Delhi High Court
Bharat Heavy Electricals Limited vs Vasavi Power Services Pvt Ltd on 19 January, 2022
Author: Sanjeev Narula
Bench: Sanjeev Narula
NEUTRAL CITATION NO: 2022/DHC/000718
$~26 & 27
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Date of Decision: 19th January, 2022
+ O.M.P. (COMM) 471/2020, I.As. 12171/2020, 3560/2021,
7480/2021 & 7909/2021
BHARAT HEAVY ELECTRICALS LIMITED ..... Petitioner
Through: Mr. Pallav Kumar, Mr. Dibya
Nishant, Mr. Ryan Singh, Ms. Garima
Sharma and Ms. Bitisha Singh,
Advocates.
versus
VASAVI POWER SERVICES PVT LTD ..... Respondent
Through: Mr. Darpan Wadhwa, Senior
Advocate with Mr. Anurag
Ahluwalia, Mr. Sameer Dawar,
Mr. Arnav Kumar, Mr. Amer Vaid
and Ms. Neelakshi, Advocates.
+ O.M.P. (COMM) 472/2020, I.As. 12170/2020, 3548/2021,
6262/2021 & 7482/2021
BHARAT HEAVY ELECTRICALS LIMITED ..... Petitioner
Through: Mr. Pallav Kumar, Mr. Dibya
Nishant, Mr. Ryan Singh, Ms. Garima
Sharma and Ms. Bitisha Singh,
Advocates.
versus
VASAVI POWER SERVICE PVT LTD ..... Respondent
Through: Mr. Darpan Wadhwa, Senior
Advocate with Mr. Anurag
Ahluwalia, Mr. Sameer Dawar,
Mr. Arnav Kumar, Mr. Amer Vaid
and Ms. Neelakshi, Advocates.
CORAM:
HON'BLE MR. JUSTICE SANJEEV NARULA
O.M.P. (COMM) 471-472/2020 Page 1 of 50
This is a digitally signed Judgement.
NEUTRAL CITATION NO: 2022/DHC/000718
JUDGMENT
[VIA VIDEO CONFERENCING] SANJEEV NARULA, J. (Oral):
CONTENTS BRIEF FACTS .................................................................................................................... 3 A. The Contracts .......................................................................................................... 3 B. The Dispute ............................................................................................................. 4 C. The Arbitration ........................................................................................................ 5 GENERAL OBJECTIONS ................................................................................................. 5 A. Limited Scope of Judicial Interference under Section 34 of the Act ...................... 6 B. Findings on breach/delay ........................................................................................ 7 C. Findings on Compensation/Damages ...................................................................... 8 CLAIM-WISE OBJECTIONS AND ANALYSES ............................................................ 9 A. 40% Price increase on balance value ...................................................................... 9 B. Loss of Profit @ 10% on withdrawn work ........................................................... 17 C. Infructuous expenses due to premature withdrawal .............................................. 22 D. Hire Charges of Tools and Plants (T&Ps) after 25th October 2011. ..................... 27 E. Claim awarded for Loss towards Infructuous Expenses ....................................... 32 F. BG & OD charges along with Interest .................................................................. 35 G. Extra Expenditure due to Bad Storage .................................................................. 39 H. Refund of Security Deposit/BG and Retention Money Amount .......................... 42 I. Legal Expenses on Actuals ................................................................................... 45 J. Legitimate Claims of Interest Charges i.e., Pendente Lite & Pre Reference Interest On Award Amount ........................................................................................................ 47 COUNTER CLAIMS........................................................................................................ 50
1. The present petitions under Section 34 of the Arbitration and Conciliation Act, 1996 [hereinafter 'the Act'] have been filed by BHEL seeking setting aside of two separate Impugned Arbitral awards, both dated 10th March, 2020, in respect of Contract No. 659/2010 and 640/2009, which O.M.P. (COMM) 471-472/2020 Page 2 of 50 This is a digitally signed Judgement.
NEUTRAL CITATION NO: 2022/DHC/000718 have been challenged separately in O.M.P. (COMM) 471/2020 and 472/2020 respectively [hereinafter referred to as 'Awards'].
2. Under the afore-noted Awards, the Sole Arbitrator has partly allowed the claims of the Respondent herein - Vasavi Power Services Private Limited (being the Claimant in arbitration) [hereinafter referred to as 'VPSPL'] and rejected BHEL's counter-claims.
3. The nature of claims of VPSPL in the two contracts - which were subject matter of two separate references - are nearly identical. The heads of claim in both the petitions are also overlapping, barring certain additional heads of claims in O.M.P. (COMM) 472/2020. The reasoning and the fact finding is also similar, since the two contracts were interdependent and interrelated. In these circumstances, although there are two separate awards passed by the Arbitrator, the Court finds it apposite to pass a common judgment to decide the two petitions arising out of the two separate awards.
BRIEF FACTS
4. For the sake of brevity and considering the commonality in the two petitions, facts of the case summarised hereinafter as well as the extracts of Impugned Award are culled out from OMP (COMM) 472/2020. The factual differences and objections raised by BHEL that are found to be exclusive to a particular petition will be noted and dealt with separately.
A. The Contracts O.M.P. (COMM) 471-472/2020 Page 3 of 50 This is a digitally signed Judgement.
NEUTRAL CITATION NO: 2022/DHC/000718 4.1. VPSPL, being the L-1 bidder, was awarded the work for "Erection, Testing, Commissioning, Trial Operations and Handing Over of 2X 250 MW STG with related auxiliaries and piping at 1500MW Pragati III CCPP of Pragati Power Corporation at Bawana, Delhi" by BHEL vide the following contracts: (i) No. 621/2009 dated 07th September, 2009, (ii) No. 640/2009 dated 22nd December, 2009, and (iii) No. 659/2010 dated 30th March, 2010. Although the three contracts are separate, but some parts are interdependent for the purpose of completion and execution. For the present judgment, we are concerned with two contracts, being: (i) Contract No. 640/2009, under which, value of the work awarded was Rs. 7.5 crores, scheduled commencement date was 19th January, 2010, zero date was decided as 18th March, 2010, and the scheduled completion date as 18th January, 2011 (later extended to December, 2011); and in respect of (ii) Contract No. 659/2010, the value of the work awarded was Rs. 7.5 crores, scheduled commencement date and the zero date was decided as 18th March, 2010, and scheduled completion date was 17 th March, 2011.
B. The Dispute 4.2. Due to alleged delay, inaction and inability of VPSPL to complete the works in a timely and satisfactory manner, BHEL - vide letter dated 25th and 28th October 2011 - withdrew part of the work from VPSPL's scope of work under the Contracts No. 640/2009 and 659/2010 respectively, (also referred to as 'descoped work') in order to get the same completed through another agency, at the risk and cost O.M.P. (COMM) 471-472/2020 Page 4 of 50 This is a digitally signed Judgement.
NEUTRAL CITATION NO: 2022/DHC/000718 of VPSPL.
4.3. VPSPL sought interim relief from this court in numerous petitions under Section 9 of the Act, which details are not necessary to be gone into. It will suffice to mention that in the said petitions, pursuant to an order passed by this court, a team from IIT, Delhi was appointed as the Local Commissioners, which inspected the site and submitted a status report dated 15th November, 2011 regarding the completion of works. This report has been strongly relied upon by the Arbitrator to return his findings.
C. The Arbitration 4.4. VPSPL invoked arbitration vide letter dated 16th February, 2012, alleging that BHEL did not make work fronts available to it for major part of work under Contract No. 640/2009 and 659/2010. After several rounds of litigation qua appointment of Arbitrator, Mr. M.C. Goyal (former BHEL employee) was appointed as the Sole Arbitrator by BHEL vide letter dated 16th September, 2013 for adjudicating the disputes and differences between the parties in two separate arbitration proceedings.
4.5. Before the Arbitrator, two separate claim petitions were filed, to which BHEL filed counter-claims. These references came to be decided by way of separate awards, which have now been impugned in the present petitions.
GENERAL OBJECTIONS O.M.P. (COMM) 471-472/2020 Page 5 of 50 This is a digitally signed Judgement.
NEUTRAL CITATION NO: 2022/DHC/000718
5. Mr. Puri, senior counsel for BHEL, contends that the awards are unreasoned; replete with patent illegality; made with apparent perversity which goes to the root of the matter; in ignorance of vital evidence; replete with inaccuracies and contradictions; in conflict with the basic notion of justice and morality; contrary to terms of the contract; and, in certain instances, in excess of the amount claimed.
6. Per contra, Mr. Darpan Wadhwa, senior counsel for VPSPL, has made the following preliminary submissions:
A. Limited Scope of Judicial Interference under Section 34 of the Act 6.1. The Tribunal is the final judge of the quality and quantity of evidence placed before it, which cannot be reassessed or reappreciated by the Court.
6.2. The Court does not interfere with the plausible view taken by the Arbitral Tribunal merely because an alternative view on facts and interpretation of the contract exists.1 6.3. In the present case, the Arbitrator being a retired employee of BHEL, appointed by BHEL itself, was an expert having special knowledge and experience in the field of STG and electrical contracts. An Award passed by an expert Arbitrator is entitled to considerable deference and need not be lightly interfered with, as there is a presumption in law that parties taking recourse to an expert Arbitrator accept and rely upon his knowledge in the field. Further, an expert having limited 1 Reliance has been placed upon the following judgments: Associated Builders v. Delhi Development Authority, (2015) 3 SCC 49; Ssangyong Engineering & Construction Co. Ltd. v. NHAI, (2019) 15 SCC 131, and Anglo American Metallurgical Coal Pty Ltd v. MMTC Ltd, 2020 SCC OnLine SC 1030.O.M.P. (COMM) 471-472/2020 Page 6 of 50
This is a digitally signed Judgement.
NEUTRAL CITATION NO: 2022/DHC/000718 legal parlance is not expected to articulate views and findings with precision, as expected from a judicially trained mind.2 6.4. Under Section 34, even if the Court comes to a conclusion that there were gaps in the reasoning for the conclusions reached by the Tribunal, due regard must be given to the documents submitted and the contentions raised before the Tribunal so that an award with inadequate reasons is not set aside in a casual and cavalier manner.3 6.5. BHEL, in its Written Submissions, has selectively relied upon stray observations in the Impugned Awards, whereas it is settled law that arbitral awards must be read as a whole and the unsuccessful party should not be permitted to draw upon isolated observations in an award to infer inconsistencies and infirmities.
B. Findings on breach/delay 6.6. Delay in execution of the contract was determined by the Arbitrator to be solely attributable to BHEL. Therefore, withdrawal of work under Clause 25.2 was illegal and unjustified.
6.7. The Arbitrator further held that as BHEL kept asking VPSPL to augment more and more manpower vis-a-vis scattered inputs, this resulted in increase of project cost and negative cash flow. In this regard, the Arbitrator relied strongly upon the Local Commissioner's Report dated 15th November, 2011, and each finding was discussed in 2 Reliance has been placed upon the following judgments: Larsen and Toubro Limited v. Hindustan Petroleum Corporation Ltd., 2016 SCC OnLine Bom 8341, at para 13-16; DDA v. Madan Construction, (2008) 1 Arb LR 499 at para 9; and IRCON International Ltd. v. C.R Sons Builders & Development Pvt. Ltd., MANU/DE/0200/2008.
