Delhi District Court
Union Of India vs M/S Bansal Construction Co on 11 February, 2022
IN THE COURT OF SH GURVINDER PAL SINGH,
DISTRICT JUDGE (COMMERCIAL COURT)-02,
PATIALA HOUSE COURT, NEW DELHI
OMP (Comm.) No. 48/2018
Union of India
Through: Its'
DRM, Delhi Division, Northern Railway,
DRM Office, State Entry Road,
Connaught Place, New Delhi-110001 ..Petitioner
versus
M/s Bansal Construction Co.
Through: It's Proprietor
Smt. Manjula Rani W/o Sh. Sat Prakash Gupta
Sudarshan Apartment,
45, I.P. Extension,
Patparganj, Delhi-110092 ..Respondent
Date of Institution : 20/12/2018
Arguments concluded on : 13/01/2022
Decided on : 11/02/2022
Appearances : Sh. Om Prakash, Ld. Counsel for petitioner.
Sh. S.W Haider, Ld. Counsel for respondent.
JUDGMENT
1. Petitioner has filed the present objection petition under Section 34 of The Arbitration and Conciliation Act, 1996 (herein after referred as The Act), seeking setting aside of the impugned arbitral award dated 26/10/2018 of Ld. Sole Arbitrator Sh. Alok Kumar, Dy. Chief Engineer (Survey & Const.). Ld. Sole Arbitrator awarded Rs. 19,75,000/- in favour of claimant/ respondent payable by petitioner within four weeks from the date of publishing the award, failing which interest @ 18% was OMP (Comm.) No. 48/2018 Union of India vs M/s Bansal Construction Co. Page 1 of 40 payable till the date of payment of award amount.
2. I have heard Sh. Om Prakash, Ld. Counsel for petitioner; Sh. S.W. Haider, Ld. Counsel for respondent and perused the record of the case, the arbitral proceedings record, relied upon precedents, filed brief written arguments on behalf of petitioner as well as on behalf of respondent and given my thoughtful consideration to the rival contentions put forth.
3. Adumbrated in brief, material facts of the case of parties are as follows. Tender notice bearing No.128-W/280/TN/28/09- 10/W-III dated 24.02.2010 was floated by petitioner for "Improvement to road work in Circulating area at Paharganj side & Ajmeri Gate side at New Delhi Station in the S/o SSE/W/NDLS under ADEN/NDLS". Respondent/claimant participated in the tender proceedings. Award letter dated 09/04/2010 was issued by petitioner in favour of respondent/ claimant with regard to subject work. Original agreement cost was Rs. 60,96,179/-. Cost of the work as per 1 st Addendum and Corrigendum (in short A&C) was Rs. 89,39,381/-. Cost of the work as per 2nd A&C was Rs. 91,43,842/-. The stipulated date of completion of the work was 08/08/2010 i.e., in four months. Disputes arose between the parties. Respondent/claimant invoked the arbitration clause vide letter dated 26.08.2011/07.10.2011 wherein Rs. 11,30,000/- were claimed. Competent authority of petitioner referred claims of respondent/claimant to the tune of Rs. 9,20,000/- out of total claims of Rs. 11,30,000/- to Sh. D.K Pandey, Dy. CE appointed as Ld. Sole Arbitrator. Respondent/ claimant filed Statement of Claim dated 18/04/2012 to the tune OMP (Comm.) No. 48/2018 Union of India vs M/s Bansal Construction Co. Page 2 of 40 of Rs. 11,30,000/- without seeking any permission from Ld. Arbitrator. Claimant/respondent wrote letter to Ld. Sole Arbitrator Sh. D.K Pandey stating that they want to switch over the arbitration case to an independent Arbitrator. Ld. First Sole Arbitrator sent letter to petitioner for treating the case as closed from the Tribunal in terms of letter dated 15/03/2017 of respondent/claimant. Later thereto competent authority of petitioner appointed Arbitral Tribunal consisting of Sh. A.K Verma, Ld. Presiding Arbitrator; Sh. Vipin Jha and Sh. Sudhir Mathur, Co-Arbitrators on 28/06/2017 for adjudicating the issues between the parties. Respondent/claimant sent several letters to General Manager, Northern Railways of petitioner to take appropriate steps for restarting of arbitral proceedings. Later thereto on 11/05/2018 present Ld. Sole Arbitrator Sh. Alok Kumar was appointed by competent authority of petitioner. Respondent/claimant wrote letter dated 14/05/2018 to refer revised claim of Rs. 41,00,000/- before newly appointed Arbitral Tribunal. On 11/06/2018 respondent/claimant filed revised claim of Rs. 41,00,000/- before Arbitral Tribunal. Arbitral proceedings culminated into the impugned arbitral award.
