Delhi District Court
Union Of India vs M/S Manraj Enterprises on 17 February, 2021
IN THE COURT OF SH GURVINDER PAL SINGH,
DISTRICT JUDGE (COMMERCIAL COURT)-02,
PATIALA HOUSE COURT, NEW DELHI
ARBTN No. 5173/2018
Union of India
Through Dy. Chief Electrical Engineer/Const
Northern Railways,
DRM Office, State Entry Road, Connaught Place,
New Delhi ...Petitioner
vs
M/s Manraj Enterprises
230, Sukhdev Vihar, New Delhi. ....Respondent
Date of Institution : 14/09/2018
Arguments concluded on : 16/01/2021
Decided on : 17/02/2021
Appearances : Sh. Vidur Sikka, Ld. Counsel for petitioner.
Sh. Deepak Dahiya, Ld. Counsel for respondent.
JUDGMENT
1. Petitioner had filed the present petition under Section 34 of the Arbitration and Conciliation Act, 1996 (herein after referred as the Act) seeking setting aside of the arbitral award dated 19/06/2018 passed by Ld. Sole Arbitrator Sh. Vipin Pal Singh. Ld. Sole Arbitrator awarded sum of Rs 16,54,693.22 with interest @ 10% with effect from 09/01/2002 till the date of award, failing which additional simple interest @ 12% per annum is payable from the date of award till the date of actual receipt of payment in favour of claimant/respondent no. 1 and against the petitioner.
2. Shorn of unnecessary details, the brief facts are that respondent no. 1/claimant was awarded the contract viz. 'Supply, erection, testing and commissioning of 25 KV AC OHE and modification work in connection with ARBTN No. 5173/2018 Union of India vs M/s Manraj Enterprises Page 1 of 26 the development of New Delhi Yard, Phase III.' (Agreement No. 143- DyCEE/C/NDLS dated 24.8.2000). The General Manager Northern Railway appointed Sh. Vipin Pal Singh as Sole Arbitrator vide letter dated 13/05/2011 to adjudicate the disputes arising out of the above noted contract. Ld. Sole Arbitrator entered reference on 05/09/2011 calling for detailed statement of facts with supporting documents from the claimants and counter statement of facts from the present petitioner. Earlier the present petitioner Railways had directed that only claim nos. 1 and 2 were referable to arbitration. The claimant/respondent no. 1 filed petition i.e., Arbitration Petition no. 105 of 2012 before Delhi High Court wherein vide order dated 04/09/2012 it was held that Arbitrator will examine all the claims of the petitioner. The claimant re-submitted the original statement of claim with letter dated 27/11/2012 containing 9 claims with documents. Following is the summary of the claims and the award sums adjudicated by Ld. Sole Arbitrator in the impugned award:-
Sl.No. Description of Claims Claim Amount Amount in Rs. awarded in Rs.
1 Expenses incurred in preparation of 50,000.00 40,880.00 design and drawing related to the work
2. Refund of Earnest Money 48,000.00 48,0000.00
3. Expenses incurred in construction of 1,75,000.00 1,50,000.00 hutments, Go-downs, Water Tanks, Water arrangements, etc.
4. Expenses incurred on Salary and 20,01,807.26 7,22,903.22 Wages paid to Staff
5. Expenses incurred on Material 2,00,000.00 Rejected
6. Expenses incurred on Wages of Labour 3,50,000.00 Rejected remained idle at site
7. Expenses incurred on transportation of 2,00,000.00 Rejected material
8. Loss of Profit @ 10% on contracted 6,92,910.00 6,92,910.00 amount Total of above 8 Claims = 16,54,693.22
9. Interest @24% Interest @ 10% on amount of Rs. 16,06,693.22 w.e.f.
09.01.2002 till the date of award ARBTN No. 5173/2018 Union of India vs M/s Manraj Enterprises Page 2 of 26
3. Petitioner has impugned the arbitral award on the following grounds:-
1a. award is in conflict with the public policy of India; 1b. the award is vitiated by patent illegality appearing on the face of the award;
1c. the Award is in contravention with the fundamental policy of Indian law;
1d. it is in conflict with the most basic notions of morality of justice;
1e. the award and the impugned Judgment is in contravention of Clause 16(3) of the General Conditions of Contract and contrary to Section 31(7)(a) of the Act; A. Ld. Arbitrator failed to appreciate the true and correct facts and completely ignored the settled principles of law and precedents;
