Bangalore District Court
Bharath Heavy Electricals Ltd vs Tirupati Earth And Project Works Pvt Ltd on 23 January, 2025
KABC170013822024 Digitally signed
by SUDINDRA
SUDINDRA NATH S
NATH S Date:
2025.01.28
18:00:01 +0530
IN THE COURT OF LXXXIII ADDL. CITY CIVIL & SESSIONS JUDGE,
COMMERCIAL COURT, BENGALURU (CCH-84)
Present: Sri S. Sudindranath, LL.M., M.B.L.,
LXXXIII ADDL. CITY CIVIL & SESSIONS JUDGE
BENGALURU.
COM.A.P.No.73/2024
Dated on this 23rd day of January 2025
Petitioner/s 1. Bharath Heavy Electricals
Limited
Having its Office at IISc Post,
Prof. CNR Rao Circle, Malleshwaram,
Bengaluru - 560 012.
Represented by General Manager (PG III)
(By Sri.Aditya Narayana, Advocate)
// versus //
Respondent/s 1. Tirupati Earth & Project Works
Private Limited
Having its registered office at
No.3, Sadashiv Properties
Katras Road, Dhanbad - 826 001.
Represented by its Managing
Director
2. Justice N. Kumar
Former Judge, High Court of Karnataka,
Arbitration & Conciliation Centre,
Bengaluru (Domestic & International)
3rd Floor East Wing, Khanija Bhavana,
Race Course Road, Bengaluru,
2
CT 1390_Com.AP 73-2024_Judgment.doc
KABC170013822024
Karnataka - 560 001.
(R1 By Sri.Clive Johns, Advocate)
Date of institution of suit : 28/05/2024
Nature of suit Arbitration Suit under
:
Arbitration Act
Date of commencement of
: -
recording of the evidence
Date on which the judgment
: 23/01/2025
was pronounced
Year/s Month/s Day/s
Total duration :
00 07 26
JUDGMENT
This is a petition under Section 34 of the Arbitration and Conciliation Act, filed by the respondent before the Arbitral Tribunal, challenging the Arbitral Award dated 24-01-2024, passed by Learned Sole Arbitrator, Respondent No. 2 herein, in AC 18 of 2021, whereby the Learned Arbitrator partly allowed the claims of the claimant / Respondent No. 1 herein, and dismissed all the counterclaims of the petitioner. 3
CT 1390_Com.AP 73-2024_Judgment.doc KABC170013822024
2. On issuance of notice of the present petition, Respondent No. 1 [claimant before the learned arbitral tribunal], has entered appearance through counsel and filed detailed objections to the present petition. The notice to the learned arbitrator, Respondent No. 2, is dispensed with.
3. Thereafter, I have heard the arguments of both sides and perused the records of the case.
4. The only point that arises for my consideration is :-
Whether the impugned arbitral award dated 24-01-2024, passed by Respondent No. 2 in AC 18 of 2021, calls for interference under Section 34 of the Arbitration and Conciliation Act?
5. My answer to the above point is in the negative for the following :-
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CT 1390_Com.AP 73-2024_Judgment.doc KABC170013822024 REASONS
6. At the outset, before considering the present petition on merits, it is necessary to ascertain whether the present petition is filed within the period of limitation prescribed under Section 34 [3] of the Arbitration and Conciliation Act. The impugned Arbitral Award is dated 24-01-2024. The present petition is filed on 27-05-2024. On 28-06-2024, counsel for petitioner filed a memo producing extract of the Register of Copy Applications of the Arbitration Centre, disclosing that the award was obtained by the petitioner on 01-02-2024. Under Section 34(3) of the Arbitration and Conciliation Act, the limitation of three months begins to run from the date on which the petitioner obtained the original award. Since the original award was obtained on 01-02-2024, the period of three months' limitation would expire on 01-05- 2024, which falls within civil vacations. Therefore, the petition filed on the reopening day, i.e., 27-05-2024, is within the period of limitation.
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7. In the course of this judgment, for the sake of convenience, Respondent No. 1 herein is referred to as the claimant, and the petitioner is referred to as BHEL.
8. The facts in brief are that, the claimant is a company in the construction business. BHEL is a Government of India undertaking. BHEL was engaged by National Thermal Power Corporation to construct and set up a Super Thermal Power Project in the state of Jharkhand. In connection with the said project, BHEL awarded the contract for setting up coal handling plant and administrative buildings, to the Claimant. Later on, additional work of the ash handling plant was also awarded to the claimant. The letter of Award was dated 13-03-2015.
9. It was the responsibility of BHEL to acquire the land where the said work had to be carried out, level the 6 CT 1390_Com.AP 73-2024_Judgment.doc KABC170013822024 same, and hand over possession of the same to the claimant for the purpose of carrying out its work. The time stipulated for completion of the said work was 30 months, which would expire on 12-09-2017. The work was not completed within the stipulated period of 30 months, and therefore, the claimant sought an extension of 18 months. By letter dated 26-12-2017, BHEL extended the time for completion of the work by 12 months, observing that the delay was not attributable to the claimant, and thereby the time was extended till 12- 09-2018.
10. By letter dated 31-10-2018, the claimant sought a second extension of time for six months. There was no response by BHEL to the said letter, and BHEL neither extended the time nor terminated the contract. In view of the same, the claimant continued the work. By letter dated 05-04-2019, the claimant sought a third extension of time for nine months. Again, there was no response, 7 CT 1390_Com.AP 73-2024_Judgment.doc KABC170013822024 and neither was the time extended nor the contract terminated.
11. In June 2019, the workers of the claimant were stopped at the gate and were prevented from entering the work site. Therefore, the claimant wrote a letter dated 25- 06-2019, requesting issuance of an extension letter and issuance of gate pass. BHEL provisionally amended the work order by extending the time up to 31-07-2019. However, the workers were allowed to enter the work site only after 07-08-2019.
12. In view of these facts, disputes arose between the parties under the contract, which contained an arbitration clause. After issuance of a Section 21 notice, the claimant approached the Hon'ble High Court for appointment of a learned arbitrator, and the Hon'ble High Court of Karnataka, vide order dated 23-01-2020 in CMP 344 of 2019, appointed Respondent No. 2 as the 8 CT 1390_Com.AP 73-2024_Judgment.doc KABC170013822024 learned sole arbitrator to decide the dispute between the parties.
13. On the learned arbitrator entering upon the reference, the claimant filed a detailed statement of claim, reiterating the above facts. Further, in the statement of claim, the delay in completion of the work was attributed solely to BHEL on the following grounds:
Failure to hand over the site. Delay in providing requisite drawings for various structures of CHP and AHP and repeated revision of drawings.
Delay in providing free issue materials, delaying contract execution.
Restrictions at the site gates towards ingress of the claimant's labor and material, causing inordinate delay.
Delay in progressive inspection of work and stoppage of work.9
CT 1390_Com.AP 73-2024_Judgment.doc KABC170013822024 Delay in payments against the claimant's bills and unwarranted deductions made therefrom. Delay caused by other agencies of BHEL. Closure of designated sources for material procurement.
Non-provision of electricity by BHEL as per Clause 8 of the technical conditions of the contract.
14. The claimant contended that although the delay was solely attributable to BHEL and in fact, the first extension of 12 months (from 12-09-2017 to 12-09-2018) was given by BHEL with a specific observation that the delay was not attributable to the claimant, on completion of said extended time period, BHEL neither responded to the claimant's second and third requests for extension of time nor terminated the contract. Instead, all of a sudden, BHEL unilaterally terminated the contract by letter dated 26-08-2019, and thereby, the claimant 10 CT 1390_Com.AP 73-2024_Judgment.doc KABC170013822024 contended that the termination of the contract is wholly illegal.
15. The following claims were raised in the statement of claim:
Claim No. 1 : Towards unpaid value for works done, sum of Rs. 29,46,418, consisting of principal sum of Rs. 21,66,484, and interest component of Rs. 7,79,934.
Claim No. 2 : Refund of retention money :- Rs. 3,09,43,957, consisting of principal sum of Rs. 1,75,64,825, together with interest component of Rs. 1,33,79,132.
Claim No. 3 : Price variation amount of Rs. 4,60,85,671, consisting of principal sum of Rs. 2,57,86,951, and interest component of Rs. 2,02,98,720.
