Delhi District Court
Union Of India vs Agarwal Water Suppliers on 13 September, 2022
In the Court of Shri Sanjiv Jain, District Judge,
(Commercial Court-03), Patiala House Courts New Delhi
OMP (Comm) No. 112/19
Union of India
Through Sr. Divisional Engineer (North)
West Central Railway,
DRM Office,
Kota, Rajasthan.
Also through: General Manager,
Northern Railway,
Baroda House, New Delhi
... Petitioner
versus
Agarwal Water Suppliers,
C2/165, Ground Floor,
Janakpuri, New Delhi110058 .....Respondent
Date of institution : 03.07.2019 Date of reserving judgment : 01.08.2022 Date of decision : 13.09.2022 JUDGME NT
1. This petition under Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter called the 'Act') challenges the award dated 18.03.2019 passed by the Arbitrator Sh. J. C. Seth, where claim of PVC raised by the respondent and paid by the petitioner was found sufficient. The Arbitrator, however, awarded Rs. 6,00,000/- towards difference in indices for delay attributable to the petitioner. This was in addition to an amount OMP (Comm) No. 112/2019 UOI Vs. Agarwal Water Supplier Page No.1 of 30 of Rs. 16,22,208.97 already paid as PVC by the petitioner after vetting the claims filed. Claim no. 2 qua release of penalty was disallowed. Rs. 2,00,000/- was allowed in respect of claim no. 4 as token amount qua prolongation of contract for keeping machinery at site. Similarly, Rs. 2,00,000/- was allowed in respect of claim no. 5 as token amount for prolongation of contract for deploying staff at site. Interest @ 12% per annum for a period of 05 months & 11 days was allowed after giving 03 months grace period till 15.08.2014; The Arbitrator held that the future interest will be payable till the date of payment in terms of Section 31 (7) (b) of the Act.
Brief facts:
2. The facts giving rise to this petition are that the respondent "Aggarwal Water Suppliers" signed a contract with the petitioner i.e. "Railways" for Tuglakabad- Augumentation of holding capacity of ELS/TKD from 120 to 175 locos (including 60 WAG-9) and provision of custody store and training centre and modification of JD/TRD office in Delhi, vide letter of acceptance no. W-623/15/88/2009 dated 03.11.2009 for a contract price of Rs. 2,23,86,943.39.
Stipulated time for completion of contract was 8 months i.e. upto 02.07.2010. The work was completed on 15.05.2014. Balance final payment of Rs. 18,11,459/- was released to the respondent on 27.01.2015.
OMP (Comm) No. 112/2019 UOI Vs. Agarwal Water Supplier Page No.2 of 30
3. Both the parties blamed each other for the delay in the performance of contract and release of payments under the contract.
According to the petitioner, respondent took 06 months to sign the agreement (on 15.01.2010) and start compliance by mobilizing the machinery and the man power. It had issued various letters and made notes in the site order book for the delays / slow progress including issuing 7 days notice dated 13.04.2010 calling action for rectification of delay or to face determination of contract. It, thereafter, put penalty after granting 12 extensions of time for completion of the work.
According to the respondent, it received the drawings in May 2010 resulting in delay in start of work. It had requested for providing OHE blocks to enable it to perform the work. It was the petitioner, who itself wanted suspension of work vide its letter dated 08.11.2010 stating that because of financial crises of funds, it had requested to slow down the progress of work.
4. The Arbitrator framed the following issues:
1. Whether the claims are arbitrable in terms of the Arbitration Clause 63 & 64 of GCC read with Clause 33.2 of Special Conditions of Contract? Whether the claim is an 'excepted matter' from arbitration?
2. Whether the measurements of the work done shown in the Measurement Book have been accepted by the claimant (respondent herein) in accordance with Clause 45 of GCC?
3. Whether other claims are arbitrable as the claimant had OMP (Comm) No. 112/2019 UOI Vs. Agarwal Water Supplier Page No.3 of 30 executed 'no claim certificate' and received amount of Rs.
2,31,94,286/- on 27.01.2015 on account of final bill?
4. Whether there is delay in performance of the contract and if so on whose account?
5. Whether the claimant is entitled to following claims along with interest in terms of the contract?
i. Claim no. 1- Claim for less payment of PVC?
ii. Claim no.2- Release of penalty imposed by the respondent?
iii. Claim no. 3- Financial charges incurred for delayed period?
iv. Claim no. 4- Claim on account of equipments / machinery maintained by claimant during extended period?
v. Claim no. 5- Claim on account of staff deployed by claimant during extended period?
5. Both the parties led evidence by examining one witness each. The Arbitrator after hearing the arguments, gave issue- wise findings.