4. Petitioner has impugned the arbitral award mainly on the following grounds. Subject work was awarded subject to applicability of The General Conditions of Contract, 1999 (in short GCC) and the terms and conditions of the agreement. Ld. Sole Arbitrator was bound by the terms and conditions of the contract being creature of the contract and as per Section 28(3) of the Act had to decide the issues in accordance with the terms of contract. Ld. Sole Arbitrator was not to allow any claim which OMP (Comm.) No. 48/2018 Union of India vs M/s Bansal Construction Co. Page 3 of 40 was contrary to contract. The revised Statement of Claim for Rs. 41,00,000/- was filed for the first time on 11/06/2018 and was barred by limitation as cause of action allegedly accrued in favour of respondent/claimant on 07/10/2011 and the period of limitation of three years expired on 06/10/2014, whereas original amount of reference was Rs. 9,20,000/- and balance amount of Rs. 31,80,000/- was barred by time and could not be adjudicated by Ld. Sole Arbitrator. Accordingly, impugned award was patently illegal and liable to be set aside. Sh. Ram Prakash Gupta had invoked the arbitration clause on behalf of respondent/ claimant and pursued the arbitration proceedings before Ld. Sole Arbitrator without any legal authority, whereas Smt Manjula Rani Gupta was the proprietor of respondent/claimant firm but she never authorized Sh. Ram Prakash Gupta to file the claim and pursue it on behalf of respondent/claimant. As per Clause 23.16 of Special Tender Conditions for contract in question, no claim for idle labour or idle machinery etc. on any account was be entertained. Similarly, no claim was be entertained for business loss or any such loss. Per contra to said Clause 23.16 of Special Tender Conditions, Ld. Sole Arbitrator awarded Claim 1(i) for Rs. 1,25,000/- whereas even the site was available to the respondent/claimant and due to that reason, the quantities of different items of work was increased by way of sanctioning 1 st and 2nd Addendum/Corrigendum but delay was attributable to claimant/respondent only. Even notice for 7 days was served upon respondent/claimant by petitioner on 14/06/2010 as respondent/claimant had started the work only on 02/05/2010 and could only complete 7% of the work. The observations of Ld. Sole Arbitrator for awarding Rs.2,50,000/- against Claim no.
