Bangalore District Court
M/S St. Joseph Constructions vs Union Of India Represented By Its on 8 January, 2020
1
Com.A.S.No.61/2009
IN THE COURT OF LXXXII ADDL.CITY CIVIL & SESSIONS JUDGE,
BENGALURU CITY.(CCH.83)
Dated, this the 8th day of January 2020.
PRESENT: Sri.Jagadeeswara.M., B.Com, LL.B.,
LXXXII Addl. City Civil & Sessions Judge, Bengaluru.
Com.AS.No.61/2009
Petitioner M/s St. Joseph Constructions,
Class I P.W.D. & Railway Contractor,
P.O. Kalavar, Near Kalavar Church,
Bajpe via Mangalore - 574 174
Represented by Power of Attorney Holder
Mrs.Lavitha Correa
(By Sri. P. Harischandra Reddy - Advocate)
VS
Respondents Union of India Represented by its
1. The Chief Administrative Officer
South Western Railway
Constructions,
18 Millers Road,
Bangalore Cantonment - 560 046
2. The Chief Engineer/Construction
Construction Office,
Southern Railway,
Poonamalle High Road,
Egmore, Chennai - 8
3. The Deputy Chief Engineer/Construction,
Construction Office,
Southern Railway,
Cannanore, Kerala
2
Com.A.S.No.61/2009
4. Sri.S.N.Agarwal
Chief Engineer/Metropolitan Transport
Project (Railways)
Southern Railway,
Poonamalle High Road,
Egmore, Chennai - 8
5. Sri.S. Anantharaman
Chief Commercial Manager/PM,
Headquarters Office,
Southern Railway, Park Town,
Chennai - 600 003.
6. Smt. T.Hema Suneetha
Deputy Financial Advisor & Chief Accounts
Officer/Construction/II, Construction Office,
Southern Railway,
Poonamalle High Road,
Egmore, Chennai - 8.
(D.1 to 3 by Sri.N.S.Sanjay Gowda, D.4 to 6
dismissed)
JUDGMENT
This is the petition filed by the petitioner under Sec.34 of the Arbitration & Conciliation Act 1996 with a request to set aside Arbitral Award dated 18.5.2009 passed by learned Arbitrators, who are respondent Nos.4 to 6 herein, in Arbitration Case No.5/2007 (CMP No.102/2006) wherein the petitioner was claimant and respondent herein was respondent in the Arbitration Proceeding.
3Com.A.S.No.61/2009 1(a). Petitioner will be referred to as 'Contractor' and respondent Nos. 1 to 3 will be referred to as 'railways' herein afterwards.
2. Brief facts of the case are as under:
2(a). Petitioner is a partnership firm doing Civil Engineering contracts. The first respondent invited tenders for the work of "SRR-MAQ doubling UAA-MAQ Section - Construction of New major Bridge No.1274 at KM 881/10 top 882/9 across NTVT "A" cabin and MAQ 28 x 21.384 M PSC Box girder and 2 x 45.72m steel through type girder opposite to existing bridge No. 1274" (hereinafter referred to as the "work"). Petitioner being the lowest bidder was accepted and Letter of Acceptance was issued on 24.9.2002 and the agreement was entered into between the parties under Contract Agreement bearing No. CAO/CN/BNC/71672/124/II/03 dated 11.2.2003.
2(b). It is contended in the petition that during the execution of work, petitioner faced several impediments which were attributable solely to the 1st respondent. Petitioner put forth maximum efforts in the execution of work and completed the work in all respects in the extended period of contract. But the first respondent was not able to settle pending claims inspite of repeated requests of the petitioner. Therefore, petitioner was forced to submit a consolidated claim letter dated 28.1.2008 to the respondent, with a request to settle claims within 30 days. But the first respondent did not reply. Hence, petitioner referred the disputes to 4 Com.A.S.No.61/2009 arbitration through letter dated 5.3.2008. The Dy.Gen. Manager, Southern Railway appointed the respondents 4 to 6 as Arbitrators vide its letter dated 3.7.2008 for settlement of disputes between the parties. Thereafter the parties submitted their claims and counter claims. Learned Arbitrators have heard the matter on merits and without deciding the preliminary objection raised by the petitioner, passed an Award dated 18.5.2009 contrary to the request of the petitioner. The respondents 4 to 6 who were appointed by the respondents 1 to 3 vide Award dated 18.5.2009 totally disallowed claim Nos. 1,2,3,4,6,8 and partly allowed Claim Nos.5,7 and 11 of the petitioner. The learned arbitrators failed to consider the claim statement, documents, written arguments submitted by the petitioner. The reasoning of arbitrators in disallowing and partly allowing the claims of petitioner is against the law of land. Petitioner being highly aggrieved by the Award of the Arbitrators, has filed this petition to set aside the said Award dated 18.5.2009.
3. The grounds urged in the petition may be summed up as under:
(a). The learned Arbitrators passed the Award dated 18.5.2009 without giving any decision in respect of the application dated 26.11.2008 filed under Sec.16 of Arbitration & Conciliation Act, 1996 to decide by the Arbitral Tribunal as a Preliminary Issue regarding the arbitrability of claim Nos. 1,2 & 8 referred in letters 5 Com.A.S.No.61/2009 dated 5.3.2008 and 15.8.2008, in violation of provisions made in the Arbitration & Conciliation Act, 1996.
(b). The decision of the learned Arbitrators is contrary to the decisions of the Hon'ble Supreme Court and different High Court decisions.