3Reliance has been placed upon: Dyna Technologies (P) Ltd. v. Crompton Greaves Ltd., (2019) 20 SCC
1. O.M.P. (COMM) 471-472/2020 Page 7 of 50 This is a digitally signed Judgement.
NEUTRAL CITATION NO: 2022/DHC/000718 detail with proper application of mind and by giving reasons for delay.
6.8. BHEL failed to produce any evidence to demonstrate that it had timely provided all the fronts to VPSPL. In fact, the Project was delayed by BHEL at the planning stage itself.
6.9. Ultimately, the Arbitrator came to the conclusion that withdrawal of work without providing input amounted to breach of contract by BHEL.
6.10. The Tribunal further held that BHEL did not act in a transparent and fair manner and that the withdrawal of work was a clear pre- determined action so that work order could be placed upon third parties at higher prices.
6.11. It is settled law that findings of fact in relation to delay etc. cannot be interfered with under Section 34 of the Act.4 C. Findings on Compensation/Damages 6.12. BHEL was responsible for delay and thus liable for breach of contract. Hence, VPSPL is entitled to claims as awarded. 6.13. It is relevant to mention that when CW-2, Sh. J. Dhileep Kumar deposed on behalf of VPSPL to prove the financial claims, no specific questions were asked by BHEL on the aspect of quantifications.
7. Apart from the above, BHEL has challenged multiple claims, enumerated and discussed below.
4Reliance has been placed upon the following judgments: Oil Industry v. Godrej, 2019 SCC OnLine Del 10247; K.V Mohd. Zakir v. Regional Sports Centre, (2009) 9 SCC 357; MAPEX Infra v. NHAI, 2018 SCC OnLine Del 6664.
O.M.P. (COMM) 471-472/2020 Page 8 of 50This is a digitally signed Judgement.
NEUTRAL CITATION NO: 2022/DHC/000718 CLAIM-WISE OBJECTIONS AND ANALYSES
8. Before embarking upon an analysis of the rival contentions, it needs to be emphasised that proceedings under Section 34 envisage minimal Court intervention. The proceedings are summary in nature and the Court is not to conduct a roving inquiry. The grounds of challenge have to be specific and the Court can set aside an award only if such grounds fall within the restricted ambit of Section 34 of the Act. Keeping the aforesaid principle in view, we now proceed to examine if BHEL has made out a case for judicial intervention of the Impugned Awards.
9. The contentions of the parties, on merits, and the analysis of the Court, are dealt in seriatim under separate heads of claims, as follows.
A. 40% Price increase on balance value
10. This is Claim No. 1 in both the Impugned Awards.
11. Mr. Puri, representing BHEL, made the following assertions:
(i) Award under this claim is beyond/against the terms of the Contract:
The Arbitrator, while allowing the claim, specifically observed that he is going beyond the terms of the contract, which is impermissible. Clause 53.3 of the contracts specifically bars any claim/ compensation on account of any increase whatsoever, in the following words:
"...With the provision of price variation as above NO CLAIM/ COMPENSATION on account of any increase whatsoever (irrespective of whether variation are steep/unanticipated or not compensated by the above escalation provisions in full towards minimum wages, consumables, electrodes, gases or any other item/ reason) will be O.M.P. (COMM) 471-472/2020 Page 9 of 50 This is a digitally signed Judgement.
NEUTRAL CITATION NO: 2022/DHC/000718 payable during the entire period of execution including extended period, if any unless provided for elsewhere in the contract."
The escalation towards 40% price increase was, therefore, barred, once VPSPL was getting the PVC. Moreover, once the claims for PVC was allowed (Claim No. 22), the Arbitrator ought not have awarded the Claim No. 1 in favour of VPSPL, as it amounted to making payment against the same claim twice.
(ii) VPSPL had filed self-created calculation sheets showing revenue and expenditure, certificate from CA stating expenditure incurred at site for 2010-2011 & for the period of 1st April 2011 to 30th October 2011 and RA Bills in its evidence. Claim No. 1 was allowed merely upon self-created working sheets filed by VPSPL.
12. Mr. Wadhwa, representing VPSPL, contended as follows:
(i) Arbitrator has taken a reasonable view borne out from admitted position which is not disputed by BHEL.
(ii) The hike in prices was so steep that contractual rates were no more workable or adequate to meet with exceptional circumstances. Hence additional manpower was deployed at exorbitantly high wages during the extended period.
(iii) BHEL, in its Section 34, has contended for the first time that the award under this claim is contrary to Clause 53.3 and 59.0 of GCC.
Said clauses are applicable only during the tenure of the original contract and cannot be made applicable for the prolonged period where delay is solely attributable to BHEL. Arbitrator has observed that Price Variation Compensation (PVC) and Overrun Compensation O.M.P. (COMM) 471-472/2020 Page 10 of 50 This is a digitally signed Judgement.
NEUTRAL CITATION NO: 2022/DHC/000718 (ORC) clause is applicable in normal course i.e., had the Contract got completed within the stipulated time. Any other interpretation as canvassed by BHEL at this stage would render the interpretation of the Arbitrator completely nugatory.
(iv) Without prejudice to the above, it is submitted that it is a settled law that the contractor is entitled to price escalation for the extended period where the delay in execution of the contract is attributable to the employer, even though there is no express/implied prohibition in the contract.5
(v) BHEL is trying to mislead the Court by submitting that once claim for PVC (Claim No. 22) was allowed, Claim No. 1 could not be allowed.
(vi) It cannot be said that Arbitral Tribunal has awarded the said amount without evidence. It is settled law that the method for computation of damage falls within the domain of the Arbitrator.6 ANALYSIS:
13. On this claim, the Arbitrator held as follows:
"1. 40% price increase on balance value of contract as on 25.10.2011.:
Rs. 23345560/-
The Contract 640/2009 dt.22.12.2009 came into existence from 04.10.2009 for the period of 17 months ie up 03.03.2011. Contractor opened the site office and started providing services for CW piping on available front and material. Later on, the zero date was fixed for project as 5 Reliance has been placed upon the following judgments: Bengal Traders v. West Bengal State Electricity Board, (2001) Suppl. Arb. LR 7, at Para 6 and 7; K.N Sathyapalan v. State of Kerala, (2007) 13 SCC 43 at Para 31-34; Assam SEB v. Buildworth Pvt. Ltd., (2017) 8 SCC 146; Food Corporation of India v. AM Ahmed & Anr., (2006) 13 SCC 779, at Para 10, 24, 32; PM Paul v. Union of India, 1989 Supp (1) SCC 368; M/s Rawla Construction Co. v. Union of India, ILR (1982) I Delhi 44; IRCON International Ltd. v.
C. R. Sons Builders & Development Pvt. Ltd., MANU/DE/0424/20, at Para 13, 17, 18, 31; Paragon Construction (I) Pvt. Ltd. v. Union of India & Anr., (2008)101 DRJ 193, at Para 5 and 6; DDA v. N. N Buildcon, 2017 SCC OnLine Del 11494, at Para 9-11; Villayati Ram Mittal v. Union of India, (1985) 8 DRJ 316, at Para 5, 7, and 8; Deconar Services Pvt. Ltd. v. National Thermal Power Corporation, 2009 SCC OnLine Del 4108 at Para 8 and 9.
6Reliance has been placed upon the following judgments: Mc Dermott International v. Burn Standard (2006) 11 SCC 181; at Para 106, 108-110 and 115; NHAI v. CEC- HCC Joint Venture, 2017 SCC OnLine Del 7593; at Para 18-23 and Bharat Coking Coal Ltd. v. L.K. Ahuja, 2004 (5) SCC 109; at Para 16, 19, 20.
O.M.P. (COMM) 471-472/2020 Page 11 of 50This is a digitally signed Judgement.
NEUTRAL CITATION NO: 2022/DHC/000718 01.07.2010 ie after 9 months. Even from 1.7.10 the contract - project competition period limits to 30.11.11(cl 58.3), but the project continued till year 2014 for synchronization and other work. It is fixed price contract even beyond contractual period only adding with little PVC & ORC with various conditions. It is now fact that there is a breach of contract withdrawing part of work at risk & Cost against the terms of the contract and delays attributable to BHEL and damage to claimant. The order placed on 3rd party at price of 463% piping, 162% TG work ie in period of 2-2.5 years and all prices settled/negotiated and finalized by BHEL. In short delay caused by employer by not providing fronts, materials & drawings in time which prolonged the period of contract and cost increased for establishment. When contract period is near to over, input position is bad, idle labor & expenditure over it, is not payable to Claimant as per contract. Respondent is liable to compensate in form of price increase toward direct losses. This will be other than fixed price contract & contract terms condition.
Tribunal has seen the trend of price hike @463% & 162% and the PVC clause & ORC is not sufficient for enhance period. In normal condition, had the work not withdrawn wrongly, there was no issue, but in alleged matter where contract is extended due to Respondent price increase matters. On consequence losses towards time extended attributable to Respondent, claimant is entitled for Escalation on the left-out amount/work on 25.10.2011. The contractual payments of PVC & ORC as per terms stipulated in contract is payable in normal course.
As on date there is no method to calculate the price hike. However, there is defined value of increase settled/verified by respondent team for same contract, same parties, same nature of work as 665% to 162% on piping and STG. Therefore, tribunal looks the hike of 40% reasonable on 25.10.2011 amounting to Rs 16252197/- as left out work pertain to piping (increase 665%) as per calculation below:
Values in Rs.
Contract Value: 121500000=00 Billed amount up to Oct'11 :43864507=00 RAB1 to RAB13 pg 19 vol xvii De scoped Value: 37005000=00 Balance Value on 25.10.11:40630493.00, 40%=16252197.00 The claim of 40% hike on balance value on 25.10.11 is awarded. It is clarified here that order placed on 3rd party of same nature and dealt by same party (BHEL) so this is valid to refer. For above Tribunal refer the arbitrator's jurisdiction vide judgment FCI Vs AM Ahamad & Co. and another pt 32 page 794(2006) 13 scc. Which elaborate as : "once it was found that the Arbitrator had jurisdiction to find that there was delay in execution of the contract due to conduct of FCI the cooperation was liable for the consequences for the delay, therefore the Arbitrator in our option had jurisdiction to go into the question. He has gone into the question and has awarded as he did. Tribunal has taken the orders of Hon'ble High court/Supreme court exhibit in proceeding. The matter of saw pipes produced by Respondent is different with the present case as contract terms are not bound herein due to breach of contract and act of withdrawal of work against terms of contract. This award has been passed in consonance O.M.P. (COMM) 471-472/2020 Page 12 of 50 This is a digitally signed Judgement.
NEUTRAL CITATION NO: 2022/DHC/000718 with the principles of natural justice. It is again clarified, normal PVC & ORC shall be payable to the Contractor as per terms of contract terms including PVC bill lying with Respondent for payment, if any. Finally, the award of 40% increase on balance value of contract on 25.10.2011 Rs 16252197/- is awarded to claimant."
13.1. The Arbitrator has given a finding of fact that there was a breach of contract by BHEL as they did not arrange the inputs well in time, leading to prolongation of the contract period. There is no serious challenge on this account and BHEL's thrust of challenge is more on the assessment of damages. Considering the limited scope of interference under Section 34, the Court is not inclined to reappreciate the evidence and give a different conclusion on factual aspects. Since prolongation of the contract was found to be unjustified and attributable to BHEL, the necessary consequence was to award compensation to VPSPL.
