Punjab-Haryana High Court
M/S U.B. Engineering Limited vs Indian Oil Corporation Limited And ... on 1 April, 2013
Author: A.N. Jindal
Bench: A.N. Jindal
IN THE HIGH COURT OF PUNJAB & HARYANA AT CHANDIGARH
F.A.O. No. 2345 of 2006
Date of decision: April 01, 2013
M/s U.B. Engineering Limited
.. Appellant
Vs.
Indian Oil Corporation Limited and another
.. Respondents
F.A.O. No. 4000 of 2006 Indian Oil Corporation Limited .. Appellant Vs. U.B. Engineering Limited and another .. Respondents Coram: Hon'ble Mr. Justice A.N. Jindal Present: Mr. Ashwani Talwar, Advocate for the appellant in FAO No. 2345 of 2006 and for the respondents in FAO No. 4000 of 2006.
Mr. R.K. Chhibbar, Sr. Advocate with Mr. Adarsh Jain, Advocate for the respondents in FAO No. 2345 of 2006 and for the appellant in FAO No. 4000 of 2006.
A.N. Jindal, J This judgment shall dispose of two connected appeals No.2345 of 2006 (M/s U.B. Engineering Ltd. vs. Indian Oil Corporation Ltd. & Anr.) and 4000 of 2006 (Indian Oil Corporation Limited vs. M/s U.B. Engineering Ltd. & Anr.), having arisen out of the common judgment and involving similar question of law. However, for convenience, facts are being taken up from F.A.O. No. 2345 of 2006.
The crucial question involved in this appeal against the judgment dated 27.4.2006 passed by the Additional District Judge, Panipat is as under :-
1. Whether the claim raised by the appellants-claimants before the arbitrator was beyond the scope of arbitration being not notified in terms of Clause 6.6.1.0 of the F.A.O. No. 2345 of 2006 & F.A.O. No. 4000 of 2006 -2- general conditions of the contract?
As per claimants, its claim consists of two heads :-
1. Compensation for the loss incurred on account of the extended stay for completion of work beyond stipulated time.
2. Costs of extra work ordered by the respondent/IOCL and executed by the claimant.
The brief facts of the case are that a contract No.PRP/044 of 1995-96 was entered into between the claimant and the respondent No.1 for erection of equipment and machinery, fabrication and erection of above ground piping and connected civil and structural works at Panipat Refinery Project. The parties entered into an agreement on 30.5.1995. It was primarily a labour contract with material and equipments to be supplied by the respondent-Indian Oil Corporation. The value of the contract was Rs.6,14,50,797/-. The stipulated time for completion of work was 16 months to be reckoned from 23.3.1995 i.e. the work was to be completed on 30.7.1996. The claimants alleged that delayed supply of the equipments, resulted into delay in execution and completion of the project. The claimants had been continuously reminding the Indian Oil Corporation Limited (herein referred as, 'the IOCL') in this regard and applied for extension of time limit of the project which was accordingly done and the work was completed on the extended date i.e. 24.2.1998 while the completion certificate was issued vide letter No.EI/PRP/3236/99 dated 30.7.1999. The dates regarding the execution of the work and other details are as under :-
1.Date of commencement of work 23.3.1995
2.Scheduled date of completion 22.7.1996
3.Date of actual completion of work 24.2.1998
4.Extension of final time limit was granted up to 24.2.1998 while issuing completion certificate vide letter No.EI/PRP/3236/99 dated 30.7.1999.
5.Date of submission of the claims and claim amount were as under :-
F.A.O. No. 2345 of 2006 & F.A.O. No. 4000 of 2006 -3-
i) J-387/NS/96 dated 5.8.1996 for an amount of Rs.106.75 lacs for period oiup to 31.7.1996.
ii) UBEL/IOCL/SDK/97/MI-606 dated 14.8.1997 for an amount of Rs.366.25 lacs for the period up to
31.10.1997 (including above amount of Rs.106.75 lacs referred to in (i) above).
iii) UBEL/IOCL/SDK/98/MI-606 : 426 dated 30.4.1998 for an amount of Rs.80.80 lacs for the period from 11/1997 to 3/1998.
iv) Final bill vide UBEL/NCD/J- 387/MI/606/4948 dated 2.11.1998 for an amount of Rs.7,78,08,507 which includes the following :-
Value of the final bill Rs.70,89,170
Value of extra item of work Rs.1,40,83,839
Price escalation for materials Rs.70,62,772
and labour prior to final bill
Price escalation for material Rs.16,29,750/-
and labour for final bill amount
Price escalation for extra Rs.32,37,776
items executed
Compensation/contractual Rs.3,66,25,000
claim up to 31.10.1997.
