Bangalore District Court
Semac Limited vs Biesse Manufacturing Limited on 13 December, 2019
IN THE COURT OF THE VI ADDL.CITY CIVIL & SESSIONS JUDGE
BENGALURU CITY
CCCH. 11
Dated this the 13th day of December, 2019
PRESENT: Sri.Rama Naik, B.Com., LL.B.,
VI Addl.City Civil & Sessions Judge,
Bengaluru City.
A.S.NO:70/2013
PLAINTIFF : Semac Limited
A Company incorporated under the
provisions of the Companies Act 1956
having its Office at # 37, (Old No.19/25),
"SURYALAYA", Shankar Mutt Road,
Shankarapuram, Basavanagudi,
Bengaluru -560 004.
Reptd.by its Authorised Signatory-
Mr.Saket Kumar Singh.
/Vs/
DEFENDANT : BIESSE Manufacturing Limited
A Company incorporated under the
provisions of Companies Act, 1956,
having its office at Survey No.32,
No.469, Jakkasandra Village,
Sondekoppa Road, Nelamangala Taluk,
Bengaluru Rural District -562 123.
Reptd.by its Chief Executive Officer and
Authorised Signatory -
Mr.Sayeed Ahmed.
--
AS.70/2013
2
JUDGMENT
This suit is filed by Plaintiff under Section 34 of the Arbitration and Conciliation Act, 1996, praying for setting aside the award dated 19.02.2013 along with additional award dated 27.04.2013 passed by the Hon'ble Arbitral Tribunal in Arbitration Case.
2) Plaintiff's case, in brief, is that, Plaintiff is engaged in the business of providing integrated architectural and engineering services and solutions. Defendant is engaged in the manufacture of wood working machinery. Plaintiff entered into an Agreement dated 26.10.2006 with Defendant for construction of a factory building. Role of Plaintiff was limited to submission of designs.
3) It is stated that, under the Agreement, the duties of Plaintiff were to prepare architectural, structural, civil, electrical, plumbing and mechanical drawings and to prepare Master Plan AS.70/2013 3 and line sketch for services as per the requirements of Defendant. Construction of factory building based on the designs of Plaintiff was carried out by a Contractor viz., Lakshmi Nirman Private Limited. Said Contractor completed the construction work of factory building including the Western retaining wall on the schedule premises by January, 2008. However, in August, 2008, due to incessant monsoon rainfall, a part of the western retaining wall of the factory building bulged and slid from its original position. Plaintiff in good faith and despite no fault on its part undertook and bore the cost of reconstruction of the bulged wall in May, 2009 after obtaining approval of design for reconstruction from Defendant.
4) It is stated that, Defendant contacted its Insurance Company to compensate the loss suffered to it on the ground that the retaining wall was damaged due to incessant rainfall. Retaining wall bulged and slid from its original position due to AS.70/2013 4 "natural loss by heavy rain". Said fact was admitted by Defendant in its Fire Claim Form dated 05.06.2009 filed with its Insurance Company.
5) It is stated that, subsequently, for reasons beyond control of Plaintiff, the retaining wall slid again. This time without consent of Plaintiff, Defendant appointed one Mr.Chandramouleeswar, as a Structural Design Consultant and outside the purview of the Agreement, engaged services of different contractors for reconstruction of the retaining wall. Defendant rejected the more economically viable options suggested by Plaintiff for reconstruction of the retaining wall and constructed a wall at a substantially higher cost through four other contractors viz., INCICON, BBR Builders, Soil Tech & Geo Engineering.
6) Plaintiff sates that, cost of construction of wall was never to be borne by it. However, Defendant invoked the arbitration clause in the AS.70/2013 5 Agreement seeking repaying of Rs.1,70,00,000/- together with interest, out of which, Rs.1,24,00,000/- was towards repair/reconstruction of the western retaining wall. Plaintiff filed a counter claim of Rs.7,95,906/- being the balance of amount payable to Plaintiff by Defendant under the Agreement.
7) It is stated that, Hon'ble Justice R.G.Vaidyanatha was appointed as the sole Arbitrator to adjudicate upon the dispute between the parties. By award dated 19.02.2013, learned Arbitrator directed Plaintiff to pay Rs.94,00,000/- to Defendant along with interest at 10% per annum from 01.09.2010 till date of payment. Learned Arbitrator reduced the counter claim amount to Rs.5,84,906/- and rounded it off to Rs.6,00,000/- to be paid to Plaintiff or to be deducted from the claim amount awarded to Defendant. On 27.04.2013, learned Arbitrator passed an additional award AS.70/2013 6 directing Plaintiff to pay cost of value of stamp duty of Rs.5,88,648/- on the arbitral award to Defendant.
8) Being aggrieved by the arbitral award, Plaintiff has challenged the award on the following grounds :
(i) There is no Arbitration
Agreement between the parties,
therefore, impugned award passed is without jurisdiction.
(ii) Arbitral award has been passed awarding claims not arising out of alleged arbitration agreement.
(iii) Arbitral award has been
passed without considering the
effect of Section 73 of the Indian Contract Act, 1872 and damages awarded has no proximity to the alleged breach.
(iv) Learned Arbitrator has erred
by awarding the cost of
reconstruction of a more expensive wall; the cost of construction of the AS.70/2013 7 wall itself was not payable by Plaintiff.
(v) Learned Arbitrator has failed
to consider that Defendant has
pleaded inconsistent facts, which is not permissible.
For all these reasons, Plaintiff prays for setting aside the arbitral award.
9) Defendant entered appearance through its counsel and filed its elaborate statement of objection, wherein, Defendant states that, the scope of Section 34 of the Arbitration and Conciliation Act, 1996, is extremely limited. Civil court in an appeal under Section 34 of the Arbitration and Conciliation Act, cannot re- appreciate evidence, once an Arbitral Tribunal has looked into the evidence of the dispute. Court in an appeal under Section 34 cannot re-appreciate evidence and come to a different finding. First part of Section 16(2) of the Arbitration and Conciliation Act, makes it evident that, a plea that Arbitral AS.70/2013 8 Tribunal does not have jurisdiction shall not be raised after the submission of the statement of defense. In this case, no plea has been taken by Plaintiff raising any jurisdictional grounds. On the contract, the evidence on record would indicate that Plaintiff acted pursuant to the arbitration clause including towards constitution of the Arbitral Tribunal. Plaintiff has merely relied on second part of Section 16(2) of the Act by contending that, merely because Plaintiff has appointed or participated in the appointment of Arbitrator, it shall not be precluded from raising any jurisdictional plea.
10) It is stated that, Contractors were appointed only after mutual discussions with the Plaintiff as a result of failure of the retaining wall on two occasions i.e.17.08.2008 and again on 01.05.2009. Learned Arbitrator has reightly concluded that the retaining wall failed on two occasions as a result of deficiency of work relating to deficiency of work AS.70/2013 9 relating to structural engineering calculations and breach committed by Plaintiff. Since, Defendant suffered damages on account of deficiencies and breaches committed by Plaintiff, Plaintiff is liable to recompense all the expenses incurred by Plaintiff that are attributable to such deficiencies and breaches. Learned Arbitrator has considered overwhelming evidence on record and has rightly come to the conclusion that the retaining wall failed as a result of deficient design and structural engineering calculations of Plaintiff. There is no illegality in the awards passed by learned Arbitrator and the awards have been passed by reasoned order. Hence, prays for dismissal of suit.
11) Heard learned Counsels for the parties. Perused the record. Also perused the written arguments submitted by the parties.
