Karnataka High Court
Eci Engineering And Construction ... vs Mangalore Refinery & Petrochemicals ... on 16 February, 2016
Author: N.K.Patil
Bench: N.K.Patil
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IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 16TH DAY OF FEBRUARY 2016
PRESENT
THE HON'BLE MR. JUSTICE N.K.PATIL
AND
THE HON'BLE MR.JUSTICE PRADEEP D. WAINGANKAR
M.F.A. No.3545 of 2008(AA)
C/W
M.F.A.CROB No.18 of 2009(AA)
IN M.F.A. No.3545 of 2008
BETWEEN:
ECI ENGINEERING & CONSTRUCTION
COMPANY LTD.,
A COMPANY INCORPORATED UNDER
INDIAN COMPANIES ACT, 1956
1-10-44-2/1, CHIKOTI GARDENS
BEGUMPET, HYDERABAD-500016.
NOW AT:
3RD FLOOR, ANSHU COLORS, PLOT No.70
ROAD No.1, JUBILEE HILLS, HYDERABAD - 500 033.
REPRESENTED BY ITS CHAIRMAN
Mr. K. VENKAT RAO
S/O LATE SRI. UMAMAHESWARA RAO
AGED ABOUT 56 YEARS
R/O. PLOT No.87, ROAD No.9
JUBILEE HILLS, HYDERABAD - 500 034.
... APPELLANT
(BY SMT. AKKAMAHADEVI HIREMATH, ADVOCATE)
AND:
1. MANGALORE REFINERY &
PETROCHEMICALS LTD,
A COMPANY INCORPORATED UNDER
INDIAN COMPANIES ACT, 1956
HAVING ITS REGISTERED OFFICE AT
2
MUDUPADAV, KUTHETHUR POST
VIA KATIPALLA, MANGALORE -575 030
KARNATAKA.
2. LEARNED ARBITRATOR
HON'BLE JUSTICE VENKATESH MURTHY
No.293, 7TH CROSS, 2ND MAIN
I BLOCK, R.T. NAGAR, BANGALORE - 560 032.
... RESPONDENTS
(BY SRI. D.L.N. RAO, SR. COUNSEL FOR MULLA & MULLA,
CRAIGIE BLUNT & CAROE, ADVS., FOR R-1
R-2 SERVED & UNREPRESENTED)
THIS MFA IS FILED U/S 37(1) OF THE ARBITRATION
AND CONCILIATION ACT, AGAINST THE ORDER DATED
31.01.2008 PASSED IN A.S.No.8/2005 ON THE FILE OF THE I
ADDITIONAL DISTRICT JUDGE, DAKSHINA KANNADA,
MANGALORE, PARTLY ALLOWING THE SUIT FILED U/S 34 OF
THE ARBITRATION AND CONCILIATION ACT & SETTING
ASIDE THE AWARD DATED 08.09.2005.
IN M.F.A.CROB No.18 of 2009
MANGALORE REFINERY AND
PETROCHEMICALS LTD.,
A COMPANY INCORPORATED UNDER
THE PROVISIONS OF THE INDIAN
COMPANIES ACT, 1956
HAVING ITS REGISTERED OFFICE AT
MUDUPADAV, KUTHETHUR POST
VIA KATIPALLA, MANGALORE - 574 149
KARNATAKA.
.....CROSS OBJECTOR
(BY SRI. D.L.N. RAO, SR. COUNSEL FOR MULLA & MULLA
CRAIGIE BLUNT & CAROE, ADVS.,)
AND:
1. ECI ENGINEERING AND CONSTRUCTION
COMPANY, A COMPANY INCORPORATED
UNDER THE PROVISIONS OF THE INDIAN
COMPANIES ACT, 1956, HAVING ITS
OFFICE AT 3RD FLOOR, ANSHU COLORS
PLOT No.70, ROAD No.1, JUBILEE HILLS
HYDERABAD - 500 033.
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2. LEARNED ARBITRATOR
THE HON'BLE JUSTICE VENKATESH
MURTHY (RETD)
No.293, 7TH CROSS, 2ND MAIN, I BLOCK
R.T. NAGAR, BANGALORE - 560 032.
....RESPONDENTS
(BY SMT: AKKAMAHADEVI HIREMATH, ADV.,)
THIS MFA CROB IN MFA No.3545/2008 IS FILED UNDER
ORDER 41 RULE 22 OF CPC AGAINST THE JUDGMENT DATED
31.01.2008 PASSED IN A.S.No.8/2005 ON THE FILE OF I
ADDITIONAL DISTRICT JUDGE, DAKSHINA KANNADA,
MANGALORE, PARTLY ALLOWING THE SUIT FILED U/S 34 OF
THE ARBITRATION AND CONCILIATION ACT FOR SETTING
ASIDE THE AWARD DT:08.09.2005.
