Jharkhand High Court
Laxmi Nagar vs M/S Bhardwaj Construction Company Pvt. ... on 5 March, 2020
Author: Anubha Rawat Choudhary
Bench: Anubha Rawat Choudhary
IN THE HIGH COURT OF JHARKHAND AT RANCHI
Arbitration Appeal No. 16 of 2014
M/s RITES Ltd., a Government Company duly registered
under the provisions of the Company Act, 1956, having its
Head Office at RITES Bhawan No. 1, Sector-29, Gurgaon-
122001 (Haryana) and registered Office at SCOPE Minar,
Laxmi Nagar, New Delhi-110092 through its Group General
Manager (Project) Pallab pal, Son of Late Anal Kanti Pal,
Resident of Flat No. B/13, Street No. 13/2, ECTP Phase III,
Samridhi Housing Co-operative Society, P.O. E.K.T, P.S.
Entally, District Kolkata 700 107.
... ... Petitioner/Appellant
Versus
M/s Bhardwaj Construction Company Pvt. Ltd. having its
office at 25-C, Road No. 1, Ashok Nagar, P.O. Ashok Nagar,
P.S. Argora, District Ranchi (earlier known as Bhardwaj
Construction Company), having its office at Uma Shankar
Bhawan, Imli Kothi, P.O. & P.S. Sadar, District Hazaribagh.
... ... Respondent
With
Arbitration Appeal No. 17 of 2014
M/s RITES Ltd., a Government Company duly registered
under the provisions of the Company Act, 1956, having its
Head Office at RITES Bhawan No. 1, Sector-29, Gurgaon-
122001 (Haryana) and registered Office at SCOPE Minar,
Laxmi Nagar, New Delhi-110092 through its Group General
Manager (Project) Pallab pal, Son of Late Anal Kanti Pal,
Resident of Flat No. B/13, Street No. 13/2, ECTP Phase III,
Samridhi Housing Co-operative Society, P.O. E.K.T, P.S.
Entally, District Kolkata 700 107.
... ... Petitioner/Appellant
Versus
M/s Bhardwaj Construction Company Pvt. Ltd. having its
office at 25-C, Road No. 1, Ashok Nagar, P.O. Ashok Nagar,
P.S. Argora, District Ranchi (earlier known as Bhardwaj
Construction Company), having its office at Uma Shankar
Bhawan, Imli Kothi, P.O. & P.S. Sadar, District Hazaribagh.
... ... Respondent
---
CORAM: HON'BLE MRS. JUSTICE ANUBHA RAWAT CHOUDHARY For the Appellant : Mr. Deepak Kumar Sinha, Advocate For the Respondent : Mr. Rajeev Ranjan, Senior Advocate : Mr. C. N. Riaz Ahmed, Advocate : Mr. Rohitashya Roy, Advocate 2 : Mr. Vibhor Mayank, Advocate
---
13/05.03.2020 Heard the learned counsel for the parties.
2. Both these appeals being Arbitration Appeal No. 16 of 2014 and Arbitration Appeal No. 17 of 2014 have been filed under section 37(1)(b) of the Arbitration and Conciliation Act, 1996, against the common Order and Decree dated 26.07.2014 passed by Shri Ashok Kumar (II) the learned Civil Judge, Senior Division-1st, Bermo, Tenughat in Misc. (Arbitration) Case No. 08/2010 and Misc. (Arbitration) Case No. 07/2010, both filed by the Appellant before the said learned Court under section 34 of the said Act challenging therein two different Arbitral Awards both dated 31.03.2010 passed by the same Arbitral Tribunal constituted for arbitration of disputes arising out of the Contract Agreement No. RITES/CE/TENU/92/5 dated 16.11.1992 for execution of balance work of earthwork in formation and construction of Bridges in connection with construction of a B.G. Railway siding from Danea Railway Station to Tenughat Thermal Power Plant (on Gomoh-Barka Khana Section of Eastern Railway) Package V And arising out of the Contract Agreement No. RITES/CE/TENU/92/4 dated 25.09.1992 for execution of balance work of earthwork in formation and construction of Bridges in connection with construction of a B.G. Railway siding from Danea Railway Station to Tenughat Thermal Power Plant (on Gomoh-Barka Khana Section of Eastern Railway) Package IV respectively .In both the cases the Learned Court below , by a common judgement, has upheld the aforesaid Arbitration Awards both dated 31.03.2010 passed by the learned Arbitral Tribunal. The learned counsel for the appellant has submitted that identical issues are involved in both the appeals and accordingly they have been tagged together. The award in relation to aforesaid package no V is subject matter in Arbitration Appeal No. 16/2014 3 and award in relation to aforesaid package no IV is subject matter in Arbitration Appeal No. 17/2014.
3. The learned counsel for the appellant submits that the specific case of the appellant throughout was that the learned Arbitral Tribunal in both the cases has failed to appreciate the conditions of the Contract, prohibiting/barring the claims, settled law, that no claim can be awarded if barred/prohibited by the Contract conditions and the Awards are in violation of the settled law, are unreasoned/ non-speaking, based on assumptions, perverse, jurisdictional objections were not decided and the awards suffer from non-consideration of detailed submissions based on facts, conditions of contract and settled law.
4. The reference in connection with claim and counter claim for package V under various heads and the award was as under :-
Claims Claim Head Amount Amount claimed awarded 1 Claims against 15,17,343 4,37,191 loss of interest on deferred payments 2 Claims against 1,47,40,000 18,61,408 loss due to idling of machinery 3 Claim against loss 16,80,000 3,26,421- to the due to overhead extent of wages expenditure of employees for the period treated as of suspension of work by the appellant.
4 Claim against loss 35,392 Nil due to undue blockade of Bank Guarantee 5 Claims against 3,50,000 Nil cost of maintenance of left over works by 4 the previous contractor.
6 Amount of interest Nil
accrued upon this However, total
claim amount @ awarded
24% per annum amount to be
compounded from paid within 90
days, failing
the date it is due which an
to actual payment interest @ 10%
per annum shall
be payable in
addition to the
awarded
amount.
TOTAL 1,95,56,675 26,25,020
Counter Claims
Counter- Head Amount Amount
claim awarded
1 10% of the value 24,85,423 Rejected
of the work on
account of
liquidated
damages as delay
caused in
completion of the
work is more than
20 weeks
2 Damage suffered Rejected
by M/s TVNL by
5,26,68,000
way of additional
cost incurred in
having to
transport coal by
road in lieu of rail
by MGR System
for the period by
which
commissioning of
MGR has been
delayed
3 Extra overhead 14, 62,104 Rejected
expenditure RITES
incurred due to
delay in
Completion of
work
5
4 Cost of reference 1,00,000 To be equally
bourne by the
to arbitration (LS)
claimants and
the
respondents.