In respect of issue no. 1, he referred Clause 33 (2) & Clause 33.5 of the Special Conditions of Contract (SCC), which provided that the provision of Clause 63 & 64 of GCC will be applicable only for settlement of claims / disputes for a value less than or equal to 20% of the value of contract and where the claims / disputes are of the value more than 20%, arbitration will not be the remedy for settlement of such disputes and that "Special Conditions shall prevail over Clause 63 & 64 of GCC and other provisions relating to "excepted matters....." He held that in view of the aforesaid clauses, the claims of the respondent should not have exceeded beyond Rs. 44,77,388/-, OMP (Comm) No. 112/2019 UOI Vs. Agarwal Water Supplier Page No.4 of 30 whereas, the respondent had filed the claims for Rs. 48,87,000/-. The respondent then sought amendment by reducing its claims to Rs. 44,77,000/-. He referred Clause 64 (1) (iii) of GCC governing the contract, which provided that a party may amend or supplement the original claim or defence during the course of arbitral proceedings subject to acceptance by the Tribunal. He also referred Section 23 (3) of the Act and allowed the amendment.
In respect of issue no. 2, he held that since, the parties have accepted and signed the Measurement Book without any objection / protest, issue stands resolved.
In respect of issue no. 3, he referred two "No Claim Certificates", one given at the time of receipt of payment of final bill and second at the time of claiming refund of security deposit and Clause 43 (2) of GCC and the judgments quoted by the respondent i.e. National Insurance Co. Ltd Vs. Boghara Ployfab Pvt Ltd, AIR 2009 SC 170, Ambika Consturction Vs. Union of India, (2006) 13 SCC 475 and Chairman and M. D. , NTPC Limited Vs. Reshmi Construction, Builder & Contractors, (2004) 2 SCC 663, which interalia provide that there is no absolute bar to consider payment when 'no claim certificate' is produced and each case has to be examined on its own merit. He referred both the 'non claim certificates' dated 22.01.2015 and 05.02.2015 and the judgment in the case of Bharat Sanchar Nigam Vs. BWL Ltd, 2011 (2) Arb. L. R. 131, where, it was held that it will be open for the Tribunal to go into OMP (Comm) No. 112/2019 UOI Vs. Agarwal Water Supplier Page No.5 of 30 the basis of issue of 'No Claim Certificate' and give a determinative finding as to whether, it was given by the party free from any extraneous circumstances or it was obtained under force or coercion by the party in a dominating position...... if however, the evidence in arbitration reveal that such an accord and satisfaction was not born out of free will of the party it will be the duty of Arbitrator to interfere and decide conclusively on the claims despite the purported accord and satisfaction.
He observed that there has been colossal delay of 46 months. It cannot be denied that Railways was in a dominating position and was in default and responsible for the delay in making the payments. No payment was released by the Railways till 27.01.2015 after completion of the project on 15.05.2014 till the respondent signed the 'No Claim Certificate'. The respondent has repeatedly alleged that it had signed the certificate under coercion. He held that in such circumstances, 'no claim certificate' signed by the respondent cannot be said to be out of free will; The respondent is a small scale proprietory industry owned by a handicapped person. Non payment for about 8 months after completion of the work suggests undue pressure and economic coercion. After getting the full payment as per the final bill signed by the respondent, it was natural that it would voice that 'no claim certificates' were given under pressure. He found force in the contention of the respondent that since it was an old Railway contractor, it did not like to OMP (Comm) No. 112/2019 UOI Vs. Agarwal Water Supplier Page No.6 of 30 annoy the Railway Authorities.
He concluded that 'no claim certificates' were not out of free will but under economic coercion. He however held that the genesis of 'no claim certificate' as contained in Clause 43 (2) is not invalid because it serves the purpose of avoiding unnecessary litigation by unscrupulous contractors, who resort to arbitration quite often after getting full payment.
6. In respect of issue no. 4, he held that undoubtedly there was abnormal delay of 46 months in performance of contract of public importance but for this, both the parties are responsible. He referred the letter of the petitioner dated 08.11.2010, whereby, it had asked the respondent to slow down the progress of work because it was facing financial crises and was unable to pay the amount for the work done. He observed that due to recurring delays, respondent had sought 12 extensions. Earlier, it did not start mobilization for a long period. Some of the extensions were allowed with penalty because of established delay.
7. In respect of issue no. 5 i.e. Claims raised by the respondent, qua claim no. 1 i.e. payment for less PVC, he observed that the respondent had sought extensions 12 times for completion of the work, though, time was the essence of the contract. In 06 cases, PVC was allowed with penalty while extending the time. He referred Clause 17 A and Clause 17 B of OMP (Comm) No. 112/2019 UOI Vs. Agarwal Water Supplier Page No.7 of 30 GCC, Clause 5 of the tender documents and considered the contentions of the respondent that he got the payment of PVC as per Indices operative in July 2010, whereas, he should get the PVC at higher indices as applicable to the last month of completion period (extended completion period). He observed that this demand is contrary to the bills submitted by the respondent itself, who had prepared the bills for PVC on the basis of indices of July 2010. He also considered the contention of the petitioner that no dispute in this regard was raised by the respondent during the performance of contract nor any revised bills claiming Rs. 30,00,000/- were submitted and as such, arbitration on this issue is not permissible on account of waiver clause and further, claim for the period from 02.07.2010 to 04.09.2012 is time barred since reference to arbitration was made on 05.09.2015.