Compensation/contractual Rs.80,80,000
claim for the period from
11/1997 to 3/1998
Total Rs.7,78,08,307
6.Date of submission of the final bill 2.11.1998
7.Original contract amount Rs.6,14,50,797
8.Amount of final bill (excludes bills Rs.7,78,08,307
upto final bill)
9.Payment received from IOCL Rs.5,81,12,901
It has been further alleged that the claimants have submitted the claim for extra payments in accordance with the Clause 6.6.1.0 of the general conditions of the contract and these claims were reflected in the F.A.O. No. 2345 of 2006 & F.A.O. No. 4000 of 2006 -4- final bill submitted on behalf of the appellants also. However, the respondents despite the repeated requests did not budge to approve the claim. The issue with regard to the claim of extra work was raised in various meetings held on 15.5.1997, but the claimants were conveyed that the appellant should complete the work of the first phase by October, 1997. The record note dated 15.5.1997 in this regard reads as under :-
"The review was held with M/s BHPV, B&R, PDIL, ATV, HDO, UB Engg. on supply of balance equipment, construction progress and package units. Director apprised about the impact of delay on the availability of Petroleum Products in the Region and advised all the vendors to ensure the targeted completion of 1st Phase by Oct. 1997 & IInd phase (FCC, HCU, H2U) by Feb. 98.
The Gist of discussion vendor wise along with their participants is given in Annexure -II.
Regarding the request with regard to payment of extra work, it was decided that the decision would be taken on completion of the work. The contents of the letter in this regard are reproduced as under :-
"... M/s UB Engg. requested for extended stay compensation, EIL/IOCL conveyed that all such claims shall be reviewed only on completion of the job."
The dispute having been arisen with the IOCL, R.K. Gupta, who was retired General Manager, Marketing of IOCL was appointed as sole arbitrator vide letter dated 3.8.2001, who dealt with the preliminary issue with regard to maintainability of the claim of the petitioner for extra work, observed that it was a notified claim and could not be ignored being beyond the scope of arbitration. Ultimately he made the award on 24.10.2002 (Annexure A/1), vide which he awarded as under :-
a) Claim of claimants Rs.6,59,48,622/-
b) Interest Rs.2,98,88,140/-
Total Rs.9,58,36,762/-
Counter claims, to which IOCL is entitled :
a) Principal Rs.3,08,32,448.30
F.A.O. No. 2345 of 2006 &
F.A.O. No. 4000 of 2006 -5-
b) Interest Rs.2,27,58,813.70
Total Rs.5,35,91,262/-
After adjusting the claims and counter claim, the claimants were held entitled to the amount of Rs4,22,45,500/- and it was further ordered that the respondents would be liable to pay interest @ 18% per annum from 25.10.2002 till the date of payment. It was further ordered that in the process of claim No.5 of the respondent-IOCL, regarding keeping of the bank guarantees submitted by the claimants. The respondent Corporation filed the objection petition under Section 34 of the Act, on the following grounds :-
1. The award deals with disputes not contemplated under the arbitration agreement between the parties. The arbitrator acted arbitrarily, irrationally, capriciously and independent of the contract and entertained respondent claims, though the same were specifically excluded from the scope of submission to arbitration under the contract.
2. The award is against the public policy of India. It is illegal, against justice and morality. It is induced and affected by corruption which is evident from the bare perusal of the records and the documents.
3. The claims of the applicant have been rejected in a patently illegal and biased manner.
The said objections were replied by the claimants. From the pleadings of the parties, the following issues were framed by the Additional District Judge, Panipat :-
1. Whether the impugned award dated 24.10.2002 passed by the respondent No.2 is liable to be set aside on the alleged grounds taken in the petition?OPP
2. Whether the petition is liable to be dismissed in view of the preliminary objections taken in the written statement?OPR
