Madras High Court
The Chief Engineer/Cn/South/Ms vs M/S.M.R.K.R.Rail One (J.V.) on 8 April, 2019
Author: M.Sundar
Bench: M.Sundar
1
IN THE HIGH COURT OF JUDICATURE AT MADRAS
Dated : 08.04.2019
Coram
THE HONOURABLE MR. JUSTICE M.SUNDAR
O.P.No.1067 of 2018
1.The Chief Engineer/CN/South/Ms
Southern Railway
Egmore,
Chennai – 600 008.
2.The Deputy Chief Engineer
Construction/III/Madurai
Southern Railway
Arasarady
Madurai. .. Petitioners
vs.
M/s.M.R.K.R.Rail One (J.V.)
Ref by authorized signatory
B.V.V.Krishna Reddy
No.8-2,268/1/b/12, Arora Colony-II
Road No.2, Banjara Hills
Hyderbad – 500 034. ... Respondent
Original Petition filed under Section 34 of the Arbitration and Conciliation
Act, 1996, to set aside the Arbitral award dated 22.05.2018 passed by the
learned Arbitrator in disputes arising out the agreement No.04/ERS/CN/2010
dated 26.10.2010 in so far as the award of pendentelite interest at 10% for a
sum of Rs.4,75,26,814/- from April 2017 till the date of award dated
22.05.2018 is concerned.
For Petitioners : Mr.P.T.Ramkumar
For Respondent : Mr.V.Sivakumar
http://www.judis.nic.in
2
ORDER
Instant 'Original Petition' ('OP' for brevity) has been filed under Section 34 of 'The Arbitration and Conciliation Act, 1996' ('A & C Act' for brevity) assailing an 'arbitral award dated 22.05.2018' ('impugned award' for brevity) made by an 'Arbitral Tribunal' ('AT' for brevity) constituted by a sole Arbitrator, who is a former Hon'ble Judge of this Court.
2. Section 34 in the scheme of A & C Act finds its slot under Chapter VII of A & C Act, which is captioned 'RECOURSE AGAINST ARBITRAL AWARD'. A perusal of Section 34 of A & C Act also reveals that recourse to Court against an arbitral award may be made by an 'application'. Also to be noted, the very caption to Section 34 of A & C Act reads 'APPLICATION FOR SETTING ASIDE AN ARBITRAL AWARD'. Be that as it may, such recourse against an arbitral award is being assigned the nomenclature 'Original Petition' in this Registry.
Therefore, I shall refer to the instant proceedings as 'OP' for the sake of convenience and clarity.
3. There are two petitioners and a sole respondent in the instant OP.
The 'two petitioners' shall be referred to as 'Southern Railways' and the 'sole respondent' shall be referred to as 'contractor', both for the sake of brevity, convenience and clarity.
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4. Mr.P.T.Ramkumar, learned Standing Counsel for Southern Railways and Mr.V.Sivakumar, learned counsel on record for the contractor are before this Court.
5. From the submissions made by both learned counsel, it comes to light that the entire matter turns on an extremely narrow compass.
6. Southern Railways, invited tenders for execution of Railway work in the nature of Gauge Conversion in Quilon – Virudunagar Section. The said notice inviting tender is dated 15.06.2009. Contractor, who is admittedly eligible to participate in the said tender, participated in the same on 04.08.2009. The contractor's bid was accepted and 'Letter of Acceptance' ('LOA' for brevity), dated 22.06.2010 bearing reference No.W.496/CN/ERS/OTT/03/2009/2 was issued by the Southern Railways, wherein and whereby the work had to be completed within twenty months from the date of issue of LOA.
7. However, it is contractor's case that the railway line section in which, the work had to be done was not closed for traffic, owing to which the work was delayed. It is also the contractor's case that there was delay in supply of approved drawing and Engineers were not posted. Considering the narrow compass on which the instant OP turns, it may not be necessary to advert to http://www.judis.nic.in 4 those aspects of the matter in great detail.