Claim No. 4 : Additional costs incurred due to prolongation of the contract. Under this claim, 11 CT 1390_Com.AP 73-2024_Judgment.doc KABC170013822024 Subclaim 4A was for Rs. 49,24,306 towards additional cost incurred for retention of equipment due to prolongation. Subclaim 4B was for Rs. 5,42,45,038/= for additional overhead cost during the extended period. Subclaim 4C was for Rs. 5,38,913 towards bank guarantee extension charges during the prolongation period. Claim 5 was for loss on account of wrongful termination of the contract and consisted of the following subclaims. Subclaim 5A was for Rs. 3,18,22,570 towards illegal confiscation of the claimant's plant, machinery, and equipment immediately after termination of the contract. Subclaim 5B was for Rs. 2,45,22,272 for refund of the performance bank guarantee which had been encashed by BHEL. Subclaim 5C was for a total sum of Rs. 5,38,61,424 towards loss of overheads and profits due to the illegal termination of the contract.12
CT 1390_Com.AP 73-2024_Judgment.doc KABC170013822024 Claim No. 6 was for Rs. 1,68,09,355 towards enhanced cost for labour due to a change in the law.
Claim No. 7 was for interest on delayed payments of Rs. 21,81,610.
16. Thereby, the claimant laid claim for a total sum of Rs. 28,20,29,687 and also sought the grant of the cost of arbitration.
17. To the above statement of claim, BHEL filed a detailed statement of defence along with the counterclaim. In the statement of defence, the awarding of the work under the letter of award dated 13-03-2015 to the claimant was admitted. It was also admitted that the work had to be completed within a period of 30 months, which would expire on 12-09-2017. It was contended that in the event of delay, liquidated damages of 0.5% per week of delay subject to a ceiling of 5% of the 13 CT 1390_Com.AP 73-2024_Judgment.doc KABC170013822024 total work order value was to be levied. It was contended that the delay in completion of the work within the fixed period of 30 months was due to lapses on the part of the claimant, due to not bringing sufficient raw material and not deploying adequate labour force. And in fact, the claimant admitted that this was due to financial constraints faced by the claimant at that point in time. Thereby, it was contended that from January 2016, that is, much before the completion date of 30 months, letters were issued highlighting the delay in completion of the work due to insufficient labour and tools and machinery. It was contended that the first extension granted of 12 months was granted in the interest of the project, although the delay was due to inaction and under- deployment by the claimant. After the extension of time, there was a delay on the part of the claimant in completing the work, which constrained BHEL to issue letters dated 17-01-2018 and 01-02-2018. The quality of the work was also not as per the specifications. Although 14 CT 1390_Com.AP 73-2024_Judgment.doc KABC170013822024 the delay in completion was due to the default on the part of the claimant, the claimant sought a further extension of six months by letter dated 03-10-2018, and as on that date, only 41% of the contract work was completed. BHEL issued letters dated 12-01-2019, 18- 01-2019, and 21-01-2019 to the claimant requesting the expedition of the work. BHEL issued letters dated 25-01- 2019, 18-06-2019, and 25-06-2019 regarding the poor quality of the work. In the meantime, on 05-04-2019, the claimant had issued another letter seeking an extension of time by nine months. Since there was continuous default on the part of the claimant in completing the work, the respondent issued notice dated 17-07-2019 stating that in the event of the claimant's failure to complete the work as per the schedule, the contract would be terminated. Since the claimant neither completed the contract work nor responded to the said letter, BHEL was constrained to terminate the contract by letter dated 26-08-2019 and awarded the balance 15 CT 1390_Com.AP 73-2024_Judgment.doc KABC170013822024 work to an alternative contractor at the risk and cost of the claimant. As a result of this, the performance bank guarantee was encashed. Thereby, BHEL took the stand that the termination was perfectly in accordance with the law and due to the default on the part of the claimant and, on this basis, denied all the claims raised by the claimant. In addition, the following counterclaims were raised by BHEL;
Counter-Claim 1 was for a sum of Rs. 15,98,82,197 towards the differential value of the contract given to an alternative contractor at the risk and cost of the claimant.
Counter-Claim 2 was for a sum of Rs. 2,16,25,276 towards liquidated damages for violation of the contract by the claimant under clause 7, which, as already noted supra, provided for levying of liquidated damages at the rate of 0.5% per week of delay subject to a maximum of 5% of the contract value.
16
CT 1390_Com.AP 73-2024_Judgment.doc KABC170013822024 Counterclaim No. 3 was for a sum of Rs. 5,85,03,549 towards recovery of money for failure to reconcile free issue material.
Counterclaim No. 4 was for a sum of Rs. 43,59,550 for estimated expenditure to be incurred by BHEL due to the wrong location of concreting work by the claimant. Counterclaim No. 5 was for a sum of Rs. 4,78,500 towards costs incurred towards the demolition of the office building, cement stores, QA and QC labs, etc., constructed by the claimant for the purpose of its own works, which had to be demolished by BHEL after termination of the contract.
18. Thereby, counterclaim was raised for a total sum of Rs. 24,48,49,072 along with interest.
19. The claimant filed detailed objections to the counterclaim and also filed a rejoinder to the statement 17 CT 1390_Com.AP 73-2024_Judgment.doc KABC170013822024 of objections. BHEL, in turn, filed its rejoinder to the same and additional rejoinder also.
20. On completion of pleadings of both sides, the learned arbitrator framed the following issues:
1) Whether the termination of the contract on 26-08-
2019 by the letter of the respondent was arbitrary, illegal, and unjustified?
2) Whether the claimant proves that they are entitled to a sum of Rs. 21,66,484 towards the unpaid value of the work done together with interest at 15% compounded monthly, amounting to Rs. 7,79,934.40, in all a total amount of Rs. 29,46,418.40?
3) Whether the claimant proves that the respondent is liable to refund a sum of Rs. 1,75,64,825.30 towards the amount deducted towards retention money security from the bills of the claimant, along with interest at a rate of 15 percent compounded 18 CT 1390_Com.AP 73-2024_Judgment.doc KABC170013822024 monthly, amounting to Rs. 1,33,79,132.64, in all a total amount of Rs. 3,09,43,957.67?
4) Whether the claimant proves that the respondent is liable to pay an amount of Rs. 2,57,59,951 against the price variation in terms of Clause 2.17.9 of GCC, along with interest at a rate of 15% compounded monthly, amounting to Rs. 2,02,98,750, in all a total amount of Rs. 4,60,85,671?
5) Whether the claimant is entitled to the additional cost incurred due to prolonged retention of the equipment during the extended period, amounting to Rs. 36,45,717.50, along with interest at 15% compounded, amounting to Rs. 12,78,589/= in all a total amount of Rs. 49,84,306.50?
6) Whether the claimant is entitled to the additional overhead cost during the extended period of the contract, amounting to Rs. 542,45,038.99, along 19 CT 1390_Com.AP 73-2024_Judgment.doc KABC170013822024 with applicable interest amounting to Rs. 1,30,18,809.12?
7) Whether the claimant is entitled to the cost incurred for the extension of bank guarantees during the extended period, amounting to Rs. 5,38,913.60, along with applicable interest amounting to Rs. 1,29,339?
8) Whether the claimant is entitled to a sum of Rs. 2,56,63,633, with applicable interest amounting to Rs. 61,59,207.12, in all a sum of Rs.
3,18,22,570.12, towards illegal confiscation of claimant's plant, machinery, and equipment by the respondent immediately after illegal termination of the contract?
9) Whether the claimant is entitled to claim towards refund of the performance bank guarantee illegally encashed by the respondent in the sum of Rs. 1,97,76,026, along with applicable interest 20 CT 1390_Com.AP 73-2024_Judgment.doc KABC170013822024 amounting to Rs. 47,46,246, in all an amount of Rs. 2,45,22,272?
10) Whether the respondent is liable to pay towards loss of overheads and profits in the sum of Rs. 4,34,36,632.92, along with interest at 18%, calculated up to 30-11-2020, amounting to Rs. 1,04,24,791.90, and in all a sum of Rs. 5,38,61,424.82?
11) Whether the respondent is liable to pay enhanced cost for labour due to change in law, calculated up to 30-11-2020, in a sum of Rs. 1,20,23,874.06, with applicable interest in a sum of Rs. 47,85,481.19, in all a sum of Rs.
1,68,09,355.25?
12) Whether the claimant is entitled to interest on delayed payment in a sum of Rs. 21,81,610.57?
13) Whether the claimant proves that, in all, he is entitled to an amount of Rs. 20,70,29,436.94, with interest up to 30-11-2020 amounting to Rs. 21
CT 1390_Com.AP 73-2024_Judgment.doc KABC170013822024 7,50,250.0037, in all a sum of Rs.
28,20,,29,681.31?