13.2. On the aspect of quantification of damages, the Arbitrator was of the opinion that since compensation has to be in the form of price increase toward direct losses, contract terms would not apply. In these circumstances, the Arbitrator had held that price hike in the extended period, being much more than what was contemplated under the PVC and ORC clauses, would be insufficient to compensate VPSPL. Since the aforenoted clauses were found to be not-workable, the Arbitrator calculated the price hike by relying upon reference material pertaining to BHEL, being an order placed by BHEL itself upon a 3rd party relating to a similar contract. He also noted similarity in the nature of work, and the defined value of increase settled/verified by BHEL within the range of 665% to 262% on piping and STG. In such circumstances, noticing the trend of price hike, the Arbitrator O.M.P. (COMM) 471-472/2020 Page 13 of 50 This is a digitally signed Judgement.
NEUTRAL CITATION NO: 2022/DHC/000718 considered it appropriate to awarding claim of 40% hike on the balance value.
13.3. The court does not find the Award in respect of this Claim to be unreasonable or beyond the terms of the contract. As discussed above, since delay in execution of the contract was attributable to BHEL, the award for damages on account of price escalation was justified, having regard to Section 73 of the Contract Act, 1972. BHEL cannot therefore, take shelter of the PVC clause to deny such claim. PVC clause extracted above restricting the claim for price escalation would apply only during the tenure of the original contract and not for the prolongation period when the delay was attributable to BHEL. In K.N. Sathyapalan (Dead) By LRs v. State of Kerala & Anr.,7 Supreme Court considered a similar ground of challenge to an award and held that ordinarily the parties would be bound by the terms agreed upon in the contract, but in the event one of the parties to the contract is unable to fulfil its obligation - which has a direct bearing on the work to be executed by the other party - the Arbitrator is vested with the authority to compensate the other party for the extra cost incurred by him as a result of failure of the first party to live up to its obligation. In P.M. Paul v. Union of India,8 the Supreme Court has held that escalation is a normal incident arising out of a gap of time in the performance of any contract in this inflationary age. In Food Corporation of India v. A.M. Ahmed & Co.,9 Supreme Court held that escalation is a normal and routine incident arising out of gap of 7 (2007) 13 SCC 43.
81989 AIR 1034.
9(2006) 13 SCC 779.
O.M.P. (COMM) 471-472/2020 Page 14 of 50This is a digitally signed Judgement.
NEUTRAL CITATION NO: 2022/DHC/000718 time in performing any contract. In view of the above, the Court observes that the Arbitrator was correct in awarding damages on account of increase in cost of construction material and other overheads. This award was towards damages that VPSPL suffered due to breach on part of BHEL, which led to lengthening of the contract beyond the term originally fixed. This line of reasoning adopted by the Arbitrator cannot be faulted with.
13.4. That apart, the view taken by the Arbitrator - that the provision of price escalation would not bind VPSPL beyond the scheduled date of completion - is a view based on construction of the provisions of the contract, which lies in the exclusive domain of the Arbitral Tribunal. 13.5. The method for computation of damages too falls within the exclusive domain of the Arbitrator. This depends on the circumstances of the case and the Court does not find any reason to interfere with that part of the award under this head. There is no merit in the contention that the awarded amount is without evidence. It has been noted that the total bill value in respect of bills RAB-01 to RAB-13 was Rs. 4,38,64,507/-. The de-scoped work withdrawn from VPSPL on 25th October 2011 was Rs. 3,70,05,000/-. Since the total Contract Value was Rs.12,15,00,000/-, the balance value comes to Rs. 4,06,30,493/-. The de-scoped work of Rs. 3,70,05,000/- was given to M/s. Powermech at an amount of Rs. 5,99,63,600/- which was at an increase of 62.040%. The Arbitrator has given a categorical fact finding to this effect at para 75 of the Award. VPSPL continued working at the Site from November 2011 till October 2013 qua the works not withdrawn by BHEL. Taking the above into account, only O.M.P. (COMM) 471-472/2020 Page 15 of 50 This is a digitally signed Judgement.
NEUTRAL CITATION NO: 2022/DHC/000718 40% increase on the balance work during the relevant period (between November 2011 and October 2013), has been awarded to VPSPL at Rs. 1,62,52,197/- under this head of Claim, as against the claimed Rs. 2,33,45,560/-.
13.6. Further, it must be noted that the Tribunal was presented evidence in the nature of Monthly Report for Revenue Expenditure for the period from 2012 upto January 2013, which demonstrated that VPSPL incurred an extra expenditure of Rs. 5.5 Crores for the relevant period. Besides, VPSPL has also furnished proof of expenditure qua staff salary for the period from October, 2011 to October, 2012 and for the period from November 2012 till December 2013. Besides, VPSPL also submitted certificates issued by a Chartered Accountant; Statement of Revenue and Expenditure derived from its books of accounts along with a working out statement prepared by CW-2. 13.7. There is also no merit in the contention of BHEL that since claim for PVC was allowed, the Arbitrator could not have awarded Claim No.
1. Claims No. 19-21 pertained to Running Bills/ ORC bills/ PVC bills. For the Running Bills, the Arbitrator observed that BHEL should process the same as per ORC and PVC clauses. Thus, there is no overlap between the two claims.
13.8. With respect to Contract No 659/2010 [OMP (Comm.) 471/2020], BHEL has taken the objection that the documents which are referred to in Contract No 640/2009 [OMP (Comm.) 472/2020], did not form part of the record in this case, and hence, the Arbitrator erred in arriving at the same reasoning for both the cases. This objection is immaterial and would not have any bearing on the outcome of the O.M.P. (COMM) 471-472/2020 Page 16 of 50 This is a digitally signed Judgement.
NEUTRAL CITATION NO: 2022/DHC/000718 objections in respect of the second petition, as the reasoning adopted by the Arbitrator is not merely premised on the evidence adduced, but on the trend of price hike noticed from third-party contracts. Therefore, challenge in OMP (Comm.) 471/2020, also cannot succeed.
13.9. Accordingly, award is upheld under this head in respect of both petitions.
B. Loss of Profit @ 10% on withdrawn work
14. This is Claim No. 2 in both the awards.
15. Mr. Puri, made the following assertions:
(i) Award under this claim is beyond/against the terms of the Contract, as the Arbitrator, despite noticing that profit @ 5% is shown in the rate quoted by VPSPL under the Contract, went on to conclude that VPSPL is entitled to 10% profit towards the withdrawn work. The rate quoted by VPSPL, being part of the bid, cannot be ignored, as the same was the basis of award of contracts, and VPSPL had given unqualified acceptance to the same.
(ii) Awards ignore vital evidence: There was no material or evidence on record to show loss of profit or to justify the award of 10% profit. The Arbitrator perversely allowed Claim No. 2 towards loss of profit merely upon self-created working sheets filed by VPSPL. In support of this claim, VPSPL had filed calculation sheet and jointly signed work status as on 30th October, 2011 in its evidence.
16. Mr. Wadhwa controverts the above by making the following submissions:
O.M.P. (COMM) 471-472/2020 Page 17 of 50This is a digitally signed Judgement.
NEUTRAL CITATION NO: 2022/DHC/000718
(i) A conservative profit margin dedicated for the Project (i.e 5%) got affected considerably on account of reasons attributable to BHEL.
Thus, VPSPL was not bound by the 5% quote which would have been applicable only in case the Contracts got completed within the stipulated period, or in an ideal scenario if the contract-value did not get reduced on account of withdrawal of works by BHEL.
(ii) It is settled law that 10% is a reasonable measure of profit that a contractor is entitled to, in case of illegal termination/recession of contracts.10
(iii) It is permissible for the Arbitral Tribunal to make a broad evaluation of damages and it is not necessary to go into minute details. Courts under Section 34 do not interfere even when quantification of damages is based on guesswork on the basis of documents on record. In this regard, reliance is placed upon State of Kerala v. K. Bhaskaran.11 ANALYSIS
17. On this claim, the Arbitrator held as follows:
"2. Loss of Profit on withdrawal work & awarded to 3rd party: Rs. 34,85,000/-
Referred Arbitral record, the de-scoped work withdrawn from claimant on 25.10.2011 is Rs 370,05,000/- page 44&46 vol xvii, but as per affidavit of CW-2 de-scoped value taken as Rs 348,50,000/- page 44 vol xvii. Had this work remained with claimant he would have earned profit on it. The withdrawal of work at Risk & cost revoking clause 25 is unjustified, act against terms of contract and false and fallen under consequence damages. A normal profit of 10% is permissible on withdrawal amount/work. Therefore Rs. 34,85,000/- is agreed toward 10 Reliance has been placed upon the following judgments: A.T. Brij Paul Singh and Ors. v. State of Gujarat, (1984) 4 SCC 59 at Para 8-9; Dwaraka Das v. State of MP, (1999) 3 SCC 500 at Para 9; MSK Project v. State of Rajasthan, (2011) 10 SCC 573 at Para 39; Mohd. Salamatullah v. Govt. of A.P., (1977) 3 SCC 590 at Para 2-4; and GAIL India Ltd. v. VRC Construction, (2019) SCC OnLine Del 9095 at Para 14-20.11
AIR 1985 Ker. 49.O.M.P. (COMM) 471-472/2020 Page 18 of 50
This is a digitally signed Judgement.
NEUTRAL CITATION NO: 2022/DHC/000718 claims of petitioner. The difference of value if any, be reconciled and profit 10% be tabulated. Though profit 5% is shown in rate quote, it is when party recovered all other elements. The matter is of arbitration so cannot be matter of understanding and delay is attributable to Respondent. Thus, claim of Rs. 34,85,000/- of claimant is awarded. As per section 73 of the Indian contract Act, this is allowing as damages, the loss of reasonable profits arising from a breach of contract. The Claim of 10% profit on withdrawal work amount (de scoped) is awarded to Claimant."
17.1. The aforenoted extracted portion of the Impugned Award reveals that the Arbitrator has awarded loss of profit @ 10% on withdrawn/ descoped work and proceeded to award the full claimed amount. The Court finds merit in the contention of VPSPL that there are sufficient precedents for assessing reasonable measure of profit which a contractor is entitled to in case of illegal termination. The Supreme Court in A.T. Bridge Paul Singh v. State of Gujarat,12 while interpreting Section 73 of the Contract Act, 1882, held that damages can be claimed by a contractor where the government is proved to have committed breach by improperly rescinding the contract, and for estimating the quantum of damages, the Court should make a broad evaluation, instead of going into minute details. Claim of expected profits was held to be legally admissible on proof of breach by the erring party.
17.2. Since BHEL has been found to be guilty of breach of contract, the Court does not find any infirmity in the award for loss of profits to VPSPL. VPSPL is entitled to award of damages by way of loss of profit.
17.3. Having said that, ordinarily, the Court would not have interfered with the award of damages on this account; however, the measure of profit 12 (1984) 4 SCC 59.
O.M.P. (COMM) 471-472/2020 Page 19 of 50This is a digitally signed Judgement.