(c). Learned Arbitrators have not complied with any of he provisions of the Act which governs the arbitral proceedings. Since the Arbitrators in this case being the working Officers of the Railways, against who the claims are made, they are duty bound to disclose to the parties in writing the circumstances likely to give rise to justifiable doubts as to their independence or impartiality. The same has not been done.
(d). Learned Arbitrators are biased in determining the dispute as they are vitally interested in safeguarding the interest of the respondent Nos.1 to 3.
(e) The Arbitral Award deals with a dispute not contemplated by or it contains decisions on matters beyond the scope of the submission to arbitration.
(f) The Arbitral Award is to be set aside as party was under
some incapacity as per Sec.34(2)(a)(i) of the Act.
(g) The impugned Award discloses apparent errors of law on its falling under Sec.34(2)(a)(iv) and 34(2)(b)(i) & (ii).6
Com.A.S.No.61/2009
(h) The impugned Award is in conflict with the public policy of India substantive law.
(i) The Award discloses apparent errors of facts, evidence, law of the land in deciding the disputes between the parties passing of the award thereon.
Accordingly, petitioner has requested to set aside the impugned Award.
4. In pursuance of the suit summons the respondents 1 to 3 appeared through their counsel and filed statement of objections. In the statement of objections of respondents 1 to 3, it is contended that the grounds raised in this petition are wholly untenable and are liable to be rejected. The parties to the contract were very much aware,more so, the petitioner that under the Agreement, it was only Officers of the Railways who could be appointed as Members of the Arbitral Tribunal and having agreed to the said condition, it is impermissible for the petitioner to contend that the Tribunal was not impartial. The learned Arbitrators are Government Servants and they Act strictly in accordance with law and they have no personal bias in the subject matter and there were absolutely no circumstances which existed which could in any way give rise to justifiable doubts. Hence, their impartiality cannot be questioned.
4(a). The value of Contract Agreement dated 11.2.2003 was Rs.1,33,24,772.13. The completion period was 10 months. The Letter of Acceptance was issued by the respondent on 24.9.2002. The work could 7 Com.A.S.No.61/2009 not be completed in the stipulated original completion period and the respondents granted 6 extensions to the petitioner from time to time and the final extension was granted unto 31.7.2005. 15 part bills were paid to the petitioner from time to time for the work done by them to the tune of Rs.88,72,219/-. For the work of construction of the bridge entrusted to the petitioner, respondents have engaged another agency for foundation work, and as the said agency was lagging behind, the petitioner was entrusted with additional work of construction of pile with mutual consent. However, as the progress of work of piling being executed by other Agency was very slow, there was no scope for petitioner to progress further, and as a result, the petitioner requested for foreclosure of the agreement vied letter dated 13.6.2005 and accordingly respondents recorded the final measurement of the works done and prepared final bill. Petitioner has also submitted No- Claim Certificate in respect of the agreement which was signed by it on 1.10.2007 and accordingly final bill amount of Rs.1,75,759/- was paid to the petitioner and Security deposit of Rs.3,00,000/- was also released to the petitioner. Petitioner approached General Manager, Southern Railway, Chennai seeking arbitration on certain disputes raised by it duly submitting 11 claims on 5.3.2008. Accordingly Arbitral Tribunal consisting of respondent Nos.4 to 6 was constituted on 3.7.2008 duly advising the terms of reference which consist 8 claims and the remaining 3 claims were not included in the terms of reference as the Claims are coming under the 8 Com.A.S.No.61/2009 purview of excepted matters as per Clause-63 of General Conditions of Contract, which is binding on the petitioner. The Tribunal having considered statement of facts and claims, counter statements, additional documents, evidence and oral arguments in respect of disputes and difference, passed an Award on 18.5.2009, awarding an amount of Rs.4,96,000/- partly allowing two claims of the petitioner and rejecting the other six claims. Petitioner was asked to submit No-Claim Certificate in respect of the Award. As the petitioner denied but agreed to receive ch payment of award, an amount of Rs.5,12,959/- including post award interest @ 12% p.a. upto 29.8.2009 was paid. The learned Arbitrators have clearly mentioned their decision regarding Arbitrability of Claim Nos.1,2 & 8 in the Award dated 18.5.2009. Petitioner has not specified any of the Supreme Court's/High Court's Order to substantiate its claim.
4(b). It is further contended in the statement of objection that even though the work was commenced on 9.10.2002, petitioner could not complete the work in the original currency period inspite of the fact that there was enough scope for doing the work. Petitioner did not arrange sufficient men, machinery, equipments etc., to complete the work within the currency period. The petitioner had inspected the site and then quoted for the work and it was well aware of the quantum of work to be executed. The petitioner should have quoted for the work keeping all the facts in mind and the respondents are no way connected with the delay. When the 9 Com.A.S.No.61/2009 works was extended for 33 months, it was not because of respondents, but because of mismanagement and non-arrangement of men, materials, machinery equipments etc. Therefore, any price escalation on account of delay of work cannot be acceptable. Accordingly respondent Nos.1 to 3 have requested to dismiss the petition.
5. From the above, the following points have arisen for my consideration:
1. Whether petitioner has made out grounds to set aside the Arbitral Award on the ground that learned Arbitrators being the working Officers of Railways and they did not disclose to the parties in writing the circumstances likely to give rise to justifiable grounds as to their independence or impartiality ?
2. Whether petitioner has made out grounds to set aside the Arbitral Award on the ground that application filed by the petitioner under Sec.16 of the Arbitration & Conciliation Act, 1996 requesting the Arbitral Tribunal to consider as a preliminary issue regarding the arbitrability of claim Nos.1,2 & 8 has not been considered by the Arbitral Tribunal ?
