Bangalore District Court
The State Project Director Rashtriya ... vs Kbr Infratech Limited on 12 September, 2024
KABC170003572024
IN THE COURT OF LXXXV ADDL. CITY CIVIL &
SESSIONS JUDGE, AT BENGALURU (CCH-86)
(Commercial Court)
THIS THE 12th DAY OF SEPTEMBER 2024
PRESENT:
SRI.ARJUN. S. MALLUR. B.A.L.LL.B.,
(CCH-86)
LXXXV ADDL. CITY CIVIL & SESSIONS
JUDGE,
BENGALURU.
Com.A.P.NO.20/2024
BETWEEN:
The State Project Director,
Rashtriya Madhyamika Shikshana Abhiyana
New Annex Building ,
K.R.Circle,
Bengaluru-560001
: PLAINTIFF/APPLICANT
(Represented by Sri. Sharath Gowda G.B Advocate)
AND
1. KBR Infratech Limited,
Com.A.P.No.20/2024
A registered company
having its registered office at:
No.1, 1st Floor, 8th Cross,
Tata Nagar, Balaji Layout,
RMV Extension, 2nd Stage Post,
Bengaluru-560094
Rep. By Its Managing Director,
Sri.K Babu Raju
S/o. Sri. Kramakrishnama Raju,
Aged about 54 years,
2:Justice Ashok B Hinchigeri,
Sole Arbitrator,
Arbitration And Conciliation Centre
Bengaluru (Domestic And International)
Kanija Bhavana,
Race Course Road,
Bengaluru-56000.
DEFENDANTS/CLAIMANTS
(R-1 by Sri. Sri. Harish H .Y. Advocate
R-2 Sole Arbitrator)
Date of Institution of the 02-02-2024
suit
Nature of the suit (suit on Arbitration Suit under
pronote, suit for declaration Sec. 34 of Arbitration &
& Possession, Suit for Conciliation Act, 1996
injunction etc.)
Date of commencement of
recording of evidence ---
Date on which judgment 12-09-2024
2
Com.A.P.No.20/2024
was pronounced
Total Duration Year/s Month/s Day/s
00 07 10
(ARJUN. S. MALLUR)
LXXXV Addl.City Civil & Sessions Judge,
Bengaluru.
JUDGMENT
Petition under Sec.34 of Arbitration and Conciliation Act 1996 for setting aside the arbitral award passed by the Learned Sole Arbitrator in A.C No.122/2022 dated 12.10.2023.
The award under challenge in this petition is akin to the award under challenge in Com.A.P.No.200/2023 and the learned arbitrator has relied upon the same material and evidence that was produced in AC.No.163/2021 which has been challenged in Com.A.P.No.200/2023. No seperate evidence is led in this claim. The grounds for challenge is same as ennumerated in Com.A.P.No.200/2023. So also is the objection statement. Hence reference is made to evidence recorded in A.C.No.163/2021 challenged in 3 Com.A.P.No.20/2024 Com.A.P.No.200/2023 in the course of judgment in this case.
Parties are referred as per their rank before the Arbitral Tribunal.
2. Facts in brief is as under:-
The respondent Rashtriya Madhyamika Shiksana Abhiyana(hereinafter referred as RMSA) is a centrally sponsored scheme started in the year 2009-2010 under the department of School Education later integrated with the Samagra Sikhshana Abhiyana 2018-19. Under the said scheme civil works for 77 packages were taken up in Karnataka between 2009 and 2015 for construction of the new Government school buildings, up gradation and strengthening works, constructions of Adharsha Vidyalayas (Model Schools) and girls hostel buildings at total cost of Rs.1645.7 crores. It is submitted that tenders for construction of the model schools and upgrading and strengthening of existing Government high schools in 30 districts of Karnataka state were invited on 24.09.2012. The tender was invited on package basis for total number of 52 4 Com.A.P.No.20/2024 packages through e-procurement portal. The petitioner was the successful bidder under A-7 packages for construction of Adarsh Vidyalasys at Gudibande (BeechaganahalliCross), Bagepalli (Devaragudipalli) and Chintamani (Bhoomanshetty Halli) of Chikkaballapura District and Girls Hostel at Gudibande (BeechaganahalliCross), Bagepalli (Thimmanapalli), Gowribidanur (Kerekalhalli) and Chintamani (Bhoomanashetty Halli) of Chikkaballapura District.