THIS MFA A/W MFA CROB HAVING BEEN HEARD AND
RESERVED FOR JUDGMENT ON 05.11.2015 AND COMING ON
FOR PRONOUNCEMENT OF JUDGMENT THIS DAY, PRADEEP
D. WAINGANKAR J., DELIVERED THE FOLLOWING:
JUDGMENT
Both these appeal and cross-objection are preferred against the judgment dated 31.01.2008 in Arbitration Suit No.8/2005 on the file of the I Additional District Judge, Dakshina Kannada, Mangalore.
2. The parties are referred to as they are referred by the Arbitrator in Arbitration Proceeding. The appellant- ECI Engineering and Construction Company Limited is referred as 'Claimant' and Cross-objector-Mangalore Refinery 4 and Petrochemicals Limited (MRPL) is referred as 'respondent' during the course of the judgment.
3. Brief facts which gave rise to the appeal and cross-appeal are as under:-
The respondent entered into an agreement dated 06.03.1997 with the claimant for the execution of site grading work at their Crude Oil Refinery at Mangalore subject to special conditions and general conditions appended to the agreement. A letter of intent dated 06.03.1997 was issued by the respondent to the claimant. The total price of the contract work was fixed at Rs.6.93 Crores. The site grading work was to be completed by 10.10.1997 within a period of 7 months as per the terms and conditions of the contract. The respondent appointed Toyo Engineering Corporation as Project Management Consultant for the contract work. Toyo Engineering Corporation inturn appointed Engineers India Limited as the Engineers in-charge of the said contract work on behalf of the respondent to provide Project Management, Construction Management and Supervision Services. The 5 contract work involved hard rock grading and soil grading.
The contract work could not be completed within the time stipulated. In fact, the contract work was completed on 15.09.1999. The time was extended by the respondent for the completion of the work by twenty three months at the request of claimant without imposing penalty. There was a delay in completion of the work. As a result, the claimant had to incur more expenditure for mobilization of additional plant and machinery and due to the increase in price of petrol by the Government. According to the claimant, the work could not be completed within the stipulated period on account of change in the methodology of blasting work at the intervention of National Institute of Rock Mechanic (NIRM) a stranger to the contract at the belated stage at the instance of the respondent, on account of monsoon, land slide due to heavy rains and labour problems. After completion of the work satisfactorily, the contractor putforth additional claims amounting to Rs.4,29,06,456/- towards the additional cost incurred due to delay in completion of the work on account 6 of change in the methodology of blasting and other reasons. The respondent rejected the claim as to the additional cost incurred. Further, out of the bill amount to be paid to the claimant, the respondent adjusted Rs.57,00,000/- against the security deposit, appropriated Rs.11,32,023/- towards the amount due from the claimant in respect of contract W.O.No.E.5022 a altogether different contract which is in noway concerned to the contract work in question. The respondent deducted Rs.2,32,050/- as interest on advance amount paid in relation to W.O.No.E.5022 apart from rejecting a claim for an amount of Rs.18,90,000/- incurred towards removal of Rain washed soil due to land slide. Therefore, dispute arose between the parties which was referred for Arbitration in terms of the Arbitration Clause in the contract.
The claimant filed claim statement. The respondent filed the reply. Based on the pleading, the arbitrator framed the following points for consideration:-
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1) Does claimant prove that withholding of Rs.57,00,000/- by the Respondent on the ground of work not done is unsustainable in terms of the contract?
2) Does claimant prove that the Respondent is not entitled to deduct appropriate Rs.11,32,023/- due and payable in respect of work done under order No.E-5022 Dated 04.05.2000?
3) Does claimant prove that recovery of Rs.2,32,050/- as interest on advance payment under work order No.E-5022 is unsustainable?
4) Does claimant prove that due to extended stay of 23 months, it had to mobilize plant and machinery to a tune of Rs.4,29,06,456/- and the same is payable by the Respondent?
5) Does claimant prove that 25000 cmts of rain washed soil from the adjoining hill came to the work area and 10000 cmts had to be removed and transported outside at a cost of Rs.18,90,000/- and the same is payable by the Respondent?
6) Does claimant prove that Rs.9,51,80,925-75 is due and payable by the Respondent?
7) Does Respondent prove that none of the Claims of the Petitioner is payable by the Respondent by 8 virtue of the no claim statement signed by the Claimant on 15.02.2000?
In order to establish the claims the General Manager of the claimant Company Mr. Anbazhagan adduced his evidence as PW.1, Dr. C.Sathyanarayana, Chartered Engineer as PW.2. 21 documents were exhibited. Respondent adduced the evidence of Mr. V. Ramasubramanian, General Manager- Process Engineering as DW.1. Exs.D1 to D15 were marked.