B. Ld. Arbitrator failed to appreciate the documents and contentions raised by petitioner;
C. Ld. Arbitrator failed to appreciate that claim of respondent no.
1 was not maintainable and liable to be rejected and Ld. Sole Arbitrator was not empowered to grant interest to the respondent/claimant as it was barred under Clause 16(3) of General Conditions of Contract (GCC) and by misreading the well settled law as well as Section 31(7)(a) of The Act;
D. Ld. Arbitrator failed to appreciate the true and correct facts and passed the award contrary to provisions of terms and conditions of contract;
E. the award was in conflict with the fundamental policy of Indian law and basic notions of morality of justice and also vitiated by patent illegality on the face of the award;
F. it was the respondent who delayed the contract awarded and thereafter claimed loss of income etc. on account of his own default but Ld. Arbitrator failed to appreciate the true and ARBTN No. 5173/2018 Union of India vs M/s Manraj Enterprises Page 3 of 26 correct facts;
G. respondent in its claim failed to adduce documents or evidence that respondent had actually suffered any loss but Ld. Arbitrator failed to appreciate the true and correct facts; H. respondent had even failed to get approval for Lay Out Plan (LOP) from the petitioner, whereas Ld. Arbitrator had allowed the claim of respondent stating that respondent submitted LOP, which was defective. It was submitted that under these circumstances where LOP was defective and site was not allotted to respondent then how could respondent be entitled for further claims;
I. initially respondent was not allotted site for starting project, however, when respondent was allotted and or requested to begin the project, it was respondent who failed to begin the work as per contract as petitioner had time and again requested and informed about the availability of site vide office letters dated 16/12/2003, 09/02/2004 and 12/03/2004; J. respondent was informed about discrepancies vide letter dated 16/07/2001. Also such letters were written to respondent on dates 26/11/2001, 21/12/2001, 29/12/2001, 04/01/2002, 21/01/2002, 02/02/2002, 22/02/2002 and 15/03/2002 to contact AEE/C/NDLS and SSE/C/TRD/CSB and start the work at site as the site was ready for TRD work but to no avail;
K. respondent had never disputed/challenged that petitioner was not allotted site later on and it was respondent who failed to approach the petitioner to begin work;
L. petitioner had actually not suffered losses as NIL work done was reported by the officials of the petitioner and despite not performing as per contract, respondent is claiming damages; M. petitioner suffered losses and damages and not the ARBTN No. 5173/2018 Union of India vs M/s Manraj Enterprises Page 4 of 26 respondent. Respondent firstly supplied defective LOP and then by not approaching site and beginning the work, secondly availed 10% profit margin even without working. Though not admitted but for sake of arguments all cost and consequential expenses claimed by the respondent and allowed by Ld. Arbitrator are liable to be deducted from the profits awarded by Ld. Arbitrator;
N. petitioner suffered damages and it was contractual obligation of the respondent to indemnify the petitioner for the losses/damages suffered by petitioner.
Petitioner prayed for setting aside of the impugned award.
4. Respondent in filed reply denied and controverted the submissions and grounds of petitioner. It was averred that period of completion of the contract was 18 months whereby stipulated date of completion was 09/01/2002 with estimated cost of work to be Rs 64,94,000/- and accepted cost of work to be Rs 69,29,109/-. It was averred that respondent/claimant claimed Rs. 50,000/- of expenses incurred in preparation of designs and drawings as the claimant got the Lay Out Plan (LOP) prepared and submitted the same on 27/10/2000 to petitioner for approval, which LOP was as per Engineering Scaled Plan (ESP), which was provided by the petitioner to respondent/claimant. The respondent/claimant further averred that it had claimed the refund of earnest money of Rs 48,000/- deposited with petitioner at the time of submission of the bid. The respondent/claimant had also claimed Rs. 1,75,000/- as construction of hutments, godowns, water tanks, water arrangements etc as the respondent/claimant was required to maintain the office at site and also set up at least one main depot for receiving and storing the materials and establish a workshop for small fabrication and assembly work etc, as per General Guidelines Nos. 1.2.5 and 1.2.22 of the Railways. The respondent/claimant had laid claim of Rs 20,01,807.26 as expenses on account of salary and wages paid to the staff. The respondent/claimant had ARBTN No. 5173/2018 Union of India vs M/s Manraj Enterprises Page 5 of 26 also claimed loss of profit of Rs. 6,92,910/-, which was estimated as 10% on contract amount. The respondent/claimant had also claimed past, pendente lite and future interest @ 24% per annum on the claimed amount from the scheduled date of completion i.e., 09/01/2002 till the date of payment. It was also averred that no fault can be found with the findings of Ld. Arbitral Tribunal and no premise exists for the grounds to set aside the impugned award. It was prayed that the petition be dismissed.
5. I have heard Sh. Vidur Sikka, Ld. Counsel for petitioner; Sh. Deepak Dahiya, Ld. Counsel for respondent and perused the relied upon precedents and records of the case as well as copy of arbitral proceedings record sent by e-mail on 18/11/2020 to dedicated e-mail id of the Court and given my thoughtful consideration to the rival contentions put forth.
6. Ld. Counsel for petitioner argued in terms of the grounds of the petition. It was argued that para 8(a) of GCC deals with assistance by railway for the stores to be obtained by contractor, wherein it is clearly mentioned that railways will not be liable for any loss or damages arising in consequence of delay. In this case, no store was even set up as petitioner had not given any approval for setting up store at site proposed by the contractor/claimant; so claim nos. 3 and 4 where respondent had claimed expenses related to store were out of scope. If store was not in existence for OHE work, then claim against store and its staff becomes null and void. Ld. Arbitrator exceeded its powers and on baseless logics and reasoning passed those claims of the respondent, which never occurred or came into existence. It was argued that earnest money in the form of fixed deposit was encashed as per directive of GM/Vigilance. It was argued that respondent was advised many times about the discrepancies in drawing but no action was taken by respondent to provide drawing as per advice of Engineer In-charge, hence the claim no. 1 was out of scope. It was argued that the petitioner had a right to determine the contract on any administrative reason, in which case the value of ARBTN No. 5173/2018 Union of India vs M/s Manraj Enterprises Page 6 of 26 approved materials at site and of work done to date by the contractor was to be paid for in full at the rate specified in the contract. No material was supplied, no physical work was done by contractor at site and no space for store was provided by petitioner to contractor/claimant, so there was no question of entertaining claim nos. 5 to 9 by Ld. Sole Arbitrator. It was argued that Ld. Arbitrator was not empowered to grant interest to respondent/claimant as it was barred under Clause 16(3) of GCC as well as by Section 31(7)(a) of The Act. Also was argued that in Clause 64(5) it was specified that while passing the arbitral award for payment of money, no interest was payable on any period. It was prayed to set aside the arbitral award.