3. It is submitted that the petitioner and the respondent entered into a construction agreement dated 15.05.2013 consisting of general and special conditions of contract. During the execution of the contract work certain additional quantities and EIRL items had to be executed. Accordingly a supplementary agreement dated 24.03.2017 was entered between the parties. It is submitted that as per the tender that was floated clause No.39 pertaining to price adjustment was deleted. Thereafter under clause 5 of the contract the State Project Director, RMSA was represented by the authorized officer Sri. T. Krishna Gowda though corrigendum was issued to the tender notification no decision was taken as regards the insertion of price 5 Com.A.P.No.20/2024 escalation clause in the said notification. It is submitted that the State Government also did not pass any orders for inclusion of price escalation clause.
4. It is submitted that one Mr. Vijay who succeeded Sri. T. Krishna Gowda as State Project Engineer erroneously signed the tender notification by inserting price adjustment clause. It is submitted that even though the said clause was inserted the subsequent correspondences between the parties and the supplementary agreement dated 24.03.2017 specifically mentions that the price adjustment clause was deleted and no decision has been taken for inserting the price adjustment clause. It is submitted that neither the State Government nor the petitioners have taken any decision for inserting the price attachment clause.
5. It is further submitted that the petitioner commenced the work and completed the same with certain delay. However the petitioner while raising the bills has raised the bills for amounts under price adjustment clause. In view of the same there was delay on part of the State Government in clearing the last RA bill and final bill of the petitioner. It is submitted that 6 Com.A.P.No.20/2024 the last RA bill and final bill was submitted on 30.07.2019 and the same has been paid on 13.01.2021. The petitioner after accepting the payments made has without any justification raised the dispute in A.C.No.122/2022 before the Arbitral Tribunal comprising of Sole Arbitrator claiming a sum of Rs.38,41,61,211/- under various heads and also for a sum of Rs.2,00,00,000/- as damages. Before the Learned Arbitrator the petitioner in AC.No.163/2021 examined himself as P.W.1 and got marked documents at Ex.P1 to P.68. The respondent examined himself as R.W.1 and got marked documents at Ex.R1 to R.8. In this case claimant has produced documents at C.1 to C.55. Respondent has produced documents at R.1 to R.22.
6. The Learned Arbitrator on considering the oral and documentary evidence allowed the claim petition in part directing the respondent to pay sum of Rs.2,74,93,372/- with interest at 12% per annum from 11.12.2018 and also directed the respondent to pay interest at 12% per annum on various amounts paid under the last RA and final bill from the date of certification.