3. Whether petitioner has made out grounds as contemplated under Sec.34(2) of Arbitration & Conciliation Act to set aside impugned Arbitral Award dismissing some of its claim ?
4. What Order ?
6. I have heard arguments of both sides and I have gone through the 10 Com.A.S.No.61/2009 written arguments submitted by the learned advocate for petitioner and I have carefully gone through the materials on record.
7. My findings to the above points are as under:
Point Nos. 1 to 3 : Negative
Point No.4 : As per final order
for the following:
REASONS
8. POINT NO.1 : It is submission of learned advocate for petitioner that the Arbitral Award is vitiated under law and it is liable to be set aside on the sole ground that learned Arbitrators are working Officers of the Railways against which claims were made by the petitioner and therefore learned Arbitrators were duty bound to disclose to the parties in writing the circumstances likely to give rise to justifiable grounds as to their independence or impartiality and same has not been done by them.
9. On the other hand, it is submission of learned advocate for railways i.e., respondent Nos.1 to 3 that the parties to the contract were very much aware that under the Agreement, it was only Officers of the railways who cold be appointed as Members of the Arbitral Tribunal and having regard to this condition, it is impermissible for the petitioner to contend that the Tribunal was partial. The Arbitrators are government servants and they conducted arbitral proceedings strictly as per the law, rules and procedure and apart from that, learned Arbitrators never dealt 11 Com.A.S.No.61/2009 with the subject matter of the Agreement being working as railway officers and therefore, their impartiality cannot be questioned by the petitioner.
10. As rightly submitted by the learned advocate for railways, parties to the contract were very much aware that under the Agreement, it was only Officers of the railways who could be appointed as members of the Arbitral Tribunal. Relevant Clauses under the Agreement for appointment of Arbitrators are Clauses 64(3)(a)(i) and 64(3)(a)(ii) and they are as under:
"64(3)(a)(i). Appointment of Arbitration Tribunal:-
In cases where the total value of all claims in question added together does not exceed Rs.10,00,000/- (Rupees ten lakhs only), the Arbitral Tribunal consist of a sole arbitrator who shall be either the General Manager or a gazetted officer of Railway not below the grade of JA grade nominated by the General Manager in that behalf. The sole arbitrator shall be appointed within 60 days from the day when a written and valid demand for arbitration is received by the Railway.
64(3)(a)(ii).
In cases not covered by clause 64(3)(a)(i), the Arbitral Tribunal shall consist of a panel of three Gazetted Railway officers not below JA grade, as the arbitrators. For this purpose, the Railway will send a panel of more than names of Gazetted Railway officers of one more departments, of the Railway to the Contractor who will be asked to suggest to the General Manager upto 2 names out of the panel for appointment as the Contractor's nominee. The General Manager shall appoint at least one out of them as the Contractor's nominee and will, also simultaneously appoint the balance number of arbitrators either from the panel or from outside the panel, duly indicating the 'presiding arbitrator' from amongst the 3 arbitrators so appointed. While nominating the arbitrators it will be necessary to ensure that one of them is from the Accounts Department. An officer of Selection Grade of the Accounts Department shall be considered of equal status to the officers in SA grade of other Departments of the 12 Com.A.S.No.61/2009 Railways for the purpose of appoint of arbitrators."
As per the above noted Clauses of the contract, petitioner had agreed to constitute Arbitral Tribunal by appointing three Gazetted Railway officers as Arbitrators. Among those three Railway Gazetted officers, one of them should be from the Accounts Department. An Officer of selection grade of the Accounts Department shall be considered of equal status to the officers in SA grade of other departments of Railways for the purpose of appointment of arbitrators. Accordingly respondent Nos. 4 to 6 herein were appointed as Arbitrators. Among them, respondent No.6 was Deputy Financial Advisor & Chief Accounts officer, Southern Railways. While appointing Arbitrators, the Dy.Gen.Manager, Southern Railway has taken due care of all the relevant clauses of the Agreement entered into between the parties. There is nothing to show that learned Arbitrators i.e., respondent Nos.4 to 6 herein had dealt with the subject matter of the Agreement in any way while working as Railway officers. After going through the nature of the Arbitral Award passed by the learned Arbitrators, it cannot be said that there are any grounds for the petitioner to question the independence or impartiality of learned Arbitrators. Hence, this Point No.1 is answered in the 'Negative'.
11. POINT NO.2 : It is submission of learned advocate for petitioner that Arbitral Award is vitiated since learned Arbitrators have failed to consider application filed by the petitioner under Sec.16 of the Arbitration 13 Com.A.S.No.61/2009 & Conciliation Act, 1996 to decide the arbitrability of claim Nos.1,2 & 8. But, learned Arbitrators have not taken this issue as preliminary issue for consideration and to record finding on it. Even in the main order also learned Arbitrators have excluded claim Nos1,2 & 8 of the petitioner/claimant on the ground that those claims have not been referred to the Tribunal. Accordingly, it is submission of learned advocate for petitioner that impugned Award, in not considering Claim Nos.1,2 & 8 of the petitioner/claimant is patently illegal and liable to be set aside.
12. On the other hand, it is submission of learned advocate for Railways that the petitioner demanded for inclusion of its claim Nos.1,2 & 8 in the terms of reference which were identified to be falling under excepted matters as per Clause-63 of general conditions of Contract and same was intimated to them by the office of Railways i.e., by the Chief Administrative Officer (Construction), Souther Railway, Chennai-3 on 9.9.2008 in reply to the petitioner's letter dated 15.8.2008. Arbitral Tribunal in para-24 of their Award dated 18.5.2009 have clearly mentioned their decision regarding arbitrability of claim Nos.1,2 & 8 of the petitioner/claimant. Further, it is also submission of learned advocate for Railways that those claim Nos.1,2 & 8 of the petitioner/claimant were falling under the excepted matters and therefore, Arbitral Award is not illegal and it is not vitiated under law due to non-consideration of claim Nos.1,2 & 8.