The Arbitrator, considering all the aspects held that the claim of PVC as raised by the respondent was already vetted and paid by Railways. Since, no additional claim was raised before initiating the arbitration, the same cannot be agitated in the arbitration now. He, however, observed some ambiguity in the language of Clause 5 stating that there is no existing sub Clause 17 (4) as mentioned in Clause 5. He held that the claim of Rs. 30,00,000/- is not proved, however, on overall consideration, he believes that it would be just & equitable to allow a token amount of Rs. 6,00,000/- on account of difference in indices for delay for PVC in addition to Rs. 16,22,208.97 OMP (Comm) No. 112/2019 UOI Vs. Agarwal Water Supplier Page No.8 of 30 already paid as PVC by the Railways.
Qua claim no. 2, he held that the Railways rightly levied the penalty under Section 55 of the Indian Contract Act while granting time extension 12 times under Clause 17 B of GCC. Further, the respondent had continued to work despite the penalty till the extended time. He did not interfere with the decision of Railways and disallowed the claim of Rs. 6,67,000/- holding to be an afterthought.
8. Qua claims nos. 4 & 5, he held that both the parties were responsible for delay of 46 months in completion of work, which was scheduled to the completed in 8 months, where 'time was the essence of the contract' to be regularized by extensions of time under Clause 17 A & Clause 17 B of GCC. He held that the evidence produced by the respondent is perfunctory. There is no satisfactory evidence of hiring the machinery and vehicle for the entire period at the said rate. As there was actual prolongation for which some machinery was required which was taken on hire, he allowed a token amount of Rs. 2,00,000/- for the same. He observed that since the respondent had to complete the work, it had to keep some staff at site till the completion of work. It is an old railway contractor and it knows the working conditions at site, which as per the contract document was also required to be ascertained before bidding. He held that for keeping its staff deployed, the respondent cannot be compensated. Further, respondent did not prove the OMP (Comm) No. 112/2019 UOI Vs. Agarwal Water Supplier Page No.9 of 30 vouchers of payments made to the staff. He, however, as a token, because there was delay in providing drawings / OHE blocks by the railways, allowed an amount of Rs. 2,00,000/- for the same.
9. Qua claim no. 6 i.e. interest, he referred Clause 16 (3) of GCC, which interalia provided that no interest will be payable on the earnest money or the security deposit or the amount payable under the contract. He referred the case of BHEL Vs. Globe Hi-Fabs, 2013 (5) SCC 718, where, it was held that no interest is payable in the cases where clause bars payment of interest. He also referred the judgment of the Supreme Court reported in Raveechee & Co. v. Union of India, (2018) 7 SCC 664, which provided that the Arbitrator has power to award pendente lite interest, where it is otherwise justified and Section 28 (3) of the Act and held that it is a fit case to award pendente lite interest on the last delayed payment as the work was completed on 15.05.2014 for which the payment was released only on 27.01.2015. He allowed interest @ 12% per annum for the period of 05 months & 11 days delay after giving 03 months grace period till 15.08.2014. He also awarded future interest in terms of Section 31 (7) (b) of the Act.
10. The petitioner challenged the award alleging that the respondent after completing the work had accepted all the running / final measurements in respect of the work done till the OMP (Comm) No. 112/2019 UOI Vs. Agarwal Water Supplier Page No.10 of 30 date of completion. Joint measurements were duly signed by the parties. It had given 'no claim certificates' voluntarily and received the full & final payments by giving 'no dues certificates'. Therefore, the dispute was non-arbitrable. Even otherwise, the claims were more than 20% of the contract value, which even otherwise fall in the category of 'excepted matter'. It is stated that the respondent signed the agreement after a lapse of six months, which shows that respondent had no intention to execute the work in time. It is stated that non- availability of funds had no effect on the execution of work. It was the respondent, who did not mobilize the machinery / man power till 30.05.2010. Since, it failed to perform the work within the stipulated time, the funds had lapsed, resultantly it was asked to go slow but that too for a very short span. No bill of the respondent remained pending due to the said reason. It was given notice under Clause 62 of GCC on 13.04.2010 but it did not pay any heed. It is stated that the respondent started the work in piecemeal on 31.05.2010 just one month before the date of completion. Petitioner had fully cooperated with the respondent and did not terminate the contract. The respondent was granted extension of time from 02.07.2010 to 31.12.2010 but it failed to give any satisfactory progress. Further extensions were granted and the respondent had taken more than four years to complete the work for which, it was solely responsible as evident from the letters and for this reason, penalties were imposed, which the respondent never protested.
OMP (Comm) No. 112/2019 UOI Vs. Agarwal Water Supplier Page No.11 of 30 It is stated that as per the conditions of the contract and GCC, while granting extensions, PVC was disallowed in some of the extensions since, the extensions were granted under Clause 17 B of GCC since, there was delay on the part of the respondent. In view of Para 11 of agreement, which provided for quantity variation upto + - 25% and new items, no claim is maintainable. It is stated that the work never got hampered because of amendment in the drawings / designs. It is stated that in terms of Clause 16 (3) of GCC, no interest is payable to the respondent.