7Com.A.P.No.20/2024
7. Being aggrieved by the award the respondent has preferred this petition contending that the award passed by the Learned Sole Arbitrator is erroneous and opposed to facts and circumstances. It is submitted that the Learned Arbitrator erred in awarding interest at 12% per annum from the date of certification of the last RA and final bill which is against clause 36 of the contract conditions under which the amount claimed under the bills is required to be paid within 60 days from the date of submission of the bill and not from the date of certification. It is submitted that the last RA bill and final bills were submitted by the petitioner on 30.07.2019 whereas the certification of work has been done by the concerned Assistant Executive Engineer much prior to submission of the bills. It is submitted that the Learned Arbitrator erred in awarding interest from the date of certification of bills whereas interest was to be leaved only after 60 days of submission of the final bill. It is submitted that the respondent has cleared all the payments on 13.01.2021 no amount is due to be paid. It is submitted that the Learned Arbitrator has grossly erred in awarding amount of Rs.2,74,93,372/- with interest at 12% from the date of certification. It is further submitted that the Learned 8 Com.A.P.No.20/2024 Arbitrator has failed to observe that in the tender notification at Ex.P.2 at clause No.39 the price adjustment clause has been treated as deleted and therefore the petitioner was not entitled to claim any amount under price adjustment clause. It is submitted that though the price adjustment clause was inserted by issuing the corrigendum at Ex.P4 to P.6, it is only with respect to examining whether the price adjustment clause has to be inserted or not and there was no decision to include price adjustment clause. It is submitted that the Learned Arbitrator has not taken into consideration the fact that even as on 24.03.2017 the date on which supplementary document was executed to price adjustment clause but not been included and that the Learned Arbitrator has failed to observe that the State Project Engineer Mr. Vijay who executed Ex.P.3 has erroneously included price adjustment clause with respect to which the departmental proceedings are initiated against said Vijay for dereliction of duty and that the Learned Arbitrator has not duly considered the above aspects. It is submitted that the Learned Arbitrator grossly erred in up holding the price adjustment clause and on these 9 Com.A.P.No.20/2024 grounds the respondent/petitioner herein is seeking for setting aside the award.
8. The respondent No.1/claimant has appeared through its counsel and filed detailed statement of objections. It is specifically contention by the claimant that the grounds under which the respondent no.1/Petitioner is seeking setting aside of the award do not qualify the test laid down under Sec.34 of the Arbitration and Conciliation Act and as per the recent judicial pronouncements. The arbitral award cannot be set aside on the grounds urged by the petitioner. The respondent/claimant further submits that under clause 36.1 of the contract at Ex.P.3 it provides for payment of the amounts within 60 days of submission of the bill. It means and includes that the bills must be submitted before Assistant Executive Engineer. It is further submitted that while releasing the payment the petitioner has issued contract certificate with respect to all the works and that the payment with respect to all the 7 works under the contract certificates has been paid after the long delay of one year and therefore the awarding of interest by Learned Arbitrator is absolutely in accordance with law and justified and no interference 10 Com.A.P.No.20/2024 can be made therein. It is submitted that even the grant of interest for not having made the payment within 60 days of the submission of the bills is in accordance with terms of the contract and no infirmity or illegality has been committed by the Learned Sole Arbitrator.
9. The petitioner/claimant further submits that the ground for inclusion of price adjustment clause is strictly in accordance with the supplementary agreement and the tender document at Ex.P.2 and P.3. It is submitted that under Ex.P.4 the respondent had agreed to consider inclusion of the price adjustment clause which is also admitted by R.W.1 in his evidence. It is submitted that respondent had assured the claimant that the note pertinent to deletion of price adjustment clause in the interest of RMSA would be removed and that the inclusion of the price adjustment clause is as per the Government Order dated 21.11.2008 produced at Ex.P.32 for all work costing more than Rs.50,00,000/- and having the execution period exceeding 12 months. It is submitted that the contract price in the present contract is more than Rs.50,00,000/- and also the term of completion is 11 Com.A.P.No.20/2024 beyond 12 months and therefore the respondent was duty bound to invoke the price adjustment clause and having not done so the Learned Arbitrator was fully justified in awarding amount towards price adjustment clause. The claimant further contended in the statement of objections that as per the letter of acceptance dated 18.03.2013 at Ex.P.10 and as per the proceedings of meeting dated 13.02.2013 at Ex.P.9 the Government had already taken decision to include price adjustment clause in the tender conditions. It is further submitted that before finalizing the tender several meetings have been held in the office of the respondent and during those negotiations for including price adjustment clause in the contract the claimant was asked to reduce the cost of quotation and accordingly the cost was reduced from 34.6% above the current scheduled rates to 19.76%. It is submitted that proceedings at Ex.P.9 manifestly discloses inclusion of cost escalation in the contract.