14Com.A.S.No.61/2009
13. After having heard both sides on point No.2, I have carefully gone through the claim Nos.1,2 & 8 of the petitioner/claimant and the relevant clauses of general conditions of the contract. At this stage, it is relevant to not that in para-24 of the impugned Award, it is stated that the terms of reference issued from General Manager, Southern Railways does not include Claim Nos.1,2 & 8 of the claim statement. The Claimant through its letter dated 26.11.2008 requested the preliminary issue about arbitrability of claim Nos.1,2 & 8. The Tribunal has decided that since these claims have not been referred to the Tribunal, these are beyond the terms of reference and hence, not arbitrated.
14. Claim No.1 made by the petitioner in his claim statement was for Rs.10 Lakhs towards 30% extra value of additional works done. Claim No.2 made by the petitioner/claimant in his claim statement was for Rs.14,99,510/- towards loss of profit due to undone portion of work. Claim No.8 of the claim statement of the petitioner/claimant was for Rs.10 Lakhs towards loss due to change in design of pile cap column and trestle beam.
15. It is undisputed fact that the petitioner was entrusted the job of construction of major bridge for which the work of foundation (pile and pile cap) was to be executed by another agency. Original completion period was for 10 months and it was extended to 33 months because of rains, non-availability of work site, because of slow progress of other 15 Com.A.S.No.61/2009 agency doing foundation work. Considering slow progress of work of other agency, part of that agency's work, pile caps were entrusted to the petitioner/claimant with mutual consent. Therefore, the above noted claim Nos.1 & 8 of the claim statement of the petitioner/claimant relate to extra work. It is necessary to go through the relevant clause-63 of the Agreement to ascertain as to whether petitioner/claimant was entitled to make claim Nos.1 & 8, which relate to extra work. Clause-63 of the Agreement reads as under:
" Matters finally determined by the Railway:- All disputes and differences of any kind whatsoever arising out of or in connection with the contract, whether during the progress of the work or after their completion and whether before or after the determination of the contract, shall be referred by the Contractor to the Railway and the Railway shall within 120 days after receipt of the Contractor's representation make and notify decisions on all matters referred to by the Contractor in writing provided that matters for which provisions has been made in clauses 8(a), 18, 22(5), 39, 43(2), 45(a), 55, 55-A(5), 57, 57-A, 61(1), 61(2) and 62(1)(B) of the General Conditions of Contract or in any clause of the special conditions of the contract shall be deemed as "excepted matters" and decisions of the Railway authority, thereon shall be final and binding on the Contractor; provided further that "excepted matters' shall stand specifically excluded from the purview of the arbitration clause and shall not be referred to arbitration."
It is also necessary to go through Clause-39(1) of the Agreement, which reads as under:
Clause-39(1). Rates for extra items of works:-
Any item of work carried out by the Contractor on the instructions of the Engineer which is not included in the accepted schedule of rates 16 Com.A.S.No.61/2009 shall be executed at the rates set forth in the "Southern Railway Engineering Department's Schedule of Rates" modified by the tender percentage and where such items are not contained in the latter, at the rates agreed upon between the Engineer and the Contractor before the execution of such items of work and the Contractor shall be bound to notify the Engineer at least seven days before the necessity arises for the execution of such items of works that the accepted schedule of rates does not include rate or rates for the extra work involved. The rates payable for such items shall be decided at the meeting to be held between the Engineer and Contractor, in as short a period as possible after the need for the special item has come to the notice. In case the Contractor fails to attend the meeting after being notified to do so or in the event of no settlement being arrived at, the Railway shall be entitled to execute the extra works by other means and the contractor shall have no claim for loss or damage that may result from such procedure."
From the above noted clause-39(1) & 63 of the General Conditions of Contract, it is crystal clear that claim Nos.1 & 8 made in the claim statement by the petitioner/claimant, which relate to extra work, which were not included in the contract and which were carried out by the petitioner/contractor, was excepted matter and rightly those claims were not referred by the Railways. Since they were not referred, learned Arbitrators have rightly not considered those claims.
16. Relating to Claim No.2 made in the claim statement is concerned, it is relevant to note that the petitioner/claimant made this Claim No.2 for Rs.14,99,510/- towards loss of profit due to undone portion of work. It was stated in the claim statement that during the execution of work,there was no scope of work to complete in full due to 17 Com.A.S.No.61/2009 non-completion of the works by other agency. Thereby heavy loss has been incurred to the Contractor. About 30% work was only done leaving 70% work in the scope of agreement for executing the work and the value has been assessed to compensate the loss of profit at Rs.14,99,510/-. This was not referred for arbitration.