TOTAL 5,67,15,527
5. The reference in connection with claim and counter claim for package IV under various heads and the award was as under:-
Claims Claim Head Amount Amount claimed awarded 1 Claims against loss of 16,39,051 5,28,492/-
interest on deferred
payments
2 Claims against loss 1,59,50,000 17,07,348/-
due to idling of
machinery
3 Claim against loss due 16,50,000 3,38,790/- to the
extent of wages
to overhead
of employees for
expenditure the period
treated as of
suspension of
work by the
appellant.
4 Claim against loss due 43,197 Nil
to undue blockade of
Bank Guarantee
The claim of interest on claimed amount-as may Total awarded
accrue amount to be
And claim against cost incurred during paid within 90
Arbitration Proceedings till date of award was to days , failing
be intimated at the time which an
interest @ 10%
per annum
shall be
payable in
addition to the
awarded
amount.
Costs to be
6
bourne equally
by the claimant
and the
respondents.
Counter Claims
Counter Head Amount Amount
claim awarded
1 10% of the value of 20,00,000 Rejected
work on account of
liquidated damages
as delay caused in
completion of the
work is more than
20 weeks
2 Damage suffered 7,31,50,000 Rejected
by M/s TVNL by
way of additional
cost incurred in
having to transport
coal by road in lieu
of rail by MGR
System for the
period by which
commissioning of
MGR has been
delayed
3 Extra overhead 20,30,700 Rejected
expenditure RITES
incurred due to
delay in
Completion of
work
4 Cost of reference to 1,00,000 Rejected
arbitration (LS)
TOTAL 7,80,80,700 Rejected
Arguments of the appellant in both the cases
6. The learned counsel appearing on behalf of the appellant in both the appeals submits that out of various claims which were made before the learned Arbitral Tribunal, the learned Arbitral Tribunal in both the cases partly allowed the claims under claim nos. 1, 2 and 3 with interest @ 10% from the date of award till realization. He submits that the appellant in both the cases, being 7 the employer, is aggrieved by such award in view of the fact that the same could not have been awarded considering the negative covenants in the contract itself and the learned Arbitral Tribunal has completely ignored the same.
7. Learned counsel for the appellant submits that claim no. 1 was against loss of interest on account of deferred/delayed payment of running bills, Claim no. 2 was with respect of claim against loss due to idling of machinery and Claim no. 3 was against loss due to overhead expenditure. It is further not in dispute that the work was suspended for the period from March, 1994 to January, 1995 and due extension of time for completing the work was also granted and the claim no. 2 and 3 were allowed only for the period of suspension of work from March, 1994 to January, 1995.
8. The learned counsel for the appellant, while referring to claim no. 1, submits that it was barred by virtue of Clause 17(iii) of the General Conditions of Contract as it clearly indicated that the contractor would not be entitled to any damages or compensation for delay caused by the appellant due to any cause whatsoever and the contractor would be entitled to extension of time only for completion of work as the appellant may think reasonable. He also refers to clause 19(ii) of the General Conditions of Contract to submit that no compensation is payable for any delay caused in starting the work. The learned counsel for the appellant also refers to Clause 3.3 of Special Conditions of Contract to submit that it bars any claim by the contractor for idle labour.
9. The learned counsel for the appellant further submits that the plea that the claims were barred under the negative covenants in the contract was taken before the learned Arbitral Tribunal in both the cases , but the learned Arbitral Tribunal has not considered the said clauses of the contract and the claims have been allowed without referring to the negative covenants in the contract and accordingly, the awards call for interference. He further submits that the awards were challenged before the learned court below and the learned 8 court below also did not consider the cases properly and rejected the petitions for setting aside the awards filed under section 34 of Arbitration and Conciliation Act, 1996 (hereinafter referred to as the Act of 1996) .
10. The learned counsel for the appellant has relied upon the judgment passed by the Hon'ble Supreme Court reported in (2017) 5 SCC 743 (Sharma and Associates Contractors Private Ltd. vs. Progressive Construction Limited) (para 13 and 14) and also judgment passed by the Hon'ble Supreme Court reported in (2007) 2 SCC 453 [Ramnath International Construction (P) Ltd. Vs. Union of India] (para 12 and 14) to submit that the learned Arbitral Tribunal could not have ignored the terms and conditions of the contract and the law is well-settled that any award which is passed dehors the negative covenants of the contract, is fit for interference.
11. The learned counsel for the appellant further submits that although the aforesaid two judgments were passed under the provisions of Arbitration Act, 1940, but so far as the binding nature of the terms and conditions of the contract are concerned, the position remains the same under Arbitration and conciliation Act, 1996 as well and the present proceedings arise out of arbitration proceedings under the aforesaid Act of 1996.
Arguments of the respondent in both the cases
12. The learned counsel appearing on behalf of the claimant in both the cases submits that as per clause 36 (i) and (ii) of the General Conditions of Contract, the claimant could have claimed the amount under claim nos. 1, 2 and 3.
13. While referring to the claim no. 1, the learned counsel submits that it is not covered by any of the negative covenants of the contract. The contract is silent on payment of interest on pending bills and accordingly the claimant was entitled to interest on the delayed payment of running account bills. He submits that the award passed by the learned Arbitral Tribunal with regards to claim 9 no. 1 is a well-reasoned award which does not call for any interference.
14. The learned counsel for the claimant submits that so far as the claim nos. 2 and 3 are concerned, admittedly there was delay and laches on the part of the appellant and for this the claimant cannot suffer. He submits that there was extension of time for completion of the work and therefore, in such circumstances, the so-called negative covenants of contract, which are being relied upon by the appellant, do not come in the way of the learned Arbitral Tribunal to pass award under the head of claim nos. 2 and 3.
15. The learned counsel for the claimant also submits that there was an internal committee report by virtue of which, the claimant was entitled to the entire amount under claim head nos. 1, 2 and 3 and therefore, the appellant is estopped from arguing that the claimant would not be entitled to the said amount.
16. The learned counsel for the claimant also submits that there were certain assurances, which were given by the appellant by way of several letters, which ultimately culminated in the internal committee report and therefore, the same is binding on the appellant. The learned counsel submits that the internal committee report had recommended for making payment, but considering the amount involved in the cases, ultimately the parties were rendered for arbitration in both the cases.
17. Learned counsel for the claimant has submitted that even if it is assumed that there are certain negative covenants in the contract, the same are not binding on the Arbitral Tribunal. He further submits that the main issue which is to be decided in the present cases is whether the negative covenants are binding upon the Arbitrator wherein extension of time was provided to the claimant.