3. Relief.
F.A.O. No. 2345 of 2006 & F.A.O. No. 4000 of 2006 -6- Both the parties led evidence. The Additional District Judge, Panipat, though granted award for the extra work to the tune of Rs.1,58,34,417/-, however, the remaining claim as raised by the claimants was declined on the ground that it was beyond the scope of arbitration. The relevant para of the order passed by the learned Additional District Judge, Panipat, reads as under :-
"16. For the reasons recorded above, I am of the view that the claims of the respondent before the arbitrator were beyond the scope of arbitration. Therefore, those were not arbitrable and are liable to be set aside. But the respondent is entitled to Rs.1,58,34,417/- from the applicant with interest as awarded by the arbitrator because out of the said amount, Rs.1,08,24,579/- are admittedly due from the applicant in settlement of final bill. The value of the total work executed by the respondent as per the BOQ items was Rs.6,37,10,685/. Respondent also carried out extra work. Cost of extra work to the tune of Rs.52,26,795/- is not in dispute and he was only paid Rs.5,81,12,901/-. (Rs.6,37,10,685 + 52,26,795 = Rs.6,89,37,480/- minus 5,81,12,901 = Rs.1,08,24,579/-). It is also not in dispute that the respondent carried some more extra work for which he claimed Rs.50,09,838/- but the applicant disputed its cost. The arbitrator has come to conclusion that the cost of said extra work was in fact Rs.50,09,838/-. This court cannot re-appraise the evidence to find out whether there was sufficient material on the file for the arbitrator to arrive at such conclusion. Therefore, the respondent is entitled to said amount also. (Rs.1,08,24,579/- + Rs.50,09,838/- = Rs.1,58,34,417/-)."
Feeling aggrieved, the appellant-UB Engineering as well as the Indian Oil Corporation have challenged the said judgment by way of two different appeals. It would be pertinent to mention here that the counter claim set up by the respondents have not been disputed by the claimants.
Arguments heard.
F.A.O. No. 2345 of 2006 & F.A.O. No. 4000 of 2006 -7- Record perused.
The prime question involved in the case is, "whether the claims as set up by the appellants were in accordance with Clause 6.6.1.0 of the general conditions of the contract and fell within the scope of arbitration? and the second is relating to the rate of interest.
For the sake of repetition, the following three claims were set up :-
1. Claim dated 5.8.1996 for an amount of Rs.106.75 lacs for the period up to 31.7.1996. (Annexure A/9) claim set up on 5.8.1996.
2. Claim dated 14.8.1997, for an amount of Rs.366.25 lacs covering period up to 31.10.1997 (including the amount of Rs.106.75 lacs as referred to in (1)) (Annexure P/10) claim set up on 14.8.1997
3. Claim dated 30.4.1998, for an amount of Rs.80.80 lacs for the period from November, 1997 to March, 1998. (Annexure A/11) claim set up on 6.2.1998.
4. Final bill dated 2.11.1998 for an amount of Rs.7,78,08,507/-
which included the other items.
Before we proceed to decide the scope of arbitration, it has become essential to know whether the appellants have been able to establish their claim. It would also be pertinent to mention here that all the claims as raised by the appellants were on account of the losses incurred due to the extended stay of the payment beyond the scheduled period for completion of work. In addition to the above claim, cost of extra work ordered by the respondents were included in the final bill submitted on 2.11.1998 (Anneuxre A/12). The work was completed on 24.2.1998 and the completion certificate was issued on 20.7.1999 (Annexure A/6), which reads as under :-
"UBEL/SDK/M1-606 Dated 20.7.99
E.I.L.
Panipat Refinery Project,
Panipat.
F.A.O. No. 2345 of 2006 &
F.A.O. No. 4000 of 2006 -8-
Sub: Extension of contract period - CDU/YDU - Equipment & Piping Dear Sir, Upon UBEL's request, EIL has already recommended extension of time to IOCL up to 31.1.1998. Due to non availability of various materials, the project could not be completed upto 31.1.1998. The materials were even supplied during February 1998. The project was completed on 24.2.1998. You are kindly requested to recommend grant of extension of time from 1.2.1998 to 24.2.1998 without levy of liquidated damages.
Thanking you, Yours faithfully, Sd/-
(S.D. Kumar) General Manager"
The letter indicates that the work could not be completed in time due to non supply of material. Time was extended with consent. No allegation was made that the bills submitted were not genuine. It is also no denying a fact that completion certificate was given by the IOCL on 20.7.1999. The document (letter dated 15.5.1997) indicating that the extra work was done by the appellants and was not challenged by the IOCL is on the record. The claimant has also submitted that there was a meeting with the Director (R&P) along with Director (EIL), on 15.5.1997 visited the Panipat Refinery and reviewed the status of the Panipat Refinery and it was observed as under :-
"The review was held with M/s BHPV, B&R, PDIL, ATV, HDO, UB Engg. on supply of balance equipment, construction progress and package units. Director apprised about the impact of delay on the availability of Petroleum Products in the Region and advised all the vendors to ensure the targeted completion of 1st Phase by Oct. 1997 & IInd phase (FCC, F.A.O. No. 2345 of 2006 & F.A.O. No. 4000 of 2006 -9- HCU, H2U) by Feb. 98.