11. The petitioner challenged the award on the following grounds:
A. That the award is bad in facts & law and against the public policy of India. The Arbitrator erred in holding that 'no claim certificates' were not out of free will but under economic coercion. The petitioner had already released the payments against eight running bills in terms of the accepted joint measurements upto 05.04.2014, so there was no question of not releasing the payment by the petitioner to the respondent till / after the completion of project. About 92% payments were already made before the no claim certificates, which were signed by the respondent without any protest, which fact is also evident from the testimony of CW1.
B. That the Arbitrator erred in holding that there was contributory delay on the part of Railways merely on the basis of a letter dated 08.11.2010, which was issued after the expiry of the contractual period. It is stated that the petitioner had proved on record that the respondent had not started the work during the contractual period, although, all the drawings / designs / layouts were given to the respondent, which fact, the Arbitrator did not consider nor he considered the evidence led by the petitioner in this regard.
OMP (Comm) No. 112/2019 UOI Vs. Agarwal Water Supplier Page No.12 of 30 C. That on the one hand, the Arbitrator declined the demand of further PVC holding that additional claim of PVC is not maintainable and cannot be agitated in the arbitration now and on the other hand he awarded a sum of Rs. 6,00,000/- as a token, which is absolutely illegal and without any basis and contrary to his own findings. Therefore, the award against claim no. 1 is based on conjunctures / surmises / no evidence. Similarly, in respect of claim nos. 4 & 5, though, the claims are not based on any specific provisions of the contract and the evidence produced is perfunctory but still he allowed Rs. 2,00,000/- each as token amount merely on the ground that the contract was prolonged. Further, the respondent did not prove the vouchers of payments to the staff.
D. That the Arbitrator failed to appreciate the decision in the case of Union of India Vs. Conbes India Pvt Ltd, FAO (OS) 494/2010 qua interpretation of Clause 16 of GCC and wrongly allowed the interest @ 12% per annum for the period of five months and eleven days and future interest in terms of Section 31 (7) (b) of the Act.
12. On getting notice of the petition, the respondent did not file any reply. The arbitral record was summoned.
13. I have heard the arguments advanced by Ld. Counsel Sh.
Jagjit Singh assisted by Sh. Preet Singh & Sh. Vipin Chaudhary for the petitioner and Ld. Counsel Sh. S. W. Haider asisted by Ms. Mehak Dogra for the respondent.
14. Ld. Counsel for the petitioner reiterated what has been stated in the petition. Ld. Counsel stated that all the payments against PVC were made as per the bills submitted by the respondent. When the respondent signed 'no claim certificates', there was no coercion or pressure on the respondent nor there OMP (Comm) No. 112/2019 UOI Vs. Agarwal Water Supplier Page No.13 of 30 was any protest on the part of the respondent. The payments against the bills were made within five months. Ld. Counsel stated that extensions were given under Clause 17 B of GCC, which provided for levy of penalty, so liquidated damages / penalties were rightly imposed on the respondent and recovered. Ld. Counsel stated that the award against the claims towards PVC, machinery and staff is based on conjunctures / surmises and contrary to the observations given by the Arbitrator. Ld. Counsel stated that the payments against PVC were rightly made. Ld. Counsel stated that the impugned award is bad in facts & law and is against the public policy of India, which has been passed contrary to his own findings.
15. Ld. Counsel for the respondent per contra argued that the respondent had lodged protest vide its letter dated 23.05.2011 clearly stating that the proposed extensions with penalty as conveyed was not at all acceptable to the respondent, being unfair & unreasonable. Even the penalty recovered was unreasonable & unlawful since the execution of work was delayed purely on administrative reasons and it was officially conveyed vide letter dated 08.11.2010 to slow down the progress of work because of shortage of funds. In the letter, it was also pointed out that further extension was granted to it without penalty but without PVC, which was highly unjustified. It had requested to determine the contract under Clause 61 of GCC. It vide letter dated 23.04.2012 referring its earlier letters OMP (Comm) No. 112/2019 UOI Vs. Agarwal Water Supplier Page No.14 of 30 dated 01.11.2011, 30.08.2010 & 23.05.2010 had refused to accept the extensions and requested for treating the extensions without penalty and with PVC. He referred Clause 17.1 (e) & 18 (c) of the Tender Form, which provided that before releasing the security deposit, unconditional and unequivocal 'no claim certificate' from the contractor shall be obtained and the security deposit shall be released only after passing the final bill based on 'no claim certificate'.
16. Ld. Counsel contended that Clause 64 of GCC does not talk about 'no claim certificate', so there was no question of any ouster clause. He referred letter dated 05.09.2015 of the respondent, which had a reference of the said clause and the conditions for releasing the payments only after getting the 'no claim certificate' and the written arguments filed before the Arbitrator, wherein, it was stated that the payment against PVC was made on 16.06.2015 i.e. after four months of no claim, which fact in itself reflects as to in what manner, such no claim certificate was taken when even as per the respondent, PVC was yet to be paid. Again for releasing the security deposit, the respondent took the alleged 'no claim certificate' on 05.02.2015 to avoid paying up the genuine claim of the respondent as the petitioner knew about it. Ld. Counsel stated that no claim certificate was taken on a printed performa and in noway can be said to be voluntary.
