Madras High Court
The Superintending Engineer vs M/S.Gowpatt Associates
Author: R. Subbiah
Bench: R.Subbiah, C.Saravanan
O.S.A.Nos.197 & 198 of 2019
IN THE HIGH COURT OF JUDICATURE AT MADRAS
Judgment Reserved on : 22-12-2020
Judgment Delivered on : 24-03-2021
Coram :
THE HONOURABLE MR. JUSTICE R.SUBBIAH
and
THE HONOURABLE MR.JUSTICE C.SARAVANAN
O.S.A. Nos.197 and 198 of 2019
and
C.M.P.Nos.17948 and 17964 of 2019
----
(Heard through Video-Conferencing)
The Superintending Engineer
National Highways
Salem Circle, Omalur Main Road
Narosithipatty, Salem - 636 004 .. Appellant
Versus
M/s.Gowpatt Associates
represented by its Proprietor
Mr.P.Arun Kumar
5/F1, 1st Street, Gopalapuram
Chennai - 600 0856 .. Respondent
Original Side Appeals filed under Order XXXVI Rule 11 of the
Original Side Rules read with Clause 15 of Letters Patent against the
common Order dated 02.04.2019 passed in O.P. Nos. 456 and 457 of 2018
Page No.1/61
http://www.judis.nic.in
O.S.A.Nos.197 & 198 of 2019
on the file of this Court.
For Appellant : Mr. R.Sankaranarayanan
Additional Solicitor General
assisted by Mr. Su. Srinivasan
Standing Counsel for NHAI
in both the appeals
For Respondent : Mr. V. Raghavachari
in both the appeals
COMMON JUDGMENT
R. SUBBIAH, J These appeals have been filed challenging the common order dated 02.04.2019 in OP Nos. 456 and 457 of 2019 filed under Section 34 of the Arbitration and Conciliation Act, whereby, the Commercial Division of this Court dismissed the Original Petitions, which were filed challenging the two arbitration awards in OP Nos. 62 and 63 of 2015, dated 27.10.2017.
2. The brief facts which are necessary to decide these appeals are as follows.
3. The appellant herein has floated tenders relating to two projects, namely, (i) widening and strengthening of Kms 340/0 to 345/2 and Kms 345/8 to 360/7 stretch at NH-67 extension and (ii) widening and Page No.2/61 http://www.judis.nic.in O.S.A.Nos.197 & 198 of 2019 strengthening with paved shoulders of the road connecting Salem-Cochin at KM 105/0 of Nagapattinam-Gudalur-Mysore Road Km 289/6 via., Nallur and Perumtholvu Km 0/0-10/4 connecting the State of Tamil Nadu with State of Karnataka. The first stretch of 5.2 Kms i.e., from Kms 340/0 to Kms 345/2 starts from the Coimbatore Stock Exchange and terminates at the Coimbatore Town Hall. The second stretch of 14.8 Kms i.e., from Kms 345/8 to Kms 360/6 starts from Sukkirawarpet and terminates at Narasimhanaickanpalayam in Coimbatore District. As per the contract, the total extent to be covered by the respondent is 20 kilometers.
4. In the bids held on 25.03.2010 and on 31.03.2010 respectively, the respondent was declared as the successful bidder and letter of acceptance was issued to the respondent on 20.04.2010 and 08.04.2010 respectively. Thereafter, the terms of the contract were reduced into writing by means of two agreements dated 04.05.2010 and 23.09.2010 respectively. The value of the contract was estimated at Rs.33,29,67,770 and Rs.21,06,37,366/- respectively. The respondent furnished the requisite performance guarantee of (i) Rs.1,66,50,000/- and (ii) Rs.1,06,00,000/- and additional security for unbalanced bid of Rs.1,06,00,000/- respectively as required under Clause 5 Page No.3/61 http://www.judis.nic.in O.S.A.Nos.197 & 198 of 2019
(a) and (b) of the agreements. The intended date of completion of the work (IDT) was fixed as 12 months from the commencement of work as per clause 7 of the general clauses of the contract. The defect liability period was to extend for a period of 365 days from the date of completion of the work, vide clause 6 of the agreement. Pursuant to the execution of the agreements, the appellant issued notice to proceed with the work. O.S.A. No. 197 of 2019
5. According to the respondent/claimant, the work between kilometers 340/0 and upto kilometers 349/2, was completed by July 2010 viz., within few months of commencement of the work. However, when the remaining portion of the work was taken up, the appellant caused inordinate delay in getting the work front free from encumbrances. The respondent commenced the work despite several hindrances like the indiscriminate existence of underground electricity cable, pillar boxes, telephone cables and arterial spot line running across the site. Further, as many as 898 trees were required to be uprooted for the purpose of laying the road. The operation in the kilometers 345/8 to kilometers 349/2 work was bogged down and consistent Page No.4/61 http://www.judis.nic.in O.S.A.Nos.197 & 198 of 2019 damage was caused to the bitumen, which was laid across the surface of the road by the Water and Telephone Department. The respondent/claimant sent several letters to the appellant to intervene and ensure that the recurring damage was avoided, as this would adversely affect the time schedule of the project, apart from needlessly escalating cost. Despite several shortage of raw materials, the respondent commenced the work. The respondent/claimant had confronted several hurdles like underground drains, water pipelines, electricity poles and transformers throughout the entire 11.4 km stretch. Heavy traffic on the stretch ensured that the work force could only operate on a single lane at a stretch, and that too, for limited hours. Inspite of deploying men and machinery for two shifts of 15 hours, heavy volume of traffic along the entire 11.4 kilometer stretch resulted in the work force working at only 30% of the capacity. Had the initiative been taken by the appellant to clear all the obstructions, the traffic would have been diverted to ensure that a larger area was covered in the shortest possible time. Due to deliberate inaction of the appellant in removing the obstructions along the Kilometer 349/2 to 360/6 site, the respondent/claimant was not in a position to meet the time limit as stipulated in the agreement. The delay Page No.5/61 http://www.judis.nic.in O.S.A.Nos.197 & 198 of 2019 was purely attributable to the appellant. The respondent/claimant was able to complete the work only on 28.11.2012 with a delay of 18 months. Consequent to the completion of the work, the respondent/claimant made representations on 10.02.2014 and 04.04.2014, requesting revised rates and payment for additional work as well as refund of illegally collected fine, labour welfare charges, etc. The contractor also sought compensation for loss of profits and over-heads suffered on account of the needless deployment of men, machinery and materials for the extended period of 18 months. The request was rejected by the Divisional Engineer by letter dated 30.04.2014 on two grounds, namely:
(i) the contract was only for a period of 12 months and consequently the price adjustment clause is not applicable to this contract and
(ii) the increase in contract price is not considered as compensation event, which has not been furnished as per Clauses 44.2 and 44.3 of the Conditions of Contract.
6. It is the further case of the claimant that two grounds raised by the Divisional Engineer, run counter to the letters written by the Divisional Page No.6/61 http://www.judis.nic.in O.S.A.Nos.197 & 198 of 2019 Engineer himself as well as the Superintending Engineer, where they have clearly stated that the contract had extended beyond 18 months. Secondly, the Divisional Engineer as well as the Superintending Engineer have clearly admitted to the occurrence of compensation events entitling the contractor to claim compensation.