The learned counsel has submitted that it has been recorded by the learned Arbitral Tribunal that the delay has occurred due to non- availability of fund on the part of the appellant and in such circumstances, there is clear breach on the part of the appellant and 10 accordingly the Arbitrator was within his right to award compensation under the two heads being claim nos. 1 and 3. The learned counsel has relied upon judgments passed by the Hon'ble Supreme Court reported in (2007) 13 SCC 43, para 31 and 32; (2011) 5 SCC 758, para 10 ; (2018) 3 SCC 133, para 67 ; (2000) 6 SCC 113, para 5; judgment dated 14.09.2017 passed by the Hon'ble Calcutta High Court in APO No. 63/2017 G.A. No. 834/2017 with O.C.O. No. 1/2017 in A.P. No. 736/2011 and also judgment dated 06.07.2019 passed by this Court in Arbitration Appeal No. 21 of 2007. The learned counsel has also referred the judgment passed by the Hon'ble Supreme Court reported in (2009) 16 SCC 705 in the case of "Bharat Drilling and Foundation Treatment Pvt. Ltd. Vs. State of Jharkhand" arising from a judgment passed by this Court to submit that in the said case also, there were negative covenants in the contract, but in spite of such negative covenants the award passed by the learned Arbitrator was ultimately upheld by the Hon'ble Supreme Court and the judgment passed by this Court was set aside.
18. The learned counsel for the claimant has also argued before this court that there was fundamental breach of contract by the appellant and accordingly, the learned Arbitral Tribunal was within his right to grant the claim under claim head nos. 2 and 3 also. He has referred to the judgments passed by the Hon'ble Supreme Court reported in (2018) 3 SCC 133 as well as the judgment reported in (2007) 13 SCC 43.
Arguments of the appellant by way of rejoinder in both the cases
19. In response, the learned counsel for the appellant submits that the internal committee report was only recommendatory in nature and the same could not be given effect to dehors the terms and conditions of the contract. He submits that the learned Arbitral Tribunal was under a legal obligation to conduct the proceedings within the four corners of the agreement between the parties and having travelled beyond the contract, both the awards in relation to 11 the claim item nos. 1, 2 and 3 are not sustainable in law. He submits that the learned court below has not properly considered the aforesaid aspect of the matter and has wrongly upheld the award.
20. However, during the course of argument, the learned counsel for the claimant could not point out any specific clause with regard to non-payment of interest on the delayed payment of running account bills and submits that by implication, the same was also covered by the aforesaid negative covenants of the contract. He further submits that as per contract the payment against on account running bills was considered as advance payment. Findings of this court
21. The background of these appeals and the heads of claims and counter claims as well as the awarded amount under various heads have been mentioned in para 2 to 5 above.
22. It is not in dispute that the award of contract for Package V is dated 25.09.1992 and the date of completion as per letter of intent was 24.09.1993. However, work could be completed only on 29.02.1996. Several extensions of time were granted without imposition of liquidated damage and with grant of extension from time to time due to non-availability of funds with department, non- availability of owner issue raw materials and non-availability of site. Altogether, six extensions were given, 1st upto 31.12.1993, 2nd upto 31.03.1994, 3rd upto 30.09.1994, 4th upto 31.03.1995, 5th upto 30.09.1995 and 6th upto 29.02.1996.
23. The specific case of the claimant before the learned Arbitral Tribunal was that as the present appellant failed to make payments from 01.09.1993, the work stood suspended from 01.03.1994 to 31.01.1995 i.e. for 11 months. It was further case of the claimant that the claimant had requested the present appellant on 18.03.1994 for foreclosure of work as per Clause 36(ii) of the General Conditions of Contract, but the present appellant vide letter dated 05.05.1994 did not agree for unilateral termination of contract by the claimant and 12 the work was ultimately completed on 29.02.1996 for which extension was also granted.
24. Similarly, the contract of Package IV is dated 25.09.1992 and the date of completion was 24.12.1993 as per letter of intent but the work could be completed only on 10.12.1996. In this contract also several extensions of time were granted without imposition of liquidated damages and with grant of escalation from time to time due to non-availability of funds with the department of the appellant, non-availability of owner issue materials and non- availability of site. In this case altogether 7 extensions were given and lastly till 10.12.1996 and the work was completed on 10.12.1996. It was the specific case of the claimant before the learned Arbitral Tribunal that as the appellant failed to make any payments from 01.09.1993, the work stood suspended from 01.03.1994 to 31.01.1995 i.e. for 11 months. In this contract also on 18.03.1994 the claimant requested the appellant for foreclosure of work as per clause 36(ii) of the General Conditions of the Contract but the appellant vide letter dated 05.05.1994 did not agree for unilateral termination of contract and ultimately the work was completed on 10.12.1996 for which due extension was also granted.
25. In the aforesaid background, the claimant had, inter alia, made claims on account of loss due to idling of machinery as well as loss of over head expenditure being claim No. 2 and 3 respectively. The learned Arbitrator treated the period from 01.03.1994 to 31.01.1995 as period of suspension of work for the Package V on account of acts and omissions of the appellant and partly allowed the claim under claim No. 2 and 3 on the ground that it became the responsibility of the appellant to compensate the losses incurred due to idling of machinery and idling of manpower during the no fund period (i.e. from 01.03.1994 to 31.01.1995) and accepted the recommendation of the internal committee.
26. Relevant clauses of the General Conditions of Contract as referred to by the parties 13 "17. TIME LIMITATION Time is the essence of the Contract.
i) Subject to any requirement in the contract as to completion of any portion or portions of the works before completion of the whole, the contractor shall fully and finally complete the whole of the works comprised in the contract (with such modifications as may be directed under clause 42 of these conditions) by the date entered into in the contract, provided if any modification have been ordered which in the opinion of the Engineer have materially increased the magnitude of the work, then such extension of the contracted date of completion may be granted as shall appear to the Engineer to be reasonable in the circumstances, however, the Contractor shall reasonable for requesting such extension of the date as he may consider necessary, as soon as a cause thereof shall arise and in any case not less than one month before the expiry of the original date fixed for completion of the works.
DELAYS AND EXTENSION OF TIME
ii) If in the opinion of the Engineer the progress of work has at any time been delayed by any act or neglect of RITES or its employees or by any other contractor employed by the RITES under sub-clause (iv) of Clause 20 of these conditions or by strikes, lockouts, fire, unusual delay in transportation, exceptionally inclement weather, unavoidable casualties or any causes beyond the Contractor's control, such as any legal proceeding instituted or threatened by, or dispute with adjoining or neighbouring owners or Public Authorities, airsing otherwise than through the contractor's own default etc, or by delay authorized by the Engineer pending arbitration or in consequence of the contractor not having received in due time necessary instructions from RITES for which he shall have specifically applied in writing to the Engineer or his authorised representative or by any other course which the Engineer shall decide to justify the delay then the time of completion of the 14 works may be extended for such responable time as the Engineer on behalf of RITES may decided.
iii) In the event of any failure or delay by RITES to hand over to the Contractor possession of the lands necessary for the execution of the works or to give the necessary notice to commence the works or to provide the necessary drawings or instructions or any other delay caused by RITES due to any other cause whatsoever, then such failure or delay shall in no way affect or vitiate the contract or alter the character thereof or entitle the Contractor to damages or compensation therefor but in any such case, RITES may grant such extension or extensions of the completion date as may be considered reasonable.