NEUTRAL CITATION NO: 2022/DHC/000718 would depend on the facts and circumstances of each case. What would be the measure of profit would depend on the nature of the contract. Courts have awarded loss of profit @ 5%-15% of the value of the remaining part of the contract as damages for loss of profits. VPSPL has relied on several judgments, as noted above, to contend that Courts have accepted 10% of the contract price to be awarded as loss of profit to be reasonable and permissible. However, there cannot be any straitjacket formula and assessment of quantum of profit would depend on facts and circumstances of each case. VPSPL's claim for damages for loss of profit was based on its expected earnings by undertaking the work under the Contracts. VPSPL has quoted 5% to be the profit margin in the bid documents. The Arbitrator, however, has awarded 10% against the quoted rate, holding that 10% is the normal profit and the quoted rate would be applicable if the party recovers all other elements. This, in the opinion of the Court, is completely perverse and arbitrary, in light of VPSPL's own admitted categorical stance that its profit was only 5%. It was not open for the Arbitrator to quantify the damages, on the basis of guesswork, for a higher amount. A broad evaluation and guess work is certainly permissible; however, VPSPL was bound by its own admission. VPSPL has argued that its profit margin could not have been restricted to 5% beyond the stipulated period, however, this contention is devoid of merit. It cannot be ignored that the award of loss of profit was done purely on an estimation basis. If indeed the profit was more than the quoted rate, VPSPL should have furnished supporting material, which admittedly was not done. The estimate O.M.P. (COMM) 471-472/2020 Page 20 of 50 This is a digitally signed Judgement.
NEUTRAL CITATION NO: 2022/DHC/000718 given by VPSPL could not have doubled just because the contract value was reduced on account of withdrawal of work. This observation by the Arbitrator lacks cogent reasoning and is based on surmise and conjectures. Thus, award in excess of 5% of Rs. 3,29,99,053/- (being the value of de-scoped work) is set aside in OMP (Comm.) 472/2020.
17.4. In respect of OMP (Comm.) 471/2020, it is further noticed that the Arbitrator has similarly awarded 10% of the value of the de-scoped work as the loss of profit. However, in the instant case, as against claimed amount of Rs. 32,99,905/-, the tribunal awarded amount of Rs. 49,30,354/-. The relevant portion of the Impugned Award on this issue reads as under:
"2. 10% Loss of PROFIT (Withdrawal work amount):
Rs.4930354/-
Based on the reconciled values, the de scoped works amounting to Rs. 32999053/- had been withdrawn and allotted to 3rd party at Risk and cost at a price of Rs.53116927/- Pg26 vol 11 contract 832/2011 dated 30.11.2012. then vide pg 33 vol 11 value on date 11.09.2014 changed as Miraj Rs. 54533804/- V/s vasavi Rs 51754043/-
gap of Rs.2779770/-. On 09.10.2019 Respondent took liberty to submit the revised chart of Miraj Instru. for Rs. 57046036/- and corresponding value (Had Vasavi carried out the work) as per Vasavi contract to Rs. 49303544/- gap of Rs. 7742492/-Had the work not withdrawn, Claimant would have worked and recovered all recoveries including Profit. In Arbitral finding it is emerged that withdrawal is false, breach of contract. The act has fallen in consequences of damages.
The measure of damage, direct loss no doubt is the amount of profit lost by the breach. This is a measure of compensation for the loss which arose in the usual course of things. Therefore, a normal profit @10% on de scoped is awarded ie Rs. 4930354/- toward claim of petitioner as per standard practice being followed. In claim Claimant asked Rs. 3299905/- as revised values not declared by Respondent earlier. As per revised statement values to be taken care. Counsel argued that there is 5% profit in estimates. The case O.M.P. (COMM) 471-472/2020 Page 21 of 50 This is a digitally signed Judgement.
NEUTRAL CITATION NO: 2022/DHC/000718 is of arbitration so cannot be matter of understanding and delay attributable to Respondent and breach of contract. Reference taken WS-C page 34 to 36. Also section 73 of the Indian contract Act allows as damages, the loss of reasonable profits arising from a breach of contract."
17.5. The reasoning of the Arbitrator for rendering an award of an amount higher than the claimed amount is ostensibly 'reconciliation of figures/ value'. The Arbitrator calculates the loss of profit, not on the value of descoped work, but instead on the value of the work awarded to the third party - one Mirage Instrumentation (I) Pvt. Ltd. - which was Rs. 4,93,03,544/-. Thus, the Arbitrator awarded to VPSPL 10% of this = Rs. 49,30,354/-. The third-party value of work cannot be the basis of awarding damages for loss of profit. This reasoning for enhancing the value of de-scoped work is without logic. Accordingly, anything awarded in excess of 5% of de-scoped work (i.e., 5% of Rs. 3,29,99,053/-), being Rs. 16,49,952.5/-, is set aside.
C. Infructuous expenses due to premature withdrawal
18. This is Claim No. 3 in OMP (Comm.) 472/2020, and is exclusive to the said petition. There is no parallel claim in OMP (Comm.) 471/2020.
19. Mr. Puri, representing BHEL, made the following assertions:
(i) Except for making a bald statement, VPSPL had not produced any evidence to support the claim. It also failed to produce any financial statements/ settlement agreement/ proof of payment to the workmen, in support of its claim. Only self-created documents such as calculation sheets of billing status, calculation sheets of terminal benefits, and daily manpower reports were filed.O.M.P. (COMM) 471-472/2020 Page 22 of 50
This is a digitally signed Judgement.
NEUTRAL CITATION NO: 2022/DHC/000718
(ii) Award under this claim is beyond/against the terms of the Contract:
Despite acknowledging that there is no provision in contract for payment of infructuous expenses, as well as acknowledging that the same is a consequential loss, the Arbitrator still awarded 50% of the amount claimed by VPSPL, based merely upon self-created working sheets. The claim towards infructuous expenses ought not have been awarded in favour of VPSPL once the claim for ORC (Claim No. 21) was allowed by the Arbitrator. Clause 59.2, which specifically bars any claim/ compensation whatsoever once ORC is paid, was also not considered. The Clause 59.2 reads as follows:
"Once the claim of over run charges is admitted no other compensation whatsoever (like for delays in receipt if materials, availability of fronts etc) will be entertained."
20. Mr. Wadhwa, representing VPSPL, on the other hand, contended as follows:
(i) VPSPL incurred infructuous expenditure for diversion of manpower from STG-I to STG-II, but due to sudden withdrawal of STG-II work, VPSPL suffered loss on this account.
(ii) Manpower to the tune of 99 was diverted from STG-I to STG-II over a period of 3 months, totaling 297 man-months. Calculated @ Rs. 30,000/- per man month, the amount comes to Rs. 89,10,000/-.
(iii) Arbitrator took note of the letter dated 23rd January, 2012 and gave a fact finding that manpower had increased by more than 60 in STG-II around the date of withdrawal.
(iv) Ample evidence was placed on record and pleadings were made in this regard.O.M.P. (COMM) 471-472/2020 Page 23 of 50
This is a digitally signed Judgement.
NEUTRAL CITATION NO: 2022/DHC/000718
(v) Arbitrator has taken a plausible view in coming to a conclusion that the manpower to the tune of 99 persons did shift from STG-I to STG- II, and, accordingly calculated the losses.
(vi) BHEL never invoked Clause 59.2 either in its Statement of Defense or in its Written Submissions herein, and is now taking fresh grounds in the present petition.
21. ANALYSIS 21.1. On this claim, the Arbitrator held as follows:
"3. Infructuous Expenses due to premature & unwarranted withdrawal: Rs 1 cr.
Referring all arbitral record, there is regular demand for increase of manpower, skilled and semi-skilled and experienced personnel of power plant. Claimant was increasing the manpower (refer Daily Report) even than Respondent was not satisfied. Increase or decrease of such labor force is not easy task. Respondent issued notice on date 04.10.2011 for augmentation of manpower and for justice approach and honoring the letter, claimant increased the manpower. The STG-1 was synchronized on 03.10.2011 and claimant had manpower for 300 + common. Also vide letter dated 23.01.12 C-21, ED Vasavi informed that they had increased manpower in STG-2 to 61 nos by 24.10.2011. The copy of daily manpower reports is attached at page 49 to 97 sent by mail. Respondent informed that there was labor unrest at site, then no one can detach overnight the labor, when the work force doing well. When work withdrawal was abruptly there may be demotivation among work force, which can be settled by legal means, by paying retrenchment benefits. Towards terminal benefits given to work force, the toral amount so called claim of claimant is for Rs. @ 99 persons for STG-II for 3 months at Rs. 30,000/- pm + 8910000/- and terminal benefits (Rs. 1090000) = Rs. 10000000 (Rs. One Crore Only) It is also on record that some man power was diverted from STG-1 for boosting the work of STG-2 and honoring the court order. Also in tribunal opinion STG-1 & STG-2 belong to same contract, but man power(specialized for ST & TG work) of STG-2 were required to retrenched, Tribunal know that there is no provision in contract for payment on this account but act against terms of contract, so this is consequential loss by act of Respondent. The argument of Respondent why labor kept employed on or after termination of work, the work force cannot be just employed or retrench. Respondent must have thought before taking such undesired steps. Considering the work force of STG-2 at 50%, the amount of award comes to Rs. 50,00,000/-(Rs. Fifty Lakhs only) which is awarded to claimant."O.M.P. (COMM) 471-472/2020 Page 24 of 50
This is a digitally signed Judgement.
NEUTRAL CITATION NO: 2022/DHC/000718 21.2. At the outset, it is noted that there is indeed no term in the contract for claim under the afore-noted heading. This is not disputed by either party. VPSPL's claim is that these were consequential losses suffered by it on account of additional labour employed at site. Mr. Wadhwa has argued that the Arbitrator has taken notice of the documents on record relating to augmentation of manpower and then taken an approach in a practical and reasonable manner. Mr. Wadhwa emphasizes that on account of sudden and abrupt withdrawal of work, the manpower became surplus - which could not be utilized anywhere
- for which VPSPL had to pay salary for three months and accordingly, the claim was justified.
21.3. In the opinion of the Court, the Arbitrator's reasoning is vague and unconvincing. Arbitrator has not delved into the question of whether the deployment of surplus manpower caused a loss to BHEL. The Arbitrator has assumed the salaries and terminal benefits given to the workforce as a damage, by simply accepting the fact that there was additional manpower employed at the site. BHEL had contested and urged that the manpower at the site was always within the range of 66% and therefore there was no additional manpower employed. It has further been their stand that despite withdrawal of the work, manpower was utilized at other fronts which work continued even after termination. None of these aspects have been considered by the Arbitrator. Augmentation of workforce is not necessary in claim of damages, yet the Arbitrator proceeded on the assumption that as additional manpower was employed at the site for boosting of work, O.M.P. (COMM) 471-472/2020 Page 25 of 50 This is a digitally signed Judgement.