The Gist of discussion vendor wise along with their participants is given in Annexure -II."
The letter dated 5.8.1996 (Annexure A/9) indicates that on account of non supply of the equipments and the machinery, fabrication and erection of the above ground piping and connected with civil and structural work, in time, the appellants had to suffer losses. There is another letter dated 14.8.1997 (Annexure A/10), raising demand of the compensation due to delayed completion of work on account of non availability of the sequential materials, drawings/isometrics, foundations and work fronts, non production of the adequate approaches to the site/work place, but this letter was also not replied by the company. The other letters dated 30.4.1998 and 2.11.1998 issued by the UB Engineering Limited also were also not specifically replied. All these letters transpire that there was not much dispute about payment and the delay occurring due to the non supply of the material by the company to the appellant and payment thereof. It has also been specifically proved on the record that the appellants were forced to stay at the site of work and their machinery and man power to complete the contractual obligations. Since the appellants were forced to continue deploying the machinery and the man power at the site, therefore, they are certainly entitled to claim on account of such extended delay which was forced upon the appellant. Another document (Annexure A/17) i.e. minutes of meeting held on 17.7.2000 is also a clear cut proof of admission of the representatives of IOCL regarding payment of compensation qua the escalation claim and extended stay compensation. The said minutes of meeting were signed by the appellants and six representatives of the IOCL- respondent and EIL, wherein the following points were discussed :-
1. IOCL asked for UBEL response to IOCL letter No.PJ/UBEL/6 dated 5th April, 2000 regarding selection of an arbitrator. UBEL requested for settlement of the issues amicably. IOCL also expressed its desire for an amicable settlement.
F.A.O. No. 2345 of 2006 & F.A.O. No. 4000 of 2006 -10-
2. Discussions were held in respect of UBEL claim towards escalation, extended stay compensation and recoveries/ back-charges towards workmanship. IOCL expressed their inability to accept the extended stay compensation and waiver of recoveries. However, for escalation claim, IOCL stated that they may consider the same (based on the formula given to other contractors-B&R), provided UBEL withdraw their all other claims.
3. UBEL stated that in case the above proposal is not acceptable to them, they will go in for arbitration, UBEL also stated that they would give their response/decision by mid-August, 2000.
IOCL UBEL EIL
Sd/- Sd/- Sd/-"
All the aforesaid documents were proved before the arbitrator and established through evidence that the material which was to be supplied by the IOCL-respondent was not made available in time, resulting into loss and all correspondence exchanged by the appellants with the respondents have been placed on record. The observations made by the learned Additional District Judge, Panipat that the appellant failed to prove that they had to stay at the site beyond the scheduled period on completion on account of breach of contractual conditions by the respondents, are not correct. The Additional District Judge, Panipat has not bothered to go into documentary evidence placed on record in this respect. On submissions of the claims during the concurrence of the work on 5.8.1996, 14.8.1997 and 30.4.1998, no objection was raised with regard to the said bills, rather, the Engineer India Limited, who were consultant vide their letter dated 17.6.1997, required the appellant to re-submit the statement along with the derived rates based on actual work in respect of extra item for fabrication/fitting and welding of stiffners. He through another letter dated 16.6.1997 (Annexure A/14) and two letters dated 7.10.1997 and 6.2.1998 (Annexures A/15 and A/16), placed on record indicate that the detailed claim showing nature of the work, the details of the amount were submitted. F.A.O. No. 2345 of 2006 & F.A.O. No. 4000 of 2006 -11- Though not strictly in accordance with the terms as laid down under Clause 6.6.1.0 of the contract, but with a little bit delay, yet that may be a cause for the arbitrator to say that it was not a notified claim as the bills were not submitted strictly in accordance with the terms and conditions of the contract, yet, the said clause of notice does not vanish the remedy of the appellants to claim the same by way of suit. Had these bills not submitted in time, during the concurrence of the work, then it could be said that the same were exaggerated, after thought and manipulated. But since the work was on, the bills were entertained without any objection and were never returned stating that the bills were false, ingenuine, exaggerated or manipulated rather either the respondent company remained silent or held meetings for payment. The company never took such plea but ignored the claims only on the ground that the bills being not submitted as per Clause 6.6.1.0 could not be treated as notified claim and beyond the scope of arbitration. The factum of execution of the work to its entirety as per contract agreement is almost admitted fact in the present case which stands substantiated by the completion certificate given by the respondents. Thus, by mere fact of existence of a particular clause in the agreement of submission of bills on a particular date would not extinguish the rights of the appellant to recover the same in the light of Section 70 of the Contract Act.