8. Suffice to say that the parties resorted to arbitration, AT which was constituted by a sole Arbitrator, entered reference and arbitral proceedings were conducted. Before the AT, contractor is the sole claimant and Southern Railways (collectively) are the two respondents.
9. Before AT, contractor made claims under 10 different heads and Southern Railways made a counter claim.
10. As mentioned supra, owing to the extremely narrow scope on which instant OP turns (in the light of submissions made by both learned counsel before this Court today) it is not necessary to advert to the claims and counter claim in detail.
11. Suffice to say that both the learned counsel submitted that 'General Conditions of Contract' ('GCC' for brevity), which is in the nature of a template, governs the contract/agreement between the Southern Railways and Contractor, in the instant case.
12. From the submissions made before this Court, it comes to light that two covenants in the GCC assume significance, those two covenants being http://www.judis.nic.in 5 Clause 16 and Clause 64(5).
13. Clause 16 of GCC reads as follows:
16. Security Deposit: -(1) The Earnest Money deposited by the Contractor with his tender will be retained by the Railways as part of security for the due and faithful fulfillment of the contract by the Contractor. The balance to make up the security deposit, the rates for which are given below, may be deposited by the Contractor in cash or may be recovered by percentage deduction from the Contractor's on account bills. Provided also that in case of defaulting contractor, the Railway may retain any amount due for payment to the Contractor on the pending "on account bills" so that the amounts so retained may not exceed 10% of the total value of the contract.
(2) Unless otherwise specified in the special conditions, if any, the Security Deposit/rate of recovery/mode of recovery shall be as under:
(a)Security Deposit for each work should be 5% of the contract value,
(b)The rate of recovery should be at the rate of 10% of the bill amount till the full security deposit is recovered,
(c)Security Deposits will be recovered only from the running bills of the contract and no other mode of collecting SD such as SD in the form of instruments like BG (except Note (ii) below); FD etc. shall be accepted towards Security Deposit.
Security Deposit shall be returned to the contractor after the expiry of the maintenance period in all the cases other than Note
(i) mentioned below and after passing the final bill based on No http://www.judis.nic.in 6 Claim Certificate with the approval of the Competent Authority. The Competent Authority shall normally be the authority who is competent to sign the contract. If this Competent Authority is of the rank lower than JA Grade, then a JA Grade Officer (concerned with the work) should issue the certificate. The certificate, inter alia, should mention that the work has been completed in all respects and that all the contractual obligations have been fulfilled by the contractor and that there is no due from the contractor to Railways against the contract concerned. Before release the SD, an unconditional and unequivocal no claim certificate from the contractor concerned should be obtained. Note:-
(i) After the work is physically completed, security deposit recovered from the running bills of a contractor can be returned to him of he so desires, in lieu of FDE/irrevocable Bank Guarantee for equivalent amount to be submitted by him.
(ii) In case of contracts of value Rs.50 crore and above, irrevocable Bank Guarantee can also be accepted as a mode of obtaining security deposit.
(3) No interest will be payable upon the Earnest Money and Security Deposit or amounts payable to the Contractor under the Contract, but Government Securities deposited in terms of Sub-
Clause (1) of this clause will be payable with interest accrued thereon.
(4) Performance Guarantee (P.G) The procedure for obtaining Performance Guarantee is outlined below:
(a)The successful bidder may give Performance Guarantee amounting to 5% of the contract value in any of the following forms:-
http://www.judis.nic.in 7 i.a deposit of Cash.
ii.Irrevocable Bank Guarantee.
iii.Government Securities including State Loan Bonds at 5 percent below the market value, iv.Deposit Receipts, Pay Orders, Demand Drafts and Guarantee Bonds. These forms of Performanc Guarantee could be either of the State Bank of India or of any of the Nationalized Banks;
v.Guarantee Bonds executed or Deposits Receipts tendered by all Scheduled Banks;
vi.A Deposit in the Post Office Saving Bank; vii.A Deposit in the National Savings Certificates; viii.Twelve years National Defence Certificates; ix.Ten years Defence Deposits;
x.National Defence Bonds; and xi.Unit Trust Certificates at 5 per cent below market value or at the face value whichever is less.