19. EXECUTION OF WORKS
i) CONTRACTOR'S UNDERSTANDING It is understood and agreed that the Contractor has, by careful examination, satisfied himself as to the nature and location of the work, .........
ii) COMMENCEMENT OF WORKS
a) The contractor shall commence the works within 7 days ...........
b) No compensation shall be allowed for any delay caused in the starting of the work on account of any acquisition of land or any delay in according sanction to estimates or drawings etc.
c) No compensation shall be allowed for any delay in execution of the work on account of water standing in borrow pits and no claims for an extra rate shall be entertained, unless otherwise expressly specified.
d) The contractor shall not enter upon ..........
36. i) SUSPENSION OF WORK The Contractor shall on the order or the Engineer-in-Charge suspend the progress of the works or any part thereof for such time or times and in such manner as the Engineer-in-charge 15 may consider necessary and shall during such suspension properly protect and secure the work in a manner considered necessary, by the Engineer-in-Charge. If such suspension is: -
a) Provided for in the contract, or
b) Necessary for the proper execution of the works or by reason of weather conditions or by some default on the part of the Contractor, or
c) Necessary for the safety of the works or any part thereof.
The contractor shall not be entitled to the extra costs (if any) incurred by him during the period of suspension of the works:
but in the event of any suspension ordered by the Engineer- in-charge for Reasons other than aforementioned and when each such period of suspension exceeds 14 days, the Contractor shall be entitled such extensions of the time for completion of the works as the Engineer-in-Charge may consider proper having regard to the period or periods of such suspensions and to such compensation as the Engineer-in-Charge may consider reasonable in respect of salaries or wages paid by the Contractor to his employees during the periods of such suspensions.
ii) SUSPENSION LASTING MORE THEN THREE MONTHS If the progress of the works or any part thereof is suspended on the order of the Engineer-in-Charge for more than three months at a time the Contractor may serve a written notice on the Engineer-in-Charge requiring permission within 15 days from the receipt thereof to proceed with the works or that part thereof in regard to which progress is suspended and if such permission is not granted within that time the Contractor by a further written notice so served may (but is not bound to) elect to treat the suspension where it affects part only of the works as an omission of such part on where it 16 affects the whole of work as an abandonment of the contract by the Client/RITES."
27. Relevant clause of the Special Conditions of Contract as referred to by the parties:
3.3 No claim for idle labour under any circumstances will be entertained by RITES/CLIENT.
Claim no. 1
28. The claim no. 1 in both the cases relates to loss of interest on account of deferred payment of running bill. The specific case of the claimant with regards to package V was that the Appellant failed to make any payment from 01.09.1993 and the work stood suspended from 01.03.1994 to 31.01.1995 and with regards to package no IV the Appellant failed to make any payment from October 1993 and the work stood suspended from 01.03.1994 to 31.01.1995.
29. It was the specific case of the claimant in both the cases that as per the contract, the payment in connection with running bills were to be made each month within ten days of submission of bills. In both the cases the specific case of the appellant on the said point was that the claim no. 1 was barred by time extension letters and Clause 46 (V) of General Conditions of Contract provides that all payments are by way of advance payments and not payment against debt. It was also contended by the appellant that the delay in payment of advance to claimant was due to mistake in billing and inflated and incomplete bill.
30. The Claim no. 1 was partly allowed by the learned Arbitral Tribunal in both the cases by referring to the various bills and with an observation that the running bills could not be paid due to paucity of fund with the appellant. The learned Arbitral Tribunal also held that the running account bills are payment for work done and necessary for maintaining the liquidity of the claimant to proceed with the work, although the payments are termed as 17 advance as per General Conditions of Contract clause, they do not fall in the category of advances like mobilization advance, secured advance etc. which are strictly advances for facilitating the work.
31. It is an admitted fact on the part of both the parties that there is no specific provision in the contract in both the cases denying payment of interest on delay in payment of on account running bills.
32. This Court finds that the learned Arbitral Tribunal in both the cases after considering the claim no. 1 and upon interpretation of the agreement, held that the claimant was entitled to interest under claim no. 1 and allowed the same partly to the extent mentioned in the table given above. This court also finds that such exercise was certainly within the jurisdiction of the learned Arbitral Tribunal. The learned counsel for the appellant has not been able to show any such provision in the contract which could be treated as a negative covenant in connection with payment of interest relating to running account bills raised by the claimant for the work already done.
33. The learned trial court, after considering the arguments of the parties in connection with the claim no. 1, also held that the arbitral tribunal has not erred in allowing the claim no. 1 in both the cases to the extent mentioned in the awards and such claim was legal, proper and not contrary to the terms of the contract.
34. The scope of interference in arbitration award under Arbitration and Conciliation Act, 1996 has been considered by the Hon'ble Supreme Court in the judgement passed by the Hon'ble Supreme Court in the case of "Oil and Natural Gas Corporation Limited versus Saw Pipes Limited" reported in (2003) 5 SCC 705 in para 31 that an award could be set-aside if it is contrary to :-
(a) Fundamental policy of Indian Law, or
(b) The interest of India, or
(c) Justice or morality, or in addition, if it is patently illegal.
It has also been held that illegality must go to the root of the matter and if the illegality is of a trivial nature it cannot be held 18 that the award is against the public policy. Award could also be set-aside if it is so unfair and unreasonable that it shocks the conscience of the court.
This judgement has been consistently followed by the Hon'ble supreme court and has also been elaborated in the case of "Associate Builders versus Delhi Development Authority"
reported in (2015) 3 SCC 49.
35. In the present cases, this Court finds that the learned Arbitral Tribunal while passing the award with regard to claim no. 1 in both the cases has taken into consideration that the non-payment of the RA bills were due to paucity of funds with the appellant and RA bills were to be paid in 30 days plus 10 days processing which were released after considerable delay with respect of each bill whose details have been mentioned in the awards . The learned Arbitral Tribunal also considered that the contract does not bar payment of interest on delay in payment of RA bills. This court finds that the learned arbitral tribunal has allowed the claim of interest on delay in payment of RA bills after appreciating the facts and circumstances of the cases by speaking orders in both the cases and there being no negative covenant with regards to payment of interest on RA bills , this court is of the considered view that there was no scope for interference in the awards involved in these cases so far as claim no. 1 in both the cases are concerned.
36. Considering the limited scope of interference in arbitral award and that the courts do not sit in appeal against the arbitral award, there is no scope for re-appreciating the evidences and re- interpreting the contract, which was certainly within the domain of the learned Arbitral Tribunal unless it falls within the prescribed grounds under section 34 of the aforesaid Act of 1996. This court is of the considered view that the grounds raised by the appellant in both the cases do not call for interference in the awards so far as claim no. 1 are concerned. This court also finds that the learned court below has rightly refused to interfere with the arbitral awards 19 so far as the claim no. 1 in both the cases are concerned and accordingly has rightly rejected the petition filed under Section 34 of the Arbitration and Conciliation Act, 1996 on the said point as the grounds raised do not fall within any of the permissible grounds for interference in an arbitral award passed under the Arbitration and Conciliation Act, 1996.