14) Whether the claimant is entitled to pendente lite and future interest at 18%?
15) Whether the claimant is entitled to the cost of arbitration?
Counterclaim Issues
16) Whether the respondent is entitled to a sum of Rs. 15,98,82,197 towards the differential value of the orders placed on alternate vendors by invocation of the risk and cost clause along with departmental charges at 15%, as per Clause 10 of the CTC, along with interest at the rate of 18% per annum on Rs. 15,98,82,197 calculated from the date of invocation of the risk and cost clause until the date of filing of this statement of defence?
17) Whether the respondent is entitled to interest at the rate of 18% per annum on Rs. 15,98,82,197 22 CT 1390_Com.AP 73-2024_Judgment.doc KABC170013822024 during the pendency of this arbitration until the award is passed or any such amount that may be awarded to the respondent?
18) Whether the respondent is entitled to liquidated damages at 5% of the contract value, being Rs. 2,16,25,276.28, along with interest at the rate of 18% per annum on Rs. 2,16,25,276.28, calculated from the date of invocation of the risk and cost clause, i.e., 26-08-2019, till the date of filing of this statement of defence, i.e., 29-03-2021?
19) Whether the respondent is entitled to interest at the rate of 18% per annum on Rs. 2,16,25,276.28 during the pendency of this arbitration until the award is passed or any such amount that may be awarded to the respondent?
20) Whether the respondent is entitled to Rs. 3,25,61,588.50 towards the cost of unaccounted free issue material for non-reconciled free issue items, along with interest at a rate of 18% per 23 CT 1390_Com.AP 73-2024_Judgment.doc KABC170013822024 annum on Rs. 3,25,61,588.50 calculated from the date of invocation of the risk and cost clause, i.e., 26-08-2019, till the date of filing of the statement of defence, i.e., 29-03-2021?
21) Whether the respondent is entitled to adjust the sum of Rs. 32,80,470 from retention monies withheld by the respondent in respect of the project and under the contract?
22) Whether the aforesaid adjustment sought by the respondent is barred by law?
23) Whether the respondent is entitled to interest at the rate of 18% per annum on Rs. 5,85,03,549 during the pendency of this arbitration until the award is passed, or any such amount that may be awarded to the respondent?
24) Whether the respondent is entitled to Rs. 43,59,550.18 towards expenditure to be incurred by the respondent for demolition and reconstruction of wrongly located TR4-5 of BCN5A-B by the claimant, 24 CT 1390_Com.AP 73-2024_Judgment.doc KABC170013822024 along with interest at a rate of 18% per annum on Rs. 43,59,550.18 calculated from the date of invocation of the risk and cost clause, i.e., 26-08- 2019, till the date of filing of the statement of defence, i.e., 29-10-2019?
25) Whether the respondent is entitled to interest at the rate of 18% per annum on Rs. 43,59,550.18 during the pendency of this arbitration until the award is passed, or any such amount that may be awarded to the respondent?
26) Whether the respondent is entitled to Rs. 4,78,500 towards dismantling the site office and allied constructions of the claimant, removal and disposal of the debris, along with interest at the rate of 18% per annum on Rs. 4,78,500 calculated from the date of invocation of the risk and cost clause, i.e., 26-08-2019, till the date of filing of the statement of defence, i.e., 29-03-2021? 25
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27) Whether the respondent is entitled to interest at the rate of 18% per annum on Rs. 4,78,500 during the pendency of this arbitration until the award is passed or any such amount that may be awarded to the respondent?
28) Whether the respondent is entitled to future interest from the date of the award on the aforesaid claims as awarded at such rate of interest as this Hon'ble Tribunal may deem fit till the date of realization thereof?
29) Whether the respondent is entitled to the costs of these arbitral proceedings?
21. In the inquiry before the learned arbitrator, the authorized representative of the claimant was examined as PW1 and got marked Ex. C1 to C686. On behalf of BHEL, the authorized representative was examined as RW1 and got marked Ex. R1 to R221.
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22. After hearing both sides, on Issue No. 1, the learned arbitrator held that the termination of the contract by the BHEL by letter dated 26 August 2019 is contrary to law and illegal. In respect of Claim No. 1, as against the claimed sum of Rs. 29,46,418, the Learned Arbitrator awarded Rs. 21,66,484, along with interest at 10% from the date of termination till the date of claim petition. In respect of Claim No. 2, as against the claimed sum of Rs. 3,09,43,957.67, the Learned Arbitrator awarded a sum of Rs. 1,75,64,825.30 along with interest at 10% from the date of termination of the contract till the date of claim. The Learned Arbitrator rejected Claim No. 3 and Claim No. 4, which consisted of three sub-claims. In respect of Claim No. 5A, as against the claimed sum of Rs. 3,18,22,570.12, the Learned Arbitrator awarded Rs. 1,92,47,725 without pre-claim interest. In respect of Claim 5B, as against the claimed sum of Rs. 2,45,22,272, the Learned Arbitrator awarded Rs. 1,97,76,026 along with interest at 8% per annum. In respect of Claim 5C, 27 CT 1390_Com.AP 73-2024_Judgment.doc KABC170013822024 the learned arbitrator awarded Rs. 2,17,18,316.46. The learned arbitrator rejected Claim No. 6 and Claim No. 7.
23. Insofar as the counterclaims, the learned arbitrator rejected all the counterclaims. On the sums awarded to the claimant, the learned arbitrator awarded pendente lite interest at 10% from the date of claim petition till the date of award and future interest at the rate of 12% from the date of award till the date of realization. The Learned Arbitrator also awarded the proportionate cost of the proceedings to the claimant. Since all the counterclaims were rejected, the claim for interest on the counterclaims also stood rejected. The respondent was held not entitled to any cost of the proceedings.
24. Aggrieved by this arbitral award, the BHEL, which was the respondent before the learned arbitrator, is before this court under Section 34 of the Arbitration and Conciliation Act.
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25. In support of the petition, Learned Counsel for the Petitioner vehemently argued that the primary finding of the learned arbitrator that the termination of the contract by letter dated 26-08-2019 is illegal and contrary to law is itself perverse, riddled with contradictions, and erroneous on the very face of the award. He submitted that the learned arbitrator ought to have considered the case in the background of the fact that the work awarded to the claimant was a crucial part of the total project for setting up the thermal power project at the site, and therefore, any delay on the part of the claimant in completing the work and any non-adherence to the time schedule would have adverse and cascading effects upon the completion of the entire project. In this background, he submitted that several letters were addressed to the claimant to pick up the pace of the work and to rise to the occasion. In particular, emphasis was placed upon the letters at Ex. R57, R64 and R66. It was argued that, 29 CT 1390_Com.AP 73-2024_Judgment.doc KABC170013822024 in spite of all these letters and communications directing the claimant to expedite the work, when the claimant did not rise to the occasion and continued to work in a slipshod manner, the BHEL had no option but to terminate the contract under the Letter dated 26-08- 2019.
26. He further argued that the learned arbitrator has contradicted himself by holding in one place that time is not the essence of the contract and, at another place, when Section 46 of the Contract Act was invoked, holding that time is the essence of the contract. Thereby, it was argued that the entire finding of the learned arbitrator regarding the termination of the contract besides being illegal is riddled with contradictions and suffers from errors apparent on the face of the record, making it liable to be set aside.
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27. It was argued that once this finding is set aside, most of the claims will also have to go, and insofar as a few other claims, such as the claim towards unpaid value of work, such claims are allowed without any material in support thereof, and therefore, the award is also liable to be set aside on this ground.
28. It was further argued that, once the finding of the Learned Arbitrator regarding the illegal termination of the contract is set aside and it is held that the contract was lawfully terminated by the BHEL, without being left with any other option due to default on the part of the claimant in carrying out the work, then the counterclaims will have to be allowed. Apart from these arguments, the Learned Counsel for the Petitioner has reiterated all the contentions taken in the grounds of the present petition.
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29. Per contra, Learned Counsel for Respondent No. 1 [claimant before the arbitral tribunal], supported the impugned arbitral award.
30. Having considered the rival contentions, at the outset, the admitted facts may be taken note of. It is admitted that certain work, which was part of the overall project of setting up a super thermal power project in the state of Jharkhand, was awarded by BHEL to the claimant by the letter of award dated 13-03-2015.