10. It is further submitted by the claimant that Ex.P.3 contains the price adjustment clause is duly signed and acted upon by the parties till completion of the work and therefore it is valid contract enforceable in law.
12Com.A.P.No.20/2024 The claimant further submits that it is the lookout of the respondent to ascertain whether the state project engineer was empowered to sign the contract including price adjustment clause or not. The claimant being the contractor was only required to sign and collect the contract from the office which was already kept duly by signed by the State Project Engineer. It is submitted that the claimant had got nothing to do with the official of the respondent allegedly acting in an erroneous manner and therefore letter of acceptance and the corrigendum which are of duly signed by claimant as well as the authorized State Project Engineer would clearly infer that the price adjustment clause has been duly acted upon till completion of the work. It is submitted that the price escalation bills were initially submitted on 30.09.2015 and the respondent by communication dated 09.08.2018 had called upon the claimant to give up its claim on price adjustment clause after conclusion of the contract on 18.01.2017 which was not permissible in law. The claimant has contended that the award passed by the Learned Arbitrator is absolutely in accordance with the terms and conditions of the contract and there is no patent illegality appearing on the face of the award which would render 13 Com.A.P.No.20/2024 the award unsustainable. It is submitted that the Learned Arbitrator has not made an award which is in violation of the fundamental public policy of India. On these grounds the respondent/claimant sought for dismissing the application with exemplary costs.
11. Heard the Learned Additional Government Advocate appearing for the petitioner/respondent and Learned counsel for claimant/respondent at length. Both have filed memo with citations. Perused the entire material on record.
12. The points that arise for my consideration are as under:
(1) Whether the petitioner substantiates that the impugned award passed by the Learned Sole Arbitrator in A.C.No.122/2022 dated 12.10.2023 is in breach of fundamental public Policy of India and suffers from patent illegality appearing on the face of it requiring it to be set aside?
(2) What order?
14Com.A.P.No.20/2024
13. My finding on the above Points are: -
Point No.1: In the Negative.
Point No.2: As per final order for the following:
REASONS
14. POINT NO.1- The petitioner has challenged the award on two grounds. The first ground under which the award is challenged is that the Learned Arbitrator has grossly erred in awarding payment of interest at the rate of 12% per annum from the date of certification of the last RA and final bills. It is submitted that the finding of the Learned Arbitrator is against the terms of the contract more particularly clause No.36 and therefore there is clear violation of fundamental public policy of India which qualifies for setting aside of the award. It is contended by the petitioner that the payments are required to be done within 60 days from the date of submission of the last RA bill and final bill and not from the date of certification of the last RA bill and final bill.
15. Opposing the arguments of the Leaned Additional Government Advocate the Learned Counsel for claimant 15 Com.A.P.No.20/2024 submits that the period of 60 days under clause 36 of the contract is to be construed from the date on which the Assistant Executive Engineer certifies the RA bills. It is submitted that payments with respect to last RA Bills and the final bill with respect to all the 7 works as per contract certificates at Ex.P.56 has been paid belatedly after nearly a gap of more than a year. The claimant in its statement of objections at para No.15 with respect to last of the RA bills and the final bills of all 7 works has provided a tabular column under which with respect to RA bills, the bills have been submitted on 24.06.2016 and 27.06.2016 with respect to project at Beechganahalli. Likewise the last RA bills with respect to other projects have also submitted on various dates and have been certified on the same dates by the Assistant Executive Engineer but the payment have been made with a delay of more than 250 days. Likewise with respect to final bills also certification of the bills have been done on the same date but the payments have been made nearly 4 to 5 years later and there is an average of more than 1350 delay for which the interest has been awarded by the Learned Sole Arbitrator. The tabular form provided by the respondent claimant in para No.15 and 16 of the 16 Com.A.P.No.20/2024 statement of objections tally with the tabulation furnished by the Learned AGA.