After hearing the submission made on behalf of the claimant and respondent and upon consideration of the material placed before him, the Arbitrator held withholding of Rs.57,00,000/- towards security deposit out of the bill amount and appropriating sum of Rs.11,32,023/- towards the amount due from the contractor in respect of W.O.E.5022 as illegal. The Arbitrator also held that the deduction of Rs.2,32,050/- as interest on advance paid under W.O.E.5022 is not permissible. The Arbitrator recorded a finding that the claimant cannot be held responsible for the delay in completion of work and on the other hand the delay is due to 9 change in methodology of blasting mechanism by NIRM a third party to the contract at the instance of the respondent. Thereby the Arbitrator allowed the claim for Rs.4,29,06,456/- towards extra expenditure incurred. The Arbitrator also allowed the claim for Rs.18,90,000/- towards cost incurred for removal of rain washed soil due to land slide, by his award dated 08.09.2005. Thus, the Arbitrator awarded total sum of Rs.5,41,52,829/- (Rupees Five crore forty one lakh fifty two thousand eight hundred and twenty nine only) with 12% interest by his award dated 08.09.2005.
Aggrieved by the award passed by the Arbitrator, the respondent filed Arbitration Suit No.8/2005 on the file of I Additional District Judge, Dakshina Kannada, Mangalore under Section 34 of the Arbitration and Conciliation Act, 1996 to set aside the award contending that the award is contrary to the terms of the contract in as much as it is opposed to public policy. The learned District Judge, upon hearing the parties and upon consideration of the award and other relevant documents, recorded a finding that the award 10 is contrary to the terms and conditions of the contract and thereby by judgment dated 31.01.2008 set aside the award and remitted the matter to the Arbitrator for fresh disposal in accordance with law.
4. Questioning the legality and correctness of the judgment passed by the learned District Judge in Arbitration Suit No.8/2005 and the jurisdiction of the Civil Court in the matter of interference in the Arbitral award, the claimant preferred MFA No.3545/2008. Whereas the respondent filed a cross-objection being aggrieved by the judgment to the extent remanding the matter to the Arbitrator for fresh disposal contending that once the award is passed, the Arbitrator becomes a functus officio.
5. We have heard Smt. Akkamahadevi Hiremath, learned counsel appearing for the claimant and Sri. D.L.N. Rao, learned senior counsel appearing for the respondent. Perused the records.
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6. The submission of the learned counsel appearing for the claimant Smt. Akkamahadevi Hiremath is that the Court below dealt with the Arbitration suit filed by the respondent like an appeal which is impermissible having regard to scope under Section 34 of the Arbitration and Conciliation Act, the Court below exceeded its jurisdiction in the matter of interference in the Arbitral award, in the process of examining the arbitral award, it has virtually replaced the view taken by the Arbitrator though the court has no jurisdiction or power to go into the reasonableness of the reasons assigned by the Arbitrator, the court below failed to note that it has no power to set aside the Arbitral award and to remand the matter to the Arbitrator for reconsideration since the Arbitrator become functus officio once the award is passed, the court below has not decided nor dealt with the main controversy between the parties as to whether the change in methodology of blasting at the intervention of NIRM at a belated stage amount to substantial variations of terms of the contract, without 12 deciding the same the court below wrongly held that the terms and conditions of the contract does not provide for cost escalation which has been granted by the Arbitrator and thereby the court below set aside the award which has led to miscarriage of justice. Hence, the learned counsel sought to set aside the judgment passed by the District Judge and dismiss the suit filed under Section 34 of the Arbitration and Conciliation Act.
7. The learned counsel relied upon the following decisions in support of her case:-
1) (1989) 2 SCC 347 (Food Corporation of
India vs Joginderpal Mohinderpal &
another)
2) 1989 Supp (1) SCC 368 (P.M. Paul vs
Union of India)
3) AIR 1989 SC 777 (Puri Construction
Pvt. Ltd., vs Union of India)
4) AIR 1971 SC 696 (M/s Allen Berry &
Co. Pvt. Ltd., vs Union of India)
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5) AIR 1987 SC 81 (M/s Hindustan Tea
Co. vs M/s K. Sashikant & Co. and
another)
6) (1993) 2 SCC 1096 (Jajodia (Overseas)
Pvt. Ltd., vs Industrial Development
Corporation of Orissa Ltd.,)
7) AIR 1985 SC 607 (Hyderabad
Municipal Corporation vs M.