OMP (Comm.) No. 48/2018 Union of India vs M/s Bansal Construction Co. Page 4 of 401(iii) are contradictory to the observation of Ld. Sole Arbitrator for awarding Rs. 1,25,000/- towards Claim no. 1(i), because as per requirement of site, any quantity can be increased/decreased with the consent of both parties. Accordingly, the quantities were increased with prior consent of claimant and as per requirement of site, so there is no delay. For the sake of argument, if the site was not available, how the quantities can be increased on earlier occasions. 1st Addendum/Corrigendum was approved on 29/11/2010 and 2nd Addendum/Corrigendum was approved on 24/05/2011. Ld. Sole Arbitrator awarded Rs. 2,20,000/- on account of waiving of liquidated damages imposed at the time of granting first extension in date of completion without considering the documents placed by petitioner before Ld. Sole Arbitral Tribunal. Despite imposition of liquidated damages under Clause 17-B of GCC, claimant/respondent continued executing the work without any protest and no such issue was ever raised till the signing of final bill on 26/05/2011. Rs. 2,17,720/- was the amount of liquidated damages deducted from the second running account bill, passed on 02/09/2010. Ld. Sole Arbitrator awarded Rs. 7,80,000/- on account of price variation clause without considering merits of the case. Petitioner wrote letters dated 09/06/2010 and 14/06/2010 after more than two months from the awarding of the work, intimating slow progress of work and 7% approximately work done. 1st extension in date of completion was granted on 30/09/2010 under Clause 17-B of GCC, hence entire delay was attributable to respondent/claimant and not petitioner. Respondent/claimant was not entitled for any price variation clause. Ld. Sole Arbitrator relied upon the letters dated 10/10/2011 and 15/02/2011, which were not on record and at the OMP (Comm.) No. 48/2018 Union of India vs M/s Bansal Construction Co. Page 5 of 40 time of requesting for extension in date of completion, respondent/claimant never sought any price variation clause. The final bill was accepted with no claim certificate and after giving no claim certificate, as per Clause 43(2) of GCC, the contractor is not entitled to make any claim. While signing the final bill, as per Clause 23.2 of Special Tender Conditions of the contract agreement, the contractor was required to give no claim certificate. Ld. Sole Arbitrator awarded Rs 6,00,000/- as interest @ 9% per annum on the amount of item no. 2 and 3 for the period from 01/01/2012 to 30/09/2018 for total 80 months. Even said claim against item no. 2 and 3 is barred by time. Also as per Clause 16.3 and Clause 64(5) of GCC, respondent/claimant was not entitled for any interest on the award sums. Also three months period extendable with further 30 days period was permissible time period to impugn the arbitral award whereas Ld. Sole Arbitrator gave only period of four weeks for payment of the award and thus misconducted. Petitioner through Counsel prayed for setting aside of the award on above said grounds, relying upon the following precedents:-
1. Oil & Natural Gas Corporation Ltd. vs SAW Pipes Ltd., MANU/SC/0314/2003;
2. Satender Kumar vs Municipal Corporation of Delhi & Anr., 168 (2010) DLT 15;
3. Sukhbiri Devi & Ors. vs UOI & Ors., 162 (2009) DLT 720;
4. Sri Chittaranjan Maity vs Union of India, 2017 (6) R.A.J. 1 (SC);
5. Ld. Counsel for respondent/claimant argued that the work in question could not be completed in given four months time due to reasons solely attributable to petitioner. Hence, respondent/ claimant applied for extensions in time as the contractual conditions obligated upon it for requesting such extensions. Out OMP (Comm.) No. 48/2018 Union of India vs M/s Bansal Construction Co. Page 6 of 40 of four extensions given from time to time, 1st extension was granted under Clause 17(B) of GCC and petitioner recovered Rs.
2,17,720/- on account of penalty but later on petitioner realized that it was not the fault of respondent which led to the delay in completion of work and thus other three extensions were granted under Clause 17(A) of GCC without penalty. Respondent/ claimant vide letter dated 14/05/2018 had requested the relevant department of petitioner seeking reference of its amended claims to the tune of Rs. 41,00,000/-. In response thereto, the concerned department of petitioner asked respondent/claimant to do needful before Arbitrator, thus pursuant thereto respondent filed its amended claims to the tune of Rs. 41,00,000/-. Ld. Counsel for respondent/claimant argued that present petition is an abuse of law in order to delay the genuine payment of respondent/ claimant. Ld. Sole Arbitrator apart from being technical person was senior officer of present petitioner. Petitioner has miserably failed to impugn anything in the impugned award so as to bring the instant petition under the ambit of Section 34 of the Act. Award of Ld. Sole Arbitrator is based on valid reasons. Ld. Sole Arbitrator dwelled upon each and every contention of parties and gave reasoned findings on the contentions of parties. There was no illegality in the impugned award, same ought not to be interfered and petition deserves