O.S.A. No. 198 of 2019:-
7. The work in question relates to widening and strengthening with shoulder of the road connecting Salem/Cochin Road at Kilometers 105/0 the Nagapattinam/Gudalur/Mysore road at Kilometer 289/6. The proposed road connected two important National Highways (NH 47 and NH 67) and served as a lead road and bye-pass road for Tirupur City. The work of the proposed road was 30.40 kilometers. The terms of the contract was reduced into writing, vide an agreement dated 23.09.2010. The intended completion period for execution of the work was 12 months from the date of commencement of the work. Pursuant to the execution of the contract on 23.09.2010, the appellant/National Highways issued notice to proceed with the work on 23.09.2010. During the course of execution of the work, the Page No.7/61 http://www.judis.nic.in O.S.A.Nos.197 & 198 of 2019 respondent-claimant faced several hurdles, such as underground drainage, water pipeline, electricity poles, etc., which led to inordinate delay in execution of the work in the stretch. On account of deliberate delay of handing over the free-hold site to the respondent-claimant, the project has witnessed unavoidable delays. There were 144 numbers of trees along the entire stretch and the permission for cutting the trees was received only during December 2010 and that, it could be removed only after six months. Further, 317 numbers of EB posts and 10 numbers of transformers existed along the road. The shifting alone was completed during November 2011, which was after expiry of the intended completion date. Apart from this, existence of water supply line at shallow depth, was another hurdle faced by the respondent. Due to paucity of funds, the local body expressed their inability to shift the water supply lines, which had resulted in interference of 15 water supply lines while executing the work. As a consequence, the completion of work was delayed and it was completed only on 31.05.2013, approximately, 20 months after the intended completion date. Despite numerous communications sent to the appellant/National Highways requesting revised rates to be implemented, as the rate prevailing during Page No.8/61 http://www.judis.nic.in O.S.A.Nos.197 & 198 of 2019 execution was much higher than the rate quoted in the bill of quantities, the appellant did not choose to either reject or approve the request, despite the fact that the same was made right through the entire period of the contract. The request was rejected for the first time by the Chief Engineer, vide communication dated 13.01.2014, despite default in contractual obligation, and the Chief Engineer has certified the final bid that the work had not suffered due to slow progress. However, the appellant/National Highways penalised the respondent/claimant by levying fine for slow progress although the delay was wholly attributable to the appellant and not to the respondent. Consequent to the completion of work, the respondent-claimant made representations to the Divisional Engineer on 10.02.2014 and 04.04.2014 requesting approval of the revised rates and payment for additional labour as well as refund of the fine and interest. The contractor sought for compensation for loss of profits and over-heads suffered on account of the needless deployment of men and machinery for the extended period of 20 months. The request of the respondent/claimant was rejected by the Divisional Engineer, by letter dated 30.04.2014. The order of rejection runs counter to the letter submitted by the Divisional Engineer as well as the Page No.9/61 http://www.judis.nic.in O.S.A.Nos.197 & 198 of 2019 Superintending Engineer, admitting that the contractor is entitled to compensation.
8. Aggrieved by the two orders of rejection, the respondent-claimant sought for referring the dispute to an Arbitrator in terms of Clause 25.3 of the General Conditions of Contract, read with Clause 3 of the Special Conditions of Contract. Such request made by the respondent-claimant, was accepted by the appellant on 02.06.2014 and an Arbitrator was appointed by the appellant on 27.06.2014.
9. In the claim petitions filed before the learned Arbitrator, the respondent-claimant made a claim for a sum of Rs.112,06,45,l05/- and Rs.50,30,37,235/- respectively. The learned Arbitrator framed the following issues for consideration in Claim Petition No. 62 of 2015:-
1) Whether the respondent has breached the terms of Clause 21.1 of the GCC requiring the Engineer to hand over possession of all parts of the site to the Contractor ?
2) In view of the letter of the Divisional Engineer, National Highways, dated 16.12.2011 sent to the Ministry of Road Transport and Highways, whether the respondent is stopped from frivolously contending that the claimant had delayed the execution of the contract ?
3) In view of the letter dated 16.12.2011 of the Divisional Engineer, National Highways sent to the Ministry Page No.10/61 http://www.judis.nic.in O.S.A.Nos.197 & 198 of 2019 of Road Transport and Highways, whether the respondent is liable for breach of the terms of the GCC dated 04.05.2010 ?
4) Whether the claimant is entitled to compensation under clause 44 of the GCC ?
5) Whether the claimant is entitled to loss of overheads profits computed as per the Hudson formula?
6) Whether the levy of liquidated damages by the respondent is illegal and contrary to the terms of the contract?
7) Whether the claimant is entitled to all the claims set out in paragraph 38 of the claim petition in view of the breach committed by the respondent?
8) Whether the claimant is entitled to exemplary costs in view of the delaying tactics adopted by the respondent in the conduct of the arbitral proceedings?
9) Whether the claims claimed by the claimant are barred by limitation?
10) Whether the claimant by his acknowledgment dated 08.01.2013 by signing the final bill without prejudice to any claims has discharged the respondent from invoking the arbitration clause?
11) Whether the claimant has furnished the final bill including the disputed claims as required under the terms of the contract?
12) Whether the Claimant is entitled to claim for the execution of extra/varied items carried out without approval?
13) To what other relief is the claimant entitled? Page No.11/61 http://www.judis.nic.in O.S.A.Nos.197 & 198 of 2019
10. In Claim Petition No. 63, the following are the issues framed by the learned Arbitrator:-
1) Whether the respondent has breached the terms of clause 21.1 of the GCC requiring the Engineer to hand over possession of all parts of the site to the Contractor?
2) Whether the respondent has breached its obligations under the contract in handing over the possession of the contract site, free of all hindrance to the contractor as required under the GCC, thereby committing a fundamental breach of its obligations under the contract dated 23.09.2010?
3) Whether the claimant is entitled to compensation under clause 44 of the GCC on account of the default of the respondent?
4) Whether the claimant is entitled to loss of overhead profits computed as per the Hudson formula?
5) Whether the levy of liquidated damages by the respondent is illegal and contrary to the terms of the contract entitling refund with interest?
6) Whether the claimant is entitled to all the claims set out in paragraph 33 of the claim petition in view of the breach committed by the respondent?
7) Whether the claimant is entitled to exemplary costs in view of the delaying tactics adopted by the respondent in the conduct of the arbitral proceedings?
8) Whether the claims claimed by the claimant are barred by limitation?
9) Whether the claimant by his acknowledgment Page No.12/61 http://www.judis.nic.in O.S.A.Nos.197 & 198 of 2019 dated 08.01.2013 by signing the final bill without prejudice to any claims has discharged the respondent from invoking the arbitration clause?
10) Whether the claimant has furnished the final bill including the disputed claims as required under the terms of the contract?
11) Whether the Claimant is entitled to claim for the execution of extra/varied items carried out without approval?
12) To what other relief is the claimant entitled?
11. It is evident that the issues that have arisen for consideration of the learned Arbitrator in both the claim petitions are, by and large, identical and similar. The learned Arbitrator adjudicated the claim petitions separately and separate award, both dated 27.10.2017 was passed, awarding a sum of Rs.35,30,44,558/- and Rs.16,76,74,513/- respectively, with interest at the rate of 12% per annum. In other words, the claim petitions filed by the respondent/claimant were partly allowed by the learned Arbitrator by allowing and/or modifying certain claims, while rejecting certain other. It is also to be mentioned that as against the disallowed portion of the award passed by the learned Arbitrator, the claimant did not file any appeal and the award has reached finality insofar as the disallowed portion of the claims. Page No.13/61 http://www.judis.nic.in O.S.A.Nos.197 & 198 of 2019
12. Aggrieved by the common award, the appellant has filed OP Nos. 456 and 457 of 2018 before the learned Single Judge under Section 34 of The Arbitration and Conciliation Act, 1996. The learned Single Judge, by a common order dated 02.04.2019, dismissed both the Original Petitions Nos.456 and 457 of 2018 filed by the appellant/National Highways, which has given rise to the filing of the present Original Side Appeals. The learned Single Judge concluded that the Court is unable to find any patent illegality on the face of the record arising out of the award of the learned Arbitrator. The learned Single Judge further held that mere erroneous application of law, will not be a ground to set aside the award passed by the learned Arbitrator.
13. Assailing the common order dated 02.04.2019 passed by the learned Single Judge, Mr.R.Sankaranarayanan, learned Additional Solicitor General appearing for the appellant/National Highways vehemently contended that the first issue that has to be decided in this case is as to whether the respondent/claimant has breached Clause 21.1 requiring the Engineer to hand over the site to the contractor. According to the learned Additional Solicitor General, the learned Arbitrator has answered the issue Page No.14/61 http://www.judis.nic.in O.S.A.Nos.197 & 198 of 2019 in favour of the respondent/claimant by holding that there was a delay on the part of the appellant/National Highways in handing over the site. In this regard, he invited our attention to Clause 21.1 of the Conditions of Contract. Clause 21.1 reads as follows:-
"The Employer shall give possession of all parts of the Site to the contractor. If possession of a part is not given by the date stated in the Contract Data the Employer is deemed to have delayed the start of the relevant activities and this will be Compensation Event."