7. Ld. Counsel for petitioner relied upon the following precedents:-
1. Sayeed Ahmed & Co. vs State of U.P & Ors., MANU/SC/1159/2009;
2. Sree Kamatchi Amman Constructions vs The Divisional Railway Manager (Works), Palghat & Ors., MANU/SC/0625/2010;
3. Chittaranjan Maity vs Union of India (UOI), MANU/SC/1235/2017;
4. Jaiprakash Associates Ltd. vs Tehri Hydro Development Corporation India Ltd., MANU/SC/0157/2019 and
5. Ashi Limited vs Union of India, MANU/DE/1094/2020.
8. Ld. Counsel for respondent argued in terms of filed reply. It was argued that site was not made clear by the Civil Engineering Department of petitioner, because of which LOP submitted by respondent/claimant could not be approved and the exact take up point and track centres were not demarcated by the Civil Engineering Department of petitioner. It was argued that for lapse of petitioner, respondent cannot be penalized. It was also argued that letter dated 16/12/2003 filed by the department with the petition was never filed before Arbitral Tribunal and cannot be considered as it is an effort to wriggle out of its admitted stand. It was argued that the defence of the petitioner stands falsified in view of its own letters including letters dated 27/07/2002, 02/09/2003 and 30/12/2004. It was argued that keeping in mind the admitted schedule of rates, part of contract in question, for preparing 5.11 ARBTN No. 5173/2018 Union of India vs M/s Manraj Enterprises Page 7 of 26 TKM of design and drawing of OHE , the same was awarded by the Arbitral Tribunal, whereas neither the measurement was disputed by petitioner nor there was any dispute regarding the said rate. It was argued that on the rescission of the contract by the petitioner on 30/12/2004, it was to return/refund the deposited earnest money in the form of fixed deposit receipts, instead petitioner encashed it. It was argued that respondent/claimant started temporary site in July, 2000 by purchasing small storage place from the outgoing Civil Engineering Contractor, which was subsequently developed further to meet the requirement. However, for formal approval of site office, godown, store etc., the respondent/claimant wrote letter dated 23/05/2002 to petitioner and also gave to the petitioner a sketch showing the above site. Vide internal communication dated 27/07/2002 the petitioner had requested to allow the respondent/claimant to establish site office cum godown, etc. It was also argued that accordingly, as per verbal permission, the respondent undertook the construction of the bare minimum facilities required at site at the cost of Rs. 1,75,000/- and since as per the general guidelines of petitioner, respondent/claimant was under obligation to maintain an office at the site and also set up atleast one main depot for receiving and storing materials and establish a workshop for small fabrication and assembly work, etc. For achieving this the respondent/claimant also sought permission of petitioner vide letter dated 23/05/2002 with a sketch and the electrical department of petitioner vide letter dated 27/07/2002 wrote to DSE III (Civil Engineering), Northern Railway to allow the respondent/claimant to establish site office. It was argued that respondent had deployed staff from 15/07/2000 till 31/12/2004 i.e., for 53 months and 17 days and had to pay their salary, wages and expenses etc.; the details as well as the supporting documents were provided in the statement of claim and the documents before Ld. Sole Arbitrator. It was argued that contract was awarded on 10/07/2000 and was to be completed by 09/01/2002. it was rescinded by the Railways on 30/12/2004. It was argued that while discussing the claim no. 4, Ld. Sole Arbitrator had partially allowed the expenses on ARBTN No. 5173/2018 Union of India vs M/s Manraj Enterprises Page 8 of 26 account of salary and wages paid to the staff and by giving cogent reasons, the respondent/claimant was held entitled to receive the award sum on this count. Ld. Counsel for respondent argued that in support of the petition, the petitioner relied upon the letters dated 17/09/2003, 16/12/2003, 27/12/2003, 09/02/2004, 12/03/2004 and filed copies thereof, which were all issued under the signatures of Mr. A.K Kalia. These letters though mentioned in the said response dated 20/10/2015 of the Railways (petitioner), were not attached therewith. Ld. Counsel for respondent argued that it appears that copies of said letters were annexed with its letter dated 01/12/2017 sent by the Railways to Ld. Arbitrator. Copy of letter dated 02/09/2003 issued by the Railways (petitioner), has been placed on record by the respondent/claimant as Annexure 8. It was argued that the assertion of the Railways in the said letters dated 02/09/2003, 17/09/2003, 16/12/2003, 27/12/2003, 09/02/2004 and 12/03/2004 issued within a span of about six months intimating that the site was partly ready was just an effort to cover up their lapses particularly when the period of contract was already over and the request of the claimant for extension of time for completion of the project as contained in his letter dated 28/08/2002 appended to the statement of claim was not accepted. It was also argued that petitioner in its letter dated 16/03/2012 sent to Ld. Arbitral Tribunal clearly admitted that during the original period of completion of contract, work could not be progressed due to non availability of clear site for the execution of work as the Engineering portion of work in the New Delhi area could not be progressed. Due to this reason the contract was rescinded under Clause 61(1) of GCC. It was argued that the total value of the contract was Rs. 69,29,109/- and the respondent/claimant would have earned 10% profit on the performance and completion of the said contract, whereas due to illegal closure of the contract by the petitioner, respondent could not receive/earn the said profit. It was argued that the contract was awarded on 10/07/2000 and it was to be completed by 09/01/2002 for a total value of Rs 69,29,109/- and admittedly it was rescinded by the Railways on 30/12/2004. It was argued by Ld. Counsel for respondent that as per Section 73 of the ARBTN No. 5173/2018 Union of India vs M/s Manraj Enterprises Page 9 of 26 Contract Act, 1872, when a contract has been broken, the party who suffers by such breach is entitled to receive from the party who has broken the contract, compensation for any loss or damage caused to him thereby, which naturally arose in the usual course of things from such breach, or which the parties knew, when they made the contract, to be likely to result from the breach of it. Ld. Counsel for respondent argued that the claimant/respondent was entitled for the interest rightly awarded by Ld. Sole Arbitrator. It was prayed that the petition be dismissed.