Krishnaswami Mudaliar & another)
8) AIR 2010 SC 972 (M/s Ravindra
Kumar Gupta vs Union of India)
9) (2004) 2 SCC 63 (Chairman & MD,
NTPC vs Reshmi Constructions &
Builders)
10) AIR 2008 SC 291 (M/s Associated
Constructions vs Pawanhans
Helicopters Pvt. Ltd.,)
11) (2008) 4 SCC 190 (Venture Global
Engineering vs Satyam Computer
Services Ltd., & another)
8. Sri. D.L.N. Rao, learned Senior counsel
appearing for the cross-objector (respondent) on the other 14 hand has submitted before us that the award is opposed to the public policy in as much as it is contrary to the terms and conditions of the contract entered between the parties. Learned counsel would submit that the change of methodology of blasting by NIRM does not amount to variation of terms of the contract as the contract provide for the same, that there is no clause in the agreement to provide for cost escalation on account of extension of time for completion of the work, the Arbitrator without any material to substantiate the claims has allowed all the claims including the escalation cost and as such the court below has rightly set aside the award holding that the award is contrary to the terms and conditions of the contract. However, the court below is not right in remanding the matter to the arbitrator for reconsideration since the arbitrator become functus officio once the award is passed and therefore, the learned counsel has prayed to allow the cross-objection and dismiss the appeal filed by the claimant.
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9. The learned Senior counsel placed reliance on the following decisions in support of his arguments.
1) (2003) 5 Supreme Court Cases 705 (Oil & Natural Gas Corporation Ltd., vs Saw Pipes Ltd.,) wherein it is held as under:-
"A. Arbitration and Conciliation Act, 1996
- Ss. 34(2), 28(a), 13(5) and 16(6) - Grounds on which a court can, under S.34(2), set aside the arbitral award stated.
B. Arbitration and Conciliation Act, 1996
- Ss.34(2)(a)(v), 24, 28 and 31(3) - Court's power under S.34(2)(a)(v) to interfere with the award - Scope - An award contrary to substantive provisions of law or the provisions of the Arbitration and Conciliation Act or against the terms of contract, held, would be patently illegal - Hence, would be subject to interference under S.34(2)(a)(v) - Respondent contractor entering into a contract with appellant ONGC to supply pipes of specified description by the specified date - Terms of contract entitling ONGC to recover damages at the stipulated rate for delay, if any, in supply of the goods and further stating the same to be agreed and genuine pre-estimate of damages and not as penalty - Further, the terms of contract authorizing ONGC to deduct the amount of such damages from the contractor's bill
- Moreover, the terms of contract while providing for payment of interest on delayed payments, specifically stating that no interest would be paid on disputed claims - At a subsequent stage, at the contractor's request, ONGC extending the time for the supply of the goods subject to the condition that ONGC would recover the agreed stipulated damages - ONGC deducting the amount of the damages accordingly - Contractor disputing such 16 deduction before Arbitral Tribunal - Arbitral Tribunal holding the deduction to be wrongful on the ground that ONGC had failed to establish that it had suffered any monetary loss, and directing the same to be refunded together with interest - Such an award, held, violative of S.28(2) & (3) and totally unjustified - Hence, set aside under S.34(2) - Further held, in respect of situations where it was impossible to assess or prove damages, the specified terms of the contract itself had made a provision in consonance with Ss.73 and 74 of Contract Act - Contract Act, 1872, Ss.73 and 74."
2) (2006) 4 Supreme Court Cases 445 (Hindustan Zinc Ltd., vs Friends Coal Carbonisation), wherein it has been held as under:
"A. Arbitration and Conciliation Act, 1996 - S. 34 - Setting aside of award under - Grounds for - Award contrary to terms of the contract - Held, such award would be open to interference by the court under S.34(2)(b)(ii) as being patently illegal and being opposed to the public policy of India - In present case, arbitrators making an award that was in conflict with price variation formula as contained in cl. (5) of the Purchase Order - Trial court setting aside award on that ground, but High Court restoring award of arbitrators on the ground that court could not interfere on the basis that award was contrary to specific terms of contract - Sustainability - Held, trial court was correct to interfere and gave the right order - Order of trial court restored and that of High Court set aside."
3) LAWS (KAR) 2010 (Chief Engineer, Karnataka Health Systems Development Project vs J.