NEUTRAL CITATION NO: 2022/DHC/000718 BHEL necessarily had to bear the cost of retrenchment of employees and salary after the work was descoped. This reasoning is not only flimsy, but gives no indication to the Court as to how the awarded amount has been arrived at, by the Arbitrator. The Arbitrator has firstly presumed that there was additional manpower, and then further surmised that it could not be utilized, thus, became surplus, leading to payouts for retrenchment. The award is purely based on conjectures, without any supporting material. The Arbitrator has attempted to present some rationality by awarding only 50% of the claimed amount of Rs. 1 crore, but halving the claim amount can be no justification to uphold the award. VPSPL had to prove that the additional manpower indeed became idle, and further that it had to pay salaries and terminal benefits. No evidence had been adduced to show that VPSPL incurred expenditure for deploying 99 workmen for 3 months beyond termination and paid them terminal benefits, except for some self- created working sheets. VPSPL also did not furnish any details of retrenched employees/workmen or any document to support its claim of Rs. 10,90,000/- towards terminal benefits. The Arbitrator ought to have delved further into the matter and not simply proceeded on guess work. As VPSPL has already been awarded loss of profits and compensation towards price variation, there is no justification to award compensation under another head of claim, only on assumption and without any supporting material. Therefore, the Court does not find this claim to be justified and accordingly, the awards qua this claim are set aside.
O.M.P. (COMM) 471-472/2020 Page 26 of 50This is a digitally signed Judgement.
NEUTRAL CITATION NO: 2022/DHC/000718 D. Hire Charges of Tools and Plants (T&Ps) after 25th October 2011.
22. This is Claim No. 4 in OMP (Comm.) 472/2020, but no such claim is made in OMP (Comm.) 471/2020.
23. Mr. Puri, representing BHEL, made the following assertions:
(i) Award under this claim is contrary to and in conflict with the basic notion of justice and morality. The amount awarded (Rs. 11.79 crores) exceeds the amount claimed (Rs. 9.42 crores), and is in fact equal to the entire value of the Contract awarded to VPSPL (Rs. 12.15 Crores).
(ii) Awards ignore vital evidence: Most vital piece of evidence the admission made by VPSPL's that it never requested BHEL for withdrawing the T&Ps from the site, was ignored. The same is extracted below:
"Q.21. Can you please tell, is there any letter on record, where the claimant company has requested Claimant to allow it to withdraw the T & Ps from the Bawana Site?
Ans. The officials from the claimant from the site did not issue any letter in this regard. I am not aware whether the corporate office of the claimant has issued any letter in this regard.
Q.22. I put it to you that the claimant never sought to withdraw T & Ps from the site and whenever it requested Claimant in writing to allow it to withdraw/take away any T & Ps from Bawana Site, the same was allowed by Claimant?
Ans. I do not remember."
(iii) Once the factum of retention of T&Ps was not proved, rather, it was disproved, the Arbitrator having awarded this claim by giving a go-by to this vital piece of evidence, has committed perversity which is apparent on the face of Award.
(iv) In support of this claim VPSPL had filed self-created calculation sheet of monthly rent, self-created statement of T&Ps, and Invoices for purchase of Tools, Plants and Consumables in its evidence.
O.M.P. (COMM) 471-472/2020 Page 27 of 50This is a digitally signed Judgement.
NEUTRAL CITATION NO: 2022/DHC/000718
(v) Award under this claim is patently illegal on account of findings based on documents taken behind the back of the parties. The Arbitrator perversely granted liberty to VPSPL to amend and submit its Statement of Claims, after passing the Award, in terms of excess amount awarded by the Tribunal.
24. Mr. Wadhwa, representing VPSPL, contended as follows:
(i) Since the arbitration continued beyond April, 2017 (i.e., till 30th September, 2019) the Arbitral Tribunal awarded 80% of the hire rate charges for the said period i.e. Rs. 4,25,61,912/-. 80% of Claimed amount was awarded, i.e. Rs. 7,53,95,582 (From Nov, 2011 till March, 2017). Thus, the total awarded amount under this claim = Rs. 11,79,57,494 (Rs. 7,53,95,582/- + 4,25,61,912/-).
(ii) After withdrawal of works, BHEL had retained the T&Ps of VPSPL at site and therefore, VPSPL is entitled to hire charges for the same, as it was denied of their use in other projects.
(iii) Sufficient documentation was placed before the Arbitrator to show the existence of T&P at site, which included copies of invoices demonstrating purchase of the above T&Ps and deputation at the site.
Besides, a statement of the hire charges of T&Ps, basis the CPWD Delhi Schedule of Rates (from June, 2011 to March, 2017) was also filed. Further several communications were shown that BHEL despite retaining the T&P, insisted on increasing the T&P at site.
(iv) The T&P were project specific and could not be used elsewhere. In fact, the Arbitrator even took note of the same while allowing the claim.
O.M.P. (COMM) 471-472/2020 Page 28 of 50This is a digitally signed Judgement.
NEUTRAL CITATION NO: 2022/DHC/000718
(v) The Arbitrator had the discretion to apply any formula and thus, he applied hire rates prescribed by CPWD's Delhi Schedule of Rate @ 10% hike for mechanical and electrical contracts to calculate hire charges, after appreciating the invoices of purchase placed on record.
(vi) In its letter dated 23rd May, 2011, VPSPL puts to notice that an excess expenditure of Rs. 7.5 Crores was incurred toward wages, salaries, materials, transportation and hire charges alone, out of which Rs. 3 Crores was towards materials, transportation and hire charges as on 31st March, 2011. It only goes on to show that hire charges were a substantial cost incurred by VPSPL during the project and the Arbitrator has kept all these factors in mind while allowing the said Claim.
25. ANALYSIS 25.1. On this claim, the Arbitrator held as follows:
"4. Hire Charges of T&P after 25.10.2011: Rs. 94244477/- Claimant informed that on withdrawal of work of STG-II, ST work given to Power MECH and few piping's retained with Vasavi. And Respondent retained the T & P of claimant towards recoveries and denied using of them. These T & P arranged by claimant for the entire project completion. The detail of purchase invoices is available on record. Had the work remained with Claimant the cost would have recovered, but due to retention of these T&P he suffered direct loss. Otherwise he would have used it at other project, where he could arrange cash and reduce the case outflow. There is argument from Respondent why Claimant did not ask for return of these T&P? When there is withdrawal and retention of various amount, how it can be demanded for return. Moreover, Claimant worked at site after withdrawal, without these T&P. Toward direct loss there is claim of the Claimant for the hire charges at no fault to him & cash outflow ccurred as explained. These T&P are big items like dozer, Hydra cranes, Tractor and trailer, compressor, Mahindra Jeep, Mobile Cranes, welding Generators etc. (Annex:C-22 Pg 532 Vol-
3) which need regular maintenance. Respondent has done wrong withdrawal action and act against terms of contract. These are the direct losses to the claimant, so these losses have to be borne by respondent.
The claim of the claimant is Rs. 9,42,44,477/- calculated for the period Nov'11 till March'17 (page 99, 101, 104 & 110 to235 vol xvii). The hire O.M.P. (COMM) 471-472/2020 Page 29 of 50 This is a digitally signed Judgement.
NEUTRAL CITATION NO: 2022/DHC/000718 charges (expenses for keeping the equipment is based from Delhi Schedule for rate with 10% hike every year). In view of direct loss and wrong act against terms of contract, Tribunal award 80% claim of Rs. 94244477/- Rs. 75395582/-. Tribunal see that some of the T & P are project specific. Since arbitration is continued and items are with respondent, the hire charges from 01.04.17 to 30.09.2019 (2.5 years) need to calculate based on year 2016-17 hire charges of Rs. 21280956/- total value of 2.5 year shall be Rs. 53202390/- provided no item is released by Respondent in between. If so, corresponding value shall reduce to that extent. The revised claim for extended period shall reduce to be prepared by claimant and submitted to Respondent. Such amount liable to 80% (Rs. 42561912/-) is awaited to claimant. Adding values total claim comes to Rs. 117957494-. The items retained by Respondent due to withdrawal has to be returned to claimant in running conditions as they are purchased for project -copy of summary & PO enclosed at page 99,104, 110 vol xvii. Thus, this claim of hire charges of Rs. 117957494/- is awarded to claimant."
25.2. There is no contractual provision for this claim of damages. It is claimed as loss allegedly suffered on account of unlawful retention of T&P which were arranged by VPSPL for project completion. VPSPL contended that it was deprived utilization of the equipment and made a claim for only Rs. 9,42,44,477/-, against which the Arbitrator awarded an excess amount of Rs. 11,79,57,494/- which is nearly the entire value of the Contract awarded to VPSPL. On the question of illegal retention, which was refuted by BHEL, the Arbitrator has held that VPSPL was not in opposition to demand return of equipment, considering the amenable position in which it was placed in, because of pending dues against BHEL. This reasoning is not convincing and it is strange that VPSPL also did not seek any directions for the release of the equipment during the course of arbitration. Nevertheless, the undisputed fact is that the T&P was not removed from the site and the real controversy is regrading quantification for this claim which has been made on the basis of CPWD hire-charges for the period.
O.M.P. (COMM) 471-472/2020 Page 30 of 50This is a digitally signed Judgement.
NEUTRAL CITATION NO: 2022/DHC/000718 25.3. During the course of arguments, on a query put by the Court, Mr. Wadhwa has stated that the value of the equipment retained by BHEL was only Rs. 2.5 crores (which is disputed by BHEL, and according to them the documents filed by VPSPL show only Rs. 1.97 crores). Even so, the award is clearly more than five or six times the value of the equipment. This is because VPSPL has been awarded damages towards notional hire-charges, notwithstanding the fact that T&Ps were in fact owned by it. VPSPL had not set up a case that T&Ps were needed by them, or that because of unlawful retention by BHEL, they had to hire the same from third-parties. The Court is therefore perplexed to note that against the value of only approx. Rs. 2.5 crores, the Arbitrator has awarded a loss of Rs. 11,79,57,444/-, that too by reducing the awarded amount to 80% of the claim amount - i.e from Rs. 9,42,44,477/- to Rs. 7,53,95,582/-. No cogent rationale for the same is found in the award. The inadequate reasoning given by the Arbitrator to allow this claim is also not sustainable in law.
25.4. In the absence of any hire-charges being borne by VPSPL, certainly the damages cannot be held to be a 'direct loss'. Therefore, in order to succeed for this claim, VPSPL ought to have proved the actual loss. In the opinion of the court, without loss being proved by VPSPL, the award is only an assumption, which cannot be held to be naturally arising in the usual course of things, even if it is assumed that the T&P was illegal retained by BHEL. The damages awarded are remote and without any proof. VPSPL's claim could, at the highest, only be for the value of the equipment. The award towards this claim is evidently contrary to Section 73 of the Indian Contract Act, 1872. The reasoning by the Arbitrator for this award is unsustainable and patently illegal. Accordingly, the award under this head of O.M.P. (COMM) 471-472/2020 Page 31 of 50 This is a digitally signed Judgement.
NEUTRAL CITATION NO: 2022/DHC/000718 claim is set aside, giving VPSPL the liberty to exercise its remedies as are available under law.
E. Claim awarded for Loss towards Infructuous Expenses
26. This is Claim No. 6 in OMP (Comm.) 472/2020, and Claim No. 3 in OMP (Comm.) 471/2020.
27. Mr. Puri, representing BHEL, made the following assertions:
(i) Awards ignore vital evidence: VPSPL based this claim on the purported visits of its senior officials, however, neither any document was adduced to support such visit, nor any detail/particulars such as the dates of the visit, were mentioned. No evidence was produced on behalf of VPSPL which would have proved that VPSPL incurred any loss towards infructuous expenses at Head Quarters. In its evidence, VPSPL had only filed self-created calculation sheet of visits made by its officials, along with rate, upon which claim was allowed perversely.