The other aspect of the case which convinces the mind of the court to hold that the amount sought to be recovered has been established by the appellant is the payment of Rs.50,09,832/-, made on account of extra work. The arbitrator declared the entire claim as notified and awarded the above amount along with interest. The learned Additional District Judge, Panipat, out of the above amount had picked up Rs.50,09,832/- and held the same to be payable notwithstanding the fact that the above claim of Rs.50,09,832/- is not decipherable. The mode of lodging the said claim to the IOCL is also exactly the same as other claims lodged with the IOCL and thus holding this part of the claim as of Rs.50,09,832/- to be notified claim and negating the balance claim is totally arbitrary. Since IOCL itself agreed to pay an amount of Rs.52,26,795/- while excluding a sum of F.A.O. No. 2345 of 2006 & F.A.O. No. 4000 of 2006 -12- Rs.50,09,832/- also indicates that the extra work was executed by the appellants and IOCL had also accepted the extra work but assessed it only at @ Rs.52,26,795/-, but the Additional District Judge, Panipat, also accepted that the total amount of Rs.52,26,795/- plus Rs.50,09,832/- was payable to the claimants.
S.D. Kumar appeared on behalf of the appellants and furnished affidavit Ex.RW1/A disclosing all the claims set up by UB Engineering and the price of extra work and he was cross examined, but much cross examination was conducted only qua the fact that the claim was not notified and no much cross examination was conducted that the appellants were not entitled to any compensation for the work done. Similarly, A.K. Dass, Chief Project Manager while appearing on behalf of IOCL has also not stated if no extra work was done by the appellant and they were not entitled to the claim as raised by them. The main stress made by him is only that the claim raised by the company was not notified claim. No counter document, as produced by the claimants in order to strengthen their claim, has been proved on record.
It may further be observed that R.K. Gupta Arbitrator was an accepted person by the IOCL who being well experienced and qualified engineer having spent his entire life while dealing with the above types of works and he having expertise in labour contract and construction had the opportunity to minutely look into the things and reach the conclusion that the appellants were not solely responsible for the delayed completion of work and IOCL was also responsible and that is why the time for completion of work was extended to 23.2.1998. It has also come to light that even on meeting dated 17.7.2000, the company had reached the settlement that they were ready to pay for the extra work done, if they are ready to give up the other claims.
The other argument raised by the learned counsel for the appellant is that certain conditions which were not practically enforced and complied with, have been added into the contract and the contract was made so technical that it was not for the common man to bring into practice and implement the same for which the respondents want to derive benefit. F.A.O. No. 2345 of 2006 & F.A.O. No. 4000 of 2006 -13- In this regard, it is observed that the contract agreement appears to have been made by the IOCL completely to protect its own rights while ignoring that of the party contracting. It is a printed document, often used in all the contracts which also indicates the dominance of the respondent IOCL and the appellants, who had already been working with the company, had no option but to sign the said contract and could not deviate or make option regarding any of the terms of the contract. The appellants had only one option either to give up the contract or sign it blindly. The dominance of the respondents is further evident from the clause 6.6.1.0 which refers to the fact that though the bills were to be submitted to the Engineer-in-Chief or the Site Engineer, yet they were under no obligation to reply to any notice of claim and their failure to answer the notice, shall not be deemed as an admission. Thus Clause 6.6.2.0 gives unbridled liberty to the respondents not to answer any of the claim, letters or notices. It may further be observed that the contract binds the appellant to submit the bills within 10 days but the same is not applicable to the respondents. As per the agreement, the arbitration could be made to a particular class of cases including only notified claims but the IOCL could take any type of dispute to the arbitration. The law is settled one. The Arbitration & Conciliation Act, 1996 has been kept away from the complicated procedure, statutory interpretation and legislations, therefore, the courts were not to go by the hyper-technicalities and complicacy of the procedure while deciding such disputes. It is also well settled that when the contract agreement is replete with some unfair, unconscionable and unreasonable clauses in that contract, in order to give undue benefit to one party, such clauses should be struck down. Similar observations were made by the Apex Court in the case of Central Inland Water Transport Corporation Ltd and another vs. Tarun Kanti Sengupta and another AIR 1986 Supreme Court 1571 wherein it was observed that the courts will not enforce and will, when called upon to do so, strike down an unfair and unreasonable contract entered into between the parties who are not equal in bargaining power. It will also apply where a man has no choice, or rather no meaningful choice, but will give his assent to the contract or to sign on F.A.O. No. 2345 of 2006 & F.A.O. No. 4000 of 2006 -14- the dotted lines in a prescribed or standard form or to accept a set of rules as part of contract, therefore, the right to raise claim by the appellant would not be defeated by mere clause in the agreement that the bill was to be submitted within 10 days or so. In such circumstances, such terms of contract could effect the scope of arbitration but not the remedy under civil law.