37. In the aforesaid view of the matter, this Court does not find any merit in both the present appeals, so far, they relate to awards with regards to claim no. 1.
Claim no. 2 and 3
38. So far as the claim no. 2 and 3 regarding loss due to the idling of machinery and loss due to overhead expenses are concerned, the specific case before the learned arbitral tribunal in both the arbitration proceedings was that they are barred by conditions of contract, time extension letters and specific reference was made to the clauses 17(ii), 17(iii) , 19(ii) of the General Conditions of Contract and clause 1.2 and 3.3 of Special Conditions of Contract. However, during the hearing of the present appeals none of the parties have referred to or relied upon clause 1.2 of the Special Conditions of Contract.
39. The learned Arbitral Tribunal, while dealing with claim no 2 regarding losses due to idling of Machinery in relation to package no. V held as follows:
"The work was under virtual suspension for 1.3.94 to 31.1.95 due to the non-availability of funds with the Respondent. The non-availability of funds has been acknowledged by the Respondent in his various communications produced as evidence by the Claimant. The non-availability of funds for the above period is a fact. Moreover, it is also an established fact that the work was virtually under suspension, for this reason, for this period.
The Claimant has submitted claim for Idling of Equipment & M/c during this period and has submitted a statement of the list 20 of equipment with hire charges and worked out the amounts of losses due to idling of machinery. The Respondent has refuted the statement of the Claimant and maintained that the Claimant had no idle machinery at site during the no fund period and no claim for idling of machinery is tenable. The Claimant has submitted a large number of documents in respect of purchase, Hire/purchase etc. of the machinery which do not indicate either on which work the concerned machinery was working, nor the conditions of the machines. No joint records of the Claimants & Respondent regarding the availability of machinery at site could be produced to the tribunal.
From the submission of the Respondent from time to time about the non-availability of adequate machinery and the bad/Poor condition of the equipment, which have not been denied by the Claimant, it emerges that the claims by the Claimant have been exaggerated and without proper evidence or without a joint record.
The Claimant had requested for foreclosure of work due to non availability of funds and owner issue material with Respondent - 2 (TVNL) which the Respondent did not accept and asked the Claimants to continue with periodic assurances that funds would be made available soon. Such period continued for 11 months. The Claimant had some equipment available at site as is apparent from the Respondent internal committee who had examined the claims and its draft analysis of claims pertaining to machinery available at site during the no fund period has been listed by the Respondent at C-108. Since the virtual suspension from 1.3.94 to 31.1.95 was on Respondents account due to no fund also the Claimant was asked to continue with the work, it becomes the responsibility of the Respondent to compensate the losses incurred due to idling of machinery during the no fund period. The arbitral tribunal finds the recommendations of the Respondents internal committee to be in order and accepts the same.21
The tribunal, therefore, awards a sum of Rs. 18,61,408.00 towards idling of machinery against Claim No. 2."
40. Finding of the learned Arbitral Tribunal in package no V regarding losses due to overhead expenses i.e claim no. 3 is as under:
"The list of idle manpower during the No fund period has been given by the Respondents Committee in their report at Appendix 'G'. It is apparent that there was some manpower available during the virtual suspension period and the Respondent assertion that all manpower was removed by the Claimant does not appear to be factual. Since the manpower present from March 94 to Jan 95 is listed by the Respondent in their internal committees communication (C-108) and this being a feedback from site, it has been relied upon, and the loss to the Claimant on account of overhead expenses have been worked out based on this."
Thereafter the calculation was done amounting to Rs. 3,26,421.00 and the claim was partly allowed only to the extent it related to payment of wages to idle manpower for the aforesaid period of suspension of work.
41. Similar findings have been recorded and similar part reliefs have been given to the claimant in connection with package no. IV under claim no. 2 and 3 only to the extent they related to the period of suspension of work .
42. From the perusal of the findings of the learned Arbitral Tribunal in both the cases , it appears that the learned Arbitral Tribunal has based their findings on the basis of internal committee report and have ignored the aforesaid clauses which were relied upon by the appellant by which the appellant claimed that the learned Arbitral Tribunal could not have awarded any amount under the heading 'losses due to idling of machinery' or 'losses due to overhead expenses' being claim no. 2 and 3 respectively .
2243. This Court finds that while deciding the claim no. 2 and 3, the learned Arbitral Tribunal has considered that the work was under
suspension for the period from 01.03.1994 to 31.01.1995 due to non- availability of fund with the appellant and that the claimant had requested for a foreclosure of work due to non-availability of fund and owner issued material with TVNL which the appellant did not accept and asked the claimant to continue with periodic assurance that the fund would be made available soon and such period continued for 11 months.
44. The learned Arbitral Tribunal, while awarding claim no. 2, has held that since the virtual suspension from 01.03.1994 to 31.01.1995 was on account of the appellant due to "no fund" and that the claimant was asked to continue with work, it was the responsibility of the appellant to compensate the losses incurred by the claimant due to idling of machinery during the no fund period and the learned Arbitral Tribunal found that the recommendation of the internal committee of the appellant was in order and the learned Arbitral Tribunal accepted the same.
45. This Court finds that while deciding claim No. 2, the learned Arbitral Tribunal has totally ignored the specific plea which was taken by the appellant regarding the aforesaid clauses of General Conditions of Contract and also of Special Conditions of Contract.
46. So far as the claim no. 3 is concerned, the learned Arbitral Tribunal found that during the period of suspension, there was some manpower available, a list of which was filed by the claimant and the learned Arbitral Tribunal awarded certain amount in connection with idling of manpower, which related to certain engineers, supervisor, driver, watchman, Store Keeper, Store Assistant, Cook, Foreman, Mechanic, Carpenter, Welder etc., who were the employees of the claimant. This Court finds that while awarding the amount under claim no. 3, the learned Arbitral Tribunal again did not refer to any of the aforesaid clauses of the agreement. The learned Arbitral Tribunal has also referred to the list 23 of manpower during the no fund period which was mentioned in the internal committee report.
47. This Court finds that the learned Arbitral Tribunal partly allowed the claim nos. 2 and 3 by referring to the internal committee report, but while considering the said claims, ignored the clauses of the contract which were relied upon by the appellant by which it was claimed by the appellant that the claims were prohibited/barred under the contract.