Also FDR in favour of FA&CAO/C, (free from any encumbrance) may be accepted.
NOTE: The instruments as listed above will also be acceptable for Guarantees in case of Mobilization advance.
(b)The Performance Guarantee shall be submitted by the successful bidder after the letter of acceptance has been issued, but before signing of the agreement. The agreement should normally be signed within 15 (fifteen) days after the issue of LOA and the Performance Guarantee shall also be submitted within this time limit. This guarantee shall be initially valid upto the stipulated date of completion plus 60 days beyond that. In case, the time limit for completion of work gets extended, the contractor shall give the validity of Performance Guarantee extended to cover such extended time for completion of work plus http://www.judis.nic.in 8 60 days.
(c)The Performance Guarantee (PG) shall be released after the physical completion of the work based on the 'Completion Certificate' issued by the competent authority stating that the contractor has completed the work in all respects satisfactorily. The security deposit, however, shall be released only after the expiry of the maintenance period and after passing the final bill based on 'No Claim Certificate'.
(d)Wherever the contract is rescinded, the security deposit shall be forfeited and the Performance Guarantee shall be encashed and the balance work shall be got done independently without risk and cost of the failed contractor, the failed contractor shall be debarred from participating in the tender for executing the balance work. If the failed contractor is a JV or a partnership form, then every member/partner of such a firm shall be debarred from participating in the tender for the balance work either in his/her individual capacity or as a partner of any other JV/ partnership firm.
(e)The Engineer shall not make a claim under the Performance Guarantee except for amounts to which the President of India is entitled under the contract (not withstanding and/or without prejudice to any other provisions in the contract agreement) in the event of:
i.Failure by the contractor to extend the validity of the Performance Guarantee as described hereinabove, in which event the Engineer may claim the full amount of the Performance Guarantee ii.Failure by the contractor to pay President of India any amount due, either as agreed by the contractor or determined under any of the Clauses/Conditions of the agreement, withint 30 days of the service of the notice http://www.judis.nic.in 9 to this effect by Engineer.
iii.The contract being determined or rescinded under provision of the GCC the Performance Guarantee shall be forfeited in full and shall be absolutely at the disposal of the President of India.'
14. Clause 64(5) of GCC reads as follows:
'64(5) Where the arbitral award is for the payment of the money, no interest shall be payable on whole or any part of the money for any period till the date on which the award is made.'
15. A perusal of the impugned award reveals that no oral evidence was let-in before the AT, but 74 documents being Ex.C1 to C74 on the side of the claimant/contractor and 48 documents on the side of Southern Railways being Exs.R1 to R48 were marked by consent. Prior to the documents being marked, as many as 14 issues were farmed on the basis of rival pleadings. Ultimately, after the oral hearings and arbitral proceedings, AT vide impugned award directed Southern Railways to pay a sum of little over Rs.4.75 crores together with 10% interest 'per annum' (hereinafter 'p.a.' for brevity) from the date of petition to the date of payment. AT also directed the claimant/contractor to pay a sum of little over Rs.7.47 lakhs towards counter claim of Southern Railways. This was with interest at the rate of 10% p.a. from the date of counter claim till the date of the award.
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16. The operative portion of the impugned award is paragraph 64 and the same reads as follows:
'64. In the result,
a) An award is passed directing the respondents to pay a sum of Rs.4,75,26,814/- (four crores seventy five lakhs twenty six thousand eight hundred and fourteen only) with interest thereon at the rate of 10% per annum from the date of petition, till the date of payment, rejecting the rest of the claim.
b) Further, an award is passed directing the Claimant to pay a sum of Rs.7,47,888/- (seven lakhs, forty seven thousand eight hundred and eighty eight only) as counter claim, with interest thereon at 10% per annum from the date of counter till this day, since this amount is ordered to be deducted from the amount payable by respondents, as per clause 'c'.
c) The respondents are permitted to deduct the counter claim amount, from the award (a) amount payable to the complainant instead of going for enforcement separately.
d) The parties have succeeded, in part in their respective claims. Considering this fact and other attending circumstances, they are directed to bear their respective costs.'
