Karnataka High Court
S V Samudram vs The State Of Karnataka on 7 February, 2017
Author: S.Sujatha
Bench: S.Sujatha
1
IN THE HIGH COURT OF KARNATAKA
DHARWAD BENCH
DATED THIS THE 7TH DAY OF FEBRUARY, 2017
BEFORE
THE HON'BLE MRS. JUSTICE S.SUJATHA
M.F.A No.24507/2010 (AA)
BETWEEN:
SRI S V SAMUDRAM,
PWD CONTRACTOR, BAPUJI NAGAR,
SIRSI, UTTARA KANNADA. ... APPELLANT
(BY SRI.VIJAY KUMAR HORATTI FOR
SRI RAVI G.SABHAHIT, ADV.)
AND:
1. THE STATE OF KARNATAKA,
REP. BY CHIEF ENGINEER,
C & B (PWD NORTH), DHARWAD.
2. THE EXECUTIVE ENGINEER,
PWD KARWAR DIVISION, KARWAR.
3. SRI S K ANGADI,
CHIEF ENGINEER (RETD.)
K.P.W.D. BASAVESHWARA NAGAR,
GOKUL ROAD, HUBLI. ... RESPONDENTS
(BY SMT.VEENA HEGDE, HCGP FOR R1 AND R2,
SRI AJAY U.PATIL, ADV FOR R3)
THIS MFA IS FILED UNDER SECTION 37 (1) OF THE
ARBITRATION ANDCONCILIATION ACT, 1996, AGAINST THE
ORDER DATED 22.04.2010 PASSED IN CIVIL MISC.NO.08/2003
ON THE FILE OF THE SENIOR CIVIL JUDGE, SIRSI, PARTLY
2
ALLOWING THE PETITION FILED UNDER SECTION 34 OF THE
ARBITRATION AND CONCILIATION ACT.
THIS APPEAL HAVING BEEN HEARD AND RESERVED FOR
JUDGMENT ON 25.11.2016, COMING ON FOR
PRONOUNCEMENT OF JUDGMENT, THIS DAY, THE COURT
MADE THE FOLLOWING:
JUDGMENT
This appeal is directed against the Judgment and Order passed by the Senior Civil Judge, Sirsi, in Civil Misc.No.08/2003.
2. Appellant is a Civil Engineer/Contractor entrusted with construction of Office of Conservator of Forest and quarters at Sirsi during 1989 for a total amount of Rs.14.86 lakhs with time limit of 18 months excluding monsoon period. As per the contract agreement, the appellant/contractor was required to complete the work within a stipulated period i.e., on or before 6.5.1992. The details of estimation are as follows:
"1. Estimated costs - Rs.22.60 lakhs
2. Amount put to tender- Rs.13.64 lakhs
3. Agreement amount- Rs.14.86 lakhs 9% above for 1988-89 [EST rate 3 2% below for CSR 1989-90 Office building - Rs.9.98 lakhs Residential quarters - Rs.4.06 lakhs Total - Rs.14.04 lakhs
4. Time limit - 18 months Date of commencement- 7.3.1990 Date of completion - 6.5.1992
5. E.M.D. Rs.20,500-00 [Bank guarantee-Syndicate Bank]
6. S.D. - Rs.1,02,285-00
7. Work done - Rs.9.44 lakhs [6th R.A. Bill]"
Since the contractor had not completed the work within the stipulated period, notice was issued by the respondents and finally action was taken to rescind the work at the risk and cost of the contractor as per the tender condition. The appellant/contractor in his letter dated 6.3.1992 brought to the notice of the respondents that the Department is responsible for the delay in not executing the work within the stipulated period. It was contended that change of site, exchange of plan of floor, 4 slab beams and failure to provide water facilities were the major cause for the delay in completing the work. Accordingly, demanded the damages. Denying the same, the department rejected the contractor's demand.
3. The Arbitrator was appointed to solve the disputes and differences on the contract work. The Arbitration Award was passed by the sole Arbitrator Sri S.K.Angadi, Chief Engineer [Rtd.,], K.P.W.D. Basaveshwarnagar, Gokul Road, Hubli on 8.2.2003 awarding Rs.14,68,239/- with interest at 18% p.a. awarded from 9.3.1994 till the date of payment along with cost of arbitration of Rs.50,000/-. Aggrieved by the same, the respondents preferred Civil Misc. No.08/2003 before the Senior Civil Judge, Sirsi, under section 34 of the Arbitration & Conciliation Act, 1996 ['Act', for short] whereby the award passed by the Arbitrator was modified to Rs.3,71,564/- along with interest at 9% per annum from the date of award till the date of payment 5 with the arbitration cost at Rs.10,000/-. Aggrieved by the same, the contractor is in appeal.