17. As could be seen from the materials on record and also records produced and marked as exhibits in the Arbitral Tribunal, the agreement value was Rs.1,33,24,772.13. The completion period was 10 months. The letter of acceptance was issued by the Railways on 24.9.2002. The stipulated date of completion was 23.7.2003. The Agreement was entered into on 11.2.2003. The work could not be completed in the stipulated original completion period and as such, Railways granted six extensions to the Contractor from time to time and the final extension was granted upto 31.7.2005. It was contended by the Railways before the Arbitral Tribunal that 15 bills were paid to the Contractor from time to time totaling to Rs.88,72,219/-. Since the progress of the work of piling being executed by the other agency was very slow, contractor requested for foreclosure of the agreement by way of writing letter dated 13.6.2005, which came to be marked as Ex.P.8 in the Arbitral Tribunal without liability on either side. When Contractor requested the employer for foreclosure of the contract, without liability on either side and accordingly contract was closed, Contractor is not entitled to claim towards loss of profit due to undone 18 Com.A.S.No.61/2009 portion of work and due to this reason, claim No.2 of the claim statement was not referred for arbitration. Therefore, the impugned award is not vitiated and it is not illegal due to non-consideration of claim Nos.1,2 & 8 of the claim statement, which were not referred for arbitration. For these reasons, Point No.2 is answered in the 'Negative'.
18. POINT NO.3 : It is submission of learned advocate for petitioner and it is also contended in its written argument that learned Arbitrators have rejected claim Nos.3, 4 & 6 and and partly rejected claim No.5 of the petitioner/claimant on the ground that though original period of contract was for 10 months and petitioner/claimant could not execute the work within the original period and the delay is not attributable to the contractor, but time was extended 6 times for a period of 23 months from 23.7.2003 till 30.6.2005 on the request of the contractor and the time was extended on account of heavy rains, extended monsoon etc., and there is over riding clause in the agreement for the contractor to make additional claims for increased rates, idle charges etc., and the extension of time was made to execute the work on the agreed terms and rates and therefore, contractor is not entitled to make these claims. This observation of learned Arbitrators is patently illegal and it is against to the law and it is opposed to public policy of India. Further it is also submission of learned advocate for petitioner/claimant that there is no proper reasoning in the Award for rejecting the claims of the Contractor. Factually impugned Award is not 19 Com.A.S.No.61/2009 speaking Award. Accordingly learned advocate for petitioner/claimant has requested to set aside impugned Award. In support of this submission, learned advocate for petitioner/claimant has referred to several reported judgments of Hon'ble Apex Court and Hon'ble High Courts in his notes of arguments and further he has produced citation of Hon'ble Apex Court in 2003(2) Arb. LR 5(SC) (Oil & Natural Gas Corporation Ltd. Vs. SAW Pipes Ltd.) in which it is held that if the Arbitral Tribunal has not followed the mandatory procedure prescribed under the Act, it would mean that it has acted beyond its jurisdiction and thereby the Award would be patently illegal which could be set aside under Sec.34. However, the Award which is, on the face of it, patently in violation of statutory provisions cannot be said to be in public interest. Such Award/judgment is likely to adversely affect the administration of justice. Further learned advocate for petitioner/claimant has also placed citation of Hon'ble Apex Court in 2006(2) Arb. LR 498 (SC) (Mcdermott International Inc. Vs. Burn Standard Co.Ltd.) in which it is held that Arbitration & Conciliation Act 1996 makes provision for the supervisory role of courts for the review of the Arbitral Award only to ensure fairness. Intervention of the court is envisaged in few circumstances only, like, in case of fraud or bias by the Arbitrators, violation of natural justice etc. The court cannot correct errors of the Arbitrators. It can only quash the Award leaving the parties free to begin the arbitration again if it is desired. Further, learned advocate for 20 Com.A.S.No.61/2009 petitioner/claimant has also placed citation of Hon'ble High Court of Karnataka in 2010(Suppl.2) Arb. LR 33 (Karnataka) (DB) (The Chief Engineer, Karnataka Health Systems Development Project, Bangalore & Anr. Vs. J. Chengama Naidu & Anr.) in which it is held that neither a petition under Sec.34 of the Act nor an appeal against an order passed on such a petition is in the nature of an appeal against the Award of the Arbitrator, but the scope of an application under Sec.34 of the Act is only either to set aside the Award if the grounds as enumerated in Sec.34 of the Act are made out or to leave the Award as it is, without being disturbed. However, the Award should be speaking Award. Speaking Award means which contains reasons to support the conclusions or to indicate the basis for such conclusions. It is not the length of the order that matters to make an order a reasoned order, but it is the relevancy of the reasons given.
19. On the other hand, it is submission of learned advocate for respondent Nos.1 to 3/Railways that impugned Award has been passed by the learned Arbitrators after due consideration of various terms of the Agreement and the records produced by both sides and also after hearing both sides. Learned Arbitrators, though Gazetted Officers of the Railways, but they were working in different sections and places and they never dealt with the subject of Agreement at any point of time while they were working for Railways. They independently and as per the law and rules, have considered the materials placed by the parties and have passed Award 21 Com.A.S.No.61/2009 with reasonings. Scope of interference in such Award under Sec.34(2) of the Act, 1996 is limited and petitioner/claimant has not made such grounds to interfere and to set aside the impugned Award. Further it is also submission of learned advocate for Railways that even if second view is possible, the court cannot set aside the view taken by the Arbitrators and court cannot decide the petition under Sec.34 (2) of the Act 1996 as if by sitting in appeal against the Award. There is no scope for re-appreciation of the materials on record by the court. Accordingly, learned advocate for Railways has requested to dismiss the petition of the petitioner.