Chengama Naidu), wherein it is held as under:- 17
"Arbitration and Conciliation Act, 1996 - Sections 34, 34(2), 34(3), 37 - Challenge the award - Whether plaintiffs prove any one of the grounds mentioned under Section 34 of the Arbitration and Conciliation Act, 1996 to set aside the award - Whether plaintiffs are entitled the relief as prayer - The scope of an application under Section 34 of the act is only to set aside the award or to leave the award as it is, without being disturbed and the act does not provide for any via-media, more so. An application under Section 34 of the act not being in the nature of either an Appeal or a Revision or A Review of the award passed by the arbitrator, but the award getting vitiated due to illegalities such as being against either statutory provisions or the settled legal principles accepted in our legal system and enforced in courts - The learned judge of the trial court has dealt with the grounds urged in support of the application for setting aside the award and the manner in which the arguments addressed at the Bar on behalf of the applicant have been dealt with, Leaves much to be desired. Unfortunately, the learned judge of the trial court appears to have been swayed by the idea that an arbitral award is gospel truth, most sanctified, sacred and not to be disturbed."
10. I have perused all the decisions relied upon by both the learned Counsels. The decisions at Sl.Nos.1 to 10 relied upon by the counsel for claimant are under Arbitration Act, 1940 which cannot be made applicable while consideration of the suit under Section 34 of the Arbitration and Conciliation Act, 1996 in a strict sense having regard to the object of the amendment and scope of the Court to intervene in the Arbitral Award. The decision at Sl.No.11 is 18 in relation to foreign award and as such it cannot be made applicable to the facts of the case on hand.
11. Having heard the submission made by both the learned counsel and on perusal of the entire material on record, the award passed by the arbitrator and the judgment passed by the court below, the following points would arise for our reconsideration:
1) Whether the court below is justified in holding that the award passed by the Arbitrator is against the terms and conditions of the contract?
2) Whether the court below is right in remanding the matter to the Arbitrator for fresh consideration?
Re.Point No.1
12. The claims before the Arbitrator were as under:
i) Withholding Rs.57,00,000/- towards security deposits
ii) Adjusting Rs.11,32,023/- towards due from the contractor in respect of W.O.No.E-5022 another contract work undertaken by the claimant.19
iii)Withholding of Rs.2,32,050/- from the final bill by way of interest on advance made in respect of W.O.No.E-5022 contract work.
iv) Rs.4,29,06,456/- towards the cost of mobilization of heavy plant and machinery for completion of the contract work during the extended period of 23 months beyond the stipulated period of contract.
v) Rs.18,90,000/- being the cost of removal of 25,000 cubic meters rain washed soil from the adjoining Hill into the work area and removal of 10,000 cubic meters of soil outside.
vi) Rs.25,00,000/- being the increase in the cost of petroleum products during the extended period of contract.
13. Thus, the claimant putforth a total claim of Rs.5,43,60,529/-. All the aforesaid claims putforth by the claimant were allowed by the Arbitrator by his award. However, in a suit filed under Section 34 of the Arbitration and Conciliation Act, the learned District Judge set aside the award holding that the award has been passed in contravention of the terms and conditions of the contract, it 20 is erroneous on the face of the records, it is in violation of the provisions of Arbitration and Conciliation Act, 1996. Therefore, it is to be examined whether the award passed by the Arbitrator is in contravention of the terms and conditions of the contract between the parties.
14. At the outset, it has to be stated that the parties by agreement decided to go for arbitration in the event of dispute by incorporating an arbitration clause in the agreement. The Arbitration and Conciliation Act, 1996 has been enacted by repealing the Arbitration Act, 1940 to further reduce the scope of Civil Court in the matter of interference in the Arbitral Award. Under Section 34 of the Arbitration and Conciliation Act, the Arbitral Award can be set aside if it is opposed to the public policy. It is not an appeal to reappreciate the evidence. Even if another view is possible the view taken by the Arbitrator can not be replaced by Civil Court since Arbitrator is a judge chosen by the parties. Keeping this in view, we now proceed to examine the Arbitral Award within the scope under Section 34 of the 21 Arbitration and Conciliation Act. The records disclose that the Arbitrator raised the following points for determination:-
i) Does the claimant prove that withholding of Rs.57,00,000/- by the owner on the ground of work not done in A area is unsustainable in terms of the contract?
ii) Does the claimant prove that the respondent is not entitled to deduct/appropriate Rs.11,32,023/-
towards due and payable in respect of work done under W.O.No.E-5022 dated 04.05.2000?
iii) Does the claimant prove the recovery of Rs.2,32,050/- as interest on advance payment under W.O.No.E-5022 is unsustainable?
iv) Does the claimant prove that due to extended stay of 23 months it had to mobilize plant and machinery and incur a cost to the tune of Rs.4,29,06,456/- and the same is payable by respondent?
v) Does claimant prove that 25,000/- cubic meters rain water soil from the adjoining Hill came to the work area and 10,000/- cubic meters had to be removed and transported outside at a cost of Rs.18,90,000/- and the same is payable by the respondent?