4. Learned Counsel appearing for the appellant assailing the impugned Judgment and Order would contend that the Court below failed to appreciate the Award passed by the Arbitrator in a right perspective. The Award of the Arbitrator can be interfered by the Court only if it is violative of section 34 of the Act and the Court below cannot sit as an appellate court to re- appreciate the case. It is submitted that the court below grossly erred in holding that there was no delay caused by the respondents and fault was on the appellant in not executing the work in time. It was submitted that the delay was caused mainly due to the change of the site, the original site handed over for the construction of Office of Conservator of Forest and quarters at College Road, Sirsi, Karwar on 7.3.1990 and six months later, the site was shifted to Yellapur Road, 6 Sirsi, Karwar. The Court below failed to appreciate that the appellant excavated the foundation and dumped the machinery, materials at the original site after handing over the site and subsequently site was shifted by the respondents which caused loss to the appellant. It was further submitted that the court below failed to appreciate that the drawing of the site was prepared by respondents No.3, approved by competent authority and supplied to the appellant for construction of the building on 1.7.1991 was later on revised and the revised drawing was approved on 30.11.1991 by the competent authority which was thereafter supplied to the appellant for which the appellant was no way responsible. It was further contended that the court below erred in holding that the amount claimed by the appellant/contractor is equivalent to the tender amount and 25% of the tender amount can be allowed as additional cost. The court below failed to appreciate that the tender was of the years 1989-90 and cost of 7 manpower etc., was shot up by 100% in the year 1992 to 1994. The appellant was required to bear the extra cost than estimated in the tender. Thus, it was contended that the delay was caused by the respondents in not furnishing the material, plan and further shifting the site for the construction of the building of conservator of forest office. Due to the said delay, the damages were caused to the appellant/contractor. As such, it was claimed by the appellant to award a sum of Rs.18,06,439/- with interest at 18% per annum from 9.3.1994 till the date of payment along with cost of arbitration of Rs.1,00,000/-. The said claim was properly appreciated by the Arbitrator, third respondent herein and a sum of Rs.14,68,239/- was awarded with interest at 18% per annum along with Arbitrator cost of Rs.50,000/-. The said Award is based on the appreciation of material evidence on record and is in conformity with the provisions of the Act which cannot be found fault with. 8
5. On the petition filed by the respondents challenging the said Award of the Arbitrator, the court below without appreciating these vital aspects set aside the Arbitration Award and modified the same to Rs.3,71,564/- along with interest at 9% per annum with arbitration costs of Rs.10,000/- which is wholly untenable and is contrary to the material evidence placed on record. Thus, he seeks to set aside the Judgment and Order passed by the Court below and to restore the Arbitration Award passed by the Arbitrator.
6. Per contra, learned Government Pleader appearing for respondents 1 and 2 would contend that the Arbitration Award passed by the Arbitrator was much against the material evidence on record. The delay in completing the work order is not properly appreciated by the Arbitrator. It was contended that the parties entered into agreement for construction of work on 29.1.1990 in pursuance to the acceptance of tender for 9 Rs.14,86,256/-. There is no change in the site to construct the office building, the change was only with respect to the residential quarters. The change of site was only within the radius of about 200 meters from the earlier proposed site, but the appellant/contractor did not commence the work well in time which was the main cause for the delay in completing the work. Even assuming there was a change of site for construction of the residential building, the appellant could have started the construction of office building since there was no change so far as construction of said building is concerned. The site for construction of residential house was handed over to the appellant on 7.3.1990 but till August 1990 the appellant had not commenced the excavation work for foundation. No machinery and manpower were kept idle. No excavation work was started to put up the construction even after handing over the site to the appellant. For the delay caused in completing the work, in order to avoid penalty, the 10 appellant alleged that the delay was caused due to non furnishing of the material and handing over of the site in time. The tender amount itself was Rs.14,84,256/- whereas the appellant had claimed the damages to the extent of Rs.18,06,439/-. The Arbitrator without appreciating the relevant aspects, awarded a sum of Rs.14,68,239/- almost equal to the tender amount which is wholly unsustainable. Thus, she sought to confirm the impugned Judgment and order dismissing the appeal.