20. After having heard both sides relating to the Award passed by the learned Arbitrators with regard to the Claims made in the Claim Statement of the petitioner/claimant , I have carefully gone through the materials on record, terms and conditions of the Contractual Agreement entered into between the parties and also the proposition of law of Hon'ble Apex Court and Hon'ble High Courts, which are applicable to the facts and circumstances of the case on hand. At this stage it is material to note that Section 34(2) of the Arbitration & Conciliation Act 1996, relating to grounds to set aside Arbitral Award, reads as under:
" (2) An arbitral award may be set aside by the Court only if -
(a) the party making the application furnishes proof that -
(i) a party was under some incapacity; or
(ii) the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication 22 Com.A.S.No.61/2009 thereon, under the law for the time being in force; or
(iii) the party making the application was not given proper notice of the appointment of an arbitrator or the arbitral proceedings or was otherwise unable to present his case; or
(iv) the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration;
provided that, if the decision on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside; or
(v) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Part from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Part; or
(b) the Court finds that -
(i) the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or
(ii) the arbitral award is in conflict with the public policy of India.
(Explanation 1 - For the avoidance of any doubt, it is clarified that an award is in conflict with the public policy of India, only if,-
(i) the making of the award was induced or affected by fraud or corruption or was in violation of Section 75 or Section 81; or
(ii) it is in contravention with the fundamental policy of Indian law; or
(iii) it is conflict with the most basic notions of morality or justice.
Explanation 2 - For the avoidance of doubt, the test as to whether there is a contravention with the fundamental policy of Indian law shall not entail a review on the merits of the dispute.) (2-A) An arbitral award arising out of arbitrations other than international commercial arbitrations, may also be set aside by the court, if the court finds that the award is vitiated by patent illegality 23 Com.A.S.No.61/2009 appearing on the face of the award;
Provided that an award shall not be set aside merely on the ground of an erroneous application of the law or by re-appreciation of evidence."
21. It is held by Hon'ble Apex Court in (1989)1 SCC 411 (Puri Construction Private Limited Vs. Union of India) that the Court deciding objections against the award cannot examine correctness of the award on merits by re-appreciating evidence. When a court is called upon to decide the objections raised by a party against an Arbitration Award, the jurisdiction of the court is limited, as expressly indicated in the Arbitration Act, and it has no jurisdiction to sit in appeal and examine the correctness of the award on merits with reference to the materials produced before the Arbitrator. The court cannot sit in appeal over the views of the Arbitrator by re-examining and re-assessing the materials. Further, it is also held by Hon'ble Apex Court in (2015)5 SCC 698 (Navodaya Mass Entertainment Limited Vs. J.M Combines) that re-appraisal of material on record by the court and substituting its own view in place of arbitrator's view, not permissible in absence of perversity, merely because two views are possible. Once the Arbitrator has applied his mind to the matter before him, court cannot re-appraise said matter as if it were an appeal. Even if two views are possible, view taken by the Arbitrator would prevail.
22. By keeping in the mind the above proposition of law of Hon'ble Apex Court and also the nature of the provision of Section 34(2) of the Arbitration & Conciliation Act 1996, it is necessary to go through the 24 Com.A.S.No.61/2009 materials on record to find out as to whether petitioner/Contractor has made out grounds as contemplated under said Section 34(2) of the Act to set aside the Arbitral Award.
Summary of claim amount and award amount
Claims Claimed amount in Rs. Award amount in Rs.
Claim No.1 (original Claim 61,29,385/- Nil
No.3)- Monthly over head
charges included in the
extended period
(Rs.266495 x23 months)
Claim No.2 (original Claim 30,00,000/- Nil
No.4) - Payment of increase
in prices of all the materials
in the extended period of
contract due to delays and
defaults committed by the
department
Claim No.3 (original Claim 35,28,000/- 3,00,000/-
No.5) - Loss of advances
paid to skilled labourers/plant
and machinery
Claim No.4 (original Claim 77,52,000/- NIL
No.6) - Loss on account of
idling of machinery
Claim No.5 (Original Claim 5,56,000/- 1,96,000/-
No.7) - Loss of machinery
and material due to Flood
Claim No.6(Original Claim 7,00,000/- NIL
No.9)- Closure of contract
and finalisation of final
accounts
Claim No.7 (Original Claim 3,00,000/- NIL
No.10) - Refund of SD and
EMD
25
Com.A.S.No.61/2009
Claim No.8 (original Claim (Claim amount not NIL
No.11) - Award of interest quantified)
on all the above claims at
24% p.a.
2,19,65,835/- 4,96,000/-
plus interest @ 24% p.a.
Claim Nos.3 to 6 of the claim statement which was filed before the Arbitral Tribunal are as under:
Claim No.3 : Monthly overhead charges included in the extended period (Rs.2,66,495 x 23 months) = Rs.61,29,385/-.
Claim No.4 : Payment of increase in prices of all the materials in the extended period of contract due to delays and defaults committed by the department = Rs.30,00,000/-
Claim No.5 : Advances paid to skilled labours/plant and machinery =Rs.35,28,000/-
Claim No.6 : Loss on account of idling of machinery = Rs.77,52,000/-
Petitioner/claimant has made above noted claim Nos.3 to 6 on the ground that the delay in completion of the work was due to several defaults and breaches of contract committed by the Railways and as such, extension of time was made six times. Petitioner/claimant was made to execute substantial portion of work in the extended period beyond the stipulated date of completion and thereby suffered huge damage and incurred extra expenditures. The extended period is from 18.7.2003 to 30.6.2005 i.e., 23 26 Com.A.S.No.61/2009 months for which extra expenditure was incurred towards monthly overhead charges. During this delay of 23 months, price of inputs increased abnormally. The value of the work as originally accepted work order was Rs.1,33,24,772/-. Due to abnormal increase in the price of all the materials during the extended period of 23 months, Railways has to compensate the petitioner by making payment of equitable rates at 60% extra over and above the quoted rates. During the execution of the work, no mobilization advance for plant and equipment have been taken from Railways since completion period was 10 months. Execution of the work requires plant and machinery and skilled labourers and Petitioner/claimant arranged these machinery and skilled labourers by making advance payments. Due to intermittent piecemeal handing over of the scope of work at site in random bits from time to time, the skilled labourers ran away for want of continuous engagement and due to this reason, both skilled and unskilled labourers were brought about five times by paying huge advances which resulted in a loss of Rs.35,28,000/-. Petitioner/claimant had to keep men and machinery idle for about 8 months during the agreement period and also in the extended period of contract. Accordingly, Petitioner/claimant has made these Claim Nos.3 to 6 in its claim statement filed before the Arbitral Tribunal.