31. Admittedly, the stipulated period for completion of the works was 30 months, which expired on 12-09-2017. Admittedly, the works were not completed within the said period of 30 months, as a result of which, on 04-09- 2017, the claimant sought an extension of 18 months, and BHEL, on 26-12-2017, by way of Amendment No. 2 to the work order, extended the time from 12-09-2017 to 12-09-2018, that is, an extension of 12 months. It is the 32 CT 1390_Com.AP 73-2024_Judgment.doc KABC170013822024 specific finding of the learned arbitrator at paragraph 50 of the Award that when this extension of time was granted up to 12-09-2018 as per Ex. C 186, it is clearly mentioned that the delay is not attributable to the contractor. This finding of fact is not challenged before me, and even otherwise, this is a fact borne out from the records of the case.
32. Therefore, what emerges is that, at the time of granting the extension of time by 12 months, there is a specific admission by the BHEL that the delay is not attributable to the claimant herein. Thereafter, since the work was not completed even within the extended period of time of 12-09-2018, the claimant sought two more extensions of time, namely, on 03-10-2018, wherein the claimant sought an extension by six months, and on 05- 04-2019, wherein the claimant sought an extension of time by nine months. Admittedly, the BHEL neither 33 CT 1390_Com.AP 73-2024_Judgment.doc KABC170013822024 granted the extension of time nor disallowed the same nor terminated the contract on ground of lapse of time.
33. In this background, the legality of the termination by the letter dated 26-08-2019 has been decided by the learned arbitrator. The findings of the learned arbitrator in this regard are in paragraph 46 to 56 of the award. Essentially, the findings of the Learned Arbitrator are that time was not the essence of the contract because the contract provided for extension of time and acting on such clause, in fact, BHEL had extended the time in the first instance from 12-9-2017 to 12-9-2018, by making a specific admission that delay is not attributable to the contractor. When the extended time expired on 12-09- 2018 and the contractor sought for two more extensions of time, the same was not rejected, but the contractor was permitted to continue with the work. Thereby, the learned arbitrator recorded a specific finding that, far 34 CT 1390_Com.AP 73-2024_Judgment.doc KABC170013822024 from time being the essence of the contract, time for completion was set at large.
34. In this background, the learned arbitrator considered the question whether, when on 17-07-2019, BHEL issued a letter to the claimant which was a prelude to the termination letter dated 26-08-2019, whether the time fixed was reasonable for completion. The Learned Arbitrator noted that in the said letter dated 17-07-2019, BHEL asked the claimant to rise to the expected level of progress within 14 days, failing which they will be left with no option but to get the work done by other agency at risk and cost of the claimant. It is to be noted that, in the said letter, the contractor was called upon to raise to the expected level of progress within 14 days without clarifying what is the expected level. This letter was followed by the termination letter dated 26-08-2019. The Learned Arbitrator has held that when 49% of the work took 4 years and 9 months, giving 14 days to complete 35 CT 1390_Com.AP 73-2024_Judgment.doc KABC170013822024 the remaining 51% of the work is totally unreasonable and therefore held that the termination of the contract is illegal.
35. Another ground on which the termination of the contract was set aside was that as per the terms of the contract, any notice to the other party had to be issued by RPAD and the contract also required 2 weeks notice before termination. In the case on hand, the notice giving 2 weeks pre-termination notice [dated 17-07-2019] was issued by email. Learned Arbitrator held that, when the contract provides for the doing certain things in a certain manner, the parties are expected to comply with the same. Therefore, the Learned Arbitrator held at paragraph 56 of the award that, admittedly, the notice at Ex.R 66 [letter dated 17-07-2019] giving 2 weeks notice having not been sent by RPAD as provided under clause 2.7.2 of the GCC, compliance of which was a condition 36 CT 1390_Com.AP 73-2024_Judgment.doc KABC170013822024 precedent for valid termination, the notice of termination is contrary to the agreed terms and therefore illegal.
36. This finding of the Learned Arbitrator that, the termination of the contract was illegal, forms the fulcrum of the entire award, since most of the claims and counterclaims are decided on the basis of this finding. Therefore, this finding has been vehemently attacked in the present petition. Grounds attacking this finding regarding termination of contract being illegal are at paragraph 19 to 60 of the grounds of the present petition.
37. It is firstly contended that the learned arbitrator erroneously held that time is not the essence of the contract. Considering the background in which the LOA was awarded, that is, the works awarded to the claimant forms part of the larger work of setting up the thermal power plant and any delay would have cascading effect upon the completion of the entire project, it is contended 37 CT 1390_Com.AP 73-2024_Judgment.doc KABC170013822024 that this finding of the learned arbitrator that time is not the essence of the contract is erroneous. This contention cannot be accepted because, the contention that, time was essence of the contract is falsified by the very act of BHEL in granting first extension of time from 12-09-2017 to 12-09-2018 by admitting that the delay is not attributable to the claimant. More importantly, when the extended time came to an end and the work had not yet been completed, if really time was the essence of the contract, then certainly the BHEL ought to have immediately terminated the contract on the ground that work is not completed within the stipulated period. Instead, BHEL permitted the claimant to continue to do the work without either extending the time nor terminating the contract. This clearly indicates that even BHEL accepted that time is not the essence of the contract and that is the reason it permitted the contractor to continue the work in spite of the stipulated extended period having come to an end. In this 38 CT 1390_Com.AP 73-2024_Judgment.doc KABC170013822024 background, the finding of the learned arbitrator that time was not the essence of the contract is certainly in accordance with law and does not call for interference.
38. The finding of the learned arbitrator that the time for performance having been set at large all of a sudden by the letter dated 17-07-2019, the BHEL expected the contractor to finish 51% of the work in 14 days which is totally unreasonable and on that ground holding the termination of the contract by letter dated 26-08-2019 is illegal is attacked in the present petition at paragraph 28 and 29 by relying upon Ex. R-57 and R-64, to contend that under the letters at Ex. R-57 and R-64 specific time frame was given to complete a specific work for which the work front was given, that is, the contractor was called upon to complete such portion of its work that was required for achieving boiler light up in September 2019 and it was also specifically stated that in case of failure to meet the said deadline, the BHEL will be constrained 39 CT 1390_Com.AP 73-2024_Judgment.doc KABC170013822024 to terminate the contract. Thereby, it is contended that since the said time frame fixed for completion of boiler light up was reasonable and on failure to comply with said time frame, the contract was terminated and this vital evidence has escaped the notice of the learned arbitrator and therefore the award suffers from perversity. It is further argued that under the letter at Ex. R-66 dated 17-07-2019, the BHEL called upon the contractor to rise up to the occasion and to expedite the work and it is not as if the BHEL expected the contractor to complete 51% of the work within 14 days. Since the work was not expedited and the claimant did not rise up to the occasion, the BHEL had no option but to terminate the contract. On these grounds, it is contended that the finding of the Learned Arbitrator that the termination is illegal, requires to be set aside.
39. Although reappreciation of evidence is impermissible in a Section 34 petition, for the sake of 40 CT 1390_Com.AP 73-2024_Judgment.doc KABC170013822024 completeness, I have looked into the afore stated Ex. R- 57, R-64, R-66, and also Ex R-67 (termination letter).
40. If Ex. R57 dated 17-04-2019 is looked into, it is seen that, no doubt, at Page 1, it is stated that BLU [boiler light-up] has been planned for September 2019, but in conclusion of the said letter, the demand upon the claimant is to achieve target in "reasonable / schedule time". Therefore, no specific timeframe was fixed even under Ex. R57 for completion of any stage of the work. Under Ex. R64, which is dated 25-06-2019, it is stated that boiler light-up is scheduled in October 2019, which is contrary to the statement made in Ex. R57 that boiler light-up / BLU is scheduled in September 2019. This shows that BHEL itself was not clear about the schedule and even in Ex. R64, no specific timeframe is given for completion of the work and only the direction is made to submit plan and deploy resources to meet the schedule and reserving the right to terminate the contract. Even in 41 CT 1390_Com.AP 73-2024_Judgment.doc KABC170013822024 Ex. R66, which is the letter dated 17-07-2019, again no specific targets or dates are furnished but it is only demanded that, the contractor should raise up to expected level of progress within 14 days. In Ex.R 67 dated 26-08-2019 which is the termination letter, no reference is made to violating the timeframe for completion of BLU [boiler light-up] within September or October 2019. Instead, general allegations are made that during the original contract period and extended period, execution of the contract was not on expected lines. It is stated that since the contractor is not in a position to continue and expedite the work, BHEL chose not to extend the contract further, which is solely due to inadequate manpower deployment and other resources, including delay in non-submission of bank guarantee. It is stated that the contractor has ignored the notice dated 17-07-2019 wherein BHEL had given a final chance to come out with an action plan and schedule for completion of the balance work. However, it is crucial to 42 CT 1390_Com.AP 73-2024_Judgment.doc KABC170013822024 note that in Ex. R66 dated 17-07-2019, the contractor is only demanded to rise to the expected level of progress within 14 days, failing which the contract will be terminated. But, under the said letter, nowhere was the contractor demanded to come up with an action plan and schedule for completion of the balance work.