7. Heard the learned Counsel for the parties and perused the original records.
8. The claims made by the contractor before the Arbitrator are as under:
"Claim No.1:
Payment on account of losses suffered by the Claimant on overheads, incidentals, Establishment, supervision and infrastructure expenditure due to the reduced productivity 11 during the originally stipulated time viz upto 6.5.1992 Rs.83,300=00.
Claim No.2:
Payment on losses of profit suffered by the Claimant due to reduced productivity of progress during the originally stipulated period viz upto 6.5.1992 Rs.83,300=00.
Claim No.3:
Payment on losses suffered by the Claimant due to idle labour, advances paid to the labourers but not recovered and lost due to the delays caused by the Department Rs.177300=00.
Claim No.4:
Payment on losses suffered by way of idle machinery which could not be recovered by the claimant due to the delays caused by the Department Rs.98500=00 Claim No.5:
Payment on extra expenses incurred by the claimant on procurement of water at the new site of Quarters construction Rs.24,000=00 12 Claim No.6:
Payment on extra expenses incurred on the works of shuttering, centering, fabrication of reinforcement etc., for the floor slab, floor beams etc., done earlier as for the instruction of the Department, subsequently removed on receipt of modified drawings belatedly supplied by the Department Rs.15800=00 Claim No.7:
Payment on granting revised rates on the work executed beyond the originally stipulated time of contract ending on 6.5.1992. Rs.1133000=00 Claim No.8:
Payment on refund of the amount recovered on frick rate as per clause No.9[A] of the agreement with interest thereon at 18% p.a. Rs.33469-00 with interest at 18% p.a. till the date of payment.13
Claim No.9:
Payment on refund on security deposit amount with interest thereon at 18% p.a. from
9.3.1995 till the date of payment.
Rs.57720-00 with interest at 18% p.a. till the date of payment.
Claim No.10:
Payment of interest - pre - Arbitration, Pendent lite and future on all amounts due and payable to the Claimants till the date of payment at 18% p.a. Claim No.11:
Cost of arbitration proceedings expenditure estimated at Rs.1 lakh Rs.100000-00"
9. The Arbitrator has awarded in much as claim Nos.1 to 3, 6, 8, 9 and 10 as claimed by the appellant.
Claim Nos.4 and 5 were rejected. Claim No.7 was considered and a sum of Rs.9,67,300/- was awarded as against Rs.11,33,000/-. Cost of arbitration of Rs.50,000/- was awarded as against Rs.1,00,000/- claimed. Thus, in all, a total sum of Rs.14,68,239/- 14 was awarded with interest at 18% per annum on all amounts due from 9.3.1994 till the date of payment.
10. The main dispute is as regards claim No.7, granting payment of revised rates to take care of escalated cost of work executed by the claimant and the work executed beyond the originally stipulated time i.e., 6.5.1992. It is necessary to ascertain whether the quantification of the escalation costs/damages by the arbitrator is arbitrary and contrary to the evidence. Arbitrator is of the opinion that the delay was caused only due to the breach of the contract by the respondent-Department, hence, the contractor is entitled to the damages of Rs.14,68,239/-. This view cannot be accepted for the reason that relocation of the site for the construction was only with the residential quarters and not with the office building. Estimated cost for the office building was Rs.9.98 lakhs and for residential quarters Rs.4.06 lakhs. Admittedly, the 15 construction work commenced by doing excavation work in August 1990. Even assuming that there was change of site as regards the construction of the residential quarters is concerned, the machinery, manpower would have been used for the construction of the office building for which there was no alteration or modification of the site. The estimation of cost was based on the tender notification relating to the year 1989-90. Cost in the year 1992 cannot be expected to have been shot up by 100% as claimed by the claimant/appellant. If the change of site was made by the respondents 1 and 2 for the construction of the residential quarters, nothing precluded or prevented the appellant/contractor to commence the work with the office building. If the appellant had taken effective steps to commence the work on time, the delay in completion of the work would have been avoided. Waiting for handing over of site to construct the residential quarters, not putting up with the excavation of work to 16 lay down the foundation for the office building also resulted in delay of completion of the work. Hence, the department cannot be accused for the delay caused. Allowing the claim of escalation of cost sans the satisfactory material evidence placed on record by the claimant is perverse and contrary to the public policy. No cogent evidence was placed before the Arbitrator to justify the claim for damages to the extent of 100%. Awarding of 70% on the balance work of Rs.5.69 lakhs executed by the claimant beyond the original stipulated time by the Arbitrator is not supported by any material evidence. It is based only on the guess work. Though a stray observation was made by the Arbitrator that schedule of rates of PWD during the year 1992-94 was considered, no material was referred to arrive at a conclusion. The Arbitrator's finding that the delay caused was only due to the default on the part of the Department in not complying with the terms and conditions of the work order cannot be countenanced. 17 Quantification of damages is unreasonable. It would be a case of misconduct on the part of the Arbitrator amenable to Section 34 of the Act.
