle was recognised by this Court in P.M. Paul [1989 Supp (1) SCC 368] where a reference was made to a retired Judge of this Court to fix responsibility for the delay in construction of the building and the repercussions of such delay. Based on the findings of the learned Judge, this Court gave its approval to the excess amount awarded by the arbitrator on account of increase in price of materials and costs of labour and transport during the extended period of the contract, even in the absence of any escalation clause. The said principle was reiterated by this Court in T.P. George case [(2001) 2 SCC 758] .
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87. Therefore, from the above law laid down by Hon'ble Apex Court, it is crystal clear that in Satyapalan, the court was concerned with a claim for escalation of costs, whereas in the present case, the claim is for compensation for prolongation of the contract, which are two different things. In fact, in Satyapalan, Hon'ble Apex Court observed that arbitrators are vested with the authority to compensate the second party for extra costs incurred by him as a result of the failure of the first party to live up to its obligations. Therefore, Satyapalan was limited to claims for extra costs actually incurred (i.e., escalation) and did not deal with claims for compensation for prolongation. Therefore, in the face of the direct ruling of Hon'ble Apex Court in Ramnath International, Satyapalan will not help the contractor in the present case.
88. Now, it is necessary to consider the line of rulings wherein, according to the contractor / claimant, the law is laid down that a clause such as 11C is a bar to the department to award damages, but it is not a bar to the arbitrator. The first ruling relied upon in this regard is Asian Tech Limited v. Union of India, reported in (2009)10 SCC 58 CT 1390_Com.AP.37-2023_Judgment.doc KABC170007282023
354. At paragraph 4 of the said ruling in Asian Tech, it is observed that respondents assured to settle the rates for extra items across the table and persuaded the petitioner to continue to carry out and complete the works. At paragraph 17, it is observed that the appellant was not ready to carry out the work beyond the contracted period other than on separate work orders, and subsequent correspondence, like the letter dated 11-10-1989, makes it clear that it was on the specific assurance given by the respondent to the appellant to continue the work and that rates would be decided across the table, that the appellant went ahead with the work. In this background, Hon'ble Apex Court has observed that it is now not open to the respondent to contend that no claim for further amount can be made due to Clause 11C, and that the arbitrator would have no jurisdiction to award the same. Therefore, the distinguishing feature of Asian Tech is that in the said case, it was proved on facts that the employer had assured to give extra rates across the table, which is not the case here. In the case on hand, there is no material to show that at any point in time the UOI had assured the contractor to give extra rates for prolongation.
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89. In Asian Tech, specific reliance is placed by the Learned Counsel for contractor / claimant on paragraph 21, which is as follows:
Asian Techs Ltd. v. Union of India, (2009) 10 SCC 354 : (2009) 4 SCC (Civ) 203 : 2009 SCC OnLine SC 1601 at page 362
21. Apart from the above, it has been held by this Court in Port of Calcutta v. Engineers-De-
Space-Age [(1996) 1 SCC 516] that a clause like Clause 11 only prohibits the Department from entertaining the claim, but it did not prohibit the arbitrator from entertaining it. This view has been followed by another Bench of this Court in Bharat Drilling & Treatment (P) Ltd. v. State of Jharkhand [(2009) 16 SCC 705] .
(Emphasis Supplied)
90. Therefore, on the basis of above observations, it is sought to be contended that Clause 11 only prohibits the department but does not prohibit the arbitrator from awarding damages for prolongation. However, it is clear that in Asian Tech, no law is laid down, and only, reference is made to the rulings in in Port of Calcutta and Bharat Drilling cases.