17. Ld. Counsel contended that the Court has no jurisdiction OMP (Comm) No. 112/2019 UOI Vs. Agarwal Water Supplier Page No.15 of 30 to sit and examine the correctness of the award on merits with reference to the material produced before the Arbitrator. It does not sit in appeal over the views of the Arbitrator by re- examining and re-assessing the material, unless, perversity is writ large on the fact of the arbitral award or the award suffers from the vice of jurisdictional error. Ld. Counsel stated that when the reasons given by the Arbitrator are germane, relevant and have rational nexus, the reasonableness of the reasons cannot be challenged. Ld. Counsel stated that there is no illegality / infirmity in the impugned award and the petition deserves to be dismissed with costs.
18. I have given my thoughtful consideration to the rival contentions and gone through the material placed on record and the cases (supra).
19. Section 34 of the Arbitration and Conciliation Act reads as:
"34.Application for setting aside arbitral award-
(1)Recourse to a court against an arbitral award may be made only by an application for setting aside such award in accordance with sub-section (2) and sub- section (3). (2)An arbitral award may be set aside by the court only if-
(a) the party making the application furnishes proof that-
(i) a party was under some incapacity, or
(ii) the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law for the time being in force; or
(iii) the party making the application was not given proper OMP (Comm) No. 112/2019 UOI Vs. Agarwal Water Supplier Page No.16 of 30 notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or
(iv) the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration;
Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside; or
(v) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Part from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Part; or
(b) the court finds that-
(i) the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or
(ii) the arbitral award is in conflict with the public policy of India.
Explanation- I For the avoidance of any doubt, it is clarified that an award is in conflict with the public policy of India only if the making of the award was induced or affected by fraud or corruption or was in violation of Section 75 or Section 81."
ii) It is in contravention with the fundamental policy of Indian law;
iii) It is in conflict with the most basic notions of morality or justice.
Explanation-II- 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.
[2 (A) An arbitral award arising out of arbitrations other than international commercial arbitrations, may also be set aside by the court, if the court finds that the award is vitiated by patent illegality appearing on the face of the award: Provided that an award shall not be set aside merely on the ground of OMP (Comm) No. 112/2019 UOI Vs. Agarwal Water Supplier Page No.17 of 30 an erroneous application of the law or by reappreciation of evidence.
20. Normally, the general principles are that the decision of the Arbitrator unless there is an error apparent on the face of the award which makes it unsustainable, is not to be set aside even if the court as a court of law would come to a different conclu- sion on the same facts. The court cannot reappraise the evi- dence and it is not open to the court to sit in appeal over the conclusion of the arbitrator. It is not open to the court to set aside a finding of fact arrived at by the arbitrator and only grounds on which the award can be cancelled are those men- tioned in the Arbitration Act. Where the arbitrator assigns co- gent grounds and sufficient reasons and no error of law or mis- conduct is cited, the award will not call for interference by the court in the exercise of the power vested in it.
21. In the case of Associate Builders v/s Delhi Development Authority, (2015) 3 SCC 49, it was held that interference with an arbitral award is permissible only when the findings of the arbitrator are arbitrary, capricious or perverse or when con- science of the Court is shocked or when illegality is not trivial but goes to the root of the matter. The arbitrator is ultimately a master of the quantity and quality of evidence while drawing the arbitral award. Patent illegality must go to the root of the matter and cannot be of trivial nature.
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22. In Ssangyong Engineering & Construction Co. Ltd. vs. National Highways Authority of India Ltd. 2019 SCC OnLine SC 677, the Supreme Court has held that under Section 34 of the Act, a decision which is perverse while no longer being a ground for challenge under public policy of India but would certainly amount to a patent illegality appearing on the face of the award. A finding based on the documents taken behind the back of the parties by the arbitrator would also qualify as a de- cision based on no evidence inasmuch as such decision is not based on evidence led by the parties and therefore would also have to be characterized as perverse.
23. There is no quarrel on the legal position that the legislative mandate clearly bars the Court to re-appreciate the evidence for deciding an objection under Section 34 of the Act. The parties are also not allowed to expand the scope of defences raised before the Arbitrator to get fresh adjudication from the Court. However, in order to see whether the Arbitrator has passed the award against the basis notions of justice or it is patently illegal as alleged by the petitioner, I deem it appropriate to consider the real controversy between the parties, which gave rise to the cause of action for filing the claims and the manner in which it were appreciated by the Arbitrator in reference to the terms & conditions of the contract.