48. This Court finds that although the claimant had referred to clause 36(ii) of the General conditions of Contract for the purposes of foreclosure of the contract but the claimant continued with the contract and completed the same for which due extension of time as per the contract was also given. The award in relation to claim nos. 2 and 3 is based on the committee report without referring to the aforesaid clauses of the contract referred to by the parties. The learned court below while dealing with claim nos. 2 and 3 considered the point as to whether the internal committee report is a conciliation committee report and is barred from reading in evidence under Section 81 of the Arbitration and Conciliation Act of 1996 and whether the Arbitral Award under claim nos. 2 and 3 was granted without considering any evidence. The learned court below held that the internal committee report was not a conciliation committee report and was not barred from reading in evidence under Section 81 of the aforesaid Act of 1996 and accordingly claim nos. 2 and 3 having been based on internal committee report cannot be said to have been passed without any evidence.
49. This Court finds that although the claimant did not rely upon clause 36 of the General Condition of contract before the Arbitral Tribunal to support the claim no. 2 and 3 but had relied upon the same before the learned court below as well as before this Court.
50. The learned court below in para 23 of the impugned judgment while considering claim no. 1 (claim regarding interest on deferred payment of R/A Bills) held that the suspension of work was due to 24 want of fund and hence the claimant was entitled for compensation as per express provision under Clause 36(i) and 36(ii) of General Conditions of Contract by holding that they provide for compensation in case of suspension of work and hence claim of claimant is in accordance with the terms and conditions of the contract. In the same paragraph the learned court below held that clause 17(i), 17(iii), 19 of General Conditions of Contract and Clause 3 of Special Conditions of Contract have no application by holding that these clauses prescribe the immunity from payment on prescribed reasons therein, whereas in present cases the delay is due to absolutely different reasons i.e. want of fund with the appellant for considerable period and their assurance time to time forbidding foreclosure of contract. The learned court below while dealing with claim nos. 2 and 3 at para 25 observed that there is no violation of clause 17(i) , 17(iii), 19 of General Conditions of the Contract and Clause 3 of Special Conditions of Contract in view of aforesaid findings recorded while dealing claim no. 1.
51. This Court finds that the learned Arbitral Tribunal in both the cases partly allowed the claim nos. 2 and 3 only to the extent it related to the period 01.03.1994 to 31.01.1995 and treated the same as period of suspension of work at the instance of the appellant on account of non-availability of fund. The rest of the claims under the same head were not allowed. The learned tribunal while allowing the claim did not refer to any terms and conditions of contract but was of the view that it was the responsibility of the appellant to compensate the losses incurred due to idling of manpower and machinery during no fund period. The learned court below rejected the objection to the Award filed under Section 34 of Arbitration and Conciliation Act 1996 by referring to Clause 36 of the General Condition of Contract dealing with suspension of work at the instance of the appellant and also held that clause 17(i), 17(iii), 19 of General Conditions of the Contract and clause 3 of Special Conditions of Contract have no application.
2552. This Court finds that clause 17(i) clearly indicates that time was the essence of the contract; clause 17(ii) and 17(iii) deal with delays and extension of time. Clause 17(iii) clearly provides that in the event of any failure or delay by the appellant due to any cause whatsoever, it shall in no way affect or vitiate the contract or alter the character of the contract or entitle the contractor to damages or compensation therefor but in any such case, the appellant may grant extension for completion as may be considered reasonable. Thus, there is a clear negative covenant in the contract that the contractor will not be entitled to any damage or compensation if there is any delay or failure on the part of the appellant.
Clause 3.3 of Special Conditions of Contract provides that no claim for idle labour under any circumstances will be entertained by the appellant.
53. However, clause 36 of General Conditions of the Contract deals with suspension of work at the instance of the appellant and it was the specific case of the claimant that they applied for foreclosure of the contract under Clause 36(ii) which was not accepted by the appellant and the work was ultimately completed by the claimant later after grant of due extension of time. This Court finds that clause 36(i) of GCC clearly provides the consequence and rights of the claimant when the suspension of work is for any other reasons, other than three specified reasons [i.e. other than (a) provided for in contract (b) necessary for proper execution or by reason of weather conditions or by some default on the part of the contractor (c) or necessary for safety of the work] and if such suspension exceeds 14 days, the claimant shall be entitled to extension and to such compensation as the Engineer-in-Charge may consider reasonable in respect of salaries or wages paid by the contractor to his employees during the period of such suspension.
54. Thus, the general rule is that if the delay is due to the appellant for any reason the claimant is not entitled to any damage or compensation or wages of labour, but if the work is suspended by 26 Engineer-in-Chief for any reason other than specifically mentioned in clause 36(i) of General Conditions of the Contract and if the suspension of work exceeds 14 days, the claimant is entitled to compensation in respect of salaries and wages paid by claimant to his employees during period of suspension and if the suspension exceeds 3 months, the claimant may proceed as per clause 36(ii) which includes foreclosure. This Court is of the considered view that payment of wages of employees during period of suspension is an exception to clause 3.3 of the General Conditions of the Contract, but bar to claim of compensation or damage on account of any reason attributable to the appellant under Clause 17(iii) continues even during the period of suspension including when it relates to idling of machinery. Moreover clause 3.3 of Special Conditions of Contract provides that claim relating to payment of wages to idle labour will not be entertained by the appellant but there is no bar for the Arbitral Tribunal to entertain such a claim particularly in the context of period of suspension covered under clause 36 of General Conditions of the Contract.
55. As a cumulative effect of the aforesaid findings the Award under claim no. 2 relating to idling of machinery during period of suspension cannot be sustained in the eyes of law being hit by negative clause under clause 17(iii) of General Conditions of Contract. This Court is of the considered view that the learned Arbitral Tribunal having totally ignored clause 17(iii) of the General Conditions of Contract and having based the award solely on internal committee report and on the ground that the claimant should be compensated for losses incurred on account of idling of machinery under claim no. 2 for the period of suspension is ex facie perverse, in total disregard and in conflict to binding contract between the parties and accordingly cannot be sustained in the eyes of law even under the limited jurisdiction under the aforesaid Act of 1996.
2756. So far as the claim no. 3 is concerned, although while partly allowing this claim only for the period of suspension the learned Arbitral Tribunal has not referred to any clause of the contract including Clause 36(i) of the General Conditions of Contract but reliance has been placed on the said clause 36 by the learned counsel for the appellant before the learned court below as well as before this court in order to sustain the award . As already held above, compensation for the period of suspension for more than 14 days on account of wages of employees for the period of suspension is payable under the contract and there is no bar for the Arbitral Tribunal to entertain such a claim.
57. This Court is of the considered view that the learned court below while upholding the award with regard to claim nos. 2 and 3 by referring to Clause 36 of the General Conditions of the Contract failed to consider that the award with regard to Claim No. 3 could be sustained by referring to Clause 36(i) but award with regard to Claim No. 2 will still be governed by negative covenant in Clause 17(iii) of the General Conditions of Contract. The learned court below has erred in holding that Clause 17 of General Conditions of the Contract has no applicability in the matter. Accordingly, the finding of the learned court below to the extent it relates to claim no. 2 cannot be sustained in the eyes of law.