(ii) The Arbitrator, despite no evidence or accounts filed by VPSPL, still partly awarded this claim, without relying on any accepted formulae prevalent in this regard.
(iii) Clause 59.2 was not considered, which specifically barred any claim/compensation whatsoever, once ORC is paid. The claim towards infructuous expenses ought not have been awarded in favour of VPSPL once the claims for ORC (Claim No. 21) was allowed by the Arbitrator.O.M.P. (COMM) 471-472/2020 Page 32 of 50
This is a digitally signed Judgement.
NEUTRAL CITATION NO: 2022/DHC/000718
28. Mr. Wadhwa, representing VPSPL, contended that due to chaotic conditions created by BHEL, VPSPL had faced innumerable problems where frequent visits of senior personnel were required to sort out repeated technical / labour / financial issues that arose due to unwarranted withdrawal of works. Travel Expenses were incurred to the tune of around Rs. 40 lakhs. Of such 40 lakhs, Rs. 20 lakhs had been claimed in Contract No. 659/10 [in OMP (Comm.) 471/2020], and Rs. 20 lakhs are being claimed in Contract No 640/2009 [in OMP (Comm.) 472/2020]. The Arbitrator has based his award on the unit rate quoted by VPSPL at Annexure E of the Contract. The quoted rate for overheads was 10%, and the amount claimed and awarded falls below the quoted rate. In this regard, working out sheets prepared by CW-2 on the basis of the books of accounts and records of VPSPL for demonstrating infructuous expenditure, were placed as evidence on record before the Arbitrator.
29. ANALYSIS 29.1. Under this claim, VPSPL sought to recover infructuous expenditure at Headquarters. This claim is on the basis of overheads, which it had claimed to be 10% of the award. Before adverting to the reasoning given by the Arbitrator, the nature of the claim should be understood. This becomes evident from Appendix-II annexed with the Statement of Claim, which reads as follows:
APPENDIX- II "A. Loss of infructuous expenditure at head quarters. Due to chaotic conditions created by the Respondent the Claimant had faced innumerable problems where frequent visits of head quarters senior personal was required to sort out of repeated technical/ Labour/ Financial issues that arose due to unwarranted withdrawal of works. The estimated expenditure is around Rs. 40 lakhs. The visits were by Mr. O.M.P. (COMM) 471-472/2020 Page 33 of 50 This is a digitally signed Judgement.
NEUTRAL CITATION NO: 2022/DHC/000718 Ramaiah-CMD (7 visits), Mr. Kiran Kumar-Executive Director(20 visits), Mr. Satyanarayana- General Manager in Projects (7 visits), Mr. Tulasidas in General Manager- Technical(3 visits), Mr. Kasi Mahadevan
- DGM Planning(10 visits) and Mr. Jay Krishna -Sr. Manager- Projects (30 visits).
Out of Rs. 40 lakhs, Rs. 20 lakhs has been claimed against Electrical Arbitration. Rs. 20 lakhs being claimed in this Arbitration for STG Contract."
29.2. The findings of the Arbitrator are as follows:
"6. Loss towards Infructuous Expenditure at Head Quarter: Rs. 20,00,000/-
Towards loss on account of wrong act compensation is required to claimant. Claimant put claim saying that management was required to prove support for execution of work. Claimant put the number of visits of very senior management personnel. No doubt it is understood that there are fixed over heads at HQ in the company toward establishment and administration under which cost of corp. office who provide support to site, customers, respondent HQ to sort out problems related to technical/labour/financial project review etc. Counsel for the Respondent objected this claim and informed that there was no understanding at any stage between parties that any such expenses would be recovered from Respondent. In normal course such issues never comes/discussed/written, only raised when dispute arises. Otherwise project bear the cost.
Without going to lengthy details, tribunal find that there is 10% quote in estimates toward overheads (Annex-E Vol-II page 211) and recoverable as direct loss due to no fault of petitioner on withdrawal of scope and act against terms of contract. The work withdrawn amount is Rs. 34850000/- (VASAVI), Rs. 37005000/- (BHEL) the recovery value on this comes to Rs. 37,00,500/-. Claimant has asked for the claim of Rs. 20,00,000/- (Rs. Twenty lakhs). Hence the demanded amount Rs. 20,00,000/- (Rs. Twenty Lakhs only) is awarded to Petitioner."
29.3. The Court finds that the reasoning of the Arbitrator runs contrary to the claim made by VPSPL. As seen from its pleadings, VPSPL's claim is towards the expenditure incurred by it, which allegedly resulted in loss because of withdrawal of work. In order to prove this claim, VPSPL was required to lead evidence. The evidence, as noted above, is only a tabulation, which is extracted hereinbelow:
" Annexure-VIII Statement of Infructuous Expenditure at Head Quarters S.No. Name of the Person Designation No. of Rate per Amount O.M.P. (COMM) 471-472/2020 Page 34 of 50 This is a digitally signed Judgement.
NEUTRAL CITATION NO: 2022/DHC/000718
Visits visit
1. Mr. Ramaiah Chairman & MD 7 62500 437500
2. Mr. N. Kiran Kumar Executive Director 20 62500 1250000
3. Mr. G. Satyanarayana General Manager 7 46300 324100
4. Mr. Tulasidas General Manager 3 46300 138900
5. Mr. Kashl Mahadevan DGM 10 46300 463000
6. Mr. Jayakrishna Sr. Manager 30 46300 1389000
Total Expenses 4002500
50% for STG Contract 2001250
Round to 2000000"
29.4. In this tabulation, the names of certain officials have been given with rates specified which is multiplied with the number of visits to reach the figure of Rs. 20 lacs. There is no explanation for adopting the rate applied. Further, there is no basis to assume that expenses claimed were a loss because of withdrawal of work. There are no pleadings or evidence on record to support this claim. That apart, the reasoning adopted by the Arbitrator is entirely misconceived. He has allowed the claim, without going into the details, on a mere assumption that, since VPSPL had claimed overhead charges as 10%, infructuous expenses @ 10 % of the de-scoped work would have resulted in a direct loss to VPSPL, due to withdrawal of work. This is not even the pleaded case of VPSPL. The award is thus completely irrational and without any co-relation with the head of claim. The minimal reasoning, as provided, is completely perverse, and accordingly the award under the afore-noted head in both petitions is set aside, with the observation that BHEL would be free to reagitate this claim in accordance with law.
F. BG & OD charges along with Interest O.M.P. (COMM) 471-472/2020 Page 35 of 50 This is a digitally signed Judgement.
NEUTRAL CITATION NO: 2022/DHC/000718
30. This is Claim No. 10 in OMP (Comm.) 472/2020, and Claim No. 6 in OMP (Comm.) 471/2020.
31. Mr. Puri made the following assertions:
(i) The Award under this claim is patently illegal on account of findings based upon documents taken behind the back of the parties. It is admitted position that details and supporting documents were filed by VPSPL, as self-created working sheets, after pronouncement of award. The Arbitrator perversely allowed the claim by merely relying upon the self-created working sheets. VPSPL had filed self-created calculation sheet of BG commission charges and interest, self-created statement of BG Commission and Security Deposit from 30th October 2011 to 31st December 2016 and BGs extension in its evidence.
(ii) Arbitrator failed to appreciate that VPSPL was not entitled to claim BG Commission charges in terms of the contract and perversely allowed the claim despite there being a categorical Clause 16.5 of the contract, under which VPSPL had to keep the Bank Guarantees alive till completion of Guarantee Period and therefore, contractually, VPSPL was liable for extension of said Bank Guarantees, without any financial implication to BHEL. Admittedly, the complete contract was not terminated and only a portion of work was withdrawn from scope.
Further, VPSPL was executing the balance work at site and as such was obligated under the contract to keep the Bank Guarantee alive.
32. Mr. Wadhwa contended that since the contract was delayed, VPSPL continued to keep the various BG's alive even during the extended contract period, despite withdrawal of works, for the entire contract value. VPSPL had placed before the Arbitrator: (i) Statement of Interest on Funds Utilized O.M.P. (COMM) 471-472/2020 Page 36 of 50 This is a digitally signed Judgement.
NEUTRAL CITATION NO: 2022/DHC/000718 from Bank OD, prepared by CW-2 on the basis of the books of accounts and records of VPSPL, and (ii) Statement prepared by CW-2 on the basis of the books of accounts and records of VPSPL, detailing the said Claims and the Bank Guarantees (including extensions). Thus, it is not true that award was made without evidence.
33. ANALYSIS 33.1. On this claim, the Arbitrator held as follows:
"10. Interest on OD And BG commission charges from Nov'2011 to as on date=1,29,29,394/-
The said amount includes Bank commission charges (BG) on advances & security deposit and interest portion on it. Due to unjustified withdrawal of work and act against terms of contract, claimant suffered damages and losses. One side the work awarded to third party and other side locked BG of de scoped amount of claimant, which has fetched the bank commission charges from claimant on it since 26th Oct'2011 refer pg 997, 998-1036 vol xx. Now it is clear that there was undesired act of Respondent and attributable to Respondent. This is direct/actual loss to Claimant, not remote/indirect loss. Based on records Tribunal reached to award the claim of all bank commission charges at actuals on advance & SD (de scoped contract value) from Nov'2011 till date of this award wrt contract 640/2009. Tribunal also award the bank commission charges in actuals, if any on Bank Guarantee locked due to this arbitration and affected the claimant (contract term). The value of commission charges indicated in the claim is up to Dec'15. The interest charges on these (OD & SD etc.) are not awarded which is included in the claim, so latest total bank commission charges from Nov'11 till date of award will have to be submitted/communicated on receipt of this award by claimant to Respondent immediately. Again, these are the damages actually suffered by claimant so payable."
33.2. VPSPL's claim for bank commission charges was in respect of two separate Bank Guarantees (BGs). One of the BGs was issued against advance received by VPSPL. The advanced so received was to be adjusted against the running bills. It has been contended that despite adjustment of the advance, the BG was unlawfully retained by BHEL which resulted in incurring of bank commission charges to keep the it O.M.P. (COMM) 471-472/2020 Page 37 of 50 This is a digitally signed Judgement.
NEUTRAL CITATION NO: 2022/DHC/000718 alive. The second BG was furnished against security deposit, in terms of contractual stipulation, and was to be kept alive in terms of Clause 16 of GCC. BHEL's contention is that the claim was not supported by documents, the commission charges claimed by VPSPL were unreasonable, and much more than the normal bank charges. Additionally, it has been argued that the BG was encashed as VPSPL's account turned NPA. In respect of the second BG, it is submitted that it had to be kept alive, notwithstanding withdrawal of work, and therefore, there is no justification for the award of bank commission charges.
33.3. In the opinion of the Court, the Bank Guarantee furnished towards advance, could not have retained by BHEL after adjustment of the advance against running bills. As regards the second BG, although VPSPL was liable to keep the same alive, without any financial implication to BHEL, but that could not be for the entire amount. As the work was descoped, value of second BG had to be reduced. BHEL could not have retained the BG for the entire contract value, as per original terms, after withdrawing part of the work. The Arbitrator has awarded commission charges for the entire period without looking into the afore-noted facts. For these two reasons, although VPSPL is held entitled to the bank commission charges, the amount payable would have to be reworked.