91. Therefore, it is necessary to see what is the law laid down in Port of Calcutta and Bharat Drilling cases. In Bharat 60 CT 1390_Com.AP.37-2023_Judgment.doc KABC170007282023 Drilling and Foundation Treatment Private Limited v. State of Jharkhand, reported in (2009) 16 SCC 705, it is laid down at paragraphs 5 to 9 as follows;
5. Shri Dwivedi submitted that the bar in Clause 1.21 is only a bar on the Department and not a bar on the arbitrator in respect of the matters mentioned therein. He further submitted that admittedly the Department was not possessed of the land in question nor had funds for the contract while the appellant was asked to work and it placed the machinery, labour, etc. on the spot which was lying idle and because of that reason he suffered heavy losses. On the facts of the case, he submitted that the bar under Clause 1.21 will not apply. In support of his contentions, learned counsel for the appellant has invited our attention to a decision of this Court in Port of Calcutta v. Engineers-De-Space-Age [(1996) 1 SCC 516] in which it has been held that a similar clause prohibited the Department from entertaining a claim for interest but it did not prohibit the arbitrator from awarding the interest.
6. On the other hand, Mr Ashish Mohan, learned counsel appearing for the respondent State of Jharkhand invited our attention to the decision of this Court in Sayeed Ahmed & Co. v. State of U.P. [(2009) 12 SCC 26 : JT (2009) 9 SC 429] in support of his submissions.
7. We have carefully perused the decision in Sayeed Ahmed & Co. [(2009) 12 SCC 26 : JT (2009) 9 SC 429] and we are of the opinion that the said decision is distinguishable because it relates to interest under the Arbitration and Conciliation Act, 1996 and was not in respect of a claim for the principal amount. So far as the claim of interest under the Arbitration and Conciliation Act, 1996 is concerned, Section 31(7) states that the parties can agree otherwise to the awarding of interest by the Arbitral Tribunal. Insofar as 61 CT 1390_Com.AP.37-2023_Judgment.doc KABC170007282023 the case at hand is concerned, it relates to the claim of a principal amount and not to the claim of interest. Hence, the aforesaid decision in Sayeed Ahmed & Co. [(2009) 12 SCC 26 : JT (2009) 9 SC 429] is distinguishable.
8. It has been held by this Court in Ispat Engg. & Foundry Works v. SAIL [(2001) 6 SCC 347] that the scope of interference by the court with a reasoned award is very limited.
9. For the reasons stated above, the common impugned judgment and order of the High Court is set aside and awards passed by the learned arbitrator are restored. The appeals are allowed. No order as to costs.
92. Therefore, from the above paragraphs, it is clear that in Bharat Drilling and Foundation case, at the beginning of paragraph 5, it is only the argument of the Learned Counsel that has been noted, that the clause is only a bar on the department and not a bar on the arbitrator in respect of matters mentioned therein. The Hon'ble Apex Court has not laid down the law in that regard.
93. In Port of Calcutta v. Engineers De Space Age, reported in (1996) 1 SCC 516, the law is laid down at Paragraph 4 as follows:
4. We are not dealing with a case in regard to award of interest for the period prior to the reference. We 62 CT 1390_Com.AP.37-2023_Judgment.doc KABC170007282023 are dealing with a case in regard to award of interest by the arbitrator post reference. The short question, therefore, is whether in view of sub-clause (g) of clause 13 of the contract extracted earlier the arbitrator was prohibited from granting interest under the contract. Now the term in sub-clause (g) merely prohibits the Commissioner from entertaining any claim for interest and does not prohibit the arbitrator from awarding interest. The opening words "no claim for interest will be entertained by the Commissioner" clearly establishes that the intention was to prohibit the Commissioner from granting interest on account of delayed payment to the contractor. Clause has to be strictly construed for the simple reason that as pointed out by the Constitution Bench, ordinarily, a person who has a legitimate claim is entitled to payment within a reasonable time and if the payment has been delayed beyond reasonable time he can legitimately claim to be compensated for that delay whatever nomenclature one may give to his claim in that behalf. If that be so, we would be justified in placing a strict construction on the term of the contract on which reliance has been placed. Strictly construed the term of the contract merely prohibits the Commissioner from paying interest to the contractor for delayed payment but once the matter goes to arbitration the discretion of the arbitrator is not, in any manner, stifled by this term of the contract and the arbitrator would be entitled to consider the question of grant of interest pendente lite and award interest if he finds the claim to be justified. We are, therefore, of the opinion that under the clause of the contract the arbitrator was in no manner prohibited from awarding interest pendente lite.