58. This court further considers the judgements relied upon by the claimant as under:
(A) In the judgment reported in (1985) 2 SCC 2009 (Hyderabad Municipal Corporation Vs. M. Krishnaswami Murlidhar) the claimant had agreed to spread the work for more years on the condition that extra payment will be made to him on account of increased rates of materials and the employer did not intimate that no such payment would be made. In such circumstances, the Hon'ble Supreme Court dismissed the appeal where the sole point for consideration was as to whether the claimant was entitled to extra payment over and above the originally agreed rates.28
The aforesaid judgement does not apply to the facts and circumstances of this case. In the present case there is no such corresponding fact that the claimant had ever intimated to the appellant that they would be charging extra for idling of machineries or idling of manpower during the period of extension irrespective of any negative clause in the contract. In fact, the learned Arbitral Tribunal also allowed such claims only to the extent of 11 months when no funds were available with the appellant and treated 11 months as period of suspension. As held above, for the period of suspension the claimant is entitled to wages of idle employees due to specific clause 36 of General Conditions of Contract but not entitled to any amount against idling of machineries on account of negative clause 17(iii) of General Conditions of Contract.
(B) In the judgment reported in (2002) 4 SCC 45 (General Manager, Norther Railways Vs. Sarvesh Chopra) the original court refused to refer the dispute to arbitration under Section 20 of Arbitration Act, 1940 and the High Court had referred the matter to arbitration although the claim was clearly covered by "excepted matter". The Hon'ble Supreme Court held that the issue as to arbitrability of a claim was available for determination at all three stages i.e. while making reference to arbitration, in the course of arbitral proceeding and also while making the award a rule of the court under Arbitration Act, 1940.
This case also does not apply to the facts and circumstances of the present case. In the present case, disputes were referred to Arbitral Tribunal under Arbitration and Conciliation Act, 1996 and it was certainly for the learned Arbitral Tribunal to consider and decide as to whether any claim was barred under the contract, which the learned Arbitral Tribunal failed to do in both the cases.
(C) In the judgment reported in (2009) 16 SCC 705 (Bharat Drilling and Foundation Treatment Pvt. Ltd. Vs. State of Jharkhand) the learned Arbitrator had allowed certain claims and this High Court had interfered with the Award under Section 37 of aforesaid Act of 1996 on the ground that the claims were barred by certain clause of the contract. The specific case of the claimant before the Hon'ble Supreme Court was that the clause was only a bar on the department and not 29 a bar on the Arbitrator in respect of the claims mentioned therein. The Hon'ble Supreme Court set -aside the judgment passed by this High Court on the ground of limited scope of interference in the reasoned Arbitral Award.
This Court is of the considered view that the aforesaid judgment applies only to the extent it relates to clause 3.3 of Special Conditions of Contract as it provides that no claim for wages of idle labour will be entertained by the appellant and that does not create any bar upon the Arbitral Tribunal to entertain such a claim when there is specific provision for such claim under clause 36 of General Conditions of the Contract for the period of suspension and accordingly this court has refused to interfere with the award relating to claim no. 3 .
So far as claim no. 2 is concerned, as per the clause 17(iii) of the General Conditions of Contract there is a clear negative clause regarding entitlement of the claimant to claim of damages and compensation on account of any delay caused by the appellant. This clause is totally different from the clause of contract which was involved in the case before the Hon'ble Supreme Court in the said judgment. This Court has already held that the learned Arbitral Tribunal has totally ignored the negative covenant of the contract while awarding under claim no. 2. Moreover, the claim no. 2 and 3 were made for a larger period but it was allowed only for the period when the work was held to have been suspended by the appellant. The consequence of suspension of work and respective entitlement of the parties has been separately dealt with under Clause 36 of General Conditions of Contract.
(D) The judgment reported in (1996) 1 SCC 516 "Board of Trustees for the Port of Calcutta Vs. Engineers-De-Space-Age" also does not apply to the facts and circumstances of this case as the issue involved in the said case was regarding payment of interest pendente lite under the provisions of Arbitration Act, 1940 and the Hon'ble Supreme Court held that if there was a dispute as to whether under the terms of the contract, the Arbitrator was prohibited from awarding interest pendente lite, that was a matter which fell within jurisdiction of the learned Arbitrator as the Arbitrator would have to interpret the clause of the contract and decide whether that clause prohibited him from awarding interest pendente lite.
30In the present case, the negative covenant of the contract which was raised by the appellant before the learned Arbitral Tribunal in relation to claim nos. 2 and 3 was neither interpreted nor considered by the learned Arbitral Tribunal while partly allowing the claim under Claim Nos. 2 and 3 and accordingly, the learned Arbitral Tribunal failed to exercise their jurisdiction to interpret the contract and come to the definite conclusion as to the applicability of the clauses of the contract which were heavily relied upon by the appellant before the learned Arbitral Tribunal.
(E) The judgment reported in (2000) 6 SCC 113 "Ghaziabad Development Authority Vs. UOI" also does not apply to the facts and circumstances of this case as the said judgment did not deal with any negative covenants in the contract and the questions which were involved were whether compensation could be awarded for mental agony suffered by the claimants and whether in the absence of any contract or promise held out by Ghaziabad Development authority any amount by way of interest could be directed to be paid on the amount found due and payable by the authority to the claimant and if so, at what rate the interest could be ordered to be paid. The present case deals with certain clauses of the contract, under which, it has been argued by the appellant that claim nos. 2 and 3 were barred. The consequences of negative covenants of the contract are involved in the present case.
(F) So far as the judgment reported in (2007) 13 SCC 43 "K. N. Sathyapalan Vs. State of Kerala" is concerned, the party concerned was prevented by unforeseen circumstances from completing the work within the stipulated period arising on account of law and order problem and it was held that the view taken by the High Court was a rigid interpretation of the terms of contract and supplemental agreement executed between the parties was not warranted by the turn of events. In such circumstances, it was held that the learned Arbitrator acted within his jurisdiction in allowing the claim on account of escalation of cost which was referable to the execution of the work during the extended period. In the said case, the claimant sought, and was granted extension of time, but that was subject to execution of a supplemental agreement for disclaimer of any enhanced rate for the work done during the extended period. The said judgement does not apply to the 31 facts of this case as neither the claim no. 2 and 3 deal with escalation nor there is any finding by the learned Arbitral Tribunal of any unforeseen circumstances. The awarded amount relates to the period of suspension of work , whose consequences and inter party rights and liabilities have been provided under clause 36 of the General Conditions of Contract which only contemplates payment of wages of employees for idling period if the period of suspension extends 14 days and the claimant also had the option of foreclosure of contract. The fact remains that the contract in the present case did not lead to any foreclosure rather the claimant had completed the work subsequently after taking extension of time for completion of work being fully conscious of his rights and obligations under the contract including the clause 36 of the General Conditions of Contract.