OMP (Comm) No. 112/2019 UOI Vs. Agarwal Water Supplier Page No.19 of 30
24. A perusal of record reveals that the respondent was awarded the contract for an amount of Rs. 2,23,86,943.39 vide letter of award dated 03.11.2009. It was to be completed in a period of 08 months i.e. upto 02.07.2010. The work was actually completed on 15.05.2014. As many as, 12 extensions of time were granted by the petitioner some with penalty and some without penalty but all were without PVC. Indices for the month of July 2010 was taken for calculation of PVC. As per calculation of 2nd & final PVC, as evident from the document from Page 163 to Page 172 of the petition, against the bill amount of Rs. 2,31,94,285.99, PVC was calculated as Rs. 16,24,209.95 against which Rs. 14,97,020.97 was paid and net PVC charge payable to the respondent was Rs. 1,27,188.98. This PVC was vetted by the petitioner on 18.05.2015.
25. Record reveals that 1st extension (two times) was accorded by the petitioner vide letter dated 16.08.2010 for the period from 03.07.2010 to 30.11.2010 with token penalty of Rs. 8000/- per month without benefit of PVC and from 01.12.2010 to 31.12.2010 with penalty @ ½% per week as per GCC. 2nd extension was granted for the period from 01.01.2011 to 30.06.2011 without penalty and without PVC benefit vide letter dated 24.03.2011. 3rd extension (two times) was granted vide letter dated 11.09.2011 for the period from 01.07.2011 to 30.09.2011 without penalty and without PVC benefit and from 01.10.2011 to 31.12.2011 with token penalty of Rs. 5000/- per OMP (Comm) No. 112/2019 UOI Vs. Agarwal Water Supplier Page No.20 of 30 month without PVC benefit under Clause 17 (B) of GCC. 4Th extension was granted vide letter dated 09.08.2012 for the period from 01.01.2012 to 30.11.2012 with a token penalty of Rs. 10,000/- and without PVC benefit. 5th extension was granted vide letter dated 09.01.2013 for the period from 01.12.2012 to 31.03.2013 with a token penalty of Rs. 10,000/- and without PVC benefit. 6Th extension was granted vide letter dated 11.04.2013 for the period from 01.04.2013 to 30.06.2013 without penalty and without PVC. 7Th extension was granted vide letter dated 24.07.2013 for the period from 01.07.2013 to 30.10.2013 without penalty and without PVC benefit. 8Th extension was granted vide letter dated 10.12.2013 for the period from 31.10.2013 to 31.12.2013 without penalty and without PVC benefit. 9Th extension was granted vide letter dated 17.03.2014 for the period from 01.01.2014 to 30.04.2014 with token penalty of Rs. 5000/- and without PVC benefit. 10Th extension was granted vide letter dated 21.01.2015 for the period from 01.05.2014 to 15.05.2014 with penalty of Rs. 5000/-. Though, in some extensions, penalty was imposed but only in one case i.e. vide letter dated 11.09.2011, extension was granted under Clause 17 (B) of GCC.
26. It is relevant to reproduce Clause 17 (A) & Clause 17 (B) of GCC, Clause 5 of the Tender Document and Clause 64 (1)
(iii) & Clause 64 (1) (iv).
OMP (Comm) No. 112/2019 UOI Vs. Agarwal Water Supplier Page No.21 of 30 Clause 17A:- Subject to any requirement in the contract as to completion of any portions or portions of the works before completion of the whole, the contractor shall fully and finally complete the whole of the works comprised in the contract (with such modifications as may be directed under conditions of this contract) by the date entered in the contract or extended date in terms of the following clauses:-
(i) If any modification have been ordered which in the opinion of the Engineer have materially increased the magnitude of the work, then such extension of the contracted date of completion may be granted as shall appear to the Engineer to be reasonable in the circumstances, provided moreover that the contractor shall be responsible for requesting such extension of the date as may be considered necessary as soon as the cause thereof shall arise and in any case not less than one month before the expiry of the date fixed for completion of the works".
Clause 17-B Extension of time for delay due to contractor:- The time for the execution of the work or part of the work specified in the contract documents shall be deemed to be the essence of the contract and the works must be completed not letter than the date(s) as specified in the contract. If the contractor fails to complete the works within the time as specified in the contract for the reasons other than the reasons specified in Clause 17 and 17-A, the Railway may, if satisfied that the works can be completed by the Contractor within reasonable short time thereafter, allow the contractor for further extension of time (Performa Annex.I) as the engineer may decide. On such extension the Railway will be entitled without prejudice to any other right and remedy available on that behalf, to recover from the contractor as agreed damage and not by way of penalty a sum equivalent to ½ of 1% of the contract value of the works for each week or part of the week.
Clause 5: Price variation during extended period of contract: The price adjustment as worked out above i.e. either increase or decrease will be applicable upto the stipulated date of completion of work including the extended period of completion where such extension has been granted under Clause 17 (A) (i) (ii) & (iii) of the GCC. However, where extensions of time has been granted due to contractor's failure under Clause 17 (B) of the GCC. Price adjustment will be done as follows:
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(a) In case the indices increase above the indices applicable to the last month or original completion period or the extended period under Clause 17 (A) (i) (ii) & (iii), the price adjustment of the period of extension granted under Clause 17 (4) will be limited to the amount payable as per the indices applicable to the last month of the original completion period of the extended period under Clause 17 (A) (i) (ii) & (iii) of GCC, as the case may be.