12) Points that arise for my consideration are :-
(1) Whether Plaintiff has
substantiated the ground that
AS.70/2013
10
there was no arbitration
agreement between the
parties to arbitrate the
dispute by learned Arbitrator?
(2) Whether Plaintiff has made out any of the grounds as enumerated in Section 34 of the Arbitration and Conciliation Act, 1996, to set aside the impugned award?
(3) What Order?
13) My answer to the above points are :
Point No.1 - In the Negative;
Point No.2 - In the Affirmative;
Point No.3 - As per final order, for the following :
REASONS
14) POINT NO.1 : This suit came to be filed by Plaintiff for setting aside the arbitral award dated 19.02.2013 and additional award dated 27.04.2013 passed by sole Arbitrator, whereby, Hon'ble Arbitrator was pleased to direct Plaintiff to pay a sum of Rs.94,00,000/- to Defendant with interest at AS.70/2013 11 the rate of 10% per annum from 01.09.2010 till the date of payment and cost of the proceedings.
15) Plaintiff's challenge to arbitral award is that :
(a) There exists no arbitration agreement between Plaintiff and Defendant, therefore, the impugned award is without jurisdiction.
(b) Award has been passed without considering the effect of Section 73 of the Indian Contract Act, 1872 and damages awarded has no proximity to the alleged breach.
(c) Learned Arbitrator has erred by awarding costs of reconstruction of a more expensive wall. Cost of construction of wall itself was not payable by Plaintiff.
(d) Learned Arbitrator has failed to consider that, Defendant has pleaded inconsistent facts, which are not permissible.
16) On the contrary, Defendant contends that, scope of Section 34 of the Arbitration and AS.70/2013 12 Conciliation Act, 1996, is extremely limited. Civil Court, under Section 34 petition, cannot re-
appreciate the evidence and come to a different findings. Arbitrator had jurisdiction to adjudicate the disputes between the parties in terms of Agreement dated 26.10.2006 at Ex.C5. Award has been passed after appreciating all the evidence. There is no basis or explanation in contending that there is violation of Section 73 of the Contract Act.
17) Defendant has placed reliance upon the judgments to substantiate its contention that, there is no scope for interference by this Court under Section 34 of the Arbitration and Conciliation Act, 1996. Judgments relied upon by Defendant and the ratio laid down in the said judgments are as follows :
(1) Venture Global Engineering LLC and Ors. Vs. Tech Mahindra Ltd.
And Ors,[(2018) 1 SCC 656], wherein, the Hon'ble Supreme Court was pleased to hold that :
AS.70/2013 13 " ..... The award of an arbitral Tribunal can be set aside only on the grounds specified in Section 34 of the Arbitration Act and on no other ground. The Court cannot act as an appellate court to examine the legality of award, nor can it examine the merits of claim by entering in factual arena like an appellate court."
(2) McDermott International Inc. Vs. Burn Standard Co. Ltd. & Ors., [(2011) 11 SCC 181], wherein, it is held that :
" .... intervention of the court is envisaged in few circumstances only, like in case of fraud or bias by arbitrators, violation of natural justice, etc. The court cannot correct errors of the arbitrators. It can only quash the award leaving the parties free to begin the arbitration again if it desired ....."
(3) National Highways Authority of India Vs. Oriental Structure Engineers Ltd. Gammon India Ltd., [(2013) (4) ARBLR 98 (Delhi)] wherein, it is held that:
" If the Arbitral Tribunal had considered all relevant clauses and interpreted them while giving detailed reasons for the same, the Petitioner cannot challenge the award of the Arbitral Tribunal merely because interpretation given by Arbitral Tribunal to contract terms was not to its liking...."
AS.70/2013 14
18) At this juncture, it is relevant to take note of the ratio laid down in Associate Builders Vs. Delhi Development Authority [(2015) 3 SCC 49], wherein, the Hon'ble Supreme Court was pleased to hold that, "none of the grounds contained in Section 34(2)(a) of the A&C Act, 1996 deal with the merits of the decision rendered by an arbitral award. It is only when the award is in conflict with the public policy of India as prescribed in Section 34(2)(b)(ii) of the A&C Act, 1996 that the merits of an arbitral award are to be looked into under certain specified circumstances".
19) Hon'ble Supreme Court was pleased to hold that, "Public Policy of India" consists of (i) Fundamental Policy of Indian Law; (ii) Interest of India; (iii) Justice or Morality; and (iv) Patent Illegality.
20) It is held that, (i) compliance with statutes and judicial precedents; (ii) need for judicial AS.70/2013 15 approach; (iii) Natural justice compliance; and (iv) Wednesbury reasonableness are part and parcel of the fundamental Policy of India. Further, it is held that, a contravention of the substantive law of India, contravention of Arbitration and Conciliation Act, 1996 and contravention of terms of contract, same would amount to patent illegality. In the judgment supra, the Hon'ble Supreme Court was pleased to caution in applying Public Policy Test. It is held that :
" It must clearly be understood that when a court is applying the 'public policy' test to an arbitration award, it does not act as a court of appeal and consequently errors of fact cannot be corrected. A possible view by the Arbitrator on facts has necessarily to pass muster as the Arbitrator is the ultimate master of the quantity and quality of evidence to be relied upon when he delivers his arbitral award. Thus an award based on little evidence or on evidence which does not measure up in quality to a trained legal mind would not be held to be invalid on this score. Once it is found that the Arbitrators approach is not arbitrary or capricious, then he is the last word on facts."
21) In this background, contentions as raised by Plaintiff and Defendant are to be looked into. First and foremost contention of Plaintiff is that, there is AS.70/2013 16 no arbitration agreement between the parties, therefore, impugned award is without jurisdiction and that impugned award has been passed awarding claims not arising out of alleged arbitration agreement.
22) It is contended that, Clauses-X and XI of the Agreement titled 'dispute' and 'jurisdiction', respectively amply demonstrate that the parties had no intention to arbitrate. In order to have a dispute referred to arbitration, parties must have a firm intention that the dispute should be referred to arbitration and a slightest deviation by the parties from their intention to refer dispute to arbitration would lead to non-compliance of the requirements of an arbitration agreement. If the parties were not consensus ad-idem vis-a-vis the arbitration agreement, and the impugned award deserves to be set aside on this ground alone.
AS.70/2013 17
23) It is further contended that, after the alleged second failure of the retaining wall, Defendant had engaged the services of different contractors for reconstructing the retaining wall and thus, was a subsequent event. In reconstructing the retaining wall, after the alleged second failure of the wall by engaging the services of different contractors arises out of a subsequent event and is not under the Agreement which contains the alleged arbitration clause. Jurisdiction goes to the root of the matter, thus, any inconsistencies therein ought to be looked into by this court and where the Arbitrator has gone contrary to or beyond the expressed law of the contract such an award would be unfair, unreasonable and would shock the conscience of the court.
24) In support of its contention, Plaintiff has placed reliance upon the following judgments :
(1) Jagdish Chander v Ramesh Chander and others, [(2007)5 SCC 719] AS.70/2013 18 (2) Y.L. e-Services Pvt. Ltd. Vs. Silverline Business and Tech. Park Pvt.