(G) So far as the judgment which is reported in (2018) 3 SCC 133 "Maharashtra State Electricity Distribution Co. Ltd. Vs. Datar Switchgear Ltd." is concerned, the same also does not apply to the facts and circumstances of this case particularly in view of the fact that the said judgment dealt with fundamental breach of contract and it has been held that once it is established that the party was justified in terminating the contract on account of fundamental breach thereof, then the said innocent party is entitled to claim damages for the entire contract i.e. for the part which is performed and also for the part of the contract which it was prevented from performing. This Court is of the considered view that there is a marked difference between a breach of contract and a fundamental breach of contract. In the matter of a fundamental breach of contract, the negative covenants in the contract may not have a role to play, but in the present case there is no finding by the learned Arbitral Tribunal about any fundamental breach of contract in the Awards. Accordingly, the aforesaid judgment does not help the claimant in any manner whatsoever. The arguments of the claimant that there has been a fundamental breach of contract in the present cases has no basis at all. Rather the work was duly completed upon seeking extension of time as per the contract and under such circumstances the parties would still be governed by the terms of the contract.
(H)In the judgment passed by the this Court in Arbitration Appeal No. 21 of 2007 [M/s Madan Prasad Vs. State of Bihar 32 (now Jharkhand and Ors.] decided on 06.07.2019, this Court has clearly held that there is no doubt that once the terms and conditions of the agreement are accepted by the parties, the parties are bound by the same and any violation of the terms and conditions would itself be governed by the terms and conditions of the contract itself. It has also been held that it is within the domain of the learned Arbitrator to interpret the terms of the contract and determine the consequences of violation of the terms of the contract , but certainly the Arbitrator cannot disregard the contract and manifestly ignore the clear stipulation in the contract and if he does so, the same would be beyond his jurisdiction. In the said judgment, this Court has also considered the judgment passed by the Hon'ble Supreme Court reported in (2018) 3 SCC 133 (Supra) and has referred to para 67 of the aforesaid judgment drawing a distinction between a breach of contract and a fundamental breach of contract.
This Court finds that in the aforesaid judgment in the case of M/s Madan Prasad (Supra) the learned Arbitrator had recorded a finding of fundamental breach of contract and consequently this Court was of the considered view that it was not open to the respondents of the said case to resort to various clauses of the agreement to deny the claim to the contractor as the learned Arbitrator had recorded a finding of fundamental breach of contract by the respondents. In the present case, as already held above, it was never the case of any of the parties that there was fundamental breach of contract nor any such finding has been recorded by the learned Arbitral Tribunal. In such circumstances, the aforesaid judgment passed in the case of M/s Madan Prasad (Supra) does not help the respondent in any manner whatsoever and the terms and conditions of the contract binds the parties in the present case which have been ignored by the learned Arbitral Tribunal.
(I) In the judgment passed by the Hon'ble Calcutta High Court on 14.09.2017 in the case of "State of West Bengal Vs. Pam Developments Private Limited" (supra) the Court was dealing with the treatment of "no damage" clauses in a works contract where the time of completion was 12 months which was delayed for about five months and dispute and differences arose between the parties as to payment of dues to the contractor particularly for the extended period and such 33 dispute was referred for arbitration. The principal legal issue which was involved in the reference before the Court was whether the clauses of restriction in the agreement between the parties stipulating that there would be no payment on account of price escalation or idle labour or idle machinery or the like, prohibited even the consideration of such heads of claim or stood in the way of the Arbitrator making any award in respect thereof. The Arbitrator in the said case had held that upon expiry of the contractual period, a new agreement would be deemed to have been entered into by the parties covering the period of completion and during which period, the restrictive covenants in the agreement would not be attracted . The Hon'ble Calcutta High Court was of the view that the Arbitrator may make a mistake and may rule against the applicability of a prohibitory clause in a particular set of circumstances, but that by itself, would not be amenable to correction by a court in a challenge under Section 34 of the Arbitration and Conciliation Act, 1996 unless it is found to be in conflict with public policy of India or on the ground of patent illegality or the judicially acknowledged strict grounds of perversity or shocking to the conscience of the court.
In the present case, the Arbitral Tribunal did not interpret the contract at all and accordingly, did not decided on the applicability of the prohibitory clause which were heavily relied upon by the appellant before the learned Arbitral Tribunal and accordingly, this Court is of the considered view that there is a distinction where the Arbitral Tribunal interprets the contract and come to a particular finding and where the Arbitral Tribunal passes an Award without considering the relevant clauses of the contract particularly when they relate to any prohibitory clause regarding any claim. In the present cases this Court finds that the learned Arbitral Tribunal did not interpret the prohibitory clauses while partly allowing the claim no. 2 and 3 only for the period treated as suspension period of work though the prohibitory clauses were heavily relied upon by the appellant. This court is of the considered view that non consideration of prohibitory clauses by the Arbitral Tribunal certainly calls for interference by the court under section 34 of the aforesaid Act of 1996 as it amounts to patent illegality.
34(J) The judgment reported in (2017) 8 SCC 146 (Assam State Electricity Board Vs. Buildworth Pvt. Ltd.) was passed under the Arbitration Act, 1940 wherein it was held that the Arbitrator was competent to interpret the terms of the contract and the Award was passed on all relevant aspects and there was no error apparent on the face of record. In the said case, though the price escalation clause in the agreement applied only to specific period in contract, the Arbitrator pointed out that it would apply to the extended period because the parties through their conduct permitted the belated performance of their reciprocal obligations and there were additional works also involved. The said judgment does not apply to the facts of this case as because the learned Arbitral Tribunal in the present case has totally ignored the terms and conditions which were heavily relied upon by the appellant.
59. As a cumulative effect of the aforesaid findings both the Awards of the learned Arbitral Tribunal as well as the judgement passed by the learned court below with respect to Claim No. 1 and Claim No. 3 are sustained and both the awards as well as the judgement passed by the learned court below with respect to Claim No. 2, are set-aside. Thus, these appeals are partly allowed.
60. The appeals filed by the present respondent in both the cases being Arbitration appeal no 13 and 14 of 2014 in connection with award of pre-reference and pendent lite interest in both the Arbitral Awards have been dismissed by this court today by a separate judgement.
61. The office of this court is directed to prepare the appellate decree in terms of this judgment as well as judgement passed in Arbitration appeal no 13 and 14 of 2014.
62. From the records of the case it is not clear as to what is the case number of the execution cases in relation to the awards and where the execution cases are pending at present. Under such circumstances , the learned Registrar General is directed to immediately remit the amount deposited by the appellant before this court pursuant to order dated 29.01.2016 to the learned court below who has passed the impugned judgement , namely, Civil 35 Judge , Senior Division -1st , Bermo at Tenughat, who shall remit the amount to the concerned executing court and the concerned executing court shall proceed in accordance with law in light of the appellate decree.
63. Interim order, if, any, stands vacated.
64. Pending interlocutory applications, if any, are dismissed as not pressed.
(Anubha Rawat Choudhary, J.) Pankaj