(b) In case the indices fall below the indices applicable to the last month of the original / extended period of competition under Clause 17 (A) (i) (ii) & (iii) as the case may be then the lower indices will be adopted for price adjustment for the period of extension under Clause 17 (B) of GCC.
Clause 64 (1) (iii):- No new claim shall be added during proceedings by either party. However, a party may amend or supplement the original claim or defense thereof during the course of arbitration proceedings subject to acceptance by tribunal having due regard to the delay in making it.
Clause 64 (1) (iv): If the contractor/s does/do not prefer his / their specific and final claims in writing, within a period of 90 days of receiving the intimation from the Railways that the final bill is ready for payment, he / they will deemed to have waived his / their claim/s and the Railway shall be discharged and released of all liabilities under the contract in respect of these claims.
27. In the impugned award, The Arbitrator has observed "the claimant now says he had got payment of PVC as per indices operative in July 2010, whereas he should have got the PVC at higher indices as applicable to the last month of completion period of extended completion period (s) as granted from time to time". He held that this demand is contrary to all the bills submitted by the claimant himself, who had prepared the bills for PVC on the basis of indices of July 2010. He observed that OMP (Comm) No. 112/2019 UOI Vs. Agarwal Water Supplier Page No.23 of 30 now the claimant, in the arbitration, claims PVC on the basis of indices applicable for the last month of revised completion dates from time to time, which indices are higher with the passage of time, by filing a chart with relevant indices but without revised bills or calculations of PVC. He held that no notification issued by the Authorities has been enclosed to verify the same nor it has proved the claim of Rs. 30,00,000/- through its witness, who had tendered evidence before him. He held that obviously PVC is payable on account of delay and both the parties were contributory to the delay but all the bills raised by the claimant for PVC have been paid by the Railways aggregating to Rs. 16,22,208.97. He recorded the contention of the counsel for the Railways that no dispute was raised during performance of the contract nor any revised bills claiming Rs. 30,00,000/- were ever submitted by the claimant. Hence, such claim cannot be considered in arbitration, which shall be deemed to have been waived. Further, the claim for the period from 02.07.2010 to 04.09.2012 is time barred as the reference to arbitration was made on 05.09.2015.
28. I failed to understand on what basis, he allowed Rs.
6,00,000/- as a token amount on account of difference in indices for delay attributable to Railways. It assumes significance because in the same para, he has observed that considering all aspect including the technical ground, the claims of PVC as raised by the claimant itself, already vetted and paid OMP (Comm) No. 112/2019 UOI Vs. Agarwal Water Supplier Page No.24 of 30 by Railways, were sufficient and thereafter no additional claim was raised before the arbitration started. It cannot be agitated in arbitration now. Moreover, there is ambiguity in the language of Clause 5 as there is no existing sub-clause 17 (4) as mentioned in Clause 5. He has held that claim of the claimant is Rs. 30,00,000/- was not proved during the arbitration. I am of the view that the award is contrary to the observations made in the same para, thus, perverse being without any basis and reasoning rather it is whimsical.
29. It is also relevant to mention that the Arbitrator while passing award in respect of Claim no. 2 qua release of penalty did not find any reason to interfere with the decision of Railways (petitioner herein) and rejected the claim of the claimant for Rs. 6,67,000/- holding to be an afterthought, which award has not been challenged by the respondent / claimant.
30. Now coming to Claim no. 4, admittedly, both the parties were contributory for the delay of 46 months in completion of the contract, which was scheduled to be completed within 08 months and the time was of the essence of the contract, which was to be regularized by extension of time under Clause 17 (A) & Clause 17 (B) of GCC but the Arbitrator while passing the award through observed that the claim of Rs. 4,05,000/- for keeping machinery, vehicle etc for a longer period till completion of the contract is not based on any specific OMP (Comm) No. 112/2019 UOI Vs. Agarwal Water Supplier Page No.25 of 30 provision of the contract and the evidence produced is perfunctory nor there is any satisfactory evidence of hiring the machinery and vehicle for entire period at the said rate, awarded as token amount of Rs. 2,00,000/-, I failed to understand on what basis he allowed a token amount of Rs. 2,00,000/- in respect of the said claim. I am of the view that the award of the said amount is whimsical and without reasons and thus perverse.
31. Similarly in respect of claim no. 5 i.e. prolongation of contract for deploying staff at site, it may be true that both the parties are equally liable for delay but it has also been observed by the Arbitrator that the claimant had the responsibility to complete the work, it had to keep some personals at site till completion, he was an old Railway contractor and he knew well the working conditions at site, like every other bidder, he was required to ascertain himself the conditions of site before bidding. He has held that claimant hardly needs to be compensated for keeping its staff deployed for completing the work. He did not prove the vouchers or payment made to the staff, still he allowed a token amount of Rs. 2,00,000/-. I failed to understand on what basis as a token of relief he allowed this amount of Rs. 2,00,000/-. I am of the view that the said finding is against the observations recorded and without evidence, which is perverse.