Ltd., [ILR 2008 Kar 549] (3) Dilip Bafna Vs. K.S.Vsudeva [(2007)6 Kant.LJ 554] (4) Oil and Natural Gas Corporation Ltd., Vs SAW Pipes Ltd., [(2003) 5 SCC 705] (5) Associated Engineering Co. vs. Government of Andhra Pradesh and another, [(1991) 4 SCC 93]
25) Per contra, Defendant contends that, there is no ambiguity between the 'disputes' clause at Clause-X and 'jurisdiction' clause at Clause-XI. Both clauses have to be read harmoniously with each other. Clause X of the Agreement provides for the disputes to be resolved through arbitration. Clause XI of the Agreement provides that courts in Bengaluru shall have jurisdiction to entertain any dispute. Thus, it is evident that the jurisdiction clause merely provides for any reliefs with regard to the arbitration such as S.9, 11, 34 of Arbitration Act to be instituted at Bengaluru Courts and the said clause does not negate the arbitration clause.
AS.70/2013 19
26) It is contended that, as per first part of Section 16(2) of the Arbitration and Conciliation Act, 1996, a plea that the Arbitral Tribunal does not have jurisdiction shall not be raised after the submission of the statement of defence. In this case, no plea has been taken by Plaintiff raising any jurisdictional grounds. On the contrary, the evidence on record would indicate that Plaintiff acted pursuant to arbitration clause including towards constitution of the Arbitral Tribunal. Plaintiff has merely relied on second part of Section 16(2) of the Arbitration and Conciliation Act, by contending that merely because Plaintiff has appointed or participated in the appointment of Arbitrator it shall not be precluded from raising any jurisdictional plea. This argument of Plaintiff is totally baseless. Section 16(2) of the Arbitration and Conciliation Act has to be read as a whole and cannot be done on a piecemeal basis. Latter part of Section 16(2) of the Arbitration and Conciliation AS.70/2013 20 Act, has to be read in the light of first part of the said provision and cannot be read independently.
27) In support of its contention, Defendant has placed reliance upon the following judgments :
(a) Indus Mobile Distribution Pvt.
Ltd. Vs. Datawind Innovations Pvt. Ltd. And Ors. [AIR 2017 SC 2105]
(b) Devyani International Ltd. V. Siddhivinayak Builders and Developers [MANU/DE/4153/2017]; and
(c) Polybond Organics Pvt. Ltd.
Vs. Era Infra Engineering ltd.
[MANU/KA/3718/2018].
28) To assail the contentions of the parties, it is necessary to extract Clause- X and XI of Agreement at Ex.C.5. They read thus :
" x. DISPUTES:
In the event of any dispute arising between the parties to this Agreement, the same shall be mutually resolved and in the event the same could not be resolved then the same shall be referred to a Sole Arbitrator, whose decision shall be final and binding on both the parties. The provisions of Arbitration and Conciliation Act, 1996, shall be applicable.
AS.70/2013 21 XI. JURISDICTION :
The Court at Bangalore shall have the jurisdiction in respect of any disputes."
(underlined by me)
29) In Jagadish Chander case, the Hon'ble Supreme Court was pleased to hold that :
"8. (iii) Where the clause provides that in the event of disputes arising between the parties, the disputes shall be referred to arbitration, it is an arbitration agreement. Where there is a specific and direct expression of intent to have the disputes settled by arbitration, it is not necessary to set out the attributes of an arbitration agreement to make it an arbitration agreement. But where the clause relating to settlement of disputes, contains words which specifically exclude any of the attributes of an arbitration agreement or contains anything that detracts from an arbitration agreement, it will not be an arbitration agreement. For example, where an agreement requires or permits an authority to decide a claim or dispute without hearing, or requires the authority to act in the interests of only one of the parties, or provides that the decision of the authority will not be final and binding on the parties, or that if either party is not satisfied with the decision of the authority, he may file a civil suit seeking relief, it cannot be termed as an arbitration agreement."
30) In the judgment supra, arbitration clause is as follows :
" 2. (16) If during the continuance of the partnership or at any time afterwards any AS.70/2013 22 dispute touching the partnership arises between the partners, the same shall be mutually decided by the partners or shall be referred for arbitration if the parties so determine."
31) Said clause has been interpreted in para-9 of the judgment. It reads thus :
"9. Para 16 of the partnership deed provides that if there is any dispute touching the partnership arising between the partners, the same shall be mutually decided by the parties or shall be referred to arbitration if the parties so determine. If the clause had merely said that in the event of disputes arising between the parties, they "shall be referred to arbitration", it would have been an arbitration agreement. But the use of the words "shall be referred for arbitration if the parties so determine" completely changes the complexion of the provision. The expression "determine" indicates tht the parties are required to reach a decision by application of mind. Therefore, when clause 16 uses the words "the dispute shall be referred for arbitration if the parties so determine", it means that it is not an arbitration agreement but a provision which enables arbitration only if the parties mutually decide after due consideration as to whether the disputes should be referred to arbitration or not. In effect, the clause requires the consent of parties before the disputes can be referred to arbitration. The main attribute of an arbitration agreement, namely, consensus ad idem to refer the disputes to arbitration is missing in clause 16 relating to settlement of disputes. Therefore, it is not an arbitration agreement, a defined under Section 7 of the Act. In the absence of an arbitration agreement, the question of exercising power under Section 11 of the Act, to appoint an arbitrator does not arise".
AS.70/2013 23
32) In that context, the Hon'ble Supreme Court was pleased to hold that, where the clause relating to settlement of disputes contains words which exclude any of the attributes of an arbitration agreement or contains anything that detracts from an arbitration, it will not be an arbitration agreement.
33) In the Dilip Bafna Vs. K.S.Vasudeve case, it is held as follows :-
" 21. Therefore, it is clear that all questions, disputes, differences and claims whatsoever which may at any time arise between the parties to the agreement shall be referred to arbitration in accordance with the provisions of the Act. Further, it makes clear that the Courts in Bangalore shall have exclusive jurisdiction over any disputes, differences or claims arising out of this deed. But it is to be noticed that in the said clause it is not mentioned that it shall be referred to arbitration alone. On the contrary, Clause 6.2 reserves the liberty to both the parties to file suit for specific performance of the contract. In other words, the parties by an agreement do not completely oust the jurisdiction of the Civil Court and prefer arbitration for resolving all the dispute. On the contrary, they specifically agree in Clause 6.2 that each of the party shall have liberty to file suit for specific performance of contract. Therefore, the parties have got an option to approach the Civil Court also insofar as the relief to specific performance is concerned."
(underlined by me) AS.70/2013 24
34) In the above judgment, Clauses relating to 'arbitration' and 'jurisdiction' of court have been mentioned as follows :
" 19. Clause 5 of the agreement reads as under :
" All questions, disputes, differences and claims whatsoever which may at any time arise between the parties hereto concerning this contract and all other documents in pursuance hereof or of any clause herein contained or as to the rights, duties, obligations or liabilities of the parties hereto respectively, shall be referred to arbitration in accordance with the provisions of Arbitration and Conciliation Act, 1996 as amended from time to time. Such arbitration proceedings shall be in English language and shall be held in Bangalore only. Subject to the preceding paragraph, the Courts in Bangalore shall have exclusive jurisdiction over any disputes, differences or claims arising out of this deed."
" 20. Whereas, Clause 6.2 reads as under :
"Both the vendors and the purchaser shall have liberty to file suit for specific performance of contract, if either of the party refuses to perform his/their the contract and complete the sale, in terms of this agreement and all the costs shall be borne by such person who fails to perform their duty in accordance with this agreement."
35) Having regard to these clauses, the Hon'ble High Court was pleased to hold that, parties specifically agreed in Clause 6.2 that, each of the party shall have liberty to file a suit for specific AS.70/2013 25 performance of contract, therefore, the parties have got option to approach the Civil court insofar as the relief of specific performance is concerned.