17. Now reverting to the hearing in instant OP before this Court, the reason why it has been alluded to supra that instant OP turns on a very narrow compass is, learned counsel for Southern Railways, on instructions, submitted that Southern Railways is not disputing the award amount and in fact it has http://www.judis.nic.in 11 paid the same, albeit, after deducting the counter claim. It was submitted that the only issue that is being canvassed before this Court is interest and that is also limited to pendentie -lite interest. In other words, interest post award is not called in question.
18. Learned counsel for contractor, on instructions, submits that the contractor has in fact received the award amount from Southern Railways, less counter claim, but the only point raised by learned counsel for contractor is that Southern Railways while deducting the counter claim has added interest at the rate of 10% p.a. to the counter claim amount. It was submitted that if pendente lite interest is not applicable to Southern Railways, in the light of Clauses 16 and 64(5) of GCC, it is not applicable to the contractor also.
19. Faced with the above situation, learned counsel for Southern Railways, on instructions, submitted that Southern Railways shall payout to the contractor the pendente lite interest component which has been added to the counter claim while deducting the same from the monies already paid by Southern Railways to the contractor under the award. Learned counsel on instructions submitted that this will be done within eight weeks from the date of this order. This is recorded.
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20. In the light of the narrative supra, it comes to light that pendente lite interest is the only point that is being canvassed.
21. Therefore, as already mentioned supra, only two Clauses in GCC viz., 16 and 64(5) become relevant.
22. Learned counsel for Southern Railways, refers to a judgment made by a Hon'ble Single Judge of this Court in Deputy Chief Engineer (Construction) V Vishal Constructions reported in 2018(3) CTC 285. It was pointed out that the same two clauses viz., 16 and 64(5) of GCC were interpreted and this Court held that pendente lite interest cannot be imposed. Relevant paragraphs in Vishal Construction case law are paragraphs 6, 7, 16, 22 and 29, which read as follows:
'6.Clause 16 of the General Conditions of Contract (in short 'GCC'), which forms part of the contract inter se the parties, comes under the heading 'General Obligations'. Therefore, this provision obligates the parties to perform their roles where there is no dispute. Clause 16 speaks about the 'security deposit' and the manner in which it has to be dealt with. The aforesaid provision is extracted hereunder:
16. Security Deposit: -(1) The Earnest Money deposited by the Contractor with his tender will be retained by the Railways as part of security for the due and faithful fulfillment of the contract by the Contractor. The balance to make up the security deposit, the rates for which are given below, may be deposited by http://www.judis.nic.in 13 the Contractor in cash or may be recovered by percentage deduction from the Contractor's on account bills. Provided also that in case of defaulting contractor, the Railway may retain any amount due for payment to the Contractor on the pending "on account bills" so that the amounts so retained may not exceed 10% of the total value of the contract.
(2) Unless otherwise specified in the special conditions, if any, the Security Deposit/rate of recovery/mode of recovery shall be as under:
(a)Security Deposit for each work should be 5% of the contract value,
(b)The rate of recovery should be at the rate of 10% of the bill amount till the full security deposit is recovered,
(c)Security Deposits will be recovered only from the running bills of the contract and no other mode of collecting SD such as SD in the form of instruments like BG (except Note (ii) below); FD etc. shall be accepted towards Security Deposit.
Security Deposit shall be returned to the contractor after the expiry of the maintenance period in all the cases other than Note
(i) mentioned below and after passing the final bill based on No Claim Certificate with the approval of the Competent Authority. The Competent Authority shall normally be the authority who is competent to sign the contract. If this Competent Authority is of the rank lower than JA Grade, then a JA Grade Officer (concerned with the work) should issue the certificate. The certificate, inter alia, should mention that the work has been completed in all respects and that all the contractual obligations have been fulfilled by the contractor and that there is no due from the contractor to Railways against the contract concerned. Before release the SD, an unconditional and unequivocal no claim http://www.judis.nic.in 14 certificate from the contractor concerned should be obtained. Note:-
(i) After the work is physically completed, security deposit recovered from the running bills of a contractor can be returned to him of he so desires, in lieu of FDE/irrevocable Bank Guarantee for equivalent amount to be submitted by him.