16. It is the vehement contention of the Learned AGA for the petitioner/respondent that calculation of interest on delayed payments can be only after 60 days of the final bills submission and not the date of certification. In support of his arguments the Learned AGA has relied upon the judgment of Hon'ble Supreme Court reported in (2021) 6 SCC 150 Oriental Structural Engineers Private Limited vs. State of Kerala, wherein at para No.21 of the judgment it has been observed as under:
In our opinion, the view taken by the Tribunal on consideration of the contract was both reasonable and possible view. We, however, are of the opinion that the rate at which interest has been directed to be paid as contained in paragraphs 1.6 and 1.8 of the award, which we have reproduced above, are rather excessive. As the agreement is silent on the point of rate of interest but provides for payment of interest on delayed payment, the Tribunal's exercise of fixing the rate should have been on the basis of applying the principle laid down in paragraph 43.(i). in the case of G.C. Roy 17 Com.A.P.No.20/2024 (supra). The said principle is applicable in a proceeding under the 1996 Act as well. This principle has been broadly incorporated in Section 31(7) (a) of the 1996 Act. The only difference between the situation contemplated in the aforesaid provision and the facts of this case is that the agreement involved is not silent on interest entitlement of the appellants on delayed payment but the agreement contains provision for such payment. Only the rate at which interest would be payable remained unspecified. In our view, simple interest at the rate of 8% would be just and equitable on the sum left unpaid, calculated otherwise on the basis of sub-paragraphs 1.6. to 1.8 of the award.
17. I have gone through the above cited decision wherein the facts were such that the interest clause in the agreement was left blank in the bid document and in those circumstances the above observations have been made by the Hon'ble Apex Court. Such is not the facts in the case on hand. In the present case clause 36 of the contract deals with respect to payments. The Learned Arbitrator after considering the oral and documentary evidence on record and after going through the various terms of the contract and while 18 Com.A.P.No.20/2024 answering issue No.5 with regard to payment of the interest the Learned Arbitrator has taken into consideration the last of the RA bill and the final bills as per the tabular column provided and has taken the period of 60days from the date of certification of the RA bills i.e., date on which actual submission of the bills would have taken place and after giving 60 days period for processing and releasing the payments and having observed that the payments are not made within 60 days has proceeded to award interest at 12% per annum on the various amounts which has been described in para 83(a) to 83(b). The award of the interest by the Learned Arbitrator is in accordance with the terms of contract and the documents that is the contract certificates at Ex.P.56 which speaks in detail regarding the dates to which the certification have been done. Therefore awarding of interest by the Learned Arbitrator at 12% per annum cannot be construed as acting beyond the terms of contract amounting to violation of the fundamental public policy of India so as to vitiate the entire award.
18. The Learned Counsel for the claimant respondent has also referred to judgment of the Hon'ble Jarkhand 19 Com.A.P.No.20/2024 High Court reported in 2023 SCC OnLine Jhar 380 Central Coalfields Limited, through its General Manager (CMC) Alakesh Roy Vs Rajdhani Carriers Pvt Ltd and judgments of the Apex Court reported in (2015) 2 SCC 189 Hyder Consulting (UK) Limited vs. Governor, State of Orissa and (2023) 1 SCC 602 Morgan Securities and credits Private Limited vs. Videocon Industries Limited. The learned counsel for the claimant/respondent also referred to a judgment of Hon'ble Apex Court in (2009) 17 SCC 296 Manalal Prabhudayal vs. Oriental Insurance Company Limited. I have gone through above cited decisions wherein the Hon'ble Apex Court and the Hon'ble Jharkhand Court has made observations regarding power of the Arbitrator to award interest and has observed that the Arbitrator has got powers to grant interest for preference period, during the pendency of the litigation and for the post award period provided the rate of interest is reasonable and there is no provision to the contrary in the Arbitral agreement. In fact the Hon'ble Apex Court in the above decisions has affirmed awarding interest at the rate of 12% by the Arbitrator which is also the existing scenario in this case. The award passed by the Learned Arbitrator for 20 Com.A.P.No.20/2024 the purpose of clarity with respect to the interest is reproduced as under:
II. The aforesaid amount of Rs.2,74,93,372/- (Rupees two Crore Seventy Four Lakh Ninety Three thousand Three Hundred and Seventy Two Only) shall carry interest at the rate of 12% per annum from 11.12.2018, the date of certification, till today (the date of passing this award). It shall carry interest at the rate of 18% per annum from today till the date of payment.