36) In Indus Mobile case, arbitration clause reads as follows :
" 3. The brief facts necessary to appreciate the controversy are that Respondent No.1 is engaged in the manufacture, marketing and distribution of Mobile Phones, Tablets and their accessories. Respondent No.1 has its registered office at Amritsar, Punjab. Respondent No.1 was supplying goods to the Appellant at Chennai from New Delhi. The Appellant approached Respondent No.1 and expressed an earnest desire to do business with Respondent No.1 as its Retail Chain Partner. This being the case, an agreement dated 25.10.2014 was entered into between the parties. Clauses 18 and 19 are relevant for our purpose, and are set out herein below:
Dispute Resolution Mechanism:
Arbitration : In case of any dispute or differences arising between parties out of or in relation to the construction, meaning, scope, operation or effect of this Agreement or breach of this Agreement, parties shall make efforts in good faith to amicable resolve such dispute.
If such dispute or difference cannot be amicably resolved by the parties (Dispute) within thirty days of its occurrence, or such longer time as mutually agreed, either party may refer the dispute to the designated senior officers of the parties.
If the Dispute cannot be amicably resolved by such officer within thirty(30) AS.70/2013 26 days from the date of referral, or within such longer time as mutually agreed, such Dispute shall be finally settled by arbitration conducted under the provisions of the Arbitration and Conciliation Act 1996 by reference to a sole Arbitrator which shall be mutually agreed by the parties. Such arbitration shall be conducted at Mumbai, in English language.
The arbitration award shall be final and the judgment thereupon may be entered in any court having jurisdiction over the parties hereto or application may be made to such court for a judicial acceptance of the award and an order of enforcement, as the case may be. The Arbitrator shall have the power to order specific performance of the Agreement. Each party shall bear its own costs of the Arbitration.
It is hereby agreed between the Parties that they will continue to perform their respective obligations under this Agreement during the pendency of the Dispute.
19. All disputes & differences of any kind whatever arising out of or in connection with this Agreement shall be subject to the exclusive jurisdiction of courts of Mumbai only."
(underlined by me)
37) In para-10 of the said Judgment, it is held as follows :
" 10. The concept of juridical seat has been evolved by the courts in England and has now been firmly embedded in our jurisprudence. Thus, the Constitution Bench in Bharat Aluminium Co. V. Kaiser Aluminium Technical Services Inc, MANU/SC/0722/2012 : (2012) 9 SCC 552, has adverted to "seat" in some detail.
AS.70/2013 27 Paragraph 96 is instructive and states as under :
Section 2(1)(e) of the Arbitration Act, 1996 reads as under :
"2. Definitions.-- (1) In this Part, unless the context otherwise requires --
(a) - (d) ***
(e) 'Court' means the Principal Civil Court of Original Jurisdiction in a district, and includes the High Court in exercise of its ordinary original civil jurisdiction, having jurisdiction to decide the questions forming the subject matter of the arbitration if the same had been the subject matter of a suit, but does not include any civil court of a grade inferior to such Principal Civil Court, or any court of Small Causes;"
We are of the opinion, the term "subject- matter of the arbitration" cannot be confused with "subject-matter of the suit". The terms "subject-matter" in Section 2(1)(e) is confined to Part I. It has a reference connection with the process of dispute resolution. Its purpose is to identify the courts having supervisory control over the arbitration proceedings. Hence, it refers to a court which would essentially be a court of the seat of the arbitration process. In our opinion, the provision in Section 2(1)(e) has to be construed keeping in view the provisions in Section 20 which give recognition to party autonomy. Accepting the narrow construction as projected by the learned Counsel for the Appellants would, in fact, render Section 20 nugatory. In our view, the legislature has intentionally given jurisdiction to two courts i.e. the court which would have jurisdiction where the cause of action is located and the courts where the arbitration takes place. This was necessary as on many occasions the agreement may provide for a seat of arbitration at a place which would be neutral to both the parties. Therefore, the courts where the arbitration takes place would be required to exercise supervisory control over AS.70/2013 28 the arbitral process. For example, if the arbitration is held in Delhi, where neither of the parties are from Delhi, (Delhi having been chosen as a neutral place as between a party from Mumbai and the other from Kolkata) and the tribunal sitting in Delhi passes an interim order under Section 17 of the Arbitration Act, 1996, the appeal against such an interim order Under Section 37 must lie to the courts of Delhi being the courts having supervisory jurisdiction over the arbitration proceedings and the tribunal. This would be irrespective of the fact that the obligations to be performed under the contract were to be performed either at Mumbai or at Kolkata, and only arbitration is to take place in Delhi. In such circumstances, both the courts would have jurisdiction i.e. the court within whose jurisdiction the subject-matter of the suit is situated and the courts within the jurisdiction of which of the dispute resolution i.e. arbitration is located."
(underlined by me)
38) Hon'ble Supreme Court, having regard to arbitration clause and after referring the judgment in Bharat Aluminium Co. case, was pleaded to hold that :
" 19. The amended Act, does not, however, contain the aforesaid amendments, presumably because the BALCO judgment in no uncertain terms has referred to "place" as "juridical seat" for the purpose of Section 2(2) of the Act. It further made it clear that Section 20(1) and 20(2) where the words "place" is used, refers to "juridical seat", whereas in Section 20(3), the word "place" is equivalent to "venue". This being the settled law, it was found unnecessary to expressly incorporate what the Constitution Bench of the Supreme Court has already done by way of construction of the Act.
20. A conspectus of all the aforesaid provisions shows that the moment the seat is AS.70/2013 29 designated, it is akin to an exclusive jurisdiction clause. On the facts of the present case, it is clear that the seat of arbitration is Mumbai and Clause 19 further makes it clear that jurisdiction exclusively vests in the Mumbai Courts. Under the Law of Arbitration, unlike the Code of Civil Procedure which applies to suits filed in courts, a reference to "seat" is a concept by which a neutral venue can be chosen by the parties to an arbitration clause. The neutral venue may not in the classical sense have jurisdiction - that is, no part of the cause of action may have arisen at the neutral venue and neither would any of the provisions of Section 16 to 21 of the Code of Civil Procedure be attracted. In arbitration law however, as has been held above, the moment "seat" is determined, the fact that the seat is at Mumbai would vest Mumbai courts with exclusive jurisdiction for purposes of regulating arbitral proceedings arising out of the agreement between the parties."
39) In the instant case, under Clause-X, it is mandatory that, if the dispute arises between the parties is not resolved, it shall be referred to sole Arbitrator. A bare reading of arbitration clause, no option is given to parties to deviate from arbitration clause. In Jagadish Chander case, Hon'ble Supreme Court specifically held that, "when clause provides that, in the event of dispute arising between the parties, dispute shall be referred to arbitration, it is an arbitration agreement". Clause-
AS.70/2013 30 XI of the Agreement is that, the Court at Bengaluru shall have jurisdiction in respect of any dispute would be required to exercise supervisory control over the arbitration process.
40) Section 16 of the Arbitration and Conciliation Act, deals with competence of Arbitral Tribunal to rule its own jurisdiction. It reads as follows :
"16. Competence of arbitral tribunal to rule on its jurisdiction"
(1) The arbitral tribunal may rule on its own jurisdiction, including ruling on any objections, with respect to the existence or validity of the arbitration agreement, and for that purpose -
(a) an arbitration clause which forms part of a contract shall be treated as an agreement independent of the terms of the contract; and
(b) a decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause.
(2) A plea that the arbitral tribunal does not have jurisdiction shall be raised not later than the submission of the statement of defence; however, a party shall not be precluded from raising such a plea merely because that he has appointed, or participated in the appointment of, an arbitrator.