9. Ld. Counsel for respondent has relied upon the following precedents:-
1. M/s A.T Brij Paul Singh & Ors. vs State of Gujarat, 1984(4) SCC 59;
2. M/s Mittal Estates Pvt.Ltd vs Delhi Development Authority & Ors., decided by High Court of Delhi in C.S (OS) No. 44A/1997 on 08/10/2009;
3. M/s Raveechee & Co. vs Union of India, (2018) 7 SCC 664.
10. An Arbitral Award can be set aside on the grounds set out in Sections 34(2)(a), (b) and (2A) of the Act.
11. Section 34 (1), (2) and (2A) of The Arbitration and Conciliation Act, 1996 read as under:
"34. Application for setting aside arbitral award- (1) Recourse to a court against an arbitral award may be made only by an application for setting aside such award in accordance with sub-section (2) and sub- section (3).
(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 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 ARBTN No. 5173/2018 Union of India vs M/s Manraj Enterprises Page 10 of 26 of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or
(iv) the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration;
Provided that, if the decisions 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 in 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.
(2A) An arbitral award arising out of arbitrations other than international commercial arbitrations, may ARBTN No. 5173/2018 Union of India vs M/s Manraj Enterprises Page 11 of 26 also be set aside by the Court, if the Court finds that the award is vitiated by patent illegality 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 reappreciation of evidence.
12. Normally, the general principles are that Arbitrator is a Judge of the choice of the parties and his decision, unless there is an error apparent on the face of the award which makes it unsustainable, is not to be set aside even by the Court as a Court of law could come to a different conclusion on the same facts. The Court cannot reappraise the evidence and it is not open to the Court to sit in appeal over the conclusion of the Arbitrator. It is not open to the Court to set aside a finding of fact arrived at by the Arbitrator and only grounds on which the award can be set aside are those mentioned in the Arbitration Act. Where the Arbitrator assigns cogent grounds and sufficient reasons and no error of law or misconduct is cited, the award will not call for interference by the Court in exercise of the power vested in it. Where the Arbitrator is a qualified technical person and expert, who is competent to make assessment by taking into consideration the technical aspects of the matter, the Court would generally not interfere with the award passed by the Arbitrator.
13. Supreme Court in case of Associate Builders vs. Delhi Development Authority, (2015) 3 SCC 49 has held that the interference with an arbitral award is permissible only when the findings of the arbitrator are arbitrary, capricious or perverse or when conscience of the Court is shocked or when illegality is not trivial but goes to the root of the matter. It is held that once it is found that the arbitrator's approach is neither arbitrary nor capricious, no interference is called for on facts. The arbitrator is ultimately a master of the quantity and quality of evidence while drawing the arbitral award. Patent illegality must go to the root of the matter and cannot be of trivial nature.
ARBTN No. 5173/2018 Union of India vs M/s Manraj Enterprises Page 12 of 2614. Supreme Court in case of Ssangyong Engineering & Construction Co. Ltd. vs. National Highways Authority of India, 2019 SCC OnLine SC 677 has held that under Section 34 (2A) of the Act, a decision which is perverse while no longer being a ground for challenge under "public policy of India", would certainly amount to a patent illegality appearing on the face of the award. A finding based on the documents taken behind the back of the parties by the arbitrator would also qualify as a decision based on no evidence inasmuch as such decision is not based on evidence led by the parties and therefore would also have to be characterized as perverse. It is held that a finding based on no evidence at all or an award which ignores vital evidence in arriving at its decision would be perverse and liable to be set aside on the ground of patent illegality.
15. I advert to the fact of the matter.
CLAIM NO. 1: Expenses incurred in preparation of design and drawings amounting to Rs. 50,000/- (Rupees Fifty Thousand) Only.
16. Ld. Sole Arbitrator had appreciated the contents of letter dated 14/02/2014 of present petitioner which letter finds mention of "As per agreement, preparation of design & drawing for OHE is covered under item 1 total cost of Rs 64,000/-. Firm has claimed Rs. 50,000/- against this item. As per office record, the firm had submitted LOP's (Lay Out Plans) on 27/10/2000 but the submitted LOP were never approved in principle on account of some defects or other.................Hence the final measurement of this had been recorded as Zero. The document not utilized by railways and can't be paid".
17. Ld. Arbitrator had reached the finding that it was an undisputed fact that respondent no. 1 had prepared 5.11 TKM of design and drawing for OHE, as per LOP-01 and LOP-2 and these drawing were not approved by the present petitioner as they could not provide the site to the claimants during the scheduled period of the contract. In view of said facts and circumstances, Ld. Sole Arbitrator held respondent no. 1/claimant to be entitled for ARBTN No. 5173/2018 Union of India vs M/s Manraj Enterprises Page 13 of 26 Rs. 40,880/- for preparing 5.11 TKM of design and drawing at the rate of Rs. 8,000/- per TKM.
CLAIM NO. 2: Refund of Earnest Money amounting to Rs. 48,000 (Rupees Forty-Eight Thousand only)
18. Ld. Sole Arbitrator reached the finding that it was undisputed fact that the claimant/respondent no. 1 had deposited with petitioner a sum of Rs. 48,000/- by way of earnest money in the form of fixed deposit receipt, whereas the claimant/respondent no. 1 could not do the work as the clear site was not available and/or handed over to the claimant/respondent no. 1 by the present petitioner during the entire period for the performance of the contact. On the rescission of the contract on 30/12/2004, the present petitioner should have returned the said fixed deposit receipt to the claimant/respondent no. 1, which was not so done but the fixed deposit receipt was encashed by the present petitioner and thus Ld. Sole Arbitrator held the claimant/respondent no. 1 to be entitled for refund of said amount of Rs. 48,000/-.
Claim NO. 3: Expenses incurred in construction of Hutments, Go-
downs, Water Tank, Water arrangements, etc. amounting to Rs. 1,75,000/-.