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32. As regards interest pendente lite, Clause 16 of GCC clearly provides that no interest will be payable on the amount payable to the contractor under the contract, which has also been upheld in the case of BHEL Vs. Globe Hi-Fabs (supra). It is not understood why he allowed pendente lite interest on the last delayed payment for the period of 05 months and 11 days after giving 03 months grace period till 15.08.2014.
33. As regards the contention that the claims are not arbitrable, Clause 33.2 & 33.5 of Special Condition of Contract and Clause 63 & 64 (1) (iii) of GCC and Section 23 (3) of the Act clearly permit the Arbitrator to allow the amendment of claim or defence if the Arbitrator considers the amendment as appropriate, I am of the view that Arbitrator was right in allowing the amendment of the amounts of claims by reducing the total claim to bring the total claims amount within the limit of 20% of the contract value. It was for the claimant to assess what amount he has to claim from the petitioner. No interference on this finding is called for.
34. As regards findings on issue no. 3 i.e. no claim certificate signed by the claimant / respondent, the Arbitrator has referred Clause 43 (2) of GCC and the 'no claim certificates' for getting payment on final bill on 22.01.2015 and getting refund of security deposit dated 05.02.2015 and the judgments in the case of National Insurance Co. Ltd Vs. Boghara Ployfab Pvt Ltd, OMP (Comm) No. 112/2019 UOI Vs. Agarwal Water Supplier Page No.27 of 30 (supra), Ambika Consturction Vs. Union of India (supra) and Chairman and M. D. , NTPC Limited Vs. Reshmi Construction, Builder & Contractors (supra) and Bharat Sanchar Nigam Vs. BWL Ltd (supra) and has rightly held that in this case, there has been colossal delay of 46 months. Railway was in dominating position and was in default and responsible for delay in making the payments as no payment was released by the petitioner to the claimant till 27.01.2015 after completion of the project on 15.05.2014 till the claimant signed the 'no claim certificate'. He has observed that the claimant has repeatedly alleged that he had signed the certificate under coercion. He has rightly held that in such circumstances, signing of 'no claim certificate' cannot be said to be out of free will but because of coercion. He has also observed that claimant is a small scale proprietary industry owned by an handicapped person. Non payment for about 08 months after completion of the work on 15.05.2014 suggests undue pressure and economic coercion. After getting the full payment as per final bill signed by him, it was natural that he would voice that no claim certificates were given under pressure. He has also observed that claimant was an old Railway contractor and he did not like to annoy the Railway authority as claimed by him. I am of the view that the Arbitrator has rightly concluded that the 'no claim certificates' were not out of free will but under economic coercion. He has rightly held that genesis of 'no claim certificate' as contained in Clause 43 (2) is not invalid because it serves the purpose of avoiding OMP (Comm) No. 112/2019 UOI Vs. Agarwal Water Supplier Page No.28 of 30 unnecessary litigation by unscrupulous contractors, who resort to arbitration quite often after getting for payment.
35. I am of the view that while deciding this issue, the Arbitrator has taken a balance view, which does not call for interference.
36. As regards finding on issue no. 4 i.e. delay in performance of contract, the Arbitrator has referred the letters exchanged by the parties and has rightly observed that Railways was also contributory to the delay as it vide letter had asked the claimant to slow down the progress of work on account of financial crises. There were delays in supplies of OHE Blocks and drawings also. He also noticed that the claimant did not start the mobilization for a long period and some of the extensions were allowed with penalty because of established delay. In this case, because of the slow progress, the Railways had issued 07 days notice dated 13.04.2010 calling action. Site Engineers had also made observations in the site order book for the delays. I am of the view that the Arbitrator was right in holding that both the parties were at fault and had contributed to the delay.
37. In the case of Ssangyong Engineering & Construction Co. (supra), it has been held in unequivocal terms that a decision, which is perverse would amount to a patent illegality OMP (Comm) No. 112/2019 UOI Vs. Agarwal Water Supplier Page No.29 of 30 appearing on the face of the award. A decision based on no evidence will also be categorized as perverse. In the instant case, as observed, the finding of the Arbitrator on claim nos. 1, 4 & 5 is perverse, which is based on no evidence. The award being erroneous is liable to be set aside, since not based on reasoning.
38. Section 34 (2) (a) & (b) of the Act provides that an arbitral award may be set aside by the Court, if the party making the application furnishes proof that the award is in contravention with the fundamental policy of India or it is in conflict with the most basic notions of morality or justice or perverse.
39. For the aforesaid reasons, I am of the view that the award deserves to be set aside being perverse, against the basic notions of justice and the fundamental policy of Indian Law. The impugned award is therefore set aside with no orders as to costs.
40. File be consigned to record room.
Announced in open court today i.e. 13.09.2022 (Sanjiv Jain) District Judge (Commercial- 03) Patiala House Courts, New Delhi OMP (Comm) No. 112/2019 UOI Vs. Agarwal Water Supplier Page No.30 of 30