14. As per Clause 21.1 of the Conditions of Contract, the possession of the site was given to the respondent/claimant on the same day itself and the respondent also commenced the work. In fact, the respondent has not disputed this fact. But, the learned Arbitrator held that the entire site was not handed over free from encumbrance/hindrance. The interpretation of the learned Arbitrator appears to be that, all the EB Poles, Transformers, trees and underground drainage should have been removed and possession of the site ought to have been given to the respondent free from any hindrance on the date of commencement itself. However, this was not the intention with Page No.15/61 http://www.judis.nic.in O.S.A.Nos.197 & 198 of 2019 which Clause 21.1 of the Conditions of Contract entered into between the appellant/National Highways and the respondent-claimant. The possession of all the paths and sites at KM.345/2 and 345/A had been given on the date of agreement itself and the claimant also commenced the work on the same day without any demur. Therefore, the question of claiming compensation does not arise. A mere reading of Clause 21.1 clearly indicates that possession of all parts of the site, has to be handed over to the contractor. In the instant case, possession was handed over on 04.05.2010 and the respondent/claimant also commenced the work on the same day. If the intention on the part of the employer is to remove the EB poles etc., then the same would have been clearly stated in Clause 21.1 of the Conditions of Contract. Similarly, no dates were fixed in the contract for any public authorities for removal of utilities or for the employer to work within any specific date. Only in the event of fixing a specified date for public authorities for removal of hindrances and in spite of the same, those hindrances have not been cleared, then alone it could be construed as a "Compensation Event" as per Clause 44.1(h) of the Conditions of Contract. But here, no specific date and obligation is imposed on the employer and the Page No.16/61 http://www.judis.nic.in O.S.A.Nos.197 & 198 of 2019 public authorities. Therefore, the claim of the respondent-claimant for compensation is beyond the scope of the Conditions of Contract. In support of the above contention, the learned Additional Solicitor General placed reliance on Steel Authority of India Ltd., Vs. J.C.Budharaja, reported in 1999 (8) SCC 122, wherein it has been held as follows:-
"17. It is to be reiterated that to find out whether the arbitrator has travelled beyond his jurisdiction and acted beyond the terms of the agreement between the parties, agreement is required to be looked into. It is true that interpretation of a particular condition in the agreement would be within the jurisdiction of the arbitrator. However, in cases where there is no question of interpretation of any term of the contract, but of solely reading the same as it is and still the arbitrator ignores it and awards the amount despite the prohibition in the agreement, the award would be arbitrary, capricious and without jurisdiction. .. .. ...."
15. Therefore, absolutely, there is no breach of Clause 21.1 of the Conditions of Contract, by the employer, warranting payment of compensation to the respondent/claimant. Hence, increased price due to "Compensation Event" does not arise in this case.
16. The learned Additional Solicitor General further submitted that the learned Arbitrator committed a grave error in holding that the employer has Page No.17/61 http://www.judis.nic.in O.S.A.Nos.197 & 198 of 2019 committed delay of 20 months in completing the contract based on the communications marked as Ex.C-109, Ex.C-150, Ex.C-157, Ex.C-158 and Ex.C-159. It was also held that there was a delay on the part employer in handing over the possession, which attracted "compensation event". A careful reading of the said correspondences, shows that there was no admission on the part of the employer that the delay was caused by the authorities. The communications speak about heavy rain, scarcity of river sand etc., and recommend for price variation on the ground of delay in execution of the contract. In the communication, no where the Divisional Engineer of the National Highways stated that the cause for delay due to various factors was caused by the authorities. Only if the delay is on the part of the authority, it would amount to "compensation event". The letter dated 16.12.2011 written by the Divisional Engineer, National Highways, Ex.C-49 was relied on by the learned Arbitrator for accepting price variation ignoring numerous other prior communications, where the employer disputed the price variation. In fact, in these communications, recommendations were made only for Rs.3,25,96,280.68 for price adjustment as per Clause 47.1 of the agreement, whereas, the respondent-claimant made a claim for Page No.18/61 http://www.judis.nic.in O.S.A.Nos.197 & 198 of 2019 Rs.33,63,14,524/- towards increase in contract price in the claim petition. The learned Arbitrator awarded Rs.22,20,19,548/-. The amount was arrived at by the learned Arbitrator based on the revised rates of Ministry of Road Transport and Highways Department (MORT & H) schedule rate for 2010- 2011 and 2011-2012, whereas, the agreement clearly provides for price adjustment in Clause 47.1 by prescribing the formula in the contract data. If the calculations are made as per the formula given in Clause 47.1, the price adjustment works out to Rs.3,25,96,280.68. In fact, the contractor has sought for price adjustment only as per this clause. The recommendation was also made by the Divisional Superintending Engineer of the National Highways only based on this Clause. Under Clause 4.1 of the Conditions of Contract, the Engineer shall decide on a contractual matter between the employer and the contractor. The said Clause 4.1 reads as follows:
"Except where otherwise specifically stated, the Engineer will decide contractual matters between the Employer and the Contractor in the role representing the employer."
17. Under Clause 4.1, the Engineer who ought to have taken decision on the contractual matter, had only written to R.O., MORT & H, to obtain Page No.19/61 http://www.judis.nic.in O.S.A.Nos.197 & 198 of 2019 permission from the Ministry, for price adjustment. Since the Divisional Engineer has not taken any decision as per Clause 4.1 with regard to the request made by the respondent for price adjustment, the respondent/claimant cannot rely upon the communications to say that he is entitled for compensation as per the revised rate of Ministry of Road Transport and Highways Department.
18. Further, the learned Additional Solicitor General appearing for the appellant/National Highways invited the attention of this Court to Clause 44 of the agreement, relevant portion of which reads as follows:-
"44.2. If a compensation event would cause additional cost or would prevent the work being completed before the intended completion date, the contract price shall be increased and/or the intended completion date is extended. The Engineer shall decide whether and by how much the contract price shall be increased and whether and to how much the intended completion date shall be extended.
44.3 As soon as information demonstrating the efect of each Compensation Event upon the Contractor's forecast has been provided by the contractor, it is to be assessed by the Engineer and the contract price shall be adjusted accordingly. If the contractor's forecast is deemed unreasonable, the Engineer shall adjust the Contract Price based on Engineer's own forecast. The Engineer will assume that the Contractor will react competently and promptly to the event.
44.4 The Contractor shall not be entitled to Page No.20/61 http://www.judis.nic.in O.S.A.Nos.197 & 198 of 2019 compensation to the extent that the employer's interest are adversely affected by the Contractor not having given early warning or not having cooperated with the Engineer."
19. By relying upon the aforesaid Clauses, the learned Additional Solicitor General submitted that, first of all, there is a primary duty on the part of the respondent-claimant to show that they are entitled for increase of contract price and it is covered within the definition of "Compensation Event" as per Clause 44.1 of the Conditions of Contract. Only three eventualities under Clause 44.1 (a), (f) and (h) alone are applicable for claimant, which are as follows:-
"(a) The Employer does not give access to a part of the Site by the Site Possession Date stated in the contract data.
(f) Ground conditions are substantially more adverse than could reasonably have been assumed before issuance of Letter of Acceptance from the information issued to Bidders (including the Site Investigation Reports) from information available publicly and from a visual inspection of the site.
(h) Other contractors, public authorities, utilities or the Employer does not work within the dates and other constraints stated in a Contract, and they cause delay or extra cost to the Contractor."Page No.21/61
http://www.judis.nic.in O.S.A.Nos.197 & 198 of 2019
20. A reading of the above Clause shows that, only if the employer does not give access to part of site, it would amount to a transgression of the agreement, whereas, in this case, the site was given on the date of commencement of the work viz., 04.05.2010 itself and therefore, no "Compensation Event" has arisen in this case. Similarly, the other claims raised by the respondent-claimant before the learned Arbitrator are unsustainable.
21. With respect to the claim of Rs.10,27,467/- towards refund of Labour Welfare Fund, it is submitted by the learned Additional Solicitor General that employer deducted Rs.9,82,270 from the bills of the contractor and it is in line with 'The Building and Other Construction Workers Welfare Cess Act, 1996' and as per the provisions of the agreement. Therefore, the award passed by the learned Arbitrator to refund the sum of Rs.10,27,467/- is contrary to the expressed terms and conditions agreed upon between the parties.
22. The same argument was made by the learned Additional Solicitor General in respect of O.S.A. No. 198 of 2020 as well. This is more so that Page No.22/61 http://www.judis.nic.in O.S.A.Nos.197 & 198 of 2019 the legal issues arise for consideration in both the appeals are one and the same except the quantum of Compensation Event, which differs. That apart, he relied on various judgments mentioned below to contend that the calculation for determination of the Compensation Event has to be made only in terms of the agreement and not otherwise.
(i) MMTC Limited vs. Vedanta Limited, reported in 2019 (4) SCC 163, wherein it was held that an award passed by the learned Arbitrator and confirmed by the learned Single Judge of the High Court under Section 34 of The Arbitration and Conciliation Act can be interfered with by the appellate Court in exercise of the powers conferred under Section 37 of the said Act. In that case, it was held that while interpreting the terms of the contract, the conduct of the parties and the correspondence exchanged would also be a relevant factor and it is within the arbitrator's jurisdiction to consider the same
(ii) In Associate Builders Vs. Delhi Developmental Authority, reported in 2015 (3) SCC 49, it was held that an award passed by the arbitrator could also be set aside, in exercise of power under Section 37 of The Arbitration and Conciliation Act, if it is unreasonable and unfair. In Page No.23/61 http://www.judis.nic.in O.S.A.Nos.197 & 198 of 2019 such circumstances, it is open to the Court to consider whether the award is against the specific terms of contract and if so, interfere with it on the ground that it is patently illegal and opposed to the public policy of India.