23. Railways has denied these claims of the Petitioner/claimant on the ground that the contract period was extended six times between 27 Com.A.S.No.61/2009 24.7.2003 to 31.7.2005 as requested by the Contractor and as agreed by the Railways, with a condition that the pending works would be executed at the agreement rate/conditions. Accordingly contractor executed the work during the extended period at the same agreed rates and conditions of the original agreement. During this extended period, the contractor has executed the work for Rs.19,47,978/- which is only 68% of the scope of work and therefore, claim of the Contractor for payment of increased price of all the materials in the extended period of contract cannot be accepted. Contractor should have known how to keep labour/machinery and after expiry of the original period of contract, Contractor was in the habit of seeking extensions and accordingly time was extended six times. There was no mention about the advance payments made to skilled labourers, in the request for extension of time. There is no correspondence about idling of men and machinery. As per the contractual terms, Contractor is not entitled to make these claims.
24. After going through the terms of agreement and materials placed by both sides and also after hearing both sides, learned Arbitrators have rejected Claim No.3 of the Contractor on the ground that after completion of original period of contract, requests were made by the Contractor six times for extension of time. Requests made by the Contractor 4 times were purely on account of heavy rains and extended monsoon etc. To compensate the Contractor, Railways had entrusted additional work of sub-
28Com.A.S.No.61/2009 structure (pile cap construction). Therefore, Contractor is not entitled to claim the monthly overhead charges on the basis of Hudson Formula. Learned Arbitrators have rejected Claim no.4 of the Contractor with the observation that the Contractor could not give the basis for increase of 60% in the rates of materials. Contractor had undertaken to complete the work in the extended period at the same agreed terms and conditions and rates and also signed the rider agreements and therefore Contractor is not entitled to the claim for payment of increase in price of all the materials. Learned Arbitrators partly allowed Claim No.5 of the Contractor and awarded Rs.3,00,000/- as against the claim of Rs.35,28,000/- of the Contractor with the observation that Contractor has pleaded that it had brought labourer, plant and machinery after paying advance amount, and due to piecemeal handing over of scope of work at site and subsequent stoppage of work, it could not recoup the amount from labourers and suffered a loss of Rs.35,28,000/- on this account. But, contractor has not furnished break-up statement relating to the skilled labourers, unskilled labourers, plant and machinery which is of general nature like vibrators, excavators etc. Against the agreement value of Rs.1.33 Crores, Contractor has been paid around Rs.90 Lakhs and therefore, the question of not being able to extract work from hired labour and plant and machinery is not sustainable especially with respect to unskilled labourers and other plant and machinery mentioned in the claim statement which is of very general 29 Com.A.S.No.61/2009 nature. Accordingly, learned Arbitrators have awarded Rs.3 lakhs only under this head. Further, learned Arbitrators have rejected Claim No.6 of the Petitioner/claimant for the reasons that the Contractor in his claim statement has claimed an amount of Rs.77,52,000/- under Claim No.6 for idling of men and machinery for about 8 months during the agreement period and also in the extended period of contract. Some break-up of idling period is furnished in statement-5 for the over lapping periods. But, during the hearing, the Contractor revised the idling time from 8 months to 4½ months and stated that they need to be compensated at 17.64 lakhs per month. Again in the final statement dated 27.4.2009, Contractor has stated that the idling charges are worked out at Rs.13.41 lakhs per month for a period of 4½ moths. Further, Contractor also stated that in a contract of this type of work, cost of plant and machinery and labor is around 50% of the total cost of the work. Even considering this version of the contractor and considering the original agreement value as Rs.1.33 Crores with a completion period of 10 months, the total plant and machinery and labour component will work out to Rs.67 Lakhs spread over a period of 10 months. Thus even considering the Contractor's version, monthly expenditure towards plant and machinery should be around Rs.6.7 Lakhs per month. This will include all machinery and labour including contractor's own plant and machinery as well as hired machinery. Therefore, Contractor is not entitled to claim loss on account of idling 30 Com.A.S.No.61/2009 machinery.
25. It is necessary to note the terms of the agreement for extension of time. Clause-17-A(ii) & (iii) provides for extension of time with certain terms and conditions which are as under:
"17-A(ii) Extension for delay not due to Railway/Contractor:- If in the opinion of the Engineer the progress of work has any time been delayed by any Act or neglect of Railway's employees or by other contractor employed by the Railway under sub-clause (4) of clause 20 of these conditions or in executing the work not forming part of the contract but on which Contractor's performance necessarily depends or by reason of proceedings taken or threatened by or dispute with adjoining or to neighbouring owners or public authority arising otherwise through the Contractor's own default etc., or by the delay authorised by the Engineer pending arbitration or in consequences of the Contractor not having received in due time necessary instructions from the Railway for which he shall have specially applied in writing to the Engineer or his authorized representative then upon happening of any such event causing delay, the Contractor shall immediately give notice thereof in writing to the Engineer within 15 days of such happening and shall do all that may be reasonably required of him to the satisfaction of the Engineer to proeed with the works. The Contractor may also indicate the period for which the work is likely to be delayed and shall be bound to ask for necessary extension of time. The Engineer on receipt of such request from the Contractor shall consider the same and shall grant such extension of time as in his opinion is reasonable having regard to the nature and period of delay and the type and quantum of 31 Com.A.S.No.61/2009 work affected thereby. No other compensation shall be payable for works so carried forward to the extended period of time, the same rates, terms and conditions of contract being applicable as if such extended period of time was originally provided in the original contract itself.