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vi) Does the claimant prove that totally Rs.9,51,80,925/- is due and payable by the respondent?
vii) None of the claims are not payable in view of no claim certificate given by the claimant?
15. According to the respondent, the claimant failed to execute grading work in A-3 area and therefore the respondent withheld an amount of Rs.68,32,023/- from the bill amount payable to the claimant. Out of that Rs.57,00,000/- had been adjusted towards security deposit and Rs.11,32,023/- has been appropriated in respect of due payable by the contractor in relation to work undertaken by the claimant under W.O.No.E-5022 dated 04.05.2000. Admittedly, the site grading work is executed by the contractor to the satisfaction of the parties concerned as could be seen from Ex.P10 the completion certificate issued by the respondent to the claimant. This certificate reveals that work of site grading has been done to the satisfaction of the respondent. It is evident from Ex.P6 issued by respondent as on 01.08.1999 hard rock to the extent of 23 3,49,800 cubic meters and 2,20,000 cubic meters of soil had been graded. The progress of the work of grading was 99.94% so far as hard rock is concerned and 100% so far as soil grading is concerned as certified by Resident Construction Manager in Ex P-6. The Arbitrator has taken average of both the works completed as 99.37% of the total area that was required to be graded. The case of the respondent is that 11,034 cubic meters of grading work was stopped in A-3 area by reason of closeness of storage tank of hydrocarbon and connecting pipelines. Therefore, the claimant is not entitled to Rs.68,32,023/- and the same had been adjusted towards security deposits and balance payable by the contractor under the W.O.No.E-5022. According to the claimant, withholding of the amount of Rs.68,32,023/- is unsustainable and illegal since the contract is a lumpsum contract and the work is done to the satisfaction of the respondent. The Arbitrator relying upon Ex.P6 and the completion of the grading work as shown in Ex.P6 rightly held that the site grading work to an extent of 99.97% has 24 been completed and the balance work that was not done was hardly 0.03% of total work. The Arbitrator has rightly held that if according to the respondent 11,034 cubic meters of area in A-3 was not graded the total area would have exceeded 5,50,000 cubic metes as contemplated under the agreement. The say of the respondent that the claimant has not graded an area of 11,034 cubic meters in A-3 area is without basis and is contrary to Ex P-6. Therefore, the amount that could have been deducted or withheld for non- completion of 0.03% grading area could be Rs.2,07,900/- as calculated by the Arbitrator. As such, the Arbitrator held that the respondent is liable to return a sum of Rs.54,92,100/- by deducting Rs.2,07,900/- from Rs.57,00,000/- adjusted towards security deposit.
16. Regarding an amount of Rs.11,32,023/-
appropriated towards the dues that were payable by the contractor to the respondent in respect of another work under W.O.No.E-5022 dated 04.05.2000 the Arbitrator has rightly held it is not permissible. The contract in question is a 25 contract under the work order E-5004. It has nothing to do with the contract undertaken by the claimant under W.O.E- 5022. Nor the terms of the contract provides for appropriation or adjustment as done by the respondent. As such, the Arbitrator has rightly held that the respondent is liable to return the amount of Rs.11,32,023/- to claimant adjusted towards the due under W.O.No.E-5022.
17. The respondent deducted a sum of Rs.2,32,050/- as interest on advance paid to the claimant under W.O.No.E- 5022. The terms of the contract definitely do not provide for the same. Merely because the amount was lying with the respondent, the respondent cannot appropriate the same as per their whims. It is opposed to the terms of the contract. The Arbitrator by assigning proper reasons rightly held that the deduction is impermissible and therefore ordered the respondent to return the said amount to the claimant.