41. Therefore, it becomes clear that the BHEL initially granted one-year extension from 12-9-2017 to 12-9-2018 by categorically admitting that the delay is not attributable to the contractor. But then, after the lapse of the extended time period, the contractor was permitted to continue to do the work and BHEL neither granted extension explicitly when the second and third extensions of time were sought by the contractor, and neither did the BHEL terminate the contract on 12-09- 2018 when the extended time period came to an end. At no point of time, BHEL in its subsequent letters has fixed any deadline for completion of work by the contractor. All 43 CT 1390_Com.AP 73-2024_Judgment.doc KABC170013822024 of a sudden, on 17-07-2019 a letter was issued calling upon the contractor to rise to the expected level of work. On 26-08-2019, the contract is terminated on the ground that the work is not expedited. This is precisely the reason why the learned arbitrator has held that, having set the time for performance at large, out of the blue, BHEL suddenly fixed unreasonable timeframe of 14 days for completion and for non-adherence to such unreasonable time frame, BHEL could not have terminated the contract. On this ground, the learned arbitrator has held that termination of the contract is illegal and contrary to law. For the reasons noted supra, the above findings of the Learned Arbitrator are perfectly in accordance with law and do not call for interference. This is because in all the letters relied upon by BHEL at Ex. R57, 64, and 66, nowhere was a timeframe fixed for the contractor to complete the work. Having earlier extended the work and having not terminated the contract when the extended time period came to an end 44 CT 1390_Com.AP 73-2024_Judgment.doc KABC170013822024 and instead, having allowed the contractor to continue with the work, BHEL could again terminate the contract only after fixing a reasonable time for completion. Having not done so and instead having abruptly terminated the contract on 26-08-2019, the termination of the contract was rightly held to be illegal by the learned arbitrator.
42. At paragraph 40 of the grounds of the present petition, reliance is placed upon clause 2.7.2 of the GCC, which gives the right to BHEL to terminate the contract by giving a two-week notice. However, this is not an unqualified and unrestricted right, but BHEL can terminate the contract by two weeks notice only for contractors' continued poor performance, contractors' inability to progress the work as depicted in the contract, or for poor quality of the work. Be it noted that in the termination letter dated 26-08-2019 at Ex. R67, poor quality of work is not raised as a ground for termination. Only two grounds are raised, that is, non-furnishing of 45 CT 1390_Com.AP 73-2024_Judgment.doc KABC170013822024 the bank guarantee within time and failure to complete the work within the stipulated period. However, insofar as failure to complete the stipulated work is concerned, as already noted, supra, after having extended the time and having set the time for completion at large, it was expected of BHEL to fix a reasonable time for completion and only on failure to adhere to the reasonable timeline could the contract have been terminated, which has not been done in the present case. Therefore, clause 2.7.2 will not come to the aid of BHEL to terminate the contract.
43. One of the principal grounds argued by Counsel for Petitioner was that there is an inherent contradiction in the award since in one place the learned arbitrator holds that time is not the essence of the contract and in another place holds that time is, in fact, the essence of the contract, and on this ground, the award is liable to be set aside. In this regard, it is to be noted that the so- 46
CT 1390_Com.AP 73-2024_Judgment.doc KABC170013822024 called contradiction highlighted by the Counsel for Petitioner is that in paragraph 49, the learned arbitrator records the specific finding that in view of the clauses of the agreement providing for extension of time, time is not the essence of the contract. Whereas, at paragraph 53, the learned arbitrator holds that this is not a contract where no time is specified and hence section 46 has no application to the contract in question. However, in my view, there is no contradiction because these two observations are made by the learned arbitrator in different contexts. The learned arbitrator after analyzing the provisions of the agreement in view of the extension of time for the first time by clearly admitting that delay is not attributable to the contractor and then allowing the contractor to continue to do the work even after lapse of extended time held that time is not the essence of the contract. The observation at paragraph 53 that section 46 has no application since this is not a contract where no time is specified has to be viewed in the context of the 47 CT 1390_Com.AP 73-2024_Judgment.doc KABC170013822024 fact that this observation is made in response to the contention raised by BHEL that under section 46 of the Contract Act, even if time is not the essence of the contract, the work should have been completed within a reasonable time. This contention has been answered by holding that after setting the time for completion at large, no reasonable time was fixed for completion of the work because the BHEL expected the contractor to complete 51% of the work in 14 days. Having recorded the said finding, at paragraph 51, at paragraph 53, a passing observation is made that section 46 has no application since this is not a case where no time was specified. What the learned arbitrator has held is that, originally time was specified and thereafter time was set at large and therefore in order to terminate the contract it was again necessary for the BHEL to fix reasonable time for completion of the work. It is this principle which is applicable and not the general principle of section 46 which requires the promiser to complete the work within 48 CT 1390_Com.AP 73-2024_Judgment.doc KABC170013822024 reasonable time. It is in this context that the above observations of the Learned Arbitrator have to be understood and therefore the contention that there is a contradiction in the award is unacceptable and accordingly rejected.
44. Against the finding of the Learned Arbitrator that termination of the contract was illegal, it is next contended that the Learned Arbitrator has ignored the slow progress of the work made by the contractor. It is to be noted that the Learned Arbitrator has analyzed the various reasons for delay and in certain cases attributed the delay to BHEL and in certain cases, attributed the delay to both the parties. These findings are found at paragraph 155 of the award. These are factual findings which cannot be interfered in Section 34 petition. However, these findings will not have any bearing on the question of legality of the termination of the agreement because ultimately although the Learned Arbitrator has 49 CT 1390_Com.AP 73-2024_Judgment.doc KABC170013822024 held that on certain aspects the delay was also attributable to the claimant, the fact remains that the finding of the Learned Arbitrator that time was not the essence of the contract is unassailable and essentially the termination of the contract is held to be invalid because after having set the time for performance at large, no reasonable time was fixed for completion and abruptly the contract was terminated. Therefore, the fact that the learned arbitrator has held against the claimant on some grounds of delay and held that the claimant was equally responsible for delay on some aspects will not have a bearing insofar as the finding of the learned arbitrator holding that the termination of the contract was illegal, is concerned.
45. It is then contended at paragraph 59 of the grounds of the petition that in the statement of admission and denial of the claimant, the letter dated 17-07-2019 is admitted. Therefore, the finding of the Learned Arbitrator 50 CT 1390_Com.AP 73-2024_Judgment.doc KABC170013822024 at paragraph 56 that, since said letter was issued by email and not by RPAD, the termination of the contract is not as per the terms of the contract is unsustainable. What has been held by the learned arbitrator at paragraph 56 of the award is that, as per the terms of the contract, any notice to the other side has to be issued by registered post. Further 2 weeks notice had to be issued before termination. Whereas in the case on hand, the pre-termination notice is issued by email and therefore, the requirement of giving 2 weeks notice before termination is not satisfied and this is another ground to hold the termination to be illegal. It is to be noted that, even if the receipt of the pre-termination notice is admitted, the fact is that, when the contract requires a party to do a certain act in a certain manner, it was expected of BHEL to comply with the same. Therefore, when the contract requires the notice to be issued by RPAD, BHEL cannot issue the same by email and contend that it is in compliance with the terms of the 51 CT 1390_Com.AP 73-2024_Judgment.doc KABC170013822024 contract. This is precisely what has been held by the Learned Arbitrator by holding that clause 2.7.2 required the letter giving 2 weeks notice of termination to be issued by RPAD and compliance of this requirement is a condition precedent for valid termination and this condition precedent having not been complied, even on this ground the termination is illegal.
46. Therefore, in conclusion, I hold that for all the reasons noted supra, the finding of the Learned Arbitrator holding the termination of the contract by the BHEL as illegal, is perfectly in accordance with law and certainly cannot be interfered in a section 34 petition.