19. Ld. Sole Arbitrator had adverted to letter dated 23/05/2002 of claimant/respondent no. 1 sent to present petitioner seeking necessary permission to construct a temporary site office and necessary hutment for residence and a godown for storage of materials as per the terms and conditions of the contract, as in order to perform work under the contract, the claimant/respondent no. 1 was required to do so. Also is mentioned that it was the contention of the claimant/respondent no. 1 that necessary hutments for residence and quick availability of the workers and also a go-down for storage of materials as per the terms and conditions were required in order to perform the work under the contract. Ld. Sole Arbitrator had also appreciated the letter dated 27/07/2002 written by Deputy Chief Electrical Engineer (Construction) ARBTN No. 5173/2018 Union of India vs M/s Manraj Enterprises Page 14 of 26 to DSE-III, Northern Railway to allow the claimant/respondent no. 1 to establish the necessary "site office cum go-down". Ld. Sole Arbitrator also appreciated the contention of the claimant/respondent no. 1 that they were granted permission orally for the same, which was in line with the site conditions and for the aforesaid elicited facilities created by the claimant/respondent no. 1 in line with the terms and conditions of the contract specifically mentioned under para 3.12, Part-II of the Contract; the claim put forth was examined by Ld. Sole Arbitrator and sum of Rs. 1,50,000/- was awarded to the claimant/respondent no. 1, considering the documentary evidences of payments made for such subject matter; which was Rs. 25,000/- less from the claimed sum, as said Rs 25,000/- was claimed for miscellaneous items.
CLAIM NO. 4: Expenses incurred on salary and wages paid to staff amounting to Rs. 20,01,807.26.
20. Ld. Sole Arbitrator had appreciated that the contract was awarded on 10/07/2000 and was to be completed within 18 months i.e., by 09/01/2002. It was rescinded on 30/12/2004 and thus contract remained alive for 53 months and 17 days. For said period of 53 months and 17 days with respect to the claim, monthly salary paid to various alleged deployed staff by claimant/respondent no. 1, Ld. Sole Arbitrator reached the finding that claimant/respondent no. 1 was entitled to the claim with respect to salary for one Supervisor, one Assistant Store Keeper and two Watchmen as these were sufficient to look after the site establishment and for day to day liaison with the Railway and there was no need for deployment of staff more than these aforesaid staff with respect to which it was the claim of the claimant/respondent no. 1. Also was the aforesaid finding of Ld. Sole Arbitrator after considering the evidence and material put forth in arbitral proceedings record by claimant/respondent no. 1 with respect to the documents of payments made for salary and other detailed expenses to the deployed staff besides the fact that the specialized and critical nature of work ARBTN No. 5173/2018 Union of India vs M/s Manraj Enterprises Page 15 of 26 necessitated engagement of specialized staff to be maintained by the contractor on regular basis, in pursuance to the conditions of the contract. Though the claimant/respondent no. 1 was required to perform the contract within period of 18 months; the present petitioner could not provide clear site during the stipulated period and even thereafter and ultimately rescinded the contract on 30/12/2004 on administrative ground and Ld. Sole Arbitrator considered it as rational and acceptable that the claimants had to maintain the site depot and staff from 15/07/2000 to 31/12/2004 (53 months and 17 days). The claimant/respondent no. 1 was accordingly held entitled for sum of Rs. 7,22,903.22 after calculation of the salary, as aforesaid.
Clam no. 5: Expenses incurred on material amounting to Rs.
2,00,000/- (Rupees Two Lakhs only);
Claim no. 6: Expenses incurred on wages paid to labours remained idle at site amounting to Rs. 3,50,000/- (Rupees Three Lakhs and Fifty Thousand only) and Claim no. 7: Expenses incurred on transportation of the material amounting to Rs. 2,00,000/- (Rupees Two Lakhs only)
21. All above said claim nos. 5,6 and 7 were rejected by Ld. Sole Arbitrator.
Claim NO. 8: Loss of Profit amounting to Rs. 6,92,910/- (Rupees Six Lakhs, Ninety-Two Thousand, Nine Hundred and Ten Only).
22. Ld. Sole Arbitrator adverted to the letter of the petitioner rescinding the contract, which clearly mentioned the fact that the petitioner Railways could not provide the work site to the claimant/respondent no. 1 during the entire period of contract and even thereafter also; so the claimant/respondent no. 1 could not commence the work under the contract; thus the non performance of the contract was not for the reasons attributable to the claimant/respondent no. 1, but it was for the reason to attributable to petitioner Railways. Finally, the petitioner Railways rescinded the contract while the claimant/respondent ARBTN No. 5173/2018 Union of India vs M/s Manraj Enterprises Page 16 of 26 no. 1 was bound with the work, simultaneously losing on idle manpower, machinery, T&P and any other opportunity to take up any other work or business. Ld. Sole Arbitrator took into consideration Section 73 of The Contract Act, 1872 with respect to award of compensation for loss or damage caused by breach of contract that embodies that when a contract has been broken, the party who suffers by such breach is entitled to receive from the party who has broken the contract, compensation for any loss or damage caused to him thereby, which naturally arose in the usual course of things from such breach, or which the party knew, when they made the contract, to be likely to result from the breach of it. Ld. Sole Arbitrator relied upon the pronouncement of the Supreme Court in the case of M/s A.T Brij Paul Singh & Ors. vs State of Gujarat (supra), wherein it was inter alia held that claim of expected profit was legally admissible on proof of the breach of contract by the erring party. What would be the measure of profit would depend on the facts and circumstances of each case. But there shall be a reasonable expectation of profit is implied in work contract and its loss has to be compensated by way of damages if other party to the contract is guilty of breach of contract.
23. Ld. Sole Arbitrator held that so far as quantum of damages is concerned, 10% profit is a reasonable amount in a construction contract and even the petitioner Railways had not disputed the 10% profit claimed by the claimant/respondent no. 1. Ld. Sole Arbitrator held that claimant/respondent no. 1 entitled to Rs. 6,92,910/- as 10% of the contract amount of Rs. 69,29,109/-.