(iii) In ONGC Vs. Wig Bros. Builders & Engineers Pvt Ltd., reported in 2010 (13) SCC 377, it was held that when contract stipulates a particular price to be paid, no price increase is permissible. Thus, if the award of the arbitrator is contrary to the terms and conditions with which the price fixation was agreed between the parties, then it can be interfered with by the Court.
23. The learned Additional Solicitor General therefore submitted that when the award passed by the learned Arbitrator is beyond the scope of the contract or more than the contract value or when the award suffers from patent illegality, it shall be set aside.
24. Countering the above submissions of the learned Additional Solicitor General appearing for the appellant, Mr.V.Raghavachari, learned counsel appearing for the respondent-claimant submitted that before the sole Page No.24/61 http://www.judis.nic.in O.S.A.Nos.197 & 198 of 2019 Arbitrator, the respondent-claimant has filed a claim statement along with 161 documents. Before the learned Arbitrator, it was argued by the Department (National Highways) that Clause 21.1 of the Conditions of Contract merely contemplates handing over of physical possession and does not require the appellant/National Highways to remove any obstruction, hindrances etc., whereas, the learned Arbitrator has found that Clauses 21 and 44 of the Conditions of Contract, were harmoniously construed to mean that failure to remove the hindrances will be a breach of Clause 21 and would also be a "Compensation Event" under Clause 44.
25. The learned Arbitrator, on a perusal of the oral and documentary evidence, particularly Exs.C-150, 151, 157 and 158, concluded that the appellant/National Highways did not hand over the site free from all encumbrances. These documents issued by the Divisional Engineer and Superintending Engineer of the National Highways, constituted binding admissions from which the appellant could not resile. The Tribunal probed into each one of the documents where the appellant/National Highways have unambiguously admitted the delay caused in handing over the site(s). The learned Arbitrator, while answering Issue No.2, has deeply analysed Ex.C- Page No.25/61 http://www.judis.nic.in O.S.A.Nos.197 & 198 of 2019 151, wherein, in the Minutes of the meeting dated 05.12.2011 between the Chief Engineer, Superintending Engineer, Divisional Engineer and the contractor, it had been admitted that there was a delay on account of the aforesaid factors. In the Minutes of the meeting, it was clearly recorded that "after verification of the above facts with the department officials, it is ascertained that there was a delay in shifting of EB posts, transformers and removal of living trees as mentioned by the contractor." By referring to this admission, under Ex.C-151, the learned Arbitrator has concluded in paragraph No.98 of the award in Claim Petition No.62 of 2015 that the site was handed over to the contractor only during the fag end of the completion of the agreement period, and therefore, the contractor requested for extension of time upto 31.03.2012 for completing the works. Further, in paragraph No.99, the learned Arbitrator has held that, all the parts of the site(s) without hindrance for widening the road, were not handed over to the contractor at the time of commencement of work and only in April 2011, the hindrances were removed. Therefore, in the light of the admission on the part of the Department, the learned Arbitrator has held that the delay is largely attributable on the part of the Department. Further, based on Ex.C- Page No.26/61 http://www.judis.nic.in O.S.A.Nos.197 & 198 of 2019 151, the learned Arbitrator held that there was a breach of Clause 21.1 of the Conditions of Contract and the appellant/National Highways was responsible for the delay of 567 days in completing the work. In fact, the contractor had given 13 letters during the subsistence of the contract. In those letters, the respondent-claimant requested the appellant-National Highways to compute the revised rates, but it was not done as mandated under Clause 32 of the Conditions of Contract. Therefore, the learned Arbitrator has held that the contractor cannot be denied the benefit of Compensation Events under Clause 44 of the Conditions of Contract. Thus, the learned counsel for the respondent/claimant submitted that the learned Arbitrator has rightly passed an award , which was also challenged before the learned Single Judge. The learned Single Judge had dismissed the Original Petition by confirming the award of the arbitrator.
26. In the above context, the learned counsel appearing for the respondent-claimant relied on the decision in the case of National Highways Authority of India (NHAI) Vs. Hindustan Constructions, reported in 2017 SCC Online Delhi 6631, in which, the learned Single Judge of the Delhi High Court has held that "Clause 21.1 provides that the employer shall Page No.27/61 http://www.judis.nic.in O.S.A.Nos.197 & 198 of 2019 give possession of all parts of the site to the contractor. If the possession of a part is not given by the date stated in the contract, the employer is deemed to have delayed the start of the relevant activities and this will be compensation event." The National Highways Authority of India (NHAI) filed an appeal before the Division Bench of the Delhi High Court and it was dismissed with strictures to the NHAI. The relevant portion of the Judgment of the Division Bench of the Delhi High Court, reported in 2017 SCC Online Delhi 10273 (NHAI Vs. Hindustan Construction Co. Ltd), reads as follows:-
"38. ... ... At the same time, we find this Court to be inundated by challenges, against arbitral awards, by public sector undertakings - many of which are initiated by the present appellant - seeking re-appreciation of the findings of the arbitrator by entirely re-examining the evidence or re- interpreting the clauses of the contract. Such litigation defeats the very purpose for which the Act was conceived. We have seen, even before this Bench, several appeals, against orders which the learned single Judge, who passed the impugned order in the present case, has had to pass, rejecting applications filed by public sector undertakings under Section 34 of the Act, which basically seek to convert this Court into a court of appeal over the decision of the arbitral tribunal. it is apparently with a view to control the filing of such applications, and to confer greater sanctity to arbitral proceedings under the Act, that the learned single Judge has been constrained to impose, on the appellant, the Page No.28/61 http://www.judis.nic.in O.S.A.Nos.197 & 198 of 2019 costs which stand imposed by the impugned judgment. We do not deem it appropriate to interfere therewith."
27. Therefore, according to the learned counsel appearing for the respondent-claimant, interference of this Court into the questions of facts, in exercise of the powers under Section 37 of The Arbitration and Conciliation Act, 1996, is legally impermissible. In this regard, reliance was placed in the judgment of the Supreme Court in the case of MMTC Limited Vs. Vedanta Limited, reported in 2019 (4) SCC 163 and it was contended that an appeal under Section 37 of the Arbitration and Conciliation Act, is not equal to or abreast to a First Appeal under Section 96 of the CPC. It was also held in that judgment that the scope of an appeal under Section 37 of the Arbitration and Conciliation Act, is to merely examine whether the Court under Section 34 of the Arbitration and Conciliation Act, acted within the four corners of the provisions of law.
28. For the same proposition, the learned counsel for respondent- claimant relied on the decision rendered in the case of Fomra Housing and Page No.29/61 http://www.judis.nic.in O.S.A.Nos.197 & 198 of 2019 Infrastructure Vs. M/s.Raagul Foundations Pvt. Ltd. (O.S.A. No. 151 of 2019, dated 08.07.2019) (reported in MANU/TN/3867/2019), in which, a Division Bench of this Court held that the scope of an appeal under Section 37 of the Arbitration and Conciliation Act, is even narrower than the scope of challenge under Section 34 of the Arbitration and Conciliation Act.
29. The learned counsel appearing for the respondent-claimant also invited the attention of this Court to the Explanation 2 to Section 34 (2) of The Arbitration and Conciliation Act and contended that, in the year 2015, amendments were brought in the Act, whereby, under Explanation-2, it was clarified that the test as to whether there is contravention with fundamental policy of Indian Law, shall not mean that a review on the merits of the dispute can be undertaken by the Court. This was taken note of by the learned Single Judge while passing the impugned order.
30. The learned counsel appearing for the respondent/claimant also relied on a decision in the case of Associate Builders Vs. Delhi Development Authority, 2015 (3) SCC 49, wherein the Supreme Court had clearly laid down the scope of a challenge under the 'public policy test' under Section 34 of the Act.
Page No.30/61 http://www.judis.nic.in O.S.A.Nos.197 & 198 of 2019
31. As a next fold of submission, the learned counsel for the respondent/claimant submitted that with respect to ground of patent illegality, the learned Single Judge rightly found that as per the amendment made in the year 2015, inserting Section 34-2A in the Arbitration and Conciliation Act, the Court cannot re-appreciate evidence. The learned counsel appearing for the respondent-claimant has also relied on the decision in the case of Ssangyong Engineering and Construction Co., Ltd., Vs. NHAI, reported in 2019 (15) SCC 131, wherein it has been held that re- appreciation of evidence is wholly outside the purview of the patent illegality ground under Section 34 of the Act.