11. Claim No 3 relating to payment on idle labour claimed at Rs.1,77,300/- is awarded by the arbitrator which shocks the conscience of the court. There was no occasion for the contractor to keep the labour idle, he would have proceeded with the construction of the office building even assuming the site was shifted as far as residential building is concerned. Claim No. 11 relates to the cost of Arbitration, Rs.50,000/- awarded by the arbitrator is excessive.
12. In J.G.Engineers (P) Ltd V. Union of India, (2011) 5 SCC 758, the Hon'ble Apex Court has held thus:
"27. Interpreting the said provision, this Court in Oil & Natural Gas Corporation Ltd. vs. Saw Pipes Ltd. [2003 (5) SCC 705] held that a court can set 18 aside an award under section 34(2)(b)(ii) of the Act, as being in conflict with the public policy of India, if it is (a) contrary to the fundamental policy of Indian Law; or (b) contrary to the interests of India; or (c) contrary to justice or morality; or (d) patently illegal. This Court explained that to hold an award to be opposed to public policy, the patent illegality should go to the very root of the matter and not a trivial illegality. It is also observed that an award could be set aside if it is so unfair and unreasonable that it shocks the conscience of the court, as then it would be opposed to public policy."
13. In the light of the judgment cited supra, the arbitrator's award being patently illegal, unreasonable, contrary to public policy, the Court below exercising the power under Section 34(2) of the Act is sustainable. At any stretch of imagination, it cannot be construed as mere re-appreciation of evidence.
14. In the case of 'SUDHIR BROS vs. DELHI DEVELOPMENT AUTHORITY AND OTHERS' in FAO 19 [OS] No.389/2008 [DD 20.03.2009], the Arbitrator awarded escalation to the extent of 25% only based on the evidence, CPWD cost index, other contracts awarded placed on record by the claimant awarded by the Delhi Development Authority during the relevant period which was upheld by the division Bench of the Delhi High Court. Based on this judgment, the court below determined the escalation charges/damages to the extent of 25% of the tender amount.
15. The Arbitrator, after having held that there has been a short increase in prices of materials, the Department cannot compel the contractor to carry out the work on the same rates on which he had agreed to the same within the stipulated period, cannot evaluate the 'short increase' equal to that of tender amount. Escalation cannot be granted on assumptions and presumptions. Awarding escalation charges/damages of Rs.14,68,239/- equal to tender amount is not fit to be 20 sustained. The court below has rightly held that the delay caused was not exclusively due to the default of the respondent Nos.1 and 2 but mainly due to the default of the appellant/claimant. As such, the determination of claim/damages made by the Court below at 25% over and above the tender amount based on the available material evidence is justifiable. The other claim relating to claim Nos.1, 2, 3, 5 are all inter related and are based on claim No.7.
16. As regards interest, it is beneficial to refer to the Judgment of the Hon'ble Apex Court in the case of 'MUKAND LTD., vs. HINDUSTAN PETROLEUM CORPORATION LIMITED' reported in [2006] 4 SCALE 453, wherein the Hon'ble Apex Court reduced the post decree interest awarded from eleven per cent per annum to seven and a half per cent per annum.
17. It is trite that interest would be awarded at the rate considered reasonable depending on the nature of 21 the transaction. Normally interest would be awarded on the whole or any part of the award amount, for the whole or any part of the period between the date on which the cause of action arose and the date on which the award is made.
18. Considering the long lapse of time, if the entire award is satisfied, the respondents 1 and 2 would have to pay a huge sum of money by way of interest. Considering the totality of the circumstances of the case, interest awarded by the Arbitrator at 18% per annum is excessive, awarding of interest by the court below at 9% per annum on the 25% of tender amount i.e., Rs.3,71,564/- determined towards the damages is justifiable. No infirmity or irregularity is found in the impugned Judgment and order.
Appeal is dismissed.
Sd/-
JUDGE Jm/-