Claim No. 9: Interest @ 24 % per annum for past, pendente lite and future interest from the scheduled date of completion i.e., 09.01.2002 till the date of payment.
24. Ld. Sole Arbitrator awarded pre-reference, pendente lite and future interest at the rate of 10% per annum on the sums due to the ARBTN No. 5173/2018 Union of India vs M/s Manraj Enterprises Page 17 of 26 claimant/respondent no. 1 i.e., Rs. 16,06,940/- with effect from 09/01/2002 till the date of award. Also was held that no interest was allowed on Rs. 48,000/- awarded against earnest money/security deposit. Claimant/respondent no. 1 was held entitled to simple interest @ 12% per annum on the entire award amount from the date of award till the date of receipt of payment from the petitioner.
25. Following are the relevant clauses for interest in the applicable GCC:-
"16(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."
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"64.5 Where the arbitral award is for the payment of 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."
26. Ld. Counsel for respondent no. 1 had relied upon the case of M/s Raveechee & Co. vs Union of India (supra) and had argued that in terms thereof when a dispute is referred to for adjudication to arbitrator; a term of such a nature as contained in Clause 16(3) of GCC, that is binding on the parties cannot be extended to bind an arbitrator; so the arbitrator had the power to award interest pendente lite where justified. The decision in case of M/s Raveechee & Co. vs Union of India (supra) was with respect to Arbitration Act 1940 (the old Act).
27. Supreme Court in the case of Sayeed Ahmed & Company (supra) inter alia held that where there is express bar in contract against claim for interest, it operates only till the date of award, not thereafter.
28. In the case of Ashi Limited vs Union of India (supra), Hon'ble Ms. Justice Jyoti Singh of Delhi High Court had also appreciated law laid by Supreme Court in the case of Sree Kamatchi Amman Constructions vs The Divisional Railway Manager (Works) (supra) and inter alia held as ARBTN No. 5173/2018 Union of India vs M/s Manraj Enterprises Page 18 of 26 follows:
"54. In so far as the grant of interest by an Arbitrator is concerned, the law is no longer res integra, Section 31(7)(a) of the Act clearly stipulates that unless otherwise agreed by the parties, where the Award is for payment of money, the Tribunal may grant such rate as it deems reasonable, on the whole or any part of the money and for the whole or any part of the period between the date of cause of action and the date of the Award. In the case of Jaiprakash Associates Ltd. (Jal) v. Tehri Hydro Development Corporation India Ltd., MANU/SC/0157/2019, the Supreme Court after noticing the provisions of the 1996 Act and various judgments on the issue of interest, more particularly, the recent judgment in the case of Reliance Cellulose Products Ltd. v. ONGC Ltd., MANU/SC/0777/2018: (2018) 9 SCC 266, summed up the law on interest as under:
"13. Insofar as power of the arbitral tribunal in granting pre- preference and/or pendente lite interest is concerned, the principles which can be deducted from the various judgments are summed up below:
(a) A Constitution Bench judgment of this Court in the case of Secretary, Irrigation Department, Government of Orissa vs G.C. Roy exhaustively dealt with this very issue, namely, power of the arbitral tribunal to grant pre-reference and pendente lite interest. The Constitution Bench, of course, construed the provision of the 1940 Act which Act was in vogue at that time. At the same time, the Constitution Bench also considered the principle for grant of interest applying the common law principles. It held that under the general law, the arbitrator is empowered to award interest for the pre-
reference, pendente lite or post award period. This proposition was culled out with the following reasoning:
"43 The question still remains whether arbitrator has the power to award interest pendente lite, and if so on what principle. We must reiterate that we are dealing with the situation where the agreement does not provide for grant of such interest nor does it prohibit such grant. In other words, we are dealing with a case where the agreement is silent as to award of interest. On a conspectus of aforementioned decisions, the following principles emerge:
(i) A person deprived of the use of money to which he is legitimately entitled has a right to be compensated for the deprivation, call it by any name. It may be called interest, compensation or damages. This basic consideration is as valid for the period the dispute is pending before the arbitrator as it is for the period prior ARBTN No. 5173/2018 Union of India vs M/s Manraj Enterprises Page 19 of 26 to the arbitrator entering upon the reference. This is the principle of Section 34, Civil Procedure Code and there is no reason or principle to hold otherwise in the case of arbitrator.
(ii) An arbitrator is an alternative form (sic forum) for resolution of disputes arising between the parties. If so, he must have the power to decide all the disputes or differences arising between the parties. If the arbitrator has no power to award interest pendente lite, the party claiming it would have to approach the court for that purpose, even though he may have obtained satisfaction in respect of other claims from the arbitrator. This would lead to multiplicity of proceedings.
(iii) An arbitrator is the creature of an agreement. It is open to the parties to confer upon him such powers and prescribe such procedure for him to follow, as they think fit, so long as they are not opposed to law. (The proviso to Section 41 and Section 3 of Arbitration Act illustrate this point). All the same, the agreement must be in conformity with law. The arbitrator must also act and make his award in accordance with the general law of the land and the agreement.
(iv) Over the years, the English and Indian courts have acted on the assumption that where the agreement does not prohibit and a party to the reference makes a claim for interest, the arbitrator must have the power to award interest pendente lite. Thawardas [Seth Thawardas Pherumal v. Union of India, MANU/SC/0070/1955 : (1955) 2 SCR 48: AIR 1955 SC 468] has not been followed in the later decisions of this Court. It has been explained and distinguished on the basis that in that case there was no claim for interest but only a claim for unliquidated damages. It has been said repeatedly that observations in the said judgment were not intended to lay down any such absolute or universal rule as they appear to, on first impression. Until Jena case [MANU/SC/0004/1987 : (1988) 1 SCC 418: (1988) 1 SCR 253] almost all the courts in the country had upheld the power of the arbitrator to award interest pendente lite. Continuity and certainty is a highly desirable feature of law.