47. Let me now consider the findings of the Learned Arbitrator on each claim and counter-claim to determine whether the same calls for interference in any manner. 52
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48. The first claim raised by the claimant is for unpaid value of work which is claimed on the ground that there were certain unjustifiable deductions from the RA bills of the claimant. The Learned Arbitrator has held at Paragraph 61 that, it is an admitted fact that Rs. 21,66,484 has been deducted from the RA bills and it is the case of BHEL in written arguments at paragraph 303 that any and all deductions from RA bills have been made in accordance with the terms of the contract. The finding of the learned arbitrator at Paragraph 63 is that, the reason why the amounts have been deducted is not forthcoming and BHEL has also not produced any evidence to show why this amount is not payable and therefore, Learned Arbitrator has held that the claimant is entitled to recover the said sum. This finding of the Learned Arbitrator being a purely factual finding cannot be interfered with in a section 34 petition. 53
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49. Insofar as another sum of Rs 7,85,519 is concerned, which is deducted from the RA bill, it is the case of BHEL that it is towards liquidated damages due to delay in work. The finding of the Learned Arbitrator in this regard is that there was extension of time for completion of work by BHEL itself by admitting that delay is not attributable to the contractor and also, time is not the essence of the contract and the second and third extension of time sought for by the contractor was not outrightly rejected but the contractor was permitted to do the work. On this ground, the Learned Arbitrator has held that, there cannot be any deduction on the ground of liquidated damages for delay in the work and therefore ultimately the Learned Arbitrator has held that the claimant is entitled to the principal sum due under this claim of Rs. 21,66,484 but in so far as interest component is concerned, only awarded interest at rate of 10% percent on the principal sum from date of termination till date of claim petition. This finding of Learned Arbitrator also 54 CT 1390_Com.AP 73-2024_Judgment.doc KABC170013822024 cannot be interfered with, since, once it is held that, BHEL set at large the time for completion of the contract by not terminating the contract on lapse of time on 12- 09-2018 and permitted the claimant to continue the work and also did not reject the request of claimant for II and III Extension of time, it was impermissible for BHEL to levy liquidated damages on ground of delay in the work.
50. Claim No. 2 which has been awarded is for recovery and refund of retention money. In this regard the Learned Arbitrator has held that the retention money becomes payable on successful completion of the contract and since the claimant has been prevented from completing the contract due to illegal termination of the contract, the claimant is entitled to recovery of the retention money. This finding essentially depends upon the finding regarding termination of the contract. Once it is held that the finding of the learned arbitrator that the contract was illegally terminated is in accordance with 55 CT 1390_Com.AP 73-2024_Judgment.doc KABC170013822024 law, it follows that since the contract was illegally terminated and thereby, claimant was prevented from completing the work by the illegal act of the BHEL, BHEL cannot take advantage of its own wrong and hold on to the retention money on the ground that, work was not completed. Therefore, BHEL is bound to refund the retention amount to the claimant. Therefore this finding of the Learned Arbitrator also does not call for interference.
51. Claim No 3 and 4A to 4C have been rejected and therefore it is not subject matter of the present petition since the claimant has not filed independent section 34 petition challenging that portion of the award rejecting these claims.
52. Claim No. 5 consists of subclaims 5A to 5C. Sub- claim 5A has been allowed towards illegal confiscation of the claimants Plaint, machinery and equipment. In this 56 CT 1390_Com.AP 73-2024_Judgment.doc KABC170013822024 regard, the Learned Arbitrator has held at paragraph 100 of the award that, from the correspondence on record, it is forthcoming that, after termination of the contract on 26-08-2019, the officers and workers of the claimant were denied access to the work site and therefore the claimant's entire tools and machinery were lying in the custody and care of the BHEL, for which BHEL is only accountable. At paragraph 103, page 71 of the award, the Learned Arbitrator has recorded the factual finding that it was only in December 2020 that claimant was issued gate pass and permitted to remove its equipment from the work site. Although the claimant had claimed Rs 2.56 crores under this sub-claim, ¼ of the said amount was deducted towards salvage value of the plant and machinery and rent received from leasing out the same to subsequent contractor and on this basis the Learned Arbitrator has awarded Rs. 1,92,47,725. It is to be noted that no interference is called for with the said finding of the Learned Arbitrator because admittedly the contract 57 CT 1390_Com.AP 73-2024_Judgment.doc KABC170013822024 was abruptly terminated when the claimant was proceeding with the work on 26-08-2019 and on the very next day the claimant's workmen were denied access to the work site. Therefore obviously all the plant and equipment which were being used for doing the work were left lying at the work site. And the factual finding of the Learned Arbitrator is that, from the date of termination of contract on 26-08-2019 up to December 2020 that is for a period of nearly 1 year and 3 months, the claimant could not have access to the plant and machinery and in the meantime, the plant and machinery would have deteriorated due to lack of timely maintenance and therefore only the salvage value of the same could be obtained. In the meantime, during the said period, the said plant and machinery were leased out by the claimant to subsequent contractor. After deducting the salvage value and the rents that would have been received, 3/4th of the claimed amount is awarded. In the present petition, this finding is 58 CT 1390_Com.AP 73-2024_Judgment.doc KABC170013822024 challenged on the ground that, without any material being produced by the claimant, the said sum has been awarded. The above findings are recorded by the learned arbitrator on the appreciation of the material on record and the law is settled that in a section 34 petition, re- appreciation of evidence is barred. Therefore, when these findings are based on material on record and cannot be said to be perverse, this finding of the Learned Arbitrator does not call for interference.
53. Claim 5B which has been awarded is for refunding of the performance bank guarantee. When the termination of the contract is held to be illegal, it follows that the BHEL could not have encashed the performance bank guarantee and the reasons noted in respect of Claim No. 2 [retention amount] are equally applicable to this claim also and therefore the Learned Arbitrator was perfectly justified in awarding this claim and this does not call for interference.
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54. Claim 5C is for loss of overheads and profits due to termination of the contract. The Learned Arbitrator has relied upon the ruling of Hon'ble Apex Court in A.T. Brij Paul Singh v. State of Gujarat, (1984) 4 SCC 59, wherein it held that, "where in a works contract, the party entrusting the work commits breach of the contract, the contractor would be entitled to claim damages for loss of profit which he expected to earn by undertaking the works contract."
55. However, the learned arbitrator has not granted any amount under head of loss of overhead charges. Insofar as loss of profit is concerned the Learned Arbitrator has noted that even as per the say of the BHEL, 49% of the work was completed which means that 59% of the work was pending and if the contract had not been terminated the contractor could have performed the remaining 59% of the work and earned proportionate 60 CT 1390_Com.AP 73-2024_Judgment.doc KABC170013822024 profit. Thereby, for the remaining 59% of the work, 10% of the value of the balance work is awarded under the head of the loss of profit. This finding is challenged at paragraph 79 of the grounds of present petition by contending that there is no reasoning whatsoever for arriving at 10% as reasonable profit and the impugned award does not rely on any formula to justify such percentage. Conventionally, the contractor's profit margin is fixed at 10% of the contract value and therefore it cannot be said that the finding of the learned arbitrator awarding loss of profit at 10% of the value of the balance work is either contrary to law or perverse. Therefore, this finding of the learned arbitrator does not call for interference.
56. Claim No. 6 and 7 have been rejected and therefore, need not be considered in the present petition since claimant has not filed any separate petition challenging rejection of those claims. 61
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57. Now turning to the counterclaims, Counterclaim No. 1 is for differential value of orders placed on alternate vendors by invoking the risk and cost clause. Once it is held that the termination of the contract was illegal, it follows that, BHEL cannot impose the risk and cost of award of balance work to subsequent contractor, on the claimant. Therefore, BHEL is not entitled to counterclaim No. 1 and Learned arbitrator was perfectly justified in rejecting the same.