As regards the contention raised by the learned counsel for the appellant that it was not possible to comply with the requirement of clause 6.6.1.0 in case of continuous breach. Actually it is a case of continuous breach, therefore, the bill having been submitted not within time will not make it a claim beyond the scope of arbitration.
Having heard this contention, clause 6.6.1.0 of the general conditions of the contract between the parties being the creation of the contract between them, the appellant was bound by the terms of the agreement. As per Section 28 of the Arbitration and Conciliation Act, 1996, the arbitrator was to act in accordance with the terms and contract and to adjudicate the dispute accordingly. He had no authority to avoid the terms of contract while sitting with no party could insist upon certain compliance of the terms of the contract as they themselves go by the strict compliance of the certain clauses of the contract. Certain clauses of the contract, which are unreasonable, unconscious, unfair and result of domination may make the claim as an excepted matter but does not extinguish the remedy. I do not dispute with the proposition as laid down in the following judgments :-
1. M/s Uttam Singh Duggal & Co. vs. IOCL, ILR (1985) II Delhi 131.
2. M/s Associated Hybilds vs. IOC, (Suit No.2399-A of 1985) B.N. Kirpal J. (15.10.1987).
3. Bansal Construction Co. vs. IOC, 1991 (2) Arbitration Law Reporter 409.
4. M/s GAIL vs. SPIE Capage. A AIR 1994 Delhi 75 (At page
103).
5. International Building & Furnishing Co. v. IOC, 1995 (1) Arbitration Law Reporter 548 (DB Delhi High Court) F.A.O. No. 2345 of 2006 & F.A.O. No. 4000 of 2006 -15-
6. M/s P.N. Shah vs. IOC (Suit No.3220-A of 1987, Anil Dev Singh, J (27.1.1997).
7. M/s Goyal Constrution Pvt. Ltd. vs. IOC, (Suit No.233-A of 1987) Anil Dev Singh, J (21.3.1997).
8. Sarup Lal Singhla vs. National Fertilizers Ltd. 72 (1998) DLT 23.
9. Blue Star vs. IOC, FAO 54 of 2004 (No appeal preferred).
10.IOCL vs. Era Construction (India) Ltd. 2012 IVAD (Delhi) 345 Wherein it was observed that the claim if not submitted within time becomes a de-notified claim and beyond the scope of arbitration.
Though the facts of some of the judgments are at variance as in some the judgments, the claims were not set up within time while submitting the final bill, yet the principle of law as enunciated in the judgment delivered in the case of International Building And Furnishing Col. (Cal) Pvt. Ltd. vs. Indian Oil Corporation Ltd, 1995 (1) CivCC 143 stand as it exists today. In the said judgment, their Lordships observed as under :-
"7. It is, therefore, clear that arbitration at the instance of the contractor is available under clause 9.0.1.0 only in respect of "notified claim". That would mean that the contractor must have gone through the procedure-indicated in clause 6.6.1.0 and 6.6.3.0 and notified his claims to the Engineer-in-Charge and the Site Engineer within the period of ten days of the date of issue of orders or instructions relative to any works for which the contractor was claiming such additional pay or compensation. In such a situation it is obvious that if the claim is not a "notified claim", the arbitration clause cannot be invoked by the contractor."
The learned counsel for the respondent in order to meet the aforesaid argument has urged that the terms of the agreement being void in the light of Section 28 of the Indian Contract Act, cannot be taken into consideration and the arbitrator was well within its jurisdiction to decide the claim. In this regard he has referred to the judgment delivered in the case of F.A.O. No. 2345 of 2006 & F.A.O. No. 4000 of 2006 -16- Hindustan Construction Corporation vs. Delhi Development Authority, 1999 (1) Arb. L.R. 272 wherein it was observed as under :-
"A perusal of the impugned award reveals that the claims of the petitioner herein were defeated simply on the ground that the invocation of the arbitration clause was barred by time. Consequently, the arbitrator did not decide the claims on merits."