(3) A plea that the arbitral tribunal is exceeding the scope of its authority shall be raised as soon as the matter alleged to be AS.70/2013 31 beyond the scope of its authority is raised during the arbitral proceedings. (4) The arbitral tribunal may, in either of the cases referred to in sub-section (2) or sub-section (3), admit a later lea if it considers the delay justified.
(5) The arbitral tribunal shall decide on a plea referred to in sub-section (2) of sub- section (3) and, where the arbitral tribunal takes a decision rejecting the plea, continue with the arbitral proceedings and make an arbitral award.
(6) A party aggrieved by such an arbitral award may make an application for setting aside such an arbitral award in accordance with section 34,"
41) Competence of Arbitral Tribunal could have been raised before the learned Arbitrator, but Plaintiff did not raise any such ground. Instead, Plaintiff participated in the arbitral proceedings throughout and contested the claim without raising any objection regarding jurisdiction of learned Arbitrator. It is to be noted that, it was not the contention of Plaintiff before learned Arbitrator that, contract got entered into between Plaintiff and Defendant is null and void. In the absence of disputing the validity of contract, there could be no findings regarding the validity of contract. Even if AS.70/2013 32 Plaintiff had taken contention that, contract entered into between Plaintiff and Defendant is null and void and if Arbitrator had held so, same would not invalid the arbitration clause. As contemplated in Clause 16(1)(a), arbitration clause should be treated as agreement independent of the other terms of contract.
42) Plaintiff's challenge to arbitral award is that, payment of expenses incurred by Defendant in constructing the retaining wall after the alleged second failure of the wall by engaging the services of different Contractor arises out of a subsequent event, which does not come under Agreement and therefore, learned Arbitrator has passed impugned award in respect of the claims not arising out of the arbitration agreement.
43) Having gone through the award makes it clear that, Plaintiff has taken such contention before learned Arbitrator. To assail the contentions AS.70/2013 33 of Plaintiff, learned Arbitrator was pleased to frame relevant Issues. Issue No.9B and 9C read as follows :
" 9B. Whether the respondent's allegation that on the basis of claimant's allegations about oral discussions and subsequent agreements amounts to a new contract without there being any arbitration clause as alleged in para'V' and 'X' of the amended statement?
9C. Whether the claims mentioned in para'Y' in the amended statement of defence is beyond the scope of the original agreement and falls outside the jurisdiction of this Tribunal as pleaded in para 'Z'?"
44) Findings of the learned Arbitrator on Issue No.9B and 9C read as follows :
" 52. Issue Nos.9A, 9B, 9C and 9D :- All these issues pertain to the only question whether this Tribunal has jurisdiction to decide this case or not.
The respondent's contention is that there were subsequent agreements between the parties, and therefore, major portion of the claim is outside the jurisdiction of this Tribunal. But, the learned counsel for the claimant, Mr.Srinivasa Raghavan, contended that the prayer in this case flows from the arbitral clause mentioned in the agreement between the parties and nothing more and nothing less. Though the contention of Ms.Poornima was initially attracted me, but later, after going through the documents and the decisions cited, I find that there is no fresh agreement as such between the parties and hence the question of jurisdiction does not arise at all.
AS.70/2013 34 There is one important point which had not been argued by both sides and it flows from Ex.C-17 and Ex.C-18.
Even if we assume that there was some agreement subsequently as stated by the respondent, question whether the agreement is still surviving or not. If it survives, then respondent can argue about the jurisdiction of this Tribunal, if there is no arbitral clause in the subsequent agreement.
Ex.C-17 is claimant's letter to respondent mentioning all the facts and discussion with other experts etc., and called upon respondent to get the wall rebuilt as advised by CW-2, and this work should be completed within 90 days. The respondent has to bear the entire costs.
Now, what is the reaction from respondent can be seen from its reply Ex.C-18. After meeting some allegations made in Ex.C-17, in the last para, this is what the respondent mentioned, which is as follows :-
" As there has been no deficiency in design or violation of any terms of the Agreement dated 26.10.2006, we are unable to accept your advice to rebuild the compound wall at the cost of SEMAC and we are not liable to any damages caused in this behalf. Our proposal in this regard has been clear and it is hoped that you would act in accordance with our advice as stated above."
The above answer of the respondent is that respondent is unable to accept claimant's advice, to rebuild the compound wall at the cost of respondent and they are not liable to pay any damages.
Even agreeing that there are some agreements, respondent has denied its AS.70/2013 35 liability to rebuilt the wall as asked by the claimant. It may be shown that there might be some discussion about reconstruction of the retaining wall, but respondent has refused to accept it in the above answer and this is a last reply and the case is claimant's legal notice claiming the amount or alternatively to invoke arbitration clause. Hence, even agreeing for a moment, there were some discussions, that discussions have failed in the above answer of the respondent, and hence, question of jurisdiction does not arise. The parties should decide their rights and liabilities as per Ex,C-5.
53. ..........I have already given my findings on issues 1 & 2 that the failure of the wall was due to structural engineering calculations defect and as a result the respondent is liable to pay damages as agreed in the penalty clause stated above. Hence, the claim of the claimant flows through the clause regarding penalty and the arbitration clause. There is no question of any separate agreement here and even if there are any separate discussions that ended in failure by respondent denying construction of wall as told by the claimant".
45) Learned Arbitrator, having due regard to arbitration clause in Agreement at Ex.C.5, Defendant's letter at Ex.C.17 and Plaintiff's reply at Ex.C.18 was pleased to hold that, claim of Plaintiff flows from penalty and arbitration clause. Plaintiff has placed reliance on judgment in Associate Engineering Co. Vs. Government of Andhra AS.70/2013 36 Pradesh and another, [(1991) 4 SCC 93], wherein, it has been held that :
" 24. The arbitrator cannot act arbitrarily, irrationally, capriciously or independently of the contract. His sole function is to arbitrate in terms of the contract. He has no power apart from what the parties have given him under the contract. If he has travelled outside the bounds of the contract, he has acted without jurisdiction. But if he has remained inside the parameters of the contract and has construed the provisions of the contract, his award cannot be interfered with unless he has given reasons for the award disclosing an error apparent on the face of it. "
46) Ratio laid down in the judgment supra, can be made applicable only when deliberate departure from contract in arbitrating the claim of Claimant which ought not to arbitrate. Here in this case, there exists no such occasion which shows that learned Arbitrator has deviated from law and provisions of contract in arbitrating the claim of Defendant. Under such circumstances, there is no reason to contend that there is no arbitration agreement and that arbitral dispute raised by Defendant is out of purview of contract;
AS.70/2013 37 accordingly, I answer the above point in the negative.
47) Point No.2 : Plaintiff contend that arbitral award has been passed without considering the effect of Section 73 of the Indian Contract Act, 1872 and damages awarded has no proximity to the alleged breach. Concept of compensation does not include making Profits, Improvements or betterments at the cost of another. Compensation is for loss or damages caused thereby. Words in Section 73 of the Contract Act, "which naturally arose in the usual course of things, from such breach" indicate that compensation is to be restricted to those events that, one proximity to the alleged breach. Learned Arbitrator has awarded compensation which has the effect of making Plaintiff pays for a different and more expensive design and this has no correlation to the contract executed between Plaintiff and Defendant. Moment the design provided by Plaintiff was discarded, the AS.70/2013 38 chain of causation was broken, and subsequent event cannot be said to have any proximity to the alleged breach by Plaintiff. Additional expense or damage is remote and indirect and therefore could not have been awarded under Section 73 of the Contract Act, 1872. Damages so awarded are in the nature of penalty and therefore, not permissible under law. Award also falls foul of Section 74 of the Indian Contract Act, 1872.