(Emphasis Supplied) 63 CT 1390_Com.AP.37-2023_Judgment.doc KABC170007282023
94. Therefore, it is clear that the said case was dealing with the question of interest subsequent to the reference to the arbitrator. Further, as per the clause of the contract in the said case, the bar was only insofar as the claim being entertained by the Commissioner, whereas in the case on hand, Clause 11C before Amendment No. 24 and Clause 11D after Amendment No. 24 is a total bar for awarding any claims towards extension. Therefore, the law laid down in the Port of Calcutta case is distinguishable and is inapplicable to the facts of the present case.
95. Ultimately, it is to be noted that Ramnath International is directly on point, and in turn relies upon a three-judge bench in C.H. Ramalinga Reddy, and therefore, it is the binding precedent that has to be followed by this court.
96. Whereas the rulings relied upon by the Learned Counsel for claimant / contractor are by bench of two judges of the Hon'ble Apex Court and in none of the rulings is the law specifically laid down that a clause such as Clause 11C is a bar only on the department and also the said rulings are distinguishable as noted above.
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97. Therefore, this court is bound to follow the law laid down in Ramnath International case, which is the binding precedent and lays down that clause such as 11C (before Amendment No. 24) and Clause 11D (after Amendment No.
24) is a bar for seeking compensation for delay. The law is settled that the arbitrator, being a creature of the contract, cannot go beyond the terms of the contract in awarding damages to any party. In this regard, reference may be made to law laid down by Hon'ble Apex Court in the case of New India Civil Erectors (P) Ltd. v. Oil & Natural Gas Corpn., (1997) 11 SCC 75 at page 79, wherein it is held at Paragraph 9 as follows;
"It is axiomatic that the arbitrator being a creature of the agreement, must operate within the four corners of the agreement and cannot travel beyond it. More particularly, he cannot award any amount which is ruled out or prohibited by the terms of the agreement."
98. Therefore, in view of the above discussion and the binding law laid down in Ramnath International and by the three-judge bench in C.H. Ramalinga Reddy, I hold that Clause 11C, which is applicable before Amendment No. 24, and Clause 11D, which is applicable after Amendment No. 65 CT 1390_Com.AP.37-2023_Judgment.doc KABC170007282023 24, is a complete bar for any claim raised by the contractor for compensation for delay / prolongation of the contract. In the teeth of this specific bar contained in the contract between the parties, the learned arbitrator has committed a patent illegality in awarding claim No. 8 for on-site and off- site expenses for prolongation of the contract. Therefore, the finding of the learned arbitrator on claim No. 8, which is contrary to the binding precedent laid down by the Hon'ble Apex Court, has to be held to be patently illegal and is liable to be set aside.
99. As far as claim No. 9 is concerned, Rs. 17,01,563/= is awarded towards idleness of the milling machine. As already noted supra, Clause 11D of the contract, which is after Amendment No. 24 and extracted at page 46 of the Award, is also a bar for any claim for compensation either for idle labour or idle machinery. Therefore, in the teeth of this clause, which is binding on the parties as per the law laid down in the Ramnath International case, already discussed in detail supra, the claim for idleness of the milling machine is also bad. Therefore, for the same reason applicable to 66 CT 1390_Com.AP.37-2023_Judgment.doc KABC170007282023 claim No. 8, the finding of the learned arbitrator awarding claim No. 9 also has to be set aside.