32. With regard to the submission of the appellant-National Highways that the arbitrator has not followed Clause 47.1 of the Conditions of Contract, for determining the price increase, but resorted to compute the price increase by using the MORT & H data, it is replied by the learned counsel appearing for the respondent-claimant that appellant himself, in the counter filed before the Arbitrator, has stated that Clause 47 of the Conditions of Contract, will not apply to the case on hand. In fact, in the petition filed under Section 34 of the Arbitration and Conciliation Act, no Page No.31/61 http://www.judis.nic.in O.S.A.Nos.197 & 198 of 2019 ground has been raised about the determination of the computation of price increase. For the first time, such a contention has been raised before this Court in the appeal under Section 37 of the Act. Therefore, it is submitted that the learned Single Judge has no scope to consider the same. Further, with regard to the argument of the learned counsel for the appellant-National Highways that the Engineer had only sanctioned Rs.3.25 crores in Ex.C.157 and therefore the amount under this head should not exceed the said sum of Rs.3.25 crores, it is replied by the respondent that even before the learned Arbitrator, the appellant has not denied the calculations made either in the pleadings or in the evidence. The learned Arbitrator, taking note of Exs.C- 18 to C-39 has elaborately dealt with this issue. Thus, the approach of the learned Arbitrator is in consonance with the principles laid down by the Supreme Court in Assam State Electricity Board Vs. Build Worth Private Limited, reported in 2017 (8) SCC 146, wherein it has been held that price escalation clause would apply to belated period and would not be limited by the ceiling provided in the escalation clause.
33. With regard to the submissions made by the learned Additional Solicitor General appearing for the appellant-National Highways relating to Page No.32/61 http://www.judis.nic.in O.S.A.Nos.197 & 198 of 2019 refund of labour welfare fund, it is submitted by the learned counsel appearing for the respondent/claimant that labour welfare fund need not be deducted by the appellant from the bills of the contractor as per Ex.C-163. The reliance placed by the appellant/National Highways to the Circular in support of their contention that, they are entitled to deduct welfare fund, was elaborately dealt with by the learned Arbitrator and rejected. Such a factual dispute cannot be raised by the appellant in this appeal under Section 37 of the Act.
34. Similar submissions made by the learned Additional Solicitor General in respect of the other claims, were also denied and disputed by the learned counsel for the respondent/claimant by making the same submissions which were made for the compensation awarded for price escalation.
35. According to the learned counsel appearing for the respondent- claimant, on the side of the respondent, one Mr.P.Arun Kumar was examined before the learned Arbitrator as C.W.1. Though date was fixed for cross-examination on 28.04.2016, the appellant did not turn up, hence, the learned Arbitrator issued a letter on 30.04.2016. The Contractor was Page No.33/61 http://www.judis.nic.in O.S.A.Nos.197 & 198 of 2019 present and he was ready to subject himself for cross-examination, but he was not cross-examined. Subsequently, the hearing date was fixed on 11.06.2016. On 11.06.2016, the learned Arbitrator passed an order, stating that, the appellant has no witness to be examined and if the appellant/National Highways want to cross-examine the respondent/claimant, the appellant shall inform the same three days in advance. On 23.06.2016, arguments were advanced before the learned Arbitrator and even then the appellant/National Highways did not cross- examine the contractor. Therefore, in the absence of any cross-examination of the claimant, inspite of opportunity, it cannot be contended by the appellant/National Highways that the Arbitrator has passed the award without affording sufficient opportunity to the appellant/National Highways. Such an objection was not raised before the learned Arbitrator, however, it is sought to be raised only before this Court. In this context, the learned counsel for the respondent relied on the decision of the Supreme Court in Muddasani Venkata Narasaiah Vs. Muddasani Sarojana, reported in 2016 (12) SCC 288, wherein, it has been held that if the averments sworn by one party in the pleadings, are not challenged by the other party, either in Page No.34/61 http://www.judis.nic.in O.S.A.Nos.197 & 198 of 2019 the pleadings or cross-examination, then it would amount to an admission of such pleadings.
36. By way of reply, the learned Additional Solicitor General contended that non-cross-examination of the contractor will not be fatal to the defence of the appellant. Merely because the contractor has not been cross-examined, it will not amount to an admission of the claims made by the respondent herein. The learned Arbitrator ought to have decided the case based on the various communications exchanged between the parties and therefore, the fact that the claimant was not cross-examined, will not assume much significance in this case.
37. We have heard the learned counsel for both sides. Though very many contentions have been raised on the factual disputes involved in this case, we are not inclined to render any finding with respect to such factual disputes in this appeal under Section 37 of the Act, inasmuch as the scope of Section 37 of the Arbitration and Conciliation Act to entertain an appeal lies in a narrow compass. On the basis of the rival submissions made before us, the following questions arise for our consideration and they are:-
(i) Whether the appellant/National Highways has made out a case Page No.35/61 http://www.judis.nic.in O.S.A.Nos.197 & 198 of 2019 within the four corners of Section 34 of the Arbitration and Conciliation Act before the learned Single Judge ?
(ii) Since the learned Arbitrator has not followed Clause 47.1 of the Conditions of Contract while computing price escalation, whether the award is liable to be set aside on that ground ?
38. If these two questions are answered, it will be sufficient for disposal of this appeal.
39. The main submission of the learned Additional Solicitor General appearing for the appellant/National Highways is with regard to the handing over of the site to the contractor. It is the case of the respondent/claimant that the appellant/National Highways did not hand over the site(s) free from all hindrances, which resulted in the respondent-claimant seeking for extension of the time specified under the contract. In this regard, there was a delay of 20 months in completing the contractual work, which according to the respondent is largely attributable on the part of the appellant in handing over the site without any hindrance. When the site was handed over, there Page No.36/61 http://www.judis.nic.in O.S.A.Nos.197 & 198 of 2019 were trees, transformers, water pipelines etc., and for removal of the same by the instrumentalities of the Government, it had taken time, especially when the appellant/National Highways cannot remove those hindrances on their own. This has to be done by the appellant in coordination with various authorities of the Government. Since this could not be done in time, seeking extension of time for completion of the work, had become inevitable.
40. On the other hand, it is the submission of the appellant/National Highways that as per Clause 21.1 of the Conditions of Contract, the appellant is not under an obligation to hand over the site after removing those hindrances. Mere handing over the possession in "as is where is"
condition will comply with Clause 21.1.
41. The learned Arbitrator, on harmonious interpretation of Clauses 21.1 and 44 of the Conditions of Contract, held that failure to remove the trees and transformers and other hindrances would amount to a breach of Clause 21.1 and it will fall within the "Compensation Event" and awarded the amount. The learned Arbitrator, referring to a meeting convened among the Superintending Engineer of National Highways, Salem; Divisional Engineer (NH), Coimbatore and the contractor on 09.12.2011 and Page No.37/61 http://www.judis.nic.in O.S.A.Nos.197 & 198 of 2019 15.12.2011 and the decision arrived thereof, observed that the respondent/contractor clearly informed about the existence of 489 EB posts, 37 transformers and 800 numbers of living trees and they pose serious hindrance for road widening. The learned Arbitrator also concluded that, ultimately, the hindrances were removed only during April 2011 when the agreement period was nearing completion. The learned Arbitrator also noted the delay in shifting the Electricity Board posts, transformers and other hindrances which led to the delay. Therefore, it was concluded by the learned Arbitrator that, as per Clause 21.1 of the Conditions of Contract, all parts of the site(s) were not handed over free from any hindrance at the time of commencement of the work. In effect, it was concluded that the respondent-claimant is deemed to have delayed the relevant activities and the delay is absolutely a "Compensation Event" for the claimant.
42. Now, it has to be examined as to whether such a finding rendered by the learned Arbitrator and confirmed by the learned Single Judge, is contrary to public policy, as enunciated under Section 34(2)(b)(ii) of the Arbitration and Conciliation Act (as amended), vis-a-vis, fundamental principles of Indian Law or contrary to justice. In this regard, it is Page No.38/61 http://www.judis.nic.in O.S.A.Nos.197 & 198 of 2019 appropriate to refer to Explanation 2 inserted to Section 34(2)(b)(ii) of the Arbitration and Conciliation Act, by way of amendments brought in the year 2015, which reads as follows:-
"Chapter VII: Recourse against arbitral award:
Section 34: Application for setting aside arbitral award: .. ..
.. ..
Explanation - 2. For the avoidance of doubt, the test as to whether there is a contravention with the fundamental policy of Indian law shall not entail a review on the merits of the dispute."