Section 28 of the Indian Contract Act, 1872 reads as under :-
"28. Agreements in restraint of legal proceedings - void.- Every agreement :-
(a) by which any party thereto is restricted absolutely from enforcing his rights under or in respect of any contract, by the usual legal proceedings in the ordinary tribunals, or which limits the time within which he may thus enforce his rights; or
(b) which extinguishes the rights of any part thereto, or discharges any party thereto, from any liability, under or in respect of any contract on the expiry of a specified period so as to restrict any party from enforcing his rights, is void to that extent"
While interpreting this section, Delhi High Court again in the case of J.K. Anand vs. Delhi Development Authority and another, 2001 (2) Arb. L.R. 663 while relying upon M/s Hindustan Construction Corporation's case (supra) observed that clause 25 of the agreement that contractor' right to claim arbitration comes to an end after the expiry of 90 days from the date of intimation of the final bill being ready for payment deprives the contractor of a very valuable right to claim the amount which was due to him from the respondent.
In another judgment delivered in the case of Oriental Insurance Company Limited vs. Karur Vysya Bank Limited 2002 (2) RCR (Civil) 239 : AIR 2001 Madras 489 observed as under :-
"In terms of the said judgment, the amended Section 28 would be applicable to the facts of the present case and the extinguishment of right contemplated by Clause 25-A of the F.A.O. No. 2345 of 2006 & F.A.O. No. 4000 of 2006 -17- Agreement cannot be given effect to in terms of Section 28 of the Act as amended by Indian Parliament Act No.1 of 1997. In the present case, the contract between the parties was executed in the year 2002 i.e. much after Section 28 of the Act was modified. Therefore, the principle discussed in the aforesaid judgment would be applicable to the facts of the present case."
In Oriental Insurance Company's case (supra), it was also held that the amended provisions have prospective effect. The amendment having come into force in the year 1997 is not applicable to the present agreement which came into existence in the year 1995. However, the object of the amendment has to be taken note of. It appears that the legislature keeping in view that some clauses of the contract, regarding jurisdiction, limitation and procedure which at the face of it are bad, illegal, unfair, unconscious or void and against the statutory provisions of law, the amendment has been introduced to overcome such clauses of the contract. Consequently, this court is convinced that though the clause with regard to ten days notice may not be bad on account of the fact that the Act was not retrospective in nature being unable to apply the Section 28 of the Act to the present case, this court is of the considered opinion that the clauses with regard to extinction of the right on expiry of certain notice period would not stand in the way of the appellant to raise a claim in the ordinary courts in accordance with law.
Now coming to the question of interest, the learned counsel for the appellant has vehemently contended that the award passed by the arbitrator was erroneous inasmuch as he awarded interest on interest on the awarded amount @ 18% per annum on the basis of the provisions as laid down under Section 31(7)(b) of the Act. He neither exercised its discretion but presumed that he was bound to do so, but the Act provided that the arbitrator had no jurisdiction to award interest on interest. Secondly, while awarding interest, he could exercise the discretion if he does not exercise the discretion then the arbitrator's award shall carry interest @ 18% per annum from the date of award till the date of payment. F.A.O. No. 2345 of 2006 & F.A.O. No. 4000 of 2006 -18- Before we discuss the law regarding interest, it may be observed that in this case the contract between the parties came into existence on 30.5.1995. It was a continuing contract. The huge payments (i.e. in crores) have been made by the respondent to the appellants from time to time particularly, to purchase the material and completion of the work which was ultimately completed on 28.2.1998, therefore, the mobilization advance which has been made by the company was to be adjusted against the claim raised by the appellant and it was not a loan to be returned along with interest. The extensions were made by the respondent of their own without any objection and ultimately settlement of the claim was made on 15.9.2000 from which date the company could claim interest. The provisions in as far as claim of interest on mobilization advance paid by the respondent being unconscionable and unfair could not be taken into consideration as it has already been observed that the respondent was in a dominating position as to impose any such unfair condition, therefore, it would have to be observed that the appellant would claim interest only from the date when these running accounts were lastly settled on completion of work.
Now coming to the other argument that the arbitrator could not award interest on interest. The factual situation is that the arbitrator passed the following award in favour of the Corporation-respondent :-
"Counter claim No.3 : Rs.31,06,718.30 + Rs.8,47,538.29 (Int.) = Rs.39,54,256.59.