48) It is further contended that, scope of work of Plaintiff under the Agreement was restricted to preparation of Architectural, Structural, Civil, Electrical, Plumbing, Mechanical Drawing, supervision of the construction of the Factory Building including the retaining wall and similar works. Assuming that the retaining wall fell due to alleged defective structural design, Plaintiff could only be held liable for the costs towards the structural designs only. Plaintiff cannot be made AS.70/2013 39 liable to bear the cost of construction of the wall, as the said cost was always payable by Defendant.
49) On the other hand, Defendant contends that, award has been passed after properly appreciating all the evidence and materials on record. Construction of the retaining wall was completed by Plaintiff in January, 2008. On 17.08.2008, a portion of the Western retaining wall had collapsed. When Defendant confronted Plaintiff, Plaintiff agreed to redesign and reconstruct the retaining wall. Plaintiff redesigned and rebuilt the wall by 15.03.2009 at its costs. Again, same was collapsed within six weeks from the date of reconstruction. Third party experts clearly opined that, piling and anchoring was the most effective way of rebuilding the wall and ensuring that there would be no further failures. Learned Arbitrator has rightly contended that retaining wall failed on two occasions as a result of deficiency of work relating to Structural AS.70/2013 40 Engineering calculations and breach committed by Plaintiff. Learned Arbitrator has considered overwhelming evidence on record and has rightly come to the conclusion that retaining wall failed as a result of deficiency of work relating to design and Structural Engineering calculations of Plaintiff. As such, all these allegations cannot be looked into at this stage and the evidence cannot be re- appreciated so as to arrive at a different conclusion.
50) Before assailing the contentions of the parties, it is relevant to take note of Sections 73 and 74 of the Indian Contract Act and related judgments which are relied upon by the parties.
Sections 73 and 74 read as follows :
" 73. Compensation for loss or damage caused by breach of contract - When a contract has been broken, the party who suffers by such breach is entitled to receive, from the party who has broken the contract, compensation for any loss or damage caused to him thereby, which naturally arose in the usual course of things from such breach, or which the parties knew, when they made the contract, to be likely to result from the breach of it.
AS.70/2013 41 Such compensation is not to be given for any remote and indirect loss or damage sustained by reason of the breach.
Compensation for failure to discharge obligation resembling those created by contract.- When an obligation resembling those created by contract has been incurred and has not been discharged, any person injured by the failure to discharge it is entitled to receive the same compensation from the party in default, as if such person had contracted to discharge it and had broken his contract".
"74. Compensation for breach of contract where penalty stipulated for - When a contract has been broken, if a sum is named in the contract as the amount to be paid in case of such breach, or if the contract contains any other stipulation by way of penalty, the party complaining of the breach is entitled, whether or not actual damage or loss is proved to have been caused thereby, to receive from the party who has broken the contract reasonable compensation not exceeding the amount so named or, as the case may be the penalty stipulated for".
51) Penalty clause in Agreement at Ex.C.5 reads as follows :
"Penalties :
. In the event of any deficiency of work related to Structural Engineering Calculation the Architect undertakes to compensate the damage caused by the same. In relation to other work, the same shall be declared deficient when it exceeds the tolerance limits specified in the Bureau of Indian Standards) a liquidate damage amounting to the AS.70/2013 42 deficiency but limited to 5% of the agreed price shall be deducted from the amount liable to be paid. The owner shall have the final say in this regard and the Architect shall not question the same."
52) Findings of learned Arbitrator are as follows :
" 24. Ex.C-5 is agreement between the parties about construction of factory and other requirements. The respondent is appointed as architect. The duties of architect are mentioned in Part-II. In Part-III, there is a clause, styled as "penalties". It is mentioned that in the event of any deficiency of work related to structural engineering calculations, the architect undertakes to compensate the damage caused by the same. Regarding other type of work, if there is any deficiency, the liability of respondent is only to the extent of 5% of the agreed price of the whole project. Now, we have to find out whether the claim made by the claimant comes under the I Part or II Part of both. Depending on that finding, we have to evaluate how much amount the claimant is entitled or not at all.
39. The Agreement is dated 26.10.2006. In Ex.C-5 the claimant is relying on penalty clause under Part-III.
It is provided that in the event of any deficiency of work related to structural engineering calculation, the architect undertakes to compensate the damage caused by the same.
It is, therefore, seen that under this clause if the defect is due to structural engineering calculations, then respondent has to pay compensation to compensate the damage caused by deficient construction.
The other part of the clause says if the damage is due to other clauses, other than structural engineering AS.70/2013 43 calculations, the respondent is liable to pay only 5% of the agreed price.
Anyhow, Respondent is liable to compensate to the damage caused by its act. It may be to compensate full value of the damage if it comes under I part of the clause or it should be equal to 5% of the cost price of the retaining wall".
53) From the Penalty Clause in Agreement at Ex.C.5 and from the findings of learned Arbitrator, it can be understandable that, first part of penalty clause deals with compensation for damages due to deficiency of work relating to Structural Engineering calculations, where no sum is named as the amount to be paid in case of breach, which certainly comes under Section 73 of the Contract Act. Second part of penalty clause contains stipulation by way of penalty in respect of other work, other than Structural Engineering calculations which comes under Section 74 of the Contract Act, where penalty is stipulated for breach of contract. Moreover, it is not disputed that, the very claim laid before the Arbitral Tribunal for claiming compensation for collapse of retaining AS.70/2013 44 wall due to deficiency of work relates to structural engineering calculations which aptly comes under Section 73 of the Contract Act. Collapse of retaining wall twice which was built based on structural engineering calculations of Plaintiff is not disputable. Words mentioned in Section 73 of the Contract Act that "it naturally arose in the usual course of things from such breach" have to be considered on materials placed before the learned Arbitrator. This factual aspect of the case has been analyzed by learned Arbitrator having regard to the documentary evidence and oral testimony of the parties. Under such circumstances, this Court not being a fact finding court, cannot re-appreciate the evidence on which learned Arbitrator has come to the conclusion that there exists breach of contract by Plaintiff.
54) Plaintiff contends that damages so awarded are in the nature of penalty and therefore, not permissible under law, which falls foul of Section AS.70/2013 45 74 of the Indian Contract Act, 1872. In support of its contentions, it has placed reliance on Judgment of Maula Bux Vs. Union of India [1969 (2) SCC 554] wherein, the Hon'ble Supreme Court was pleased to hold that :
"6. ............. In case of breach of some contracts it may be impossible for the Court to assess compensation arising from breach, while in other cases compensation can be calculated in accordance with established rules. Where the Court is unable to assess the compensation, the sum named by the parties if it be regarded as a genuine pre- estimate may be taken into consideration as the measure of reasonable compensation, but not if the sum named is in the nature of a penalty. Where loss in terms of money can be determined, the party claiming compensation must prove the loss suffered by him...."
55) Learned Arbitrator, having analyzed the penalty clause in a perspective manner, has come to conclusion that claim made by Defendant comes under first part of penalty clause. Admittedly, no sum has been named in first part of penalty clause being the penalty in the event of breach of contract. Instead, it is mentioned that, Plaintiff undertakes to compensate the damage. Under AS.70/2013 46 such circumstances, assessment of actual damages is warrantable and in that event, it is unwarrantable to award damages under Section 74 of the Contract Act, as if penalty were named in the contract, as the amount to be paid in case of breach. If it does so, same would amount to contravention of Contract Act and Agreement.