43. Thus, it is clear that the public policy ground raised by the appellant/National Highways does not entitle a review of the factual findings rendered by the learned Arbitrator, which was confirmed by the learned Single Judge. In fact, the learned Single Judge, by interpreting Explanation 2 to Section 34(2)(b), has come to a conclusion that there is no case made out by the appellant/National Highways under Section 34(2)(b) of the Arbitration and Conciliation Act. In the present case, the learned Additional Solicitor General appearing for the appellant/National Highways made an attempt before us to re-appreciate the factual disputes involved in this case, Page No.39/61 http://www.judis.nic.in O.S.A.Nos.197 & 198 of 2019 which is legally impermissible under Section 37 of the Act. This was the ratio laid down by the Supreme Court in the case of Associate Builders vs. Delhi Development Authority of India, reported in 2015 (3) SCC 49 and useful reference to the said judgment can be made hereunder, which reads as follows:-.
"33. It must be clearly be understood that when a court is applying the 'public policy' test to an arbitration award, it does not act as a court of appeal and consequently errors of fact cannot be corrected. A possible view by the arbitrator on facts has necessarily to pass muster as the arbitrator is the ultimate master of the quantity and quality of evidence to be relied upon when he delivers his arbitral award. Thus, an award based on little evidence or no evidence, which does not measure up in quality to a trained legal mind would not be held to be invalid on this score. Once it is found that the arbitrators approach is not arbitrary or capricious, then he is the last word on facts."
44. Further, in Parsa Kente Collieries Limited Vs. Rajasthan Rajya Vidyut Utpadam Nigam Limtied, reported in 2019 (7) SCC 236, it has been held as follows:-
"9.1 In Associate Builders (Associate Builders v.DDA, (2015) 3 SCC 49: (2015) 2 SCC (Civ) 204), this Court had an occasion to consider in detail the jurisdiction of the Court to interfere with the award passed by the Arbitrator in exercise of powers under Section 34 of the Arbitration Act. In the aforesaid decision, this Court has considered the limits of power Page No.40/61 http://www.judis.nic.in O.S.A.Nos.197 & 198 of 2019 of the Court to interfere with the arbitral award. It is observed and held that only when the award is in conflict with the public policy in India, the Court would be justified in interfering with the arbitral award. In the aforesaid decision, this Court considered different heads of 'public policy in India' which inter alia, includes patent illegality. After referring Section 28 (3) of the Arbitration Act and after considering the decisions of this Court in McDermott International Inc., v. Burn Standard Co., Ltd., (2006) 11 SCC 181), SCC Paras 112-113 and Rashtriya Ispat Nigam vs. Dewan Chand Ram Saran (Rashtriya Ispat Nigam Ltd., vs. Dewan Chand Ram Saran, (2012) 5 SCC 306), SCC paras 43-45, it is observed and held that an Arbitral Tribunal must decide in accordance with the terms of the contract but if an Arbitrator construes a term of the contract in a reasonable manner, it will not mean that the award can be set aside on this ground. It is further observed and held that construction of the terms of a contract is primarily for an Arbitrator to decide unless the Arbitrator construes the contract in such a way that it could be said to be something that no fair-
minded or reasonable person could do. it is further observed by this Court in the aforesaid decision in para-33 that when a Court is applying the 'public policy' test to an arbitration award, it does not act as a court of appeal and consequently errors of fact cannot be corrected. A possible view by the Arbitrator on facts has necessarily to pass muster as the Arbitrator is the ultimate master of the quantity and quality of evidence to be relied upon when he delivers his arbitral award. It is further observed that thus an award based on little evidence or no evidence which does not measure up in quality to a trained legal mind would not be held to be invalid on this score."
45. Similarly, insofar as the ground of patent illegality on the Award, is concerned, the learned Single Judge had correctly found that the 2015 Page No.41/61 http://www.judis.nic.in O.S.A.Nos.197 & 198 of 2019 amendment inserting Section 34-2A to the Arbitration and Conciliation Act, adding a provision that, while testing an award regarding patent illegality, the Court cannot re-appreciate the evidence. In other words, an award of an Arbitrator can be interfered with only if it is vitiated by patent illegality appearing on the face of the award and it shall not be set aside merely on the ground of an erroneous application of law or re-appreciation of evidence.
46. In this regard, it would be appropriate to rely upon Ssangyong Engg. & Construction Co., Ltd., Vs. NHAI, reported in 2019 (15) SCC 131 of the Supreme Court, wherein it was clearly held that re-appreciation of evidence is wholly outside the purview of the patent illegality ground under Section 34 of the Arbitration and Conciliation Act. Therefore, the attempt made by the learned Additional Solicitor General appearing for the appellant/National Highways to re-appreciate the factual dispute or findings rendered thereon cannot be sustained. The learned single Judge also correctly rejected such a submission and it does not call for any interference of this Court.
47. The next ground urged by the learned Additional Solicitor General appearing for the appellant/National Highways is that the agreement clearly Page No.42/61 http://www.judis.nic.in O.S.A.Nos.197 & 198 of 2019 provides for price adjustment in Clause 47.1 of the Conditions of Contract, by describing the contract data. If the calculation is made as per the formula given in Clause 47.1 the price adjustment works out to Rs.3,25,96,280.68. The contractor, if at all, is entitled for compensation for price escalation on account of the contract period only as per Clause 47.1 of the agreement. However, the learned Arbitrator has made calculation based on the revised data of the MORT & H scheduled rate for 2010-2011 and 2011-2012 and awarded Rs.22,20,19,548/- which is outside the scope of the agreement entered into between the parties. Therefore, the learned Additional Solicitor General would contend that such an award passed by the learned Arbitrator, which was also confirmed by the learned single Judge, is required to be interfered with by this Court.
48. But it is the reply of the learned counsel for the respondent/claimant that this was not raised either before the learned Arbitrator or before the learned Single Judge. Even in the counter affidavit filed before the learned Arbitrator, it was only stated that Clause 47 of the Conditions of Contract, is not applicable to this case. In this regard, it is appropriate to extract relevant portion of the counter affidavit filed by the Page No.43/61 http://www.judis.nic.in O.S.A.Nos.197 & 198 of 2019 Department before the learned Arbitrator, which reads as follows:-
"18. The claimant while reproducing clause 47.2 of General conditions of contract with ulterior motive has suppressed the fact as per the clause 13.4 of instruction to bidders for works with a time limit of 12 months fixed for completion, the price adjustment clause as outlined in clause 47 is not applicable. At the time when the Claimant made the bargain and entered into the contract, the understanding was very clear in this regard. The claimant is trying to make out a picture as if it is entitled for price adjustment as a matter of routine as per contract."
49. We have also gone through the grounds of the Original Petition as also the order passed by the learned Single Judge in this regard. When objection was not made before the learned Arbitrator as regards the applicability of Clause 47.2 of the Conditions of Contract or before the learned Single Judge, it cannot be raised in these appeals under Section 37 of the Arbitration and Conciliation Act. In this regard, it is appropriate to rely on the decision of the Division Bench of this Court in the case of Terry Gold India vs. TVS Financial Services reported in 2014 Madras Weekly Notes (Civil) 817, wherein it was held as follows:
"7. Discussion:
7.1. It is seen that the Appellants had raised the Page No.44/61 http://www.judis.nic.in O.S.A.Nos.197 & 198 of 2019 question of maintainability before the Arbitrator on the ground that it is only the Memorandum of Understanding which is binding the parties and not the Lease Agreement. It is only in that context, the Appellants had raised the question of maintainability.
Therefore, it was also contended incidentally by them before the Arbitrator that the First Respondent cannot make any claim for money but only for the shares as per the Memorandum of Understanding. Hence, as rightly contended by the learned Counsel appearing for the First Respondent, it is not open to the Appellant to raise the new plea at this stage of the hearing. The stand taken by them is contrary to their stand taken earlier. We also reject the said submission by taking into consideration of the scope and ambit of Sections 34 & 37 of the Arbitration and Conciliation Act. When the Appellants raised the contention based on the Memorandum of Association, it is not open to them now to contend that the Arbitral proceedings must have been conducted by appointing the Arbitrator as per the Lease Agreements. The Appellants have not questioned the jurisdiction of the Arbitrator in that sense except by stating that the claim made before the Arbitrator for recovery of money cannot be sustained, as the Memorandum of Understanding would govern the parties. It is also to be noted that the Assignment Deed has been signed by the Appellants. The Appellants have been made as the confirming party in the Deeds of Assignment. The Deeds of Assignment speak about the appointment of the Arbitrator by mutual consent of the assignor and the assignee, the First Respondent herein. In other words, they do not deal with the consent of the Appellants. However, it is specifically stated that all parties agreed to refer any dispute touching upon the Agreement of Lease / HP / Loan / Hypothecation, Supplementary Agreement, Deed of Guarantee or the Page No.45/61 http://www.judis.nic.in O.S.A.Nos.197 & 198 of 2019 Deed of Assignment. The Appellants, as noted earlier, did not question the appointment of the Arbitrator. Therefore, we do not find any substance in the submissions made by the learned Senior Counsel appearing for the Appellants in this regard.