100. The only other claim which has been awarded is claim No. 15, under which Rs. 36,80,210 has been awarded on account of interest due to delay in payments. The contention of the UOI in this regard is that, there is no clause in the contract for awarding interest for delayed payment, and the contract also does not contain any clause fixing a time period within which the bill has to be cleared. Therefore, it is contended that the learned arbitrator could not have awarded interest on account of alleged delay in the payment of the bill. This contention cannot be accepted because, as per the law laid down by the Hon'ble Apex Court in the Board of Trustees for the Port of Calcutta v. Engineers De Space Age, reported in (1996) 1 SCC 516, at paragraph 4 (extracted supra), it is held that a person who has a legitimate claim is entitled to payment within a reasonable time, and if the payment has been delayed beyond a reasonable time, he can legitimately claim to be compensated for the delay, 67 CT 1390_Com.AP.37-2023_Judgment.doc KABC170007282023 whatever nomenclature one may give to his claim in that behalf.
101. In view of the above law laid down by the Hon'ble Apex Court, it is clear that, although there is no term in the contract specifying the time period within which the bill has to be cleared, it is the duty of the UOI to clear the bill within a reasonable time. On facts, the learned arbitrator has held 30 days to be a reasonable time for clearing the bill and has awarded interest at 9% per annum on the delay after 30 days in clearing the bill, as per the table extracted at page 120 of the award, and on that basis awarded Rs. 36,80,210 under claim No. 15. The said conclusions reached by the learned arbitrator are in accordance with the above law laid down by the Hon'ble Apex Court and based on a factual consideration by holding 30 days to be a reasonable period for settlement of the bills and therefore cannot be interfered with under Section 34 of the Act.
102. Insofar as claim No. 18 of the claim petition and counterclaim of the respondent for costs of the proceedings is concerned, the Learned arbitrator has held that, both sides 68 CT 1390_Com.AP.37-2023_Judgment.doc KABC170007282023 shall bear their respective costs and the said finding of the Learned Arbitrator also does not call for interference under Section 34 of the Act.
103. Accordingly, I hold that, for the detailed reasons noted supra, the arbitral award is liable to be interfered with only in respect of the awarding of claim Nos. 8 and 9. Needless to state, once the awarding of the principal amounts for claim Nos. 8 and 9 is set aside, it follows that the awarding of interest on the said principal amounts also goes. Accordingly, it is necessary to clarify that the awarding of interest of Rs. 1,37,21,409, which is on the amount including the amount awarded towards claim Nos. 8 and 9 at 9% p.a. from 1-3- 2019 till the date of the award, will have to be recalculated. In other words, the amount of interest awarded up to the date of the award will have to be recalculated in the light of setting aside of claim No. 8 & 9. In all other respects, the impugned arbitral award does not call for interference.
104. Accordingly, answering the point for consideration, I proceed to pass the following :-
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CT 1390_Com.AP.37-2023_Judgment.doc KABC170007282023 ORDER The petition under Section 34 of Arbitration and Conciliation Act is partly allowed, with cost.
The impugned arbitral award dated 30-
11-2022 passed by the Learned Sole Arbitrator [Sri Ashok Khurana, Former D.G., CPWD] in AC 18 of 2020, is partly set aside only in respect of the following findings and claims;
i) Award in so far as allowing claim No. 8 for sum of Rs. 3,18,75,194/= towards on-site expenses and off-site expenses due to prolongation of the contract, is hereby set aside.
ii) Award in so far as allowing claim no. 9 for sum of Rs. 17,01,563/= towards the head of idleness of milling machine, is also set aside.70
CT 1390_Com.AP.37-2023_Judgment.doc KABC170007282023 Consequently, when the principal amounts awarded in respect of above claims have been set aside, the award in so far as payment of interest at 9% per annum on the above amounts from 1-3-2019 till date of the award is also set aside and consequently, the amount of interest awarded under serial No.
(vi) of operative portion of the award shall be recalculated accordingly.
In all other respects, the impugned arbitral award is undisturbed.
Ordered accordingly.
Office to issue soft copy of this
judgment to both sides, by email, if
furnished.
[Dictated using Dragon Professional Speech Recognition Software Version 15.3, transcript revised, corrected, signed and then pronounced by me in open court on this the 19th day of October, 2024] (Sri. S. Sudindranath) LXXXIII ADDL.CITY CIVIL AND SESSIONS JUDGE, COMMERCIAL COURT; BANGALORE.