56) In this back ground, it is necessary to analyze the case of Plaintiff. In Agreement at Ex.C.5, there is a clause regarding Plaintiff's responsibility, which reads as follows :
"Architect is responsible for any consequence relating on : lack of project, technical. Design defect. Solutions materials suggested and respect of all existing rules, regulations and status of art in front of the owner and the law."
57) Defendant has brought to the notice of this Court that there is clear admission from Plaintiff in its testimony as to the responsibilities which cast upon it in agreement. It is true, Plaintiff agreed for consequence arising from its architectural design. There is no dispute in this regard. Whether, this AS.70/2013 47 itself fastens the responsibility on Plaintiff to pay the cost of reconstruction of more expensive wall by Defendant?
58) Plaintiff contends that, scope of work of Plaintiff under Agreement at Ex.C.5 was restricted to preparation of Architectural, Structural, Civil, Electrical, Plumbing, Mechanical Drawing, supervision of the construction of the Factory Building including the retaining wall and similar works. Plaintiff was not liable to bear the costs incurred towards the construction of the Factory/wall. It is contended that, even assuming that retaining wall fell due to alleged defective structural design, Plaintiff could only be held liable for the costs towards the structural designs only. Plaintiff cannot be made liable to bear the cost of construction of the wall as the said cost was always payable by Defendant. In support of his contention, he has placed reliance on page 1054 of "P C Markanda Building & Engineering Contracts"
AS.70/2013 48 [Law and Practice, Fifth Edition, Dr P C Markanda, Volume 2, Chapter 15 to End and Appendix] as to how to calculate the damages towards defective or incomplete work. It reads as follows :
" 15.11 Defective or incomplete work :
There are three possible alternative primary ways of calculating the damages to which the employer is entitled:
(a) the cost of putting right the work or completing it, less the price which the employer would have had to pay to the contractor if the work had been done correctly;
(b) the value of the defective work;
and
(c) the diminution in value of the building due to the defective or incomplete work."
59) Further, Plaintiff, in support of his contention, has relied upon judgment of Court of Appeal of Flordia in - (a) Lochrane Eng'g v. Willingham Realgrowth Inv. [Reporter - 552 So.2d 228; 1989 Fla. App. LEXIS 5617] and (b) Temple Beth Sholom & Jewish Ctr., Inc. V. Thyne Constr. Corp. [Reporter - 399 So.2d 525; 1981 AS.70/2013 49 Fla. App. LEXIS 20111]. It is relevant to reproduce the conclusions of the Florida Court arrived at in the above judgments :
"(a) Lochrane Eng'g v. Willingham Realgrowth Inv. 552 So.2d 228 :
The duty of a professional who renders services, such as a doctor, lawyer, or engineer, is different from the duty of one who renders manual services or delivers a product. The contractual duty of one who delivers a product or manual services, is to conform to the quality or quantity specified in the express contract, if any, or in the absence of such specification, or when the duty and level of performance is implied by law, to deliver a product reasonably suited for the purposes for which the product was intended (such as is involved in this case, the implied duty to deliver an adequate septic tank system) or to deliver services performed in a good and workmanlike manner. However, the duty imposed by law upon professionals rendering professional services is to perform such services in accordance with the standard of care used by similar professional in the community under similar circumstance. However, if a knowledgeable owner retains a civil engineer, knowledgeable as to hydrogeology and drain field design and requests a professional opinion as to specifications for a drain field adequate for a three bedroom house on a certain lot and, after doing the necessary study and field test to evaluate the soil conditions, the water table elevation, variable seasonable weather factors, the proximity of other drain fields, and all other relevant factors, the engineer states his opinion (by word or design specification) that a 1,000 square foot drain field would be adequate and the owner has that system installed, and later it is determined that a 1,200 square foot drain field was necessary for an adequate system, the engineer, not being an insurer or guarantor of his professional opinion, would not be liable to the owner for professional AS.70/2013 50 malpractice (negligence) unless it was also determined that informing and expressing his opinion that a 1,000 square foot drain field would be adequate, the engineer was negligent by falling below the level of performance of the average reasonable and prudent engineer performing similar professional services in the particular community. Assume further that it was determined that the engineer was professionally negligent, what would be the proper measure of damages? Is the engineer, like the fixed-price contractor, liable to the owner for the full amount of installing an additional 200 square foot of drain field? Not necessarily. Assume that the engineer had originally specified 1,200 square feet of drain field (or that the engineer in this case had originally specified an aerobic system) the owner, not the engineer, would have paid for the additional 200 feet of drain field (or the aerobic system). The owner, not the engineer, should pay for the additional 200 feet of drain field whether originally specified and then installed, or later found to be needed and obtained, because the necessity for the additional 200 feet of drain field was caused by the owner's need to dispose of the sewage produced by the structure served and was not caused by th engineer's failure to have originally correctly estimated the quantity of drain field necessary to meet that need. This does not mean that an engineer is never liable for damages that properly flow from his professional negligence. He is liable when damages are legally caused by his professional negligence as when an insufficiently designed structure fails and the failure causes damages".
"(b) Temple Beth Sholom & Jewish Ctr., Inc.V. Thyne Constr. Corp.
The proper measure of damages for construction defects is the cost of correcting the defects, except in certain instances where the corrections involve an unreasonable destruction of the structure and a cost which is grossly disproportionate AS.70/2013 51 to the results to be obtained. Gory Associated Industries, Inc. V. Jupiter Roofing & Sheet Metal, Inc., 358 So.2d 93 (Fla. 4 th DCA 1978): Edgar V. Hosea, 210 So.Sd 233 (Fla.3d DCA 1968).
If in the course of making repairs he owner elects to adopt a more expensive design, the recovery should be limited to what would have been the reasonable cost of repair according to the original design. Cf. Pinellas County v. Lee Construction Co., 375 So.2d 293 (Fla.2d DCA 1979), in which this court reversed a judgment which had limited the award for construction defects to the contract price and permitted recovery of the cost of the most reasonable method for remedying the defects.
We affirm the judgment insofar as it holds Thyne and Seaboard liable to Temple for damages arising from the faulty roof construction. We reverse the amount of the award and remand the case for a new trial on damages in which Temple will be entitled to recover what is would have reasonably cost to replace the roof according to the original design, together with any engineering and architectural fees reasonably necessary to accomplish the repair."
60) In this background, it is relevant to look at Defendant's claim laid before the learned Arbitrator. Additional affidavit in lieu of examination-in-chief of Defendant filed before learned Arbitrator makes it clear that, Defendant laid 11 claims amounting to Rs.2,08,59,402. Details of claims read as follows :
AS.70/2013 52 Sr. Details Amount (in No. Rupees)
1. Initial cost of constructing the retaining 28,02,500/-
wall
2. Consultation charges towards verification 2,20,600/-
of old design and preparing the new design paid to Mr.Chandramouleeswar.
3. Soil investigation done by M/s.Geo 77,762/-
Engineering Company Private Limited.
4. Design Validation by M/s.Civil Aid 22,060/-
5. Spot inspection jointly done before 22,060/-
construction of the retaining wall in July 2009 by Prof.B.R.Srinivasa Murthy.
6. Spot inspection jointly done before 20,000/-
construction of the retaining wall in July 2009 Mr.L.V.Sreerangaraju
7. Cost of construction of the retaining wall 1,22,55,025/-
paid to INCICON-AG
8. Cost towards drainage and cover paid to 15,31,034/-
INCICON-AG
9. Legal Consultation charges 2,60,750/-
10. Overheads 9,37,006/-
11. Bank interest on overdraft @ 15% 27,1,655/-
Total 2,08,59,452
"
61) Findings of the learned Arbitrator regarding said claims are as follows :
" 41. ..........................