(The above is undelined by me)
(iii) Extension of time for delay due to Railway :- In the event of any failure or delay by the Railway to hand over the Contractor possession of the lands necessary for the execution of the works or to give the necessary notice to commence the works or to provide the necessary drawings or instructions or any other delay caused by the Railway due to any other cause due whatsoever, then such failure or delay shall in no way affect or vitiate the contract or alter the character thereof or entitle the Contractor to damages or compensation therefor but in any case, the Railway may grant such extension or extensions of the completion date as may be considered reasonable."
(The above is underlined by me) The above noted clauses of the agreement provide for the extension of time to complete the work by the contractor. Clause-17-A(ii) of the agreement provides for extension of time for the delay not attributable to the Railway or contractor. As per this clause, the contractor was required to ask for necessary extension of time if there was delay not attributable to both the parties to the agreement and if in the opinion of the Engineer the progress of work has been delayed by any act or neglect of Railway's employees or any other contractor employed by the Railway under clause-20(4) of the Agreement and if such request is made by the contractor, the Railways 32 Com.A.S.No.61/2009 shall grant such extension of time as in its opinion is reasonable. The above noted underlined portion of clause-17-A(ii) specifically shows over rider for the contractor to claim revised rates or increased rates for the work executed in the extended period of time. Contractor shall execute the work in the extended period of time at the same agreed rates, terms and conditions of the contract being applicable as if such extended period of time was originally provided in the original contract itself. Similarly, clause-17-A(iii) also provides for extension of time for the delay attributable to the Railways. As per this clause, in the event of any failure or delay by the Railway to handover the contractor possession of the lands or to give the necessary notice to the contractor to commence the work or to provide necessary drawings or instructions or any other delay caused by the Railway, then such failure or delay shall in no way affect or vitiate the contract or alter the character thereof or entitle the contractor to the damages or compensation thereof, except the Railway may grant such extension or extensions of the completion date as may be considered reasonable. In view of these clauses of the agreement, which create rider to the contractor for making these claim nos. 3 to 6, there are no grounds to interfere in the findings recorded by the learned Arbitrators relating to claim nos.3 to 6 since under the circumstances of this case findings recorded to these claims cannot be considered as patently illegal or opposed to public policy of India.
33Com.A.S.No.61/2009
26. Petitioner/claimant made claim No.7 in his claim statement filed before the Arbitral Tribunal claiming Rs.5,56,000/- towards loss of machinery and material due to flood on the ground that it had brought required construction materials shuttering and mixtures at site for construction of pile cap of pier No.14. However for want of change of design, the work was stopped for nearly 50 days and in between there was sudden flood in which all his construction materials were washed away. In support of this claim, petitioner/claimant had furnished break-up of various materials washed away at the site and also photographs showing some of the materials collected at site and photographs of the floods. After going through the materials placed on record, learned Arbitrators have awarded Rs.1.96 Lakhs under this claim No.7 as against claim made for Rs.5,56,000/-, with the observation that there is no specific denial from the side of Railways stating that there was no such incidents of floods. Accordingly learned Arbitrators inclined to accept that petitioner/claimant sustained some loss on account of the materials washed away in the flood. After observing the photographs and reinforcement tied for the pile cap was in position after the floods, learned Arbitrators considered the claim of the petitioner/claimant towards cement, aggregate, sand and shuttering materials and accordingly awarded Rs.1.96 Lakhs. I have also carefully gone through the materials on record. Except break-up statement of the materials and also photographs furnished by the petitioner/claimant before 34 Com.A.S.No.61/2009 the Arbitral Tribunal, there are no other supportive materials to show the quantum of materials that were washed away in the flood and also its exact value. Therefore, there are no reasons to set aside this award made by the learned Arbitrators to the claim No.7 of the contractor.
27. Contractor has made Claim No.9 for Rs.7,00,000/- for closure of contract and finalisation of final accounts and claim No.10 for Rs.3,00,000/- for refund of SD and EMD. As could be seen from the Award and now it is also admitted by both the sides during the course of argument that these claims have already been settled as observed in the Award.
28. Claim No.11 made by the Contractor is for interest at 24% per annum on the award amount. But learned Arbitrators awarded interest at the rate of 12% per annum from the date of Award on the awarded amount of Rs.4,96,000/-. There are no reasons to set aside this portion of the award relating to interest is concerned.
29. For the above discussed reasons, impugned Arbitral Award is not patently illegal and it is not against to the public policy and there are no grounds to set aside the Award. For these reasons, Point No.3 is answered in the 'Negative'.
30. POINT NO. 4: For the reasons stated above, I proceed to pass the following:
35Com.A.S.No.61/2009 ORDER This petition filed under Sec.34(2) of the Arbitration & Conciliation Act,1996 is dismissed.
Under the facts & circumstances of this case, both parties shall bear their own cost.
(Dictated to the Judgment Writer, typed by her, corrected and then pronounced by me in Open Court, on this the 8th day of January, 2020.) (JAGADEESWARA.M.) LXXXII Addl. City Civil & Sessions Judge, Bengaluru.