(ii) In case of contracts of value Rs.50 crore and above, irrevocable Bank Guarantee can also be accepted as a mode of obtaining security deposit.
(3) No interest will be payable upon the Earnest Money and Security Deposit or amounts payable to the Contractor under the Contract, but Government Securities deposited in terms of Sub-
Clause (1) of this clause will be payable with interest accrued thereon.
(4) Performance Guarantee (P.G) The procedure for obtaining Performance Guarantee is outlined below:
(a)The successful bidder may give Performance Guarantee amounting to 5% of the contract value in any of the following forms:-
i.a deposit of Cash.
ii.Irrevocable Bank Guarantee.
iii.Government Securities including State Loan Bonds at 5 percent below the market value, iv.Deposit Receipts, Pay Orders, Demand Drafts and Guarantee Bonds. These forms of Performanc Guarantee could be either of the State Bank of India or of any of the Nationalized Banks;
v.Guarantee Bonds executed or Deposits Receipts tendered by all Scheduled Banks;
vi.A Deposit in the Post Office Saving Bank;
http://www.judis.nic.in 15 vii.A Deposit in the National Savings Certificates; viii.Twelve years National Defence Certificates; ix.Ten years Defence Deposits;
x.National Defence Bonds; and xi.Unit Trust Certificates at 5 per cent below market value or at the face value whichever is less.
Also FDR in favour of FA&CAO/C, (free from any encumbrance) may be accepted.
NOTE: The instruments as listed above will also be acceptable for Guarantees in case of Mobilization advance.
(b)The Performance Guarantee shall be submitted by the successful bidder after the letter of acceptance has been issued, but before signing of the agreement. The agreement should normally be signed within 15 (fifteen) days after the issue of LOA and the Performance Guarantee shall also be submitted within this time limit. This guarantee shall be initially valid upto the stipulated date of completion plus 60 days beyond that. In case, the time limit for completion of work gets extended, the contractor shall give the validity of Performance Guarantee extended to cover such extended time for completion of work plus 60 days.
(c)The Performance Guarantee (PG) shall be released after the physical completion of the work based on the 'Completion Certificate' issued by the competent authority stating that the contractor has completed the work in all respects satisfactorily. The security deposit, however, shall be released only after the expiry of the maintenance period and after passing the final bill based on 'No Claim Certificate'.
(d)Wherever the contract is rescinded, the security deposit shall be forfeited and the Performance Guarantee shall be encashed http://www.judis.nic.in 16 and the balance work shall be got done independently without risk and cost of the failed contractor, the failed contractor shall be debarred from participating in the tender for executing the balance work. If the failed contractor is a JV or a partnership form, then every member/partner of such a firm shall be debarred from participating in the tender for the balance work either in his/her individual capacity or as a partner of any other JV/ partnership firm.
(e)The Engineer shall not make a claim under the Performance Guarantee except for amounts to which the President of India is entitled under the contract (not withstanding and/or without prejudice to any other provisions in the contract agreement) in the event of:
i.Failure by the contractor to extend the validity of the Performance Guarantee as described hereinabove, in which event the Engineer may claim the full amount of the Performance Guarantee ii.Failure by the contractor to pay President of India any amount due, either as agreed by the contractor or determined under any of the Clauses/Conditions of the agreement, withint 30 days of the service of the notice to this effect by Engineer.
iii.The contract being determined or rescinded under provision of the GCC the Performance Guarantee shall be forfeited in full and shall be absolutely at the disposal of the President of India.'
7.As per sub-clause (3) of Clause 16, no interest is payable upon the Earnest Money and Security Deposit or amounts payable to the contractor under the contract. On a simple reading of this provision, it is clear that while it requires the Railways to pay the Earnest Money and Security Deposit or any amount payable under http://www.judis.nic.in 17 the contract, the same will not be visited with any interest.