Admittedly, the wall was built by the contractor and it was got constructed by the claimant and paid money to Lakshmi Nirman, which was the contractor. Claimant has mentioned that the amount paid to Lakshmi Nirman was Rs.28,02,500/- being the first item in C.W.1's affidavit dated 14.1.2011........".
".......Hence, we can safely hold that claimant has paid Rs.5 crores and odd, which includes the payment made to first retaining wall of Rs.28 lakhs and odd".
AS.70/2013 53 "42) The next related claim is about cost of construction of retaining wall paid to Incicon for Rs.1,22,55,025/- and Rs.15,31,034/- paid to Incicon-Ag amount paid towards drainage and cover, which are item No.7 and 8 in the said affidavit. These two items 7 and 8 of the said affidavit are also Sl.Nos.7 and 8 in the paper book containing documents. Payments made to Incicon for construction of wall are in page- 121 to 185. As far as drainage and cover, it is shown in page-186".
"......The total payments made to Incicon-AG in 13 items in Ex.C-37, page 189 and I have calculated that amount of 13 items and it comes to Rs.1,06,43,627/-. Though there are two items in the affidavit of CW-1 dated 14.1.2011, as items 7 and 8, the total amount claimed comes to Rs.1,37,86,031/-. But, now, what is proved before this Tribunal, it comes to Rs.1,06,43,627/- as mentioned in Ex.C-37 (page-189). Hence, I hold that claimant has proved only Rs.1,06,43,627/- for both items- 7 and 8. ...............".
"51. From the above discussion, only two items are fully excluded viz., items 10 and 11. Out of the nine remaining claims, items 7 and 8 are clubbed together".
'In the light of the above discussion, after excluding the two items, in the nine items, the total amount mentioned above comes to Rs.1,40,67,577/-".
"..................... For the total of 2,08,59,452/- as per calculations, according to claimant, claimant restricted the amount to Rs.1,70,00,000/-. But, now, in view of the above discussion, two items are left out and for other nine items, the total amount fixed above comes to Rs.1,40,67,537/-. For the amount shown as Rs.2,08,59,452/-, the amount now comes to Rs.1,40,67,537/-.
Since claimant has restricted to Rs.1,70,00,000/- as against
Rs.2,08,59,452/-, we have to find out if the total of eleven items should be kept as Rs.1,70,00,000/-, then the corresponding AS.70/2013 54 amount has to be calculated. If the total amount is Rs.2,08,59,452/-, claimant has restricted it to Rs.1,70,00,000/-, as per the discussion made above, the total amount comes to Rs.1,40,67,537/- and in the above ratio the amount reduced to Rs.1,14,64,770/-. (I have adopted the formula as Rs.1,70,00,000/- x 1,40,67,537 divided by 2,08,59,452). Hence, I hold that claimant is entitled to Rs.1,14,64,770/-. "
62) Findings of the learned Arbitrator make it clear that, learned Arbitrator has considered almost all claims as claimed in additional affidavit including overheads and bank interest at Items-10 and 11 while adopting formula. Most important is that, payments made to INCICON-AG for reconstruction of more expensive wall at Item-7 and 8 have been awarded along with initial costs of construction of retaining wall at Item-1 by adopting formula.
63) Admittedly, scope of Plaintiff's work was restricted to preparation of structural engineering calculations. Plaintiff undertook to compensate the damage to Defendant in respect of deficiency of work. It is not in dispute that costs of construction AS.70/2013 55 of wall was Rs.28,02,500/-, which amount was paid to Contractor, Laxmi Nirman. Further, it is not in dispute that portion of Western retaining wall collapsed within eight months of its construction. Also, it is not in dispute that wall was rebuilt by Contractor at the cost of Plaintiff and same was again collapsed within six weeks of reconstruction. In that event, Defendant availed the services of 3 rd party expert, Mr.Chandramouleshwar, who opined that, piling and anchoring was the most effective way of rebuilding the wall. Accordingly, INCICON- AG reconstructed the wall with costs of Rs.1,22,55,025/-. It is true that, Plaintiff had not given architectural design, which Mr.Chandramouleshwar had recommended and designed. Had Plaintiff given the design, which Mr.Chandramouleshwar designed, Defendant should have incurred the cost of construction of wall, which it paid to INCICON-AG and there would be no changes in costs to be incurred by Defendant. It is most important that, said AS.70/2013 56 Mr.Chandramouleshwar did not provide design to suit the costs of previously constructed wall. His design was so made, which made Defendant to construct expensive wall. Before that, Defendant had constructed wall based on Plaintiff's design at the cost of Rs.28 lakhs and odd. When fact being thus, at any stretch of imagination, it cannot be said that, Plaintiff is liable to pay the cost of expensive wall constructed by Defendant.
64) In P C Markanda Building & Engineering Contract, stated supra, it has been specifically stated that, there are three possible alternative primary ways of calculating the damages in Building and Engineering contracts. It is relevant to take note of first two possible alternative ways. First two possible alternative ways are that, "the cost of putting right the work or completing it, less the price which the employer would have had to pay to the contractor if the work had been done correctly; and the value of the defective work".
AS.70/2013 57
65) It is important to note that, Defendant constructed expensive wall based on new design. In that situation, Defendant is entitled to value of the defective work. Value of the defective work was to be assessed having regard to the initial costs of construction of Western retaining wall. Here, learned Arbitrator has awarded cost of construction of expensive wall, which was built based on new design and also awarded initial construction cost of the wall. In other words, Defendant's wall made of free of costs. As held in Temple Beth Sholom & Jewish Ctr., Inv. V. Thyne Constr. Corp., the proper measure of damages for construction defects is the cost of correcting the defects, which would be most reasonable method for remedying the defects. In this case, if Plaintiff is held responsible for defective design, at the most, he would be liable to pay initial cost of construction of retaining wall, which is shown as Rs.28 lakhs and odd. Instead, Defendant has been awarded initial cost of construction of retaining wall and cost of AS.70/2013 58 construction of expensive wall and thereby, Defendant's retaining wall made of free of cost. This certainly shocks the conscience of the court. In Associate Builders case, stated supra, it is held that, the award can be said to be against justice when it shocks the conscience of the court and further held that, award contravenes the substantive law of India; the Arbitration and Conciliation Act, 1996; and the terms of contract, would amount to patent illegality and is liable to be set aside. Moreover, in this case, award has been passed as if sum of penalty were named in contract as the amount to be paid in case of breach, which would contrary to the provisions of the Indian Contract Act, 1872 and terms of contract. In that view of the matter, this Court opines that, as the illegality goes to the root of the award, same requires to be set aside, accordingly, I answer point No.2 in the affirmative.
AS.70/2013 59
66) POINT NO.3 : For the foregoing discussion and answer to Points No.1 and 2, I proceed to pass the following :
ORDER (1) Suit filed under Section 34 of the Arbitration and Conciliation Act, 1996, by Plaintiff is hereby allowed.
(2) Impugned award dated 19.02.2013 and additional award dated 27.04.2013 passed by Hon'ble Arbitral Tribunal; is hereby set aside.
(3) No order as to costs.
[Dictated to the Judgment Writer, transcribed and computerized by her, transcript thereof corrected and then pronounced by me in open court this the 13th day of December 2019.] [RAMA NAIK] VI Addl.City Civil & Sessions Judge Bengaluru City AS.70/2013 60 [