III. The claimant is entitled to interest at the rate of 12% per annum on the amounts given under the last RA bills and the final bills from the date of their certification till today. The dates and amounts are mentioned in paragraph Nos.81 and 83, supra. The said amounts shall carry interest at the rate of 18% per annum from the date of this ward till the date of payment.
19. Therefore under these circumstances, the Learned Arbitrator awarding interest for delayed payments cannot be construed as an award which is in breach of fundamental public policy of India so as to be interfered with.
20. The next ground on which the award is challenged is the inclusion of price escalation clause in the agreement. The Learned Counsel for the 21 Com.A.P.No.20/2024 petitioner/respondent vehemently submitted that clause 39 of the contract as envisaged in the tender documents carries a note that the clause with respect to price escalation may be treated as deleted. It is vehemently submitted by the Learned AGA that though in the subsequent document at Ex.P.3 the cost of price escalation was included, that was an erroneous act of the Authorized Project Engineer one Mr. Vijay against whom disciplinary proceedings are pending and that neither during the project work nor at the time of completion of the project there was any agreement between the parties to invoke the price escalation clause and therefore Learned Arbitrator has grossly erred in holding that there existed of price escalation clause in the agreement. The Learned AGA would submit that the claimant had agreed for the terms of the tender which specifically envisages that the price adjustment clause at para No.39 of Ex.P2 may be treated as deleted and therefore claimant would not be entitled to seek price escalation. Refuting the arguments of the learned AGA the learned Counsel for the claimant would vehemently submit that the price adjustment or cost escalation has been included under corrigendum to the terms of contract at Ex.P.4 under 22 Com.A.P.No.20/2024 which the petitioner had agreed to consider the price adjustment clauses and further the contract at Ex.P.3 provides for price adjustment. The Learned Counsel for claimant would refer to the letter of acceptance dated 18.03.2013 produced at Ex.P.10 which is backed by a proceeding of the meeting dated 13.02.2013 where in the Government had already taken a decision to include price adjustment or costs escalation clause in the tender conditions. Ex.P.9 is the proceeding of the meeting with respect to the Shikhana Abhiyaan project where in it has been resolved to provide for clause escalation. Ex.P.10 is the letter of acceptance issued by the State Project Engineer wherein cost escalation has been duly accepted. The Learned Counsel for claimant/respondent also referred to a Government order which has been produced at Ex.P.64 wherein in the proceeding of the meetings dated 18.03.2013 approval has been given by the Government for entering into the contract based upon which contract with the present claim has been entered into. Though clause 39 carried a note that the clause pertaining to price escalation may be deleted in principle the same has not been been deleted. The Learned Sole Arbitrator while passing the award has observed that the clause 23 Com.A.P.No.20/2024 39.2 only says that the proposal for price adjustment may be treated as deleted but it does not say that the said clause has been deleted. In fact the Learned Arbitrator observes that the subsequent document at Ex.P.3 which is duly executed by the Project Engineer retains clause No.39.1 with respect to provisions for clause escalation. It is submitted by the Learned AGA that the State Project Engineer one Mr. Vijay had no authority to sign the agreement at Ex.P.3. To substantiate the same no cogent material has been submitted before the Learned Arbitrator. On the other hand in the cross examination R.W.1 has admitted that the State Project Engineer was authorized to sign the document on behalf of the State. The Learned Arbitrator has also observed that no action has been initiated against the said State Project Engineer who signed the agreement at Ex.P.3 and after his superannuation domestic enquiry has been initiated which has also be stayed by the Hon'be High Court of Karnataka. It is further observed by the Learned Arbitrator that under Ex.P.3 not only the price adjustment clause but there are 6 modifications of the original agreement and five modifications have been duly acted upon. Having considered the evidence on 24 Com.A.P.No.20/2024 record the Learned Arbitrator has rightly observed that the claimant would be entitled for amount towards price variation.