33.4. For the aforesaid reasons, while up-holding the award of bank commission charges, it is directed that the same shall be re-worked and claim of VPSPL in respect of advance BGs shall be limited to the period commencing from the date on which the advance payment was O.M.P. (COMM) 471-472/2020 Page 38 of 50 This is a digitally signed Judgement.
NEUTRAL CITATION NO: 2022/DHC/000718 last adjusted, till the date of encashment. With respect to the second BG towards security deposit, the claim of VPSPL will be proportionally restricted having regard to the BG amount that should have been reduced, commensurate with value of descoped work. The charges/rates awarded are not disturbed.
33.5. VPSPL shall be entitled to execute the award only to the extent specified above.
G. Extra Expenditure due to Bad Storage
34. This is Claim No. 11 in OMP (Comm.) 472/2020, and Claim No. 12 in OMP (Comm.) 471/2020.
35. Mr. Puri, representing BHEL, made the following assertions:
(i) The Arbitrator perversely allowed the claim without evidence, by merely relying upon some photographs.
(ii) It was incumbent upon VPSPL to prove the factum as well as quantum of loss before the Arbitrator. The Arbitrator, while allowing this claim based his finding upon the assertion that there were heavy rains in the year 2010 and 2011. However, there was no material on record for the Arbitrator to conclude and give such findings.
(iii) The Arbitrator awarded 0.5% of Module-I value i.e., 12,15,00,000/2 = 6,07,50,000 x 0.5% to VPSPL. As per aforesaid calculation, the amount comes to Rs. 3,03,750/-, but awarded amount is Rs. 30,00,000/- instead. On this account also the Awards are perverse.
(iv) The Arbitrator failed to give any reason for awarding the claim towards higher, extra expenditure.O.M.P. (COMM) 471-472/2020 Page 39 of 50
This is a digitally signed Judgement.
NEUTRAL CITATION NO: 2022/DHC/000718
36. Mr. Wadhwa, contended that VPSPL incurred an expenditure of Rs. 50,00,000/- on account of bad storage facilities. Same is highlighted in the correspondence issued by VPSPL, such as letters dated 20th December, 2010, 23rd February, 2011, 23rd May, 2011 and 01st July, 2011 - which are all part of the arbitral record. In its Statement of Defense, BHEL admits the factum of heavy rains, albeit absolves itself of the liability. Photographs of storage facility submitted, as well as cross examination of RW-1 (Questions No. 94-105) are also relevant.
37. ANALYSIS 37.1. On this claim, the Arbitrator held as follows:
"11. Extra Expenditure incurred due to Bad Storage Facilities:
Rs.50 Lakhs Counsel of Respondent opposed this claim citing below the contract clauses and agreement by petitioner as under:
Counsel of Petitioner argued and informed that party had seen site condition in physical mode. Petitioner had sufficient experience and executed BHEL works for last 3 decades and good credential. There were exceptional & extra ordinary rains in year 2010 & 2011 during contract execution. This rain does not in the preview of force measure, but petitioner suffered due to the soil, which was not consolidated, and soil was slushy and muddy. The hydra cranes were caught in the mud and breakage of the external parts was the order of the day. The loading and transportation till the vehicle cross the storage area was a nightmare experience. A work which can be done in 5-6 hours was almost taking 5 days by deploying huge labor force who have to manually bring out by walking through muddy soil. Also cleaning of equipment (clause 42) & preservation of components (clause41) as per contract to be done, but due to submerging of components in soil had increased the expenditure many times. Also, Contractor had to take extra precaution in rainy season for the precious equipment and component at no cost from Respondent as per contract, while Respondent has protected themselves through contractual clause which support to recover all damages of equipment & components from contractor/claimant. In the situation contractor need a token award toward extra expenditure incurred due to bad storage and site conditions.
In support colored photograph volumes VI & VII over site condition is available in arbitral records. On visiting the condition through photograph, which are denial by Respondent. It is evident that in the year 2010 & 2011 the condition due to rains was worst and affected working of petitioner and needed support from Respondent (a big player) financially. Against the O.M.P. (COMM) 471-472/2020 Page 40 of 50 This is a digitally signed Judgement.
NEUTRAL CITATION NO: 2022/DHC/000718 demand of Rs.50 lakhs, Tribunal award an amount of Rs.30 Lakhs i.e. half percent of module-1 value (work on Module-1 during period) i.e. Rs121500000/2*.05 Reason of Award: Damage of equipment is covered under contract clause to recover money. Had the equipment/ components spoiled than who talk about essence of time & completion of the project. Claimant spent money to erect the project according to inputs available from Respondent during rains as well as against nature's forces.
Thus, a token amount of Rs.30.00 lakhs i.e. 0.5% of module-1 value towards this head is awarded."
37.2. The reasons given by the Arbitrator to award this claim, make no logical sense. This claim was towards alleged damages to the equipment due to heavy rains, on account of 'bad storage facilities', that were provided by BHEL. The claim has no contractual basis. It also has no connection with the withdrawal of the work by BHEL. The discussion on the claim, as extracted above, only indicates that the Arbitrator took notice of adverse site weather conditions hampering the work. Arbitrator simply took notice of some photographs and concluded that due to heavy rains, VPSPL's working was affected and since BHEL is a large corporate, having sound financial resources to shoulder such a burden, it should provide financial support to VPSPL. This reasoning shocks the conscience of the Court. There is no evidence, much less cogent evidence to sustain this claim against BHEL. Merely because there were some bad weather conditions, it cannot be assumed that it resulted in a loss to VPSPL. Further, assuming there was indeed a loss, BHEL cannot be held liable only because the equipment was being deployed for the execution of the contract(s). There is no discussion of BHEL assuming the risk for such damages. That apart, there is no evidence shown to prove that damages resulted due to bad storage facilities.
O.M.P. (COMM) 471-472/2020 Page 41 of 50This is a digitally signed Judgement.
NEUTRAL CITATION NO: 2022/DHC/000718 The Court is unable to appreciate this reasoning, which is actually no reasoning in eyes of law. Accordingly, the award under the said head of claim, in respect of both petitions, is set aside.
H. Refund of Security Deposit/BG and Retention Money Amount
38. Refund of Security Deposit/BG is Claim No. 15 in OMP (Comm.) 472/2020, and Claim No. 7 in OMP (Comm.) 471/2020. Refund of Retention Money is Claim No. 16 in OMP (Comm.) 472/2020, and Claim No. 8 in OMP (Comm.) 471/2020.
39. Mr. Puri contended that the Arbitrator failed to appreciate that BHEL was entitled to forfeit the Security Deposit/Bank Guarantee and Retention Money in case of non-completion of work as per Clause 16.9 of the Contract. As VPSPL failed to fulfil its contractual obligation, the forfeiture of Security Deposit/ Bank Guarantee and Retention Money was completely justified in terms of the contract entered into between the parties.
40. Mr. Wadhwa, on the other hand contended that Rs. 31,12,501/- was given by VPSPL as security/BG under the Contract, which is entitled to be refunded. To that extent, VPSPL had placed before the Arbitrator, as evidence, a Statement detailing the interest payable. He further argued that an amount of Rs. 72,12,741/- was retained by BHEL from the RA bills as retention money under Contract, which is entitled to be refunded. Statement of retention money was also placed by it before the Arbitrator. It was also pointed out that BHEL, in its Statement of Defence, did not dispute the factum of return, and the only defense taken was that VPSPL was not entitled to refund since VPSPL was still performing works.
41. ANALYSIS O.M.P. (COMM) 471-472/2020 Page 42 of 50 This is a digitally signed Judgement.
NEUTRAL CITATION NO: 2022/DHC/000718 41.1. On these claims, the Arbitrator held as follows in OMP (Comm.) 472/2020:
"15. REFUND OF SECURITY DEPOSIT/BG: Rs. 3112501/-.
BHEL secured Security Deposits/BG. Since BHEL had withdrawn the part work of the contract 640/2009 on 25.10.2011, which is now concluded as BAD, Illegal and unjustified withdrawal of work and act is against terms of contract. When the work withdrawn and awarded to 3rd party at higher price, BHEL had to suffer consequences losses in terms of Bank Guarantee ie actual losses. In other terms BHEL withhold/en cashed/ recovered the SD/BG of Petitioner. The SD recovered by BHEL from RA bills no 01 to 11 in the year 2010,2011. refer 1064 vol xx. Along with BHEL might have with hold the BG of other works of Vasavi on account of disputes and recoveries. In view of bad withdrawal of work & act against terms of contract, the Claim amount of Rs.3112501/- and/or reconciled amount of SD/BG of petitioner is awarded.
As per arbitral record security deposit amounting Rs 31,12,501/- is recovered from RA bills Page 1064, vol xx. This amount may be reconciled from the date of withdrawal ie 25.10.2011. Claimant is asking interest also. Considering losses, claim of Rs 31,12,501-00 and/or Reconciled amount, is awarded to petitioner. The claim of interest charges is not awarded, as no provision in the terms of contract. Respondent is not entitled to forfeit the amount due to bad act against terms of contract. Point no 19.3, 19.4 of WS page 25 has been taken care and the said amount cannot be forfeited in any clause of contract."
16. REFUND OF RETENTION AMOUNT: Rs. 72.12 Lakhs.
As recovery, on withdrawal of work of STG-II at Risk & Cost and awarded to 3rd party and piping work of STG 1&2 to various parties, BHEL retained the amount of Rs. 72,12,741 from RA bills as per arbitral records page 1066A & 1067A Vol xx. The amount may be reconciled by both parties if required immediately. It is already on record now that the delay was attributable to Respondent and withdrawal of work was wrong act and against contract terms. Therefore, the amount retained by Respondent is needed to be refunded to Petitioner legally. The claim of refund of the retention Money is awarded to Petitioner, in view of illegal withdrawal of work. Referred point no 19.3, 19.4 of WS page 25 the said retention amount cannot be forfeited in any clause of contract."
[underlined emphasis supplied] 41.2. BHEL's sole challenge to the afore-noted heads of claim is that VPSPL was liable to refund the retention amount only after the entire work had been completed. However, Mr. Pallav Kumar confirms and O.M.P. (COMM) 471-472/2020 Page 43 of 50 This is a digitally signed Judgement.
NEUTRAL CITATION NO: 2022/DHC/000718 acknowledges that now, the work has indeed been completed, and VPSPL has submitted its final bill (which is admittedly not on court record). In these circumstances, there is no ground whatsoever to interfere with the award for refund of SD/BG/retention. Therefore, challenge to the Awards qua these claims is rejected. 41.3. On the issue of refund of retention money in OMP (Comm.) 471/2020, the arbitrator has held as follows:
8. Refund of Retention Money : Rs.96,52,862/ Towards recove on withdrawal of work which was awarded to 3rd party at Risk & Cost, BHEL retained an amount of Rs.96,52,862/- from RA bills as per arbitral records. It is already on record now that the delay was attributable to Respondent and withdrawal of work was wrong act and against contract terms. Therefore, the amount retained by Respondent is needed to be refunded to Petitioner legally. Changes if any, in values may be communicated to Respondent. The claim of refund of the retention Money is awarded to Petitioner, in view of illegal withdrawal of Work.