58. The counter-claim No. 2 is for liquidated damages at 5% of the contract value. As already noted supra, the contract provides for liquidated damages at the rate of 0.5% of the contract value per week of delay subject to maximum of 5% of the contract value. In this regard, as already noted at paragraph 155 of the award, the Learned arbitrator has analyzed in detail the various causes for delay and in respect of failure to hand over the 62 CT 1390_Com.AP 73-2024_Judgment.doc KABC170013822024 site, the Learned arbitrator has held that the claimant cannot be held responsible for the delay on said ground. In respect of delay in supply of duly approved construction drawings the Learned Arbitrator has held that the drawings were not furnished by BHEL and claimant also did not execute the work even after handing over the said drawings and thus, both parties are equally responsible for the delay. In respect of non availability and delay in issuance of free issue material, the Learned arbitrator has held that though there was some delay in supplying the cement, claimant had requisite free issue materials to take up construction. In respect of delay due to introduction of gate pass and biometric confirmation by NTPC at the entry gate, it is held that both parties are equally responsible for the said delay. In respect of delay in progressive inspection, again it is held that both parties are equally responsible for the delay. In respect of delay in making payment against claimant's RA bills, it is held that neither party can be 63 CT 1390_Com.AP 73-2024_Judgment.doc KABC170013822024 held responsible for the said delay. Therefore, the Learned Arbitrator has essentially held that both parties were responsible for delay. This is a purely factual finding which cannot be interfered in a Section 34 petition. Therefore, when delay is not attributable solely to the claimant, the BHEL cannot seek to levy liquidated damages against the claimant on ground of delay. Further, the Learned Arbitrator held that, although the contract provided for liquidated damages, the same is subject to proof of actual loss or damage suffered by BHEL. In this regard, the Learned Arbitrator has relied upon the law laid down by Hon'ble Apex Court in the case of Kailash Nath Associates v. DDA, (2015) 4 SCC 136, wherein it is held that, where a sum is named in a contract as a liquidated amount payable by way of damages, the party complaining of a breach can receive as reasonable compensation such liquidated amount only if it is a genuine pre-estimate of damages fixed by both parties and found to be such by the court. Else, 64 CT 1390_Com.AP 73-2024_Judgment.doc KABC170013822024 proof of damage or loss caused is a sine qua non for award of damages. The Learned Arbitrator has held at Paragraph 160 that, BHEL has failed to prove the loss or damage caused to it, since, the documents produced clearly demonstrate that, no L.D. [liquidated damages] was deducted from the invoices of BHEL in respect of subject contract by NTPC. Therefore, when loss or damages suffered is not proved, no liquidated damages can be awarded. These findings are factual findings based on material on record and after appreciating the documents relied upon by BHEL to show loss / damage suffered and therefore, these factual findings which are in consonance with the material on record cannot be interfered, under Section 34 of the Act and therefore, the finding of Learned Arbitrator rejecting this counter-claim does not call for interference.
59. Counter claim No. 3 is for unaccounted free issue material. In this regard, the Learned Arbitrator has held 65 CT 1390_Com.AP 73-2024_Judgment.doc KABC170013822024 that the free issue material would be at the work site and once the contract was terminated, the claimant was denied access to the work site. Therefore, there was no chance of the claimant taking out the free issue material from the work site and therefore the free issue material would be utilized by the subsequent contractor and on this ground denied this counterclaim. These findings being factual findings and based on material on record cannot be interfered in section 34 petition.
60. The next counterclaim raised is for charges for demolition and reconstruction of wrongly located TR45 by the claimant. In this regard, the finding of the Learned Arbitrator is that no material is produced to show that the work was wrongly located by the claimant and no material is produced to show the amount, if any, paid to subsequent contractor for such demolition and reconstruction and therefore disallowed this counterclaim. Again, this finding is based on material on 66 CT 1390_Com.AP 73-2024_Judgment.doc KABC170013822024 record and purely factual finding and hence cannot be interfered in section 34 petition.
61. The last counterclaim is towards dismantling site office and allied construction of the claimant and even this counterclaim is rejected for want of material in support thereof and being a factual finding cannot be interfered in the present petition. The other counterclaims are only for interest and the cost of arbitration and when all the counterclaims have been rejected the question of awarding the cost of arbitration or interest does not arise and therefore they were rightly rejected by the Learned Arbitrator.
62. Therefore, in conclusion, the finding of the Learned Arbitrator partly awarding the claims and rejecting the counterclaims in toto does not call for interference in the present petition.
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63. Before parting, the citations relied upon by Learned counsel for petitioner needs to be taken note of. Reliance is placed upon the following rulings in support of propositions of law, as to when time can be considered the essence of the contract; that when there is a promise, there is obligation on the promisor to perform the promise within reasonable time, even if time is not the essence of the contract; that time can be made essence of the contract by notice and even without notice, the promisor is bound to perform the promise within reasonable time under Section 46 of the Contract Act; that Section 55 and Section 73 of the Indian Contract Act are part of public policy and therefore, any findings contrary thereto can be set aside under Section 34 on the ground that the award is in conflict with the public policy of India;
AIR 1984 AP 110 ILR 2008 Del 353 2018 SCC Online Del 8913 68 CT 1390_Com.AP 73-2024_Judgment.doc KABC170013822024 1998 (2) Mad LJ 751 2002 (1) SCC 134 AIR 1981 Pat 69 1969 SCC Online Cal 40 (1993) 1 SCC 519 2003 SCC Online Ker 323 1949 SCC Online MP 22 1979 (2) SCC 70 1983 SCC Online Del 236 1957 SCC Online Pun 137 AIR 1962 Pat 155 2015 (4) SCC 136 - Kailashnath Associates case which is already referred to supra.
2010 SCC Online Del 821 2021 SCC Online Del 4699 2019 SCC Online Del 9037 2024 SCC Online Del 5435 69 CT 1390_Com.AP 73-2024_Judgment.doc KABC170013822024
64. However, all these rulings are not applicable because in the peculiar facts and circumstances of this case, as already noted supra, BHEL initially extended the contract by admitting that delay is not attributable to the contractor and thereafter did not terminate the contract when the extended time period came to an end, but allowed the contractor to continue to and thereby setting time for performance at large (in the words of the learned arbitrator). And thereafter when although the claimant sought for two additional extensions of time the BHEL neither terminated the contract nor explicitly granted extension and thereafter abruptly issued the notice dated 17-07-2019 calling upon the contractor to show progress in 14 days and thereafter abruptly terminated the contract and in this background on facts the Learned Arbitrator has held that after setting at large the time for performance of the contract thereafter no reasonable time was fixed and no reasonable schedule was given for completion of the work and therefore the abrupt 70 CT 1390_Com.AP 73-2024_Judgment.doc KABC170013822024 termination of the contract is illegal. The facts of the present case being peculiar, the aforestated citations will not come to the aid of the petitioner in the present case.
65. Reliance is also placed upon Batliboi Environmental Engineers Ltd. v. Hindustan Petroleum Corpn. Ltd., (2024) 2 SCC 375 and Unibros v. All India Radio reported in 2023 SCC Online 1366 regarding computation of loss of profit.
66. In Batliboi Environmental Engineers Ltd. v. Hindustan Petroleum Corpn. Ltd., (2024) 2 SCC 375 :
2023 SCC OnLine SC 1208 at page 399, it is held as follows;
23. Ordinarily, when the completion of a contract is delayed and the contractor claims that s/he has suffered a loss arising from depletion of her/his income from the job and hence turnover of her/his business, and also for the overheads in the form of workforce expenses which could have been deployed in other contracts, the claims to bear any persuasion before the 71 CT 1390_Com.AP 73-2024_Judgment.doc KABC170013822024 arbitrator or a court of law, the builder/contractor has to prove that there was other work available that he would have secured if not for the delay, by producing invitations to tender which was declined due to insufficient capacity to undertake other work. The same may also be proven from the books of accounts to demonstrate a drop in turnover and establish that this result is from the particular delay rather than from extraneous causes. If loss of turnover resulting from delay is not established, it is merely a delay in receipt of money, and as such, the builder/contractor is only entitled to interest on the capital employed and not the profit, which should be paid.
(Emphasis Supplied)
67. In Unibros v. All India Radio reported in 2023 SCC Online 1366, it is held as follows;
16. To support a claim for loss of profit arising from a delayed contract or missed opportunities from other available contracts that the appellant could have earned elsewhere by taking up any, it becomes imperative for the claimant to substantiate the presence of a viable opportunity through compelling evidence. This evidence should convincingly demonstrate that had the contract been executed promptly, the contractor could have 72 CT 1390_Com.AP 73-2024_Judgment.doc KABC170013822024 secured supplementary profits utilizing its existing resources elsewhere.
17. One might ask, what would be the nature and quality of such evidence? In our opinion, it will be contingent upon the facts and circumstances of each case. However, it may generally include independent contemporaneous evidence such as other potential projects that the contractor had in the pipeline that could have been undertaken if not for the delays, the total number of tendering opportunities that the contractor received and declined owing to the prolongation of the contract, financial statements, or any clauses in the contract related to delays, extensions of time, and compensation for loss of profit. While this list is not exhaustive and may include any other piece of evidence that the court may find relevant, what is cut and dried is that in adjudging a claim towards loss of profits, the court may not make a guess in the dark; the credibility of the evidence, therefore, is the evidence of the credibility of such claim.
18. Hudson's formula, while attained acceptability and is well understood in trade, does not, however, apply in a vacuum. Hudson's formula, as well as other methods used to calculate claims for loss of off-site overheads and profit, do not directly measure the contractor's exact costs. Instead, they provide an estimate of the losses the contractor may have suffered. While these formulae are helpful when needed, they alone cannot prove the contractor's loss of profit. They are useful 73 CT 1390_Com.AP 73-2024_Judgment.doc KABC170013822024 in assessing losses, but only if the contractor has shown with evidence the loss of profits and opportunities it suffered owing to the prolongation.