(v) Interest pendente lite is not a matter of substantive law, like interest for the period anterior to reference (pre-reference period). For doing complete justice between the parties, such power has always been inferred."ARBTN No. 5173/2018 Union of India vs M/s Manraj Enterprises Page 20 of 26
It is clear from the above that the Court decided to fall back on general principle that a person who is deprived of the use of money to which he is legitimately entitled to, has a right to be compensated for the deprivation and, therefore, such compensation may be called interest compensation or damages.
(b) As a sequitur, the arbitrator would be within his jurisdiction to award pre-reference or pendente lite interest even if agreement between the parties was silent as to whether interest is to be awarded or not.
(c) Conversely, if the agreement between the parties specifically prohibits grant of interest, the arbitrator cannot award pendente lite interest in such cases. This proposition is predicated on the principles that an arbitrator is the creature of an agreement and he is supposed to act and make his award in accordance with the general law of the land and the agreement. This position was made amply clear in G.C Roy case in the discussion thereafter:
"44. Having regard to the above consideration, we think that the following is the correct principle which should be followed in this behalf:
Where the agreement between the parties does not prohibit grant of interest and where a party claims interest and that dispute (along with the claim for principal amount or independently) is referred to the arbitrator, he shall have the power to award interest pendente lite. This is for the reason that in such a case it must be presumed that interest was an implied term of the agreement between the parties and therefore when the parties refer all their disputes or refer the dispute as to interest as such to the arbitrator, he shall have the power to award interest. This does not mean that in every case the arbitrator should necessarily award interest pendente lite. It is a matter within his discretion to be exercised in the light of all the facts and circumstances of the case, keeping the ends of justice in view."
(d) Insofar as 1940 Act is concerned, it was silent about the jurisdiction of the arbitrator in awarding pendente lite interest. However, there is a significant departure on this aspect insofar as 1996 Act is concerned. This distinction has been spelt out in Sayeed Ahmed case in the following manner:
"Re: Interest from the date of cause of action to date of award
7. The issue regarding interest as noticed above revolves around Clause G1.09 of the Technical Provisions forming part of the contract extracted below:ARBTN No. 5173/2018 Union of India vs M/s Manraj Enterprises Page 21 of 26
"G. 1.09. No claim for interest or damages will be entertained by the Government with respect to any money or balance which may be lying with the Government or any become due owing to any dispute, difference or misunderstanding between the Engineer-in-Charge on the one hand and the contractor on the other hand or with respect to any delay on the part of the Engineer-in-Charge in making periodical or final payment or any other respect whatsoever."
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14. The decisions of this Court with reference to the awards under the old Arbitration Act making a distinction between the pre- reference period and pendente lite period and the observation therein that the arbitrator has the discretion to award interest during pendente lite period in spite of any bar against interest contained in the contract between the parties are not applicable to arbitrations governed by the Arbitration and Conciliation Act, 1996.""
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56. In the case of Union of India v. Bright Power Projects (India) (P) Ltd., MANU/SC/0712/2015 : (2015) 9 SCC 695, Supreme Court held that when agreement between the parties bars interest on the amounts from cause of action to the date of the Award, the Arbitrator is bound by it and cannot award interest as Section 31 (7)
(a) clearly begins with the words 'unless otherwise agreed by parties'.
57. In State of Haryana v. S.L Arora & Co., MANU/SC/0131/2010 :
(2010) 3 SCC 690, Supreme Court has held that it is not open to the courts to interfere in the discretion exercised by an Arbitrator in granting the rate of interest. This is purely the domain, power and prerogative of the Arbitrator. Relevant part of the judgment reads as under:-
"23. The difference between clauses (a) and (b) of Section 31(7) of the Act may conveniently be noted at this stage. They are:
(i) Clause (a) relates to pre-award period and clause (b) relates to post-award period. The contract binds and prevails in regard to interest during the pre-award period. The contract has no application in regard to interest during the post-award period.
(ii) Clause (a) gives discretion to the Arbitral Tribunal in regard to the rate, the period, the quantum (principal which is to be subjected to interest) when awarding interest. But such discretion is always subject to the contract between the ARBTN No. 5173/2018 Union of India vs M/s Manraj Enterprises Page 22 of 26 parties. Clause (b) also gives discretion to the Arbitral Tribunal to award interest for the post-award period but that discretion is not subject to any contract; and if that discretion is not exercised by the Arbitral Tribunal, then the statute steps in and mandates payment of interest, at the specified rate of 18% per annum for the post-award period.
(iii) While clause (a) gives the parties an option to contract out of interest, no such option is available in regard to the post-award period.
In a nutshell, in regard to pre-award period, interest has to be awarded as specified in the contract and in the absence of contract, as per discretion of the Arbitral Tribunal. On the other hand, in regard to the post-award period, interest is payable as per the discretion of the Arbitral Tribunal and in the absence of exercise of such discretion, at a mandatory statutory rate of 18% per annum."
29. In view of law laid by Supreme Court in the cases including Jaiprakash Associates Ltd. (supra), Reliance Cellulose Products Ltd. (supra), Sree Kamatchi Amman Constructions (supra), Union of India vs Bright Power Projects (India) (P) Ltd. (supra), State of Haryana v. S.L Arora & Co. (supra) and the law laid in the case of Ashi Limited vs Union of India (supra) by Delhi High Court, since there was express bar for grant of interest by Ld. Sole Arbitrator as detailed in clauses 16(3) and 64.5 of GCC applicable and elicited above; in accordance with Section 31(7)(a) of the Act, Ld. Sole Arbitrator being creature of the contract inter se parties could not have awarded the pre-reference and pendente lite interest; whereas the Ld. Sole Arbitrator can award interest for post-award period.