Referred point no 18.5 of WS the said retention amount cannot be forfeited in any clause of contract due to breach of contract."
41.4. It must first be noted that Mr. Pallav Kumar has pointed out that VPSPL's final bill reflects retention amount of Rs. 33,68,599/-. This is substantially more than the awarded amount. He further submits that upon verification by BHEL, this amount is found to be Rs. 31,40,207/-, which is Rs. 2,28,392/- less than VPSPL's final bill amount.
41.5. Mr. Darpan Wadhwa, on instructions, confirms that VPSPL's claim towards retention money is indeed Rs. 33,68,599/- as per the final bill. 41.6. Thus, the Court notes that under this head of claim, although the Arbitrator has awarded the amount of Rs. 96,52,862/-, Mr. Wadhwa confirms that VPSPL's claim is restricted to only Rs. 31,40,207/-, as per the final bill.
O.M.P. (COMM) 471-472/2020 Page 44 of 50This is a digitally signed Judgement.
NEUTRAL CITATION NO: 2022/DHC/000718 41.7. This amount would have to be verified by BHEL, as there appears to be a difference of Rs. 2,28,392/- as noted earlier. During the course of hearing, it has been agreed amongst the counsels that the parties will reconcile the differential amount and VSVPL shall be entitled to execute the claim only to that extent, and not the awarded amount. Thus, in respect of OMP (COMM) 471/2020, no ground for interference is made out.
I. Legal Expenses on Actuals
42. This was Claim No. 9 in OMP (Comm.) 472/2020, and Claim No. 17 in OMP (Comm.) 471/2020.
43. Mr. Puri, representing BHEL, made the following assertions:
(i) The Impugned Awards are liable to be set aside solely on the ground that this claim was allowed by the Arbitrator even prior to the details of the same being filed by VPSPL. It is odd as to how the Arbitrator granted monetary Award at the time of passing of the Award when the purported supporting documents were not on record and were admittedly filed after the Award had been pronounced.
(ii) The Arbitrator perversely allowed this claim upon VPSPL showing self-created working sheets/calculation sheet of legal cost in its evidence.
(iii) On the one hand, the Arbitrator has awarded litigation cost to VPSPL.
Yet, he has perversely disallowed litigation cost as a counter-claim, on the ground that this has to be dealt as per contract terms and is beyond limits of arbitration. This clearly shows bias.
O.M.P. (COMM) 471-472/2020 Page 45 of 50This is a digitally signed Judgement.
NEUTRAL CITATION NO: 2022/DHC/000718
44. Mr. Wadhwa contends that evidence was led before the Arbitrator justifying the costs incurred by VPSPL for Rs. 21,98,587/- which was also duly intimated to BHEL as per directions given in the Award dated 10th March, 2020. Moreover, costs are at the discretion of the Arbitrator under Section 31A, and this Court, under Section 34, cannot interfere with the discretion exercised by the Tribunal.
45. ANALYSIS 45.1. On this claim, the Arbitrator held as follows:
"16. REFUND OF RETENTION AMOUNT: Rs. 72.12 Lakhs.
As recovery, on withdrawal of work of STG-II at Risk & Cost and awarded to 3rd party and piping work of STG 1&2 to various parties, BHEL retained the amount of Rs. 72,12,741 from RA bills as per arbitral records page 1066A & 1067A Vol xx. The amount may be reconciled by both parties if required immediately. It is already on record now that the delay was attributable to Respondent and withdrawal of work was wrong act and against contract terms. Therefore, the amount retained by Respondent is needed to be refunded to Petitioner legally. The claim of refund of the retention Money is awarded to Petitioner, in view of illegal withdrawal of work. Referred point no 19.3.19.4 of WS page 25 the said retention amount cannot be forfeited in any clause of contract."
45.2. BHEL's challenge to the award is premised on the plea that legal expenses awarded by the Arbitrator are on the higher side. However, on a query of the Court, Mr. Wadhwa has given a break-up of VPSPL's claim for Rs. 43,67,174/- which includes the Arbitrator's Fee of Rs. 4.38 lakhs, Lawyer's fee of Rs. 29.67/- lakhs, Rs. 1 lakh towards the fee paid to the experts appointed by the Court and other expenses incurred for holding the arbitration and for the travel expenses incurred by the officials of VPSPL, in attending the arbitration proceedings.
O.M.P. (COMM) 471-472/2020 Page 46 of 50This is a digitally signed Judgement.
NEUTRAL CITATION NO: 2022/DHC/000718 45.3. Considering the afore-noted facts, the Court does not find the award to be excessive or unreasonable. Accordingly, the challenge to this claim is rejected.
J. Legitimate Claims of Interest Charges i.e., Pendente Lite & Pre Reference Interest On Award Amount
46. This is Claim No. 14, 24 and 25 in OMP (Comm.) 472/2020 and unnumbered claim at page 80 of the award in OMP Comm 471/2020.
47. BHEL argues that as per clause 17 of the contract, no interest was payable by BHEL on Earnest Money, Security Deposit or any moneys due to VPSPL. Despite there being a categorical bar in the contract against payment of interest, the Arbitrator allowed claim for interest on BG. Although the Arbitrator has granted post-award interest on the claims awarded to VPSPL, the Arbitrator perversely disallowed any interest on the counter claims of BHEL, despite there being no interest barring clause with respect to BHEL. This clearly shows the biasness of the Arbitrator.
48. On pendente lite interest, the attention of the court was drawn to the case laws of Garg Builders v. BHEL,13 BHEL v. Globe Hi-Fabs,14 and BHEL v. Tata Projects Ltd.15
49. On the other hand, Mr. Wadhwa contended that VPSPL had placed before the Arbitrator, as evidence, a statement detailing the interest payable. He further contended that the prohibition of interest in Clause 17 is only applicable to interest on security deposit and earnest money. Similar clause 13 2021 SCC OnLine SC 855.
142015 5 SCC 718.
152015 5 SCC 684.
O.M.P. (COMM) 471-472/2020 Page 47 of 50This is a digitally signed Judgement.
NEUTRAL CITATION NO: 2022/DHC/000718 recently interpreted by a Division Bench of this Court in Union of India v. Manraj Enterprises.16 Reliance was also placed on Raveechee v. UOI.17 "24. LEGITIMATE CLAIMS OF INTEREST CHARGES ie the pendent lite & pre reference interest on award amount: (Claim demand under point no
10) Tribunal has gone with different matter related to payment of pendent lite & pre reference interest on awarded amount. Tribunal was briefed by counsel of Respondent under the clause 17(page 180 vol II) of contract, which is reproduced "No interested shall be payable by BHEL on Earnest Money Deposit, Security Deposits, or any on any money due to the contract,". This was agreed by both parties. Second part comes interest on loss/damages/claim awarded which does not cover under clause 17 of contract. Based on the case Sayeed Ahmed & Co. Vs State of U P (2009)12SCC26 2009)4SCC(Civ)629. The clause did not bar award of interest on any claim for damages or for claim for payment for work done. In total assuming importance of clause 17, there is bar on interest payment on 3 kinds ie earnest money, security deposits and any money due to the contractor. Considering the matter of direct loss towards bank commission charges to bank, by wrong act of Respondent of withdrawal of work, the petition is entitled for pendent lite (pre award) interest on award amount (Total bank commission paid to bank on de scoped amount & associated BC of other contract if any) from the date of withdrawal of work by Respondent ie from Nov'11 (25.10.2011) @12% till the date of award for Claim no 10 above contract 640/2009 Bank commission Charges The amount is to be communicated by claimant to Respondent)."
50. ANALYSIS 50.1. BHEL has primarily relied upon the Clause 17, and has placed reliance on the judgment of the Supreme Court in Garg Builders v. BHEL (supra), BHEL v. Globe Hi-Fabs Ltd. (supra) and BHEL v. TATA Projects Ltd. (supra). The decisions in these cases pertain to the Petitioner itself and the interest-barring clause which fell for consideration of each court therein, is identical to Clause 17 herein. In all these cases, the Court held that, as the parties to the contract had expressly agreed that interest could not be awarded pendente lite, in light of this express bar in the contractual provision, the same could 16 2021 SCC OnLine SC 1081.
17(2018) 7 SCC 664, at para 9.
O.M.P. (COMM) 471-472/2020 Page 48 of 50This is a digitally signed Judgement.
NEUTRAL CITATION NO: 2022/DHC/000718 not have been awarded. The parties were held to be bound by their understanding recorded in the contract. However, in the instant case, the interest has been awarded on BG amount. Thus, the question that falls to consideration is that whether this contractual bar, would be applicable for grant of interest on the OD & BG. It would therefore be apposite to take note of the contractual provision in clause 17, which reads as under:
"No interest shall be payable by BHEL on Earnest Money Deposit, Security Deposit or on any moneys due to the contractor."
50.2. The afore-said provision provides that no interest shall be payable by BHEL on Earnest Money Deposit and security deposit or "any money due" under the contract. This condition would not be applicable to amounts which are in the realm of non-contractual claims. The amount paid by Respondent towards BG commissioning charges, is a claim of damages and is not arising from a direct breach of contractual condition. Although the expression "any moneys due to the contractor by employer" is wide and the Supreme Court in BHEL v. Globe Hi-Fabs Limited, (supra) has held that the said expression cannot be read ejusdem generis, however, it cannot apply to claims that are not arising from the contract. As already discussed above, BHEL could not have insisted on the BG for the entire amount and after withdrawal of the part of the work, the BG amount had to be reduced. Since, Respondent was constrained to keep the BG alive for the full amount and incur charges thereon, the pendente-lite interest awarded thereon, is justified. Therefore, the challenge to the award of interest cannot succeed. The judgments relied upon by BHEL are O.M.P. (COMM) 471-472/2020 Page 49 of 50 This is a digitally signed Judgement.
NEUTRAL CITATION NO: 2022/DHC/000718 therefore not applicable to the facts of the case.
COUNTER CLAIMS
51. The Awards are challenged with respect to counter claims on (i) Risk and Cost, (ii) Recovery of amount for Pre-Boiler flushing, (iii) Liquidated damages, (iv) Interest, and (v) Litigation cost, which were not awarded by the Arbitrator.
52. ANALYSIS The Arbitrator has given a factual finding on delay, and, consequently held that the withdrawal of works at risk and cost was unjustified. The Arbitrator has also held that the withdrawal of the said work was without any basis. No convincing material has been shown to any perversity in such findings. These findings of fact are not being disturbed, as discussed above. Therefore, execution of the work through a third party could not have been at the risk and cost of VPSPL. Further, for the same reason BHEL cannot be entitled to alleged additional expenditure for pre-boiler flushing activity. Regarding Liquidated damages, since the Arbitrator has given a factual finding holding BHEL to be in breach, it cannot claim damages. That apart, for claiming liquidated damages, BHEL had to demonstrate actual losses which it has failed to do. For the same reason, BHEL cannot be entitled to interest on counter claims or litigation costs.
53. The appeals are partially allowed and disposed of in the above terms, along with pending applications.
SANJEEV NARULA, J JANUARY 19, 2022/as (Corrected and released on 24th February 2022) O.M.P. (COMM) 471-472/2020 Page 50 of 50 This is a digitally signed Judgement.