18. The next claim considered by the Arbitrator was a claim for Rs.4,29,06,456/- putforth by the claimant towards extra expenditure incurred for mobilization of plant and 26 machinery for completion of the work during extended period of 23 months which has not been paid by the respondent. The Arbitrator arrived at a conclusion that the claimant is entitled for escalation costs during the extended contract period of 23 months. It is not in dispute that contract work was awarded on 06.03.1997. The period of contract was 7 months i.e., from 06.03,1997 to 10.10.1997. Total contract price was Rs.6.93 crores. The contract work could not be completed within stipulated period of 7 months. The period for completion of the work was extended by 23 months at the request of the claimant without imposing any penalty as such as advised by Resident Construction Manager appointed by respondent. According to the claimant, the work could not be completed within the stipulated period of 7 months on account of change in the methodology of blasting work due to the introduction of National Institute of Rock Mechanic (NIRM) which materially changed the manner in which blasting work had to be carried, due to intervention of monsoon during successive years, land slides 27 on account of heavy rains and labour problems. The contention of the claimant is that the respondent introduced NIRM a third party to the contract which changed the mode of blasting work and thereby the work was actually completed satisfactorily on 15.09.1999 though as per the stipulation it was required to be completed on 10.10.1997. It is the case of the respondent that NIRM was deployed only to ensure the safe blasting technology for ensuring safety of pipelines and storage tanks. The Arbitrator has gone into the effect of the introduction of NIRM by the respondent and held that the introduction of the NIRM a third party to the contract radically changed the methodology of blasting which amounts to variations of the terms of the contract for which the respondent is liable to pay the additional cost incurred by the contractor to complete the work during the extended period of 23 months. Admittedly, the NIRM finds no place in the original contract entered between the parties as per Ex.P1. Subsequently, it was introduced by the respondent who deployed the services of NIRM, of course to ensure safe 28 blasting techniques so that storage tanks and pipelines carrying hydrocarbons were not damaged. The NIRM directed the claimant to go slow in rock blasting near the storage tanks and pipelines carrying the hydrocarbons. The original contract provides 60 holes per blast which would have consumed about 16 months to complete the work at the rate of 60 holes per blast. NIRM restricted it to 20 holes per blast and utilization of more plant and machinery, small hole drills, use only 1/3 cartridge. Because of the intervention of the NIRM, till 01/07/1997 the work could not be started. The Arbitrator has gone into this aspect in detail in his award and he has assigned proper reasons to come to the said conclusion. It goes without saying that the reasonableness of the reasons given by the Arbitrator cannot be gone into by the Civil Court while dealing with an application to set aside the award. The claimant has placed on record a material to show that the agency of the respondent who were supervising and lookingafter the work carried out by the contractor certified that the delay in completion of the work cannot be 29 attributed to the contractor. Thus, it is evident that the delay in completion of the work is not on account of the contractor but it is on account of change in the mode of blasting work by NIRM, due to monsoon, labour problem etc., Rightly for the said reason, the respondent extended the period for completion of the work by 23 months without imposing any penalty. It is also borne out from Ex.P10 certificate issued by the respondent that they certified that all the works in the subject contract have been executed as per AEC drawings/specifications/approved deviations if any.
19. Now it is to be seen whether the contract provides payment of escalation or additional cost incurred by the claimant during the extended period of contract. The Arbitrator ruled that the delay in completion of the work was not due to the claimant. It is borne out from the records that at the instance of NIRM the claimant mobilized additional plant and machinery, tippers and dumpers and thereby incurred additional cost for mobilization of the same. Since the delay was not on account of the contractor the Arbitrator 30 has rightly held that the respondent is liable to pay the additional cost incurred by the claimant for completion of the work during extended period by referring clause 5.2 OF General terms and conditions of the contract and clause No.2.2 of the special conditions of the contract which speaks about valuation of variations. The variation was beyond the contractors' scope of work. Therefore, the claimant is entitled for additional claim for additional work. The finding recorded by the Arbitrator to that effect is in conformity with the terms and conditions of the agreement entered between the parties.
20. The contractor has putforth a claim for Rs.4,29,06,456/- as additional claim. The Arbitrator has allowed the claim as it is, without examining the same in detail. It is seen from paragraph 38 of the award passed by the Arbitrator that the claimant had claimed Rs.2 crores towards additional cost incurred due to delay in completion of the work and Rs.25,00,000/- on account of the increase in the cost of petroleum products during the execution of the 31 work during extended period. The claimant claimed Rs.2,25,00,000/- as additional cost incurred for completion of the work as seen from Ex P-3 letter dated 17.6.1998. The respondent did not respondent, he kept silence, did not reply. They managed to obtain Ex.D2-no due certificate and thereafter extended the time to complete the work by 23 months. This shows the evil design of the respondent. If the respondent had immediately responded to the letter written by claimant and his request was rejected at the threshold, he would not have ventured to mobilize additional plant and machinery, instead he would have stopped the work. As such, the claimant is entitled for Rs.2,25,00,000/- towards escalation cost as against Rs.4,31,09,393/- awarded by the Arbitrator.