7.2. The contention regarding the higher amount claimed by the First Respondent is factually incorrect. It is the Appellants, who signed the relevant documents. They accepted their liabilities. The said liability was modified subsequently by consent. Therefore, it is not open to them to contend that the First Respondent cannot claim more than what has been mentioned in the Lease Agreements. We are of the view that the said submission is only a belated attempt on the part of the Appellants. We also find force in the submission made by the learned Counsel appearing for the First Respondent that the interest component and the subsequent payments due have been taken into consideration to the knowledge of the Appellants. In any case, the Appellants are estopped from raising such a contention after willingly signed all the documents accepting their liability. In so far as the proceedings before the BIFR are concerned, as rightly contended by the learned Counsel for the Respondent, there is no bar in law to have any transaction with a concern, which has filed an Application under the Sick Industrial Companies (Special Provisions) Act, 1985. We are also not concerned with the executability of the award in these proceedings."
50. With respect to the merits of the submissions, we find that, as early as on 04.04.2014, the respondent-claimant, by way of a representation, enclosed a detailed working, running into more than 300 pages setting out Page No.46/61 http://www.judis.nic.in O.S.A.Nos.197 & 198 of 2019 the rate prevailed during execution along with the proof of bills, vouchers etc., This was never disputed even in the rejection letter. In the rejection letter, dated 30.04.2014, it is merely stated by the Divisional Engineer of the National Highways that completion period fixed as per the agreement is only 12 months and "price adjustment clause" in Clause 47 of the Conditions of Contract, is not applicable for this work. In view of this factual dispute, it would be appropriate to extract Clause 47.1 of the Conditions of Contract, which reads as follows:-
"47. Price adjustment:-
47.1 Contract price shall be adjusted for increase or decrease in rates and price of labour, materials, fuels and lubricants in accordance with the following principles and procedures and as per formula given in the contract data:
(a) The price adjustment shall apply for the work done from the start date given in the contract data upto end of the initial intended completion date or extensions granted by the Engineer and shall not apply to the work carried out beyond the stipulated time for reasons attributable to the contractor.
(b) The price adjustment shall be determined during each month from the formula given in the contract data.
(c) Following expressions and meanings are assigned to the work done during each month;
R= Total value of work done during the month. It would include the amount of secured advance granted, if any, Page No.47/61 http://www.judis.nic.in O.S.A.Nos.197 & 198 of 2019 during the month, less the amount of secured advance recovered, if any during the month. It will exclude value for works executed under variations for which price adjustment will be worked separately based on the terms, mutually agreed.
47.2 To the extent that full compensation for any rise or fall in costs to the contractor is not covered by the provisions of this or other clauses in the contract, the unit rates and prices included in the contract shall be deemed to include amounts to cover the contingency of such other rise or fall in costs."
51. A reading of the above Clause shows that this clause will not apply beyond a stipulated period of time fixed in the contract. But in the instant case, the learned Arbitrator has come to the conclusion that the delay was due to the Department in handing over the possession of the site free from any hindrances. Therefore, the respondent-claimant is entitled for price escalation. In any event, these are pure findings of fact and it is clearly beyond the limited scope provided under Sections 34 and 37 of the Act. But it is the submission of the learned Additional Solicitor General that even if the respondent-claimant is entitled for compensation, it should be as per the formula provided under Clause 47. But we find that, even according to the appellant/National Highways, the rates are computed as per the rates quoted Page No.48/61 http://www.judis.nic.in O.S.A.Nos.197 & 198 of 2019 in the MORT & H Data Book in 2010-2012, which corresponds to the period of execution. Thus, the application of the MORTH standards is expressly found in the contract wherein it is stated that "Specification - The work will be carried on as per MORTH specification.". Thus the specifications would not comprise of the data book which sets out the standard rates for the years during which the work was executed. This again is a matter of construction of the contract and therefore, it is purely within the realm of the learned Arbitrator. Though the original claim was Rs.33 crores, the same was scaled down before the sole arbitrator to Rs.22 crores by the claimant, as the learned Arbitrator directed that the over-heads and profits are to be set out and considered as a separate ground. Therefore, the respondent-claimant had reduced the amount claimed at Rs.33 crores to Rs.22 crores and this was included and considered as over-heads and costs. This was also not disputed by the appellant-National Highways at any point of time. In this context, it will be useful to refer to the decision of the Honourable Supreme Court in Assam State Electricity Board and others Vs. Buildworth Private Limited, reported in 2017 (8) SCC 146. In Paragraph Nos.11 to 13 therein, it has been held as follows:- Page No.49/61
http://www.judis.nic.in O.S.A.Nos.197 & 198 of 2019 "11. The contention of the claimant was that Clause 2.3
(a) (i) applied only for the specific period mentioned in the purchase order and not for the extended period of the contract.
According to the Board, a cap of Rs.9.16 lakhs was imposed under the above provision and no price escalation was permissible beyond it. The arbitrator entered the following finding:
"......The contract is silent as to what will happen if the work agreed to be completed by 06.09.1983 cannot be completed within 6-9-1983. It has not been disputed by the respondent that the project work was completed much beyond the extended date i.e., by 06.09.1983. It is pertinent to point out here that the extension of time upto 6-9-1983 was formally granted by the respondent by a letter dated 27.03.1983. There is no formal extension of time beyond 6.9.1983 by the purchaser, but the claimant was allowed to carry out the work beyond 06.09.1983. From the records, it is found that during the period from 06.09.1983 to 27.03.1985, there is no objection as to delay nor any formal extension. Nor was the penalty clause (2.6.7) invoked. As a matter of fact, the work was carried out by the claimant with active cooperation of the respondent till 31.01.1986 when the work on TG-IV was completed and necessary payment was made to the claimant. It appears, therefore, that though there is no formal extension of time beyond 6-9-1983, the claimant was given informal extension of time up to 21-1-1986 when the work was finally completed.
12. Besides this, the arbitrator noted that by a letter dated 5-6-1983 the claimant had specifically intimated to the Board that the escalation provision contained in clause 2.3 (a)
(i) would not be applicable for the extended period. No objection was raised on behalf of the Board to the above letter and on the contrary, the claimant was allowed to carry on the work beyond 6-9-1983 which was the extended date, without any objection utpo 31-8-1986. The ultimate conclusion which Page No.50/61 http://www.judis.nic.in O.S.A.Nos.197 & 198 of 2019 was arrived at by the arbitrator was as follows:-
'As discussed above, the clause of price being firm cannot be extended to cover the period beyond the formal extended date i.e., 6-9-1983. Price escalation is a process which does not naturally confine itself between the date of purchase order and the extended date i.e., 6-9-1983. On the contrary, generally market tendency is that it goes on increasing with every passing day. Therefore, it would be naive to presume that there was no price escalation between the period 6-9-1983 to 31-1-1986.
In view of the above, the respondent Board cannot deny the claimant the charge on account of price escalation taking shelter under Clause 2.3 (a) of the purchase order and Clause 31 of the specification. Provision of both the clauses is applicable only up to the formal extension date 6-9-1983 and not beyond. Having allowed the claimant to carry out the work much beyond the formal extended date i.e., from 6-9-1983 to 31-1-1986, the respondent cannot now take the stand that the claimant is not entitled to escalation price for the period he worked even though there is no formal extension of time but for intents and purposes there was an extension of time upto 31-1- 1986.'
13. The arbitrator has taken the view that the provision for price escalation would not bind the claimant beyond the scheduled date of completion. This view of the arbitrator is based on a construction of the provisions of the contract, the correspondence between the parties and the conduct of the Board in allowing the completion of the contract even beyond the formal extended date of 6-9-1983 to 31-1-
1986. Matters relating to the construction of a contract lie within the province of the Arbitral Tribunal. Moreover, in the present case, the view which has been adopted by the Arbitrator is based on evidentiary material which was relevant to the decision. There is no error apparent on the face of the record which could have warranted the interference of the Page No.51/61 http://www.judis.nic.in O.S.A.Nos.197 & 198 of 2019 Court within the parameters available under the Arbitration Act, 1940. The arbitrator has neither misconducted himself in the proceedings nor is the award otherwise invalid."