21. The petitioner has hopelessly failed in substantiating that the decision of the Learned Sole Arbitrator accepting the price variation clause and awarding the amount towards price variation would in any manner amount to patent illegality appearing on the face which would require setting aside of the award in toto.
In this regard the Learned Counsel for the respondent claimant has relied upon the following decisions:
1. (1979) 2 SCC 409, Motilal Padampat Sugar Mills Co. Ltd., vs. State of Uttar Pradesh.
2. (2017) 8 SCC 146, Assam State Electricity Board Vs. Build worth Pvt. Ltd, where in at para No.13 and 14 of the judgment it is observed as under:
The arbitrator has taken the view that the provision for price escalation would not bind the 25 Com.A.P.No.20/2024 claimant beyond the scheduled date of completion. This view of the arbitrator is based on a construction of the provisions of the contract, the correspondence between the parties and the conduct of the Board in allowing the completion of the contract even beyond the formal extended date of 6 September 1983 up to 31 January 1986. Matters relating to the construction of a contract lie within the province of the arbitral tribunal. Moreover, in the present case the view which has been adopted by the arbitrator is based on evidentiary material which was relevant to the decision. There is no error apparent on the face of the record which could have warranted the interference of the court within the parameters available under the Arbitration Act, 1940. The arbitrator has neither misconducted himself in the proceedings nor is the award otherwise invalid.
14. "escalation is a normal incident arising out of gap of time in this inflationary age in performing any contract. The arbitrator has held that there was delay, and he has further referred to this aspect in his award..... After discussing the evidence and the submission the arbitrator found that it was evident that there was escalation and, therefore, he came to the conclusion that it was reasonable to allow 20 per cent of the compensation under claim no.1, he has accordingly allowed the same. This was a matter which was within the jurisdiction of the arbitrator and, hence, the arbitrator had not misconducted himself in awarding the amount as he has done.
This Court held that the contractor was justified in seeking price escalation on account of an 26 Com.A.P.No.20/2024 extension of time for the completion of work. Once the arbitrator was held to have the jurisdiction to determine whether there was a delay in the execution of the contract due to the respondent, the latter was liable for the consequence of the delay, namely, an increase in price.
3. (2007) 13 SCC 43, K.N. Sathyapalan(Dead) by Lrs. vs. State of Kerala and another, wherein at para No.31 and 32 of the judgment is has been observed as under:
31. The question which we are called upon to answer in the instant appeal is whether in the absence of any price escalation clause in the Original Agreement and a specific prohibition to the contrary in the Supplemental Agreement, the appellant could have made any claim on account of escalation of costs and whether the Arbitrator exceeded his jurisdiction in allowing such claims as had been found by the High Court.
32. Ordinarily, the parties would be bound by the terms agreed upon in the contract, but in the event one of the parties to the contract is unable to fulfill its obligations under the contract which has a direct bearing on the work to be executed by the other party, the Arbitrator is vested with the authority to compensate the second party for the extra costs incurred by him as a result of the failure of the first party to live up to its obligations. That is the distinguishing feature of 27 Com.A.P.No.20/2024 cases of this nature and M/s. Alopi Parshad's case (supra) and also Patel Engg.'s case (supra). As was pointed out by Mr. Dave, the said principle was recognized by this Court in P.M. Paul's (supra) , where a reference was made to a retired Judge of this Court to fix responsibility for the delay in construction of the building and the repercussions of such delay. Based on the findings of the learned Judge, this Court gave its approval to the excess amount awarded by the arbitrator on account of increase in price of materials and costs of labour and transport during the extended period of the contract, even in the absence of any escalation clause. The said principle was reiterated by this Court in T.P. George's case.