21. The next claim awarded by the Arbitrator is an amount of Rs.18,90,000/- being the cost of removal of 25000 cubic meters of rain washed soil from the adjoining Hill and removal of 10000 cubic meters of soil outside. PW.1 the General Manager of the claimant company in his evidence 32 has stated that on account of advent of the monsoon slush and soil of adjoining hill slid into the place while the work was being carried out and thereby they were prevented from executing the work as a result they had to incur heavy cost for removal of the soil. RW.1 in his evidence has stated that the land slides from the adjoining slides are inherent fall of the nature of the claimant which are not known to the claimant despite taken care of into the rates coated. Though he admitted that there was land slide of about 25000 cubic meters during the monsoon, he states that the job of the claimant to scoop out the land slide as the part of the job of grading the soil. According to the respondent, it is a normal phenomenon and the contractor was in know of the same and therefore it cannot be said that the land slide is an unforeseen contingency or FORCE MAJEURE. In the coastal areas which are the rain assured areas, landslides are common. The occurrence of land slide cannot be termed as Force majeure. The claimant was aware of clause No.2.4 of 33 General terms and conditions of the contract which reads as under:-
"2.4. SITE CONDITIONS: The CONTRACTOR has satisfied himself as to the nature and location of the SITE, the general and local conditions, particularly those bearing upon purchasing, transportation, disposal, handling and storage of materials; the availability of labour, materials, water, electricity and other utilities; means of access; the uncertainty of weather or other physical conditions at the SITE; the configuration and condition of the ground in the SITE, including subsoil conditions; and all other matters which may in any way affect the performance of the WORKS, the cost etc., to the CONTRACTOR for the WORKS and/or the time and the time schedule for and the progress of the WORKS."
22. Knowing fully well the factors which may affect the performance including uncertainty of weather, the claimant signed the contract and now under the guise of force majeure he cannot claim a sum of Rs.18,90,000/- towards cost incurred for removal of rain washed soil. Even otherwise, no acceptable and satisfactory evidence is placed 34 to show that much amount has been spent by the claimant. Thus, the amount of Rs.18,90,000/- awarded by the Arbitrator is against the terms and conditions of the contract.
23. The counsel for the respondent has vehemently argued that the claimant has given a no due certificate as per Ex.D2 which operates as estoppel and despite that the Arbitrator has allowed the claims. The Arbitrator has discussed in detail the effect of no due certificate issued by the respondent and under what condition and circumstances it was issued by claimant. It is borne out from the records that though request was made by the claimant for extension of the period for completion of the work in writing the respondent did not give reply to the request letter. The claimant went on executing the work and completed the work to the satisfaction of the respondent on 15.09.1999. Till such time the respondent did not give reply to the request letter though they issued a certificate as per Ex.P10 certifying that the work has been executed as per AEC drawings and specifications. Much after completion of the work on 35 15.09.1999 they have obtained a no due certificate from the contractor and it is only thereafter issued a letter extending the time for completion of the work by 23 months. The Arbitrator held that no due certificate has been obtained by pressure tactics. If we go through the correspondence entered between the parties prior to the issuance of no due certificate one can easily come to the conclusion that no due certificate has been obtained under coercion with an assurance that if the no due certificate is issued then only the time for completion of the work will be extended. The Arbitrator after having discussed in detail rightly ignored no due certificate issued by the claimant. Thus, the claimant/ ECI Engineering and Construction Company Limited is entitled for the amount under the following heads:-
1) Rs.54,92,100/- the amount withheld
towards security deposit.
2) Rs.11,32,231/- the amount deducted
towards payment in respect of W.O.No.E-
5022.
36
3) Rs.2,32,050/- deducted as interest on
advance amount paid in respect of other
contract work.
4) Rs.2,25,00,000/- towards the additional
cost incurred during the extended period.
24. Thus, the claimant/contractor is entitled for a total sum of Rs.2,93,56,381/- as against Rs.5,41,58,829/- awarded by the Arbitrator.
25. Out of the aforesaid amount, the claimant is entitled for interest at 12% per annum from 19.01.2000 till the date of award on amount of Rs.67,96,381/-. On the balance amount of Rs.2,25,60,000/- the claimant is entitled for interest at 12% per annum with effect from 13.06.2001 till the date of award. From the date of the award till the date of payment the claimant is entitled for interest at 9% per annum on the entire amount. The claimant shall be entitled to recover an amount of Rs.3,30,000/- paid towards Arbitrator's fee.
37
26. Accordingly the Appeal and Cross-objection are partly allowed. The judgment passed by the 1st Additional District Judge, Mangalore, in Arbitration Suit 8/2015 dated 31.01.2008 is set aside. The award passed by the Arbitrator awarding Rs.5,41,52,829/- stands modified directing the Mangalore Refinery and Petrochemicals Limited (MRPL) to pay a sum of Rs.2,93,56,381/- to the claimant/ECI Engineering and Construction Company Limited with interest at 12% on amount of Rs.67,96,381/- from 19.01.2000 till the date of award, 12% on Rs.2,25,60,000/- from 13.06.2001 till the date of award and interest at 9% on the entire amount of Rs.2,93,56,381/- from the date of award till the date of payment. The claimant shall be entitled to recover from respondent Rs.3,30,000/- paid towards Arbitrators Fee.
Sd/-
JUDGE Sd/-
JUDGE PMR