52. In the light of the above discussion, we do not find any error in the decision of the learned Arbitrator in making calculation towards price escalation as per MORT & H. The learned Single Judge also considered the same and rejected it. Above all, we find that the appellant has not raised this issue either before the learned arbitrator or the learned Single Judge. For the first time, the calculation made by adopting the MORT & H method for computing the price escalation is raised before this Court. In such view of the matter, there is no arbitral issue that arises for consideration before the learned Arbitrator with regard to the mode of calculation, unless this was raised. We do not find any reason, illegality or irregularity in the decision rendered by the learned Single Judge, warranting our interference. All the other claims are not raised much.
53. We therefore confirm the common order, dated 02.04.2019 passed by the learned Single Judge in O.P. Nos. 456 and 457 of 2018. Resultantly, we dismiss these Original Side Appeals. However, there shall be no order as Page No.52/61 http://www.judis.nic.in O.S.A.Nos.197 & 198 of 2019 to costs. Consequently, C.M.Ps. are closed.
(R.P.S.J.,) (C.S.N.J.,) 24-03-2021 Index: Yes Speaking Order : Yes rsh/cs To The Sub-Assistant Registrar, Original Side, High Court, Madras.
R.SUBBIAH, J and C.SARAVANAN, J Page No.53/61 http://www.judis.nic.in O.S.A.Nos.197 & 198 of 2019 cs Pre-delivery Judgment in O.S.A.Nos.197 and 198 of 2019 Judgment delivered on 24.03.2021 O.S.A.Nos.197 and 198 of 2019 R.SUBBIAH, J and C.SARAVANAN, J Page No.54/61 http://www.judis.nic.in O.S.A.Nos.197 & 198 of 2019 (Heard through Video-Conferencing) By judgment dated 24.03.2021, we have dismissed the above O.S.A.Nos.197 and 198 of 2019.
2. Today, these appeals are listed under the caption "for being mentioned" at the instance of the learned counsel appearing for the respondent.
3. It is pointed out by the learned counsel for the respondent that in paragraph 51 of the judgment, it was inadvertently observed that "Thus the specifications would not comprise of the data book which sets out the standard rates for the years during which the work was executed". This sentence is required to be substituted with the following sentence. "Thus, the specifications would comprise of the data book which sets out the standard rates for the years during which the work was executed." Similarly, in the very same paragraph, the words "over-heads and costs" may be replaced with "increase in contract price".
4. On the above contentions, we have also heard the learned Additional Solicitor General, assisted by Mr.Su.Srinivasan, learned Standing Page No.55/61 http://www.judis.nic.in O.S.A.Nos.197 & 198 of 2019 Counsel appearing for the appellant/NHAI.
5. Having regard to the submission of counsel for both sides, entire paragraph No.51 of the judgment dated 24.03.2021 in O.S.A.Nos.197 and 198 of 2019, shall stand deleted and in its place, the following paragraph is ordered to be substituted:
"51. A reading of the above Clause shows that this clause will not apply beyond a stipulated period of time fixed in the contract. But in the instant case, the learned Arbitrator has come to the conclusion that the delay was due to the Department in handing over the possession of the site free from any hindrances. Therefore, the respondent-claimant is entitled for price escalation. In any event, these are pure findings of fact and it is clearly beyond the limited scope provided under Sections 34 and 37 of the Act. But it is the submission of the learned Additional Solicitor General that even if the respondent-claimant is entitled for compensation, it should be as per the formula provided under Clause 47. But we find that, even according to the appellant/National Highways, the rates are computed as per the rates quoted in the MORT & H Data Book in 2010-2012, which corresponds to the period of execution. Thus, the application of the MORTH standards is expressly found in the contract wherein it is stated that "Specification - The work will be carried on as per Page No.56/61 http://www.judis.nic.in O.S.A.Nos.197 & 198 of 2019 MORTH specification.". Thus the specifications would comprise of the data book which sets out the standard rates for the years during which the work was executed. This again is a matter of construction of the contract and therefore, it is purely within the realm of the learned Arbitrator. Though the original claim was Rs.33 crores, the same was scaled down before the sole arbitrator to Rs.22 crores by the claimant, as the learned Arbitrator directed that the increase in contract price and profits are to be set out and considered as a separate ground. Therefore, the respondent- claimant had reduced the amount claimed at Rs.33 crores to Rs.22 crores and this was included and considered as increase in contract price. This was also not disputed by the appellant- National Highways at any point of time. In this context, it will be useful to refer to the decision of the Honourable Supreme Court in Assam State Electricity Board and others Vs. Buildworth Private Limited, reported in 2017 (8) SCC 146. In Paragraph Nos.11 to 13 therein, it has been held as follows:-
"11. The contention of the claimant was that Clause 2.3
(a) (i) applied only for the specific period mentioned in the purchase order and not for the extended period of the contract.
According to the Board, a cap of Rs.9.16 lakhs was imposed under the above provision and no price escalation was permissible beyond it. The arbitrator entered the following finding:
"......The contract is silent as to what will happen if the work agreed to be completed by 06.09.1983 cannot be completed within 6-9-1983. It has not been disputed by the Page No.57/61 http://www.judis.nic.in O.S.A.Nos.197 & 198 of 2019 respondent that the project work was completed much beyond the extended date i.e., by 06.09.1983. It is pertinent to point out here that the extension of time upto 6-9-1983 was formally granted by the respondent by a letter dated 27.03.1983. There is no formal extension of time beyond 6.9.1983 by the purchaser, but the claimant was allowed to carry out the work beyond 06.09.1983. From the records, it is found that during the period from 06.09.1983 to 27.03.1985, there is no objection as to delay nor any formal extension. Nor was the penalty clause (2.6.7) invoked. As a matter of fact, the work was carried out by the claimant with active cooperation of the respondent till 31.01.1986 when the work on TG-IV was completed and necessary payment was made to the claimant. It appears, therefore, that though there is no formal extension of time beyond 6-9-1983, the claimant was given informal extension of time up to 21-1-1986 when the work was finally completed.
12. Besides this, the arbitrator noted that by a letter dated 5-6-1983 the claimant had specifically intimated to the Board that the escalation provision contained in clause 2.3 (a)
(i) would not be applicable for the extended period. No objection was raised on behalf of the Board to the above letter and on the contrary, the claimant was allowed to carry on the work beyond 6-9-1983 which was the extended date, without any objection utpo 31-8-1986. The ultimate conclusion which was arrived at by the arbitrator was as follows:-
'As discussed above, the clause of price being firm cannot be extended to cover the period beyond the formal extended date i.e., 6-9-1983. Price escalation is a process which does not naturally confine itself between the date of purchase order and the extended date i.e., 6-9-1983. On the contrary, generally market tendency is that it goes on increasing with every passing day. Therefore, it would be naive to presume that there was no price escalation between the period 6-9-1983 to 31-1-1986.Page No.58/61
http://www.judis.nic.in O.S.A.Nos.197 & 198 of 2019 In view of the above, the respondent Board cannot deny the claimant the charge on account of price escalation taking shelter under Clause 2.3 (a) of the purchase order and Clause 31 of the specification. Provision of both the clauses is applicable only up to the formal extension date 6-9-1983 and not beyond. Having allowed the claimant to carry out the work much beyond the formal extended date i.e., from 6-9-1983 to 31-1-1986, the respondent cannot now take the stand that the claimant is not entitled to escalation price for the period he worked even though there is no formal extension of time but for intents and purposes there was an extension of time upto 31-1- 1986.'
13. The arbitrator has taken the view that the provision for price escalation would not bind the claimant beyond the scheduled date of completion. This view of the arbitrator is based on a construction of the provisions of the contract, the correspondence between the parties and the conduct of the Board in allowing the completion of the contract even beyond the formal extended date of 6-9-1983 to 31-1-
1986. Matters relating to the construction of a contract lie within the province of the Arbitral Tribunal. Moreover, in the present case, the view which has been adopted by the Arbitrator is based on evidentiary material which was relevant to the decision. There is no error apparent on the face of the record which could have warranted the interference of the Court within the parameters available under the Arbitration Act, 1940. The arbitrator has neither misconducted himself in the proceedings nor is the award otherwise invalid."
6. In all other respects, the judgment dated 24.03.2021 shall remain Page No.59/61 http://www.judis.nic.in O.S.A.Nos.197 & 198 of 2019 unaltered.
(R.P.S.J.,) (C.S.N.J.,)
08.04.2021
cs
Registry is directed to
issue fresh judgment copy
to the parties, after incorporating the
above substituted paragraph No.51
in the judgment dated 24.03.2021
To
The Sub-Assistant Registrar,
Original Side,
High Court,
Madras.
R.SUBBIAH, J
Page No.60/61
http://www.judis.nic.in
O.S.A.Nos.197 & 198 of 2019
and
C.SARAVANAN, J
cs
O.S.A.Nos.197 and 198 of 2019
08.04.2021
Page No.61/61
http://www.judis.nic.in