Counter claim No.4 : Rs.18,53,132.00 +Rs.13,07,118.08 (Int.) = Rs.31,60,250.08, then Rs.2,58,72,598.00 + Rs.2,06,04,157.33 (Int.) = Rs.4,64,76,755.33 Total= Rs.3,08,32,448.30 + Rs.2,27,58,13,708.00 = Rs.5,35,91,262.00.
The arbitrator further awarded interest @ 18% per annum from the date of the award i.e. 24.10.2002 till the date of payment by the respondent in full and final settlement of claim No.3 of the claimant on the awarded amount.
F.A.O. No. 2345 of 2006 & F.A.O. No. 4000 of 2006 -19- There is a catena of judgments that no interest on interest could be awarded. Here in this case the arbitrator awarded interest @ 18% per annum on the interest of Rs.2,27,58,13,708/- also from the date of award till realization but the same was erroneously ordered as contract between the parties also does not provide for compound interest, therefore, the said amount of interest cannot be added in the award as award carrying interest. As such, it is observed that the respondents would be entitled to interest only upon the principal amount so awarded in favour of the respondent.
As regards the rate of interest, there is no dispute with regard to awarding of interest by the arbitrator at the rate as agreed between the parties and also future interest from the date of award. However, since there was no intention of the parties to withhold the payment but there was only dispute with regard to the nature of the claim which dragged them to such an extent that they have reached such a stage. Actually such thing should not happen where the parties are fare with each other and crores of rupees are paid towards completion of work and the works are obtained therefore, since the intention to withhold the amount is missing, therefore, this court deems it appropriate that it would be quite fair, proper, reasonable and equitable if the appellants pay interest @ 9% per annum from the date of decree passed by the trial court till realization of the decretal amount.F.A.O. No. 4000 of 2006
Having gone through the grounds of appeal submitted by the Indian Oil Corporation Limited and after hearing the arguments, it appears that no such legal issue as may entail the setting aside of the judgment passed by the Additional District Judge has been raised. The Corporation has time and again mentioned that Additional District Judge did not properly appreciate the facts, the evidence and the law on the point; he has completely ignored the award to the extent it is against the Corporation; the damages/compensation has not been properly awarded; and the Arbitrator has given complete go-bye to the contractual requirements. However, at the time of arguments, no such point has been raised as to set aside the judgment passed by the Additional District Judge, Panipat. Rather, it has also not been disputed by the counsel that the Additional District Judge was F.A.O. No. 2345 of 2006 & F.A.O. No. 4000 of 2006 -20- not supposed to record the reasons for every claim. However, besides assailing the points raised by the appellant i.e. U.B. Engineering, it was urged that the interest should have been awarded in terms of the agreement.
Having gone through the impugned judgment, this Court is of the opinion that the award cannot be said to be unreasoned. However, the future interest so awarded by the Additional District Judge appears to be quite unreasonable and extended after misinterpreting the provisions of law. The discussions with regard to that have been made above. As such, for the reasons as discussed in the aforesaid paras, the appeal filed by the Indian Oil Corporation Limited is bound to fail.
Resultantly, this Court while holding that the claim raised by the appellants was beyond the scope of arbitration, dismiss both the appeals with the following modifications:-
1. Since the claim of the appellant is subject matter of controversy as has been held to be de-notified, the claimants would be at liberty to have recourse to the remedy as provided under the civil law. Since there appears to be a bona-fide mistake that it was arbitrable claim and the respondent also remained silent and did not disclose and also continued to settle the dispute by way of meetings and the meeting was also called on 17.7.2000 and thereafter, the claimant moved an application for arbitration and the arbitrator passed the award on 10.8.2002 while holding that it was an arbitrable claim. However, the Additional District Judge, Panipat decided against them after consuming four years i.e. on 27.4.2006 against the appellant. The said judgment was adjudicated before this Court therefore, all this would be suggestive of the fact that the appellant was compelled not to take recourse to the civil remedy for these years. Consequently, he is entitled to the benefit of Section 14 of the Indian Limitation Act as such, if the appellant seek recourse to the remedy as F.A.O. No. 2345 of 2006 & F.A.O. No. 4000 of 2006 -21- provided under the civil law within six months, then the said suit would be treated to have been filed within limitation.
2. No interest on interest could be awarded. Only principal amount would carry simple interest.
3. The respondents would be entitled to interest at the agreed rate from the date the cause of action arose, meaning thereby, when the accounts were settled and the appellants were directed to make the payment till the date of award.
4. As regards future interest, this court deems it appropriate, reasonable and equitable if the appellants pay interest @ 9% per annum from the date of decree till realization.
April 01, 2013 (A.N. Jindal) deepak Judge