22. The observations made by the Apex Court in the above cited decisions squarely applies to the facts and circumstances of the case on hand. In the present case though under the first agreement at Ex.P.2 a note was mentioned that the cost escalation may be treated as deleted it was again carried into subsequent agreement at Ex.P.3 which is duly signed by the State Project Engineer and therefore by conduct the respondent has agreed to provide for price escalation and the Learned Arbitrator accepting the same and awarding amount towards price escalation cannot be construed as any patent illegality so as to vitiate the award.
28Com.A.P.No.20/2024
23. The Leaned Counsel for the respondent claimant in support of her arguments contended that under Sec.34 of the Arbitration and Conciliation Act there is a limited scope for the Courts to interfere and that the view taken by the Learned Sole Arbitrator with respect to inclusion of price escalation and awarding of interest on delayed payments is the most possible and probable view that could have been taken and therefore virtually there is no scope for any interference by the Court under Sec.34 of the Act. In support of her contentions she has relied upon following decisions:
1. (2019) 4 SCC 163, MTMC Limited vs. Vedanta Limited.
2. (2022) 3 SCC 739, Atlanta Limited vs. Union of India.
3. (2015) 3 SCC 49, Associate Builders vs. Delhi Development Authority.29
Com.A.P.No.20/2024
4. (2023) SCC Online SC 982, Larsen Air Conditioning and Refrigration Company vs. Union of India and others.
6. 2024 SCC Online SC 802, National Highways Authority of India vs. Hindustan Construction Ltd.
24. I have gone through the above cited decisions where in the Hon'ble Apex Court has made observations regarding interpretation of what would amount to fundamental breach of public policy of India and also observations are made with respect to when the Courts can interfere under Sec.34 of the Arbitration and Conciliation Act 1996. The observations made by Hon'ble Apex Court in the above cited decisions are guiding facts to be born in mind by the Courts while adjudicating their challenge to the arbitral award. The observations made therein 30 Com.A.P.No.20/2024 are squarely applicable to the facts and circumstances of the case on hand.
25. The learned AGA produced copy of the award passed by the learned arbitrator in AC No.98/2021 wherein with respect to similar issue the interest has been awarded at a lesser rate. I have gone through the same. Awarding of interest is the discretion of the Arbitrator and the hon'ble Apex Court in S.V.Samudram Vs State of Karnataka has observed that courts under Sec.34 has no power to modify the award. It can either set aside the award or confirm it. If the arbitrator has awarded a particular rate of interest court has no power to scale down the same.
26. In the result for the aforesaid reasons upon considering the material on record and on going through the award passed by the Leaned Arbitrator and following the guidelines laid down by the Apex Court in the above cited decisions, I am of the considered opinion that the award passed by the Learned Arbitrator is neither in contravention with the fundamental public policy of India law nor the 31 Com.A.P.No.20/2024 award is vitiated by any patent illegality appearing on the face of it. Hence, I answer Point No.1 in the Negative.
27. POINT NO.2:- For the aforesaid reasons, I proceed to pass the following.
ORDER
Application file by the petitioner
under Sec.34 of Arbitration and
Conciliation Act,1996 challenging the
Arbitral award passed by the Learned Sole Arbitrator in A.C.No.122/2022 dated 12.10.2023 is dismissed with costs.
Office is directed to send back the original records to the Arbitration and Conciliation Centre Bengaluru.
(Dictated to the Stenographer Grade-III, transcribed by her, corrected and then pronounced by me in open court on this the 12 th day of September, 2024) Digitally signed by ARJUN ARJUN SRINATH SRINATH MALLUR MALLUR Date: 2024.09.12 18:07:40 +0530 (ARJUN. S. MALLUR) LXXXV Addl.City Civil & Sessions Judge, Bengaluru.
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