19. The law, as it should stand thus, is that for claims related to loss of profit, profitability or opportunities to succeed, one would be required to establish the following conditions : first, there was a delay in the completion of the contract; second, such delay is not attributable to the claimant; third, the claimant's status as an established contractor, handling substantial projects; and fourth, credible evidence to substantiate the claim of loss of profitability. On perusal of the records, we are satisfied that the fourth condition, namely, the evidence to substantiate the claim of loss of profitability remains unfulfilled in the present case. (Emphasis Supplied)
68. On this basis, it was argued for BHEL that without evidence adduced by the claimant to show that the claimant could have earned elsewhere by taking up any other project, and evidence regarding other potential projects the claimant had in the pipeline that could have been undertaken if not for the delays, the total number of tendering opportunities that the claimant received and 74 CT 1390_Com.AP 73-2024_Judgment.doc KABC170013822024 declined owing to the prolongation of the contract, financial statements, etc., the claim for loss of profits could not have been awarded by the Learned Arbitrator. It is to be noted that, on facts, both the above rulings of the Hon'ble Apex Court dealt with a fact situation where the contractor was constrained to remain at the site beyond the contract period and hence loss of profit was sought for period beyond the contract period. In these circumstances, Hon'ble Apex Court has said that for such a claim it is necessary for the contractor to prove that there were other contracts which the contractor had to miss out on due to being stuck in the same project.
69. However, the case on hand is distinguishable, in that, loss of profit is being claimed not for being at the site beyond the contract period but for being unable to complete the project and earn the estimated profit, due to illegal termination of the contract. In this regard, the Learned Arbitrator has relied upon A.T. Brij Paul Singh 75 CT 1390_Com.AP 73-2024_Judgment.doc KABC170013822024 v. State of Gujarat, (1984) 4 SCC 59 at page 63, as follows;
8. Once it is held that the respondent was guilty of breach of works contract, part of which was already performed and for performing which the appellant, a Poona based contractor had transported machinery and equipment from Poona to the work site near Rajkot in Saurashtra, certainly he would be entitled to damages. One of the heads of damages under which claim is made is "loss of expected profit in the work". The claim under this head as canvassed before the High Court was in the amount of Rs 4,30,314.
9. It was not disputed before us that where in a works contract, the party entrusting the work commits breach of the contract, the contractor would be entitled to claim damages for loss of profit which he expected to earn by undertaking the works contract. What must be the measure of profit and what proof should be tendered to sustain the claim are different matters. But the claim under this head is certainly admissible. Leaving aside the judgment of the trial court which rejected the claim for want of proof, the High Court after holding that the respondent was not justified in rescinding the contract proceeded to examine whether the plaintiff contractor was entitled to damages under the head "loss of profit". In this connection, the High Court referred to Hudson's Building and 76 CT 1390_Com.AP 73-2024_Judgment.doc KABC170013822024 Engineering Contracts (1970), tenth edition and observed that "in major contracts subject to competitive tender on a national basis, the evidence given in litigation on many occasions suggests that the head-office overheads and profit is between 3 to 7 per cent of the total price of cost" which is added to the tender. In other words, the High Court was of the view that the claim under this head was admissible. The High Court, however, addressed itself to the question whether adequate proof is tendered to sustain the claim. In this connection, it was observed that the loss of profit when it is sought to be recovered on the percentage basis has to be proved by proper evidence. Having settled the legal position in this manner, the High Court proceeded to reject the claim observing that the bare statement of the partner of the contractor's firm that they are entitled to damages in the nature of loss of profit at the rate of 20 per cent of the estimated cost is no evidence for the purpose of establishing the claim. The High Court further observed that the appellant has not proved by any primary documents the basis of its pricing for the purpose of quotation in reply to the tender and more so when it has quoted at 7½ per cent less than the original estimated cost and in this view of the matter the claim for loss of profit is unsustainable.
11. Now if it is well-established that the respondent was guilty of breach of contract inasmuch as the rescission of contract by the respondent is held to be unjustified, and the plaintiff contractor 77 CT 1390_Com.AP 73-2024_Judgment.doc KABC170013822024 had executed a part of the works contract, the contractor would be entitled to damages by way of loss of profit. Adopting the measure accepted by the High Court in the facts and circumstances of the case between the same parties and for the same type of work at 15 per cent of the value of the remaining parts of the work contract, the damages for loss of profit can be measured.
(Emphasis Supplied)
70. Reference may also be made to MSK Projects (I) (JV) Ltd. v. State of Rajasthan, (2011) 10 SCC 573 :
(2012) 3 SCC (Civ) 818 : 2011 SCC OnLine SC 986 at page 586, wherein it is held as follows;
38. In common parlance, "reimbursement" means and implies restoration of an equivalent for something paid or expended. Similarly, "compensation" means anything given to make the equivalent. (See State of Gujarat v. Shantilal Mangaldas [(1969) 1 SCC 509 : AIR 1969 SC 634] , TISCO Ltd. v. Union of India [(2001) 2 SCC 41 : AIR 2000 SC 3706] , GDA [(2004) 5 SCC 65 : AIR 2004 SC 2141] and HUDA v. Raj Singh Rana [(2009) 17 SCC 199 : (2011) 2 SCC (Civ) 136 : AIR 2008 SC 3035] .) However, in Dwaraka Das v. State of M.P. [(1999) 3 SCC 500 : AIR 1999 SC 1031] it was held that a claim by 78 CT 1390_Com.AP 73-2024_Judgment.doc KABC170013822024 a contractor for recovery of amount as damages as expected profit out of contract cannot be disallowed on ground that there was no proof that he suffered actual loss to the extent of amount claimed on account of breach of contract.
39. In A.T. Brij Paul Singh v. State of Gujarat [(1984) 4 SCC 59 : AIR 1984 SC 1703] , while interpreting the provisions of Section 73 of the Contract Act, 1972, this Court 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 amount of damages, the court should make a broad evaluation instead of going into minute details. It was specifically held that where in the works contract, the party entrusting the work committed breach of contract, the contractor is entitled to claim the damages for loss of profit which he expected to earn by undertaking the works contract. Claim of expected profits is legally admissible on proof of the breach of contract by the erring party. It was further observed that : (SCC pp. 64-65, para 10) "10. ... What would be the measure of profit would depend upon the facts and circumstances of each case. But that there shall be a reasonable expectation of profit is implicit in a works contract and its loss has to be compensated by way of damages if the 79 CT 1390_Com.AP 73-2024_Judgment.doc KABC170013822024 other party to the contract is guilty of breach of contract cannot be gainsaid."
(Emphasis Supplied)
71. From the above law laid by Hon'ble Apex Court, it is clear that the contractor is entitled to claim loss of profits for failure to earn the profit as a result of the fault of the employer. If the contractor claims loss of profit for period beyond the contract period after completing the project and the loss of profit is claimed for the period of prolongation, then as per the law in Batliboi Environmental Engineers Ltd. (supra) and Unibros (supra), it will be necessary for the contractor to prove that the contractor missed out on other projects due to being stuck in the earlier project. However, where the contractor claims loss of profit not for the period of prolongation but on the ground that due to the fault of the employer, the contractor could not complete the project and earn the estimated profit, then it will not be 80 CT 1390_Com.AP 73-2024_Judgment.doc KABC170013822024 necessary for the contractor to prove that there were other projects which the contractor was unable to take up due to being stuck in the current project. Therefore, in the present case, even without adducing evidence and proof of other projects which the claimant was unable to take up, the Learned Arbitrator was perfectly justified in awarding the claim of loss of profits.
72. For all the reasons noted supra, I hold that the impugned arbitral award does not call for interference in any manner and accordingly, answering the point for consideration in the negative, I proceed to pass the following :-
ORDER.
The petition under section 34 of the Arbitration and Conciliation Act is dismissed, with cost.81
CT 1390_Com.AP 73-2024_Judgment.doc KABC170013822024 Office to issue soft copy of this judgment to both sides by email if furnished.
[Dictated using Dragon Professional Speech Recognition Software Version 15.3, transcript revised, corrected, signed and then pronounced by me in open court on this the 23rd day of January, 2025] (Sri. S. SUDINDRANATH) LXXXIII ADDL.CITY CIVIL AND SESSIONS JUDGE, COMMERCIAL COURT, BANGALORE.