Though the principle governing ejusdem generis would not be applicable in strict terms, it is quite clear that this provision does not envisage any dispute between the parties. In other words, it involves a situation in which the Railways is bound to make the payment towards Earnest Money and Security Deposit and other amount payable under the contract. However, while doing it so, in the event of any possible delay, the contractor is not entitled for any interest. The exception was for the Government Security deposit as it augments accrued interest. Therefore, sub-clause (3) of Clause 16 of the GCC provides for mere payment due to a contractor sans interest. To put it differently, this provision does not take in its sweep a claim or dispute over return of Earnest Money and Security Deposit and any other amount payable under the contract. Therefore, Clause 16(3) is a distinct provision by itself.
16.At this juncture, it is pertinent to note that as per Clause 64 (7) of the GCC, it has been specifically made known that the provisions of the Arbitration Act and the Rules made thereunder shall apply to the arbitration proceedings.
22.We are concerned with the power of the Tribunal to pass an award for interest prior to the pronouncement when it involves payment of money. When once the role of the Tribunal is defined and thus, prohibited from going into certain claims, the same cannot be allowed in a different form. Otherwise, it will amount to setting aside the very clauses themselves. When it is found that the clauses are not unlawful and entered into voluntarily by the parties, then the Tribunal will have to give http://www.judis.nic.in 18 effect to it rather than go against. The same logic applies to this Court as well. When the Tribunal exceeded its jurisdiction and undertakes such an exercise, then the power under Section 34 of the Arbitration Act has to be exercised with certainty.
29. A similar view has also been expressed by a Division Bench of Andhra Pradesh High Court in V.K.Engineering Constructions, referred supra, in the following manner:
'55.Even the submission of the learned counsel for the 1st respondent that fact that GCC of December, 1998 contains specific prohibitory clause in Clause 64(5), reading thus:
64(5) Where the arbitral award is for the payment of the money, no interest shall be payable on whole or any part of the money for any period till the date on which the award is made.' would make it abundantly clear, in view of conspicuous absence of a similar clause in predecessor GCC in force when the agreement was entered into by inference that the power of arbitral tribunal was not curtailed, does not assist the claim of the 1st respondent to interest, pre-reference and pendente lite, in view of the principle as to bar to award interest laid down by the Hon'ble Supreme Court in the line of decisions referred to hereinbefore and in the presence of prohibition contained in Clause 16(2) (old) and 16(3) (modified) of GCC which are similar and identical.
23. There is no dispute or disagreement before this Court on the side of contractor that Vishal Construction case, applies to the instant OP.
24. In the light of the aforesaid stated position of both sides, impugned http://www.judis.nic.in 19 award is partly set aside i.e., impugned award is set aside with regard to 10% pendente-lite interest alone. To be noted, this pendente-lite interest alone is set aside with regard to sums i.e., Rs.4,75,26,814/- (Rupees Four Crore Seventy Five Lakhs Twenty Six Thousand Eight Hundred and Fourteen only) payable by Southern Railways (already paid and not in dispute before this Court) and Rs.7,47,888/- (Rupees Seven Lakhs Forty Seven Thousand Eight Hundred and Eighty Eight only) payable by the contractor to Southern Railways which has been deducted by Southern Railways while making the aforesaid payment.
25. As already mentioned supra, the submission of learned Standing Counsel of Southern Railways, on instructions, that the pendente-lite ineterest component which has been added to Rs.7,47,888/- (Rupees Seven Lakhs Forty Seven Thousand Eight Hundred and Eighty Eight only) payable by the contractor while deducting the same from monies payable by the Southern Railways (already paid) shall be refunded to the contractor (sole respondent in instant OP) within eight weeks from the date of receipt of a copy of this order i.e., on or before 03.06.2019.
26. OP is partly allowed. There shall be no order as to costs. In other words, parties are left to bear their respective costs.
08.04.2019 vsm http://www.judis.nic.in 20 Speaking Order/Non-Speaking Order Index : Yes/No Internet: Yes/No Note: Issue order copy on 15.04.2019.
M.SUNDAR. J., vsm O.P.No.1067 of 2018 08.04.2019 http://www.judis.nic.in