30. High Court of Delhi in the case of Delhi Metro Rail Corporation Ltd. vs Delhi Airport Metro Express Private Limited, 2019 SCC Online Del 6562 inter alia held that the care must be taken that the Court do not rewrite or create a new contract or an award in which case it is impermissible to dissect and segregate. Reference was made to Section 23 of The Contract Act. It was also held that these principles can be applied to an award after referring to the decision of the Supreme Court in J.C Budhiraja vs ARBTN No. 5173/2018 Union of India vs M/s Manraj Enterprises Page 23 of 26 Chairman, Orissa Mining Corporation Ltd., (2008) 2 SCC 444, wherein it was held that the entire award need not be set aside and part of the award which is valid and separable can be upheld. Following the aforesaid dictum and principle, part of the award which was valid and separable was upheld.
31. In the case of M/s Arosan Enterprises vs Union of India & Anr., MANU/SC/0595/1999, it was inter alia held that reappraisal of evidence by the Court is not permissible in the proceeding under the Arbitration Act. In the event of there being no reason in the award, question of interference of the court would not arise at all. In the event, however there are reasons, the interference would still be not available within the jurisdiction of the Court unless of course, there exist a total perversity in the award or the judgment is based on wrong proposition of law. In the event, however, two views are possible on a question of law as well, the Court would not be justified in interfering with the award. Also was held that the Court as matter of fact, cannot substitute its evaluation and come to the conclusion that the arbitrator had acted contrary to the bargain between the parties. If the view of arbitrator is a possible view the award or the reasoning contained therein cannot be examined. The decisions in the cases of State of Rajasthan vs Puri Construction Co. Ltd, MANU/SC/0865/1994 and Sudersan Trading Company vs Government of Kerala & Anr., MANU/SC/0361/1989 were relied. Also was held therein that where an Aribitrator makes a mistake either in law or in fact in determining the matters referred, but such mistake does not appear on the face of the award, the award is good notwithstanding the mistake, and will not be remitted or set aside.
32. In the case of M/s Sudarsan Trading Co. v. Government of Kerela & Anr. AIR1989 SC 890, the observations of the Supreme Court have been that Court cannot substitute its own evaluation of the conclusion of law or fact to come to the conclusion that the Arbitrator had acted contrary to the bargain between the parties. Whether a particular amount was liable to be paid or ARBTN No. 5173/2018 Union of India vs M/s Manraj Enterprises Page 24 of 26 damages liable to be sustained, was a decision within the competency of the Arbitrator in this case. By purporting to construe the contract the Court could not take upon itself the burden of saying that this was contrary to the contract and, as such, beyond jurisdiction.
33. Excepting for the finding on claim no. 9 with respect to interest; the findings of Ld. Sole Arbitrator with respect to awarded sums qua claim nos. 1,2,3,4 and 8; were so based on appreciation of facts, evidences and law after giving all reasonable opportunities to the parties to lead their evidence. Not only the reasoning of Ld. Sole Arbitrator are logical but all the material and evidences were taken note of by the Ld. Sole Arbitrator. With respect to findings of Ld. Sole Arbitrator except for claim no. 9, the Court cannot substitute own evaluation of conclusion of law or fact to come to the conclusion other than that of the Arbitrator, as per the law laid in the precedents, elicited herein above; cogent grounds, sufficient reasons have been assigned by Ld. Sole Arbitrator in reaching the just conclusion and no error of law or misconduct is apparent on the face of the record. This Court cannot re-appraise the evidence and it is not open to this Court to sit in the appeal over the conclusion/findings of facts with respect to claim nos. 1,2,3,4 and 8 arrived at by Ld. Sole Arbitrator; no error is apparent, except for the finding with respect to claim no. 9 of interest; as elicited above. No case has been made out by petitioner that award for claim nos. 1,2,3,4 and 8 were for any excepted clause of the contract. The impugned award, except for the interest awarded, is not against any public policy nor against the terms of contract of the parties nor is perverse nor is suffering from patent illegality. The precedents relied upon by Ld. Counsel for petitioner, elicited herein above, embody facts and circumstances entirely different and distinguishable to the facts and circumstances of the case in hand. Also was held in the case of Ssangyong Engineering & Construction Co. Ltd (supra) by the Apex Court that mere contravention of the substantive law of India, by itself, is no longer a ground available to set aside an arbitral award.
ARBTN No. 5173/2018 Union of India vs M/s Manraj Enterprises Page 25 of 2634. Accordingly, in terms of law laid in the case of Delhi Metro Rail Corporation Ltd. (supra) wherein reliance was placed upon law laid by Supreme Court in the case of J.C Budhiraja (supra), the entire award need not be set aside and the part of award which is valid and separable can be upheld.
35. In view of foregoing discussions, the impugned award is modified only with respect to awarded interest (qua claim no. 9) as follows:
(i)The claimant/respondent no.1 is entitled to simple interest @ 12% per annum on award amount from the date of award till the date of actual receipt of payment by petitioner (as awarded by Ld. Sole Arbitrator);
(ii) The claimant/respondent no. 1 is not entitled for any pre-
reference or pendente lite interest @10% with effect from 09/01/2002 till date of award, as was held by the Ld. Sole Arbitrator.
Remaining part of the award is valid, so upheld and not set aside.
36 Petition is disposed of in above terms.
37. The parties are left to bear their own costs.
38. File be consigned to record room.
ANNOUNCED IN (GURVINDER PAL SINGH)
OPEN COURT District Judge (Commercial Court)-02
on 17th February, 2021. Patiala House Court, New Delhi.
(Deepika) ARBTN No. 5173/2018 Union of India vs M/s Manraj Enterprises Page 26 of 26