dismissal. Except 1 st extension, all other three extensions were granted under Clause 17-A of GCC without penalty. Even for the sake of arguments, though not admitted, if it is assumed that it was the fault of respondent/ claimant in the first place that work could not be executed and completed on time and thus 1st extension was granted with penalty under Clause 17-B of GCC, then why the subsequent OMP (Comm.) No. 48/2018 Union of India vs M/s Bansal Construction Co. Page 7 of 40 extensions were granted under Clause 17-A of GCC? Bare perusal of 1st extension letter dated 03/09/2010 issued by petitioner, whereby respondent/claimant was made to accept the same, in itself reflects the high handed approach of petitioner in giving the 1st extension with penalty. There is nothing in the GCC and the Act which prohibits the respondent to file its amended claims, rather the provision of GCC allows the contractor to file additional claims. Further the contractor was not bound to seek the permission of Arbitral Tribunal to move any letter before GM, Northern Railways seeking reference of its amended claims. Once the concerned department of petitioner asked respondent/ claimant to do so (file the amended claims) before Arbitrator, nothing remains. Arbitral Tribunal rightly rejected the contentions of petitioner and in para no. 6 of impugned award observed that in the light of Section 23 of the Act and Clause 64(1)(iii) of GCC, the claim can be amended or supplemented during the course of the arbitral proceedings. The plea of time barred was never raised before Ld. Sole Arbitrator and has now been taken for the first time and thus petitioner waived its right and cannot raise new plea under Section 34 of the Act. This Court cannot go into the factual matrix and the scope to adjudicate under Section 34 of the Act is narrow. This Court can only adjudicate or interfere with award of Arbitral Tribunal if the case of petitioner falls under Section 34(2) of the Act but petitioner has failed to establish its case under Section 34 of the Act and petition deserves dismissal and also claim were never time barred. It was also argued that the plea of "No Claim" is also not attracted as Ld. Sole Arbitrator has not granted any claim of respondent/claimant which pertained to the measurement. Ld. OMP (Comm.) No. 48/2018 Union of India vs M/s Bansal Construction Co. Page 8 of 40 Counsel for respondent argued that there is no illegality in the impugned award, same not be interfered and petition be dismissed.
6. An arbitral award can be set aside on the grounds set out in Section 34 (2) (a), Section 34 (2) (b) and Section 34 (2A) of the Act in view of Section 5 of the Act and if an application for setting aside such award is made by party not later than 3 months from the date from which the party making such application had received the signed copy of the arbitral award or if a request had been made under Section 33 of the Act, from the date on which that request had been disposed of by the Arbitral Tribunal. If the Court is satisfied that the applicant was prevented by sufficient cause from the making the application within the said period of three months it may entertain the application within further period of 30 days, but not thereafter.
7. Section 34 (1) (2), (2A) and (3) of The Arbitration and Conciliation Act, 1996 read as under:-
"34. Application for setting aside arbitral award- (1) Recourse to a court against an arbitral award may be made only by an application for setting aside such award in accordance with sub-section (2) and sub- section (3).
(2) An arbitral award may be set aside by the court only if-
(a) the party making the application furnishes proof that-
(i) a party was under some incapacity, or
(ii) the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law for the time being in force; or
(iii) the party making the application was not given proper notice of the appointment of an arbitrator or of the OMP (Comm.) No. 48/2018 Union of India vs M/s Bansal Construction Co. Page 9 of 40 arbitral proceedings or was otherwise unable to present his case; or
(iv) the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration;
Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside; or
(v) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Part from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Part; or
(b) the court finds that-
(i) the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or
(ii) the arbitral award is in conflict with the public policy of India.
Explanation 1 - For the avoidance of any doubt, it is clarified that an award is in conflict with the public policy of India, only if,-- (i) the making of the award was induced or affected by fraud or corruption or was in violation of Section 75 or Section 81; or (ii) it is in contravention with the fundamental policy of Indian law; or (iii) it is in conflict with the most basic notions of morality or justice.
Explanation 2.-- For the avoidance of doubt, the test as to whether there is a contravention with the fundamental policy of Indian law shall not entail a review on the merits of the dispute.
(2A) An arbitral award arising out of arbitrations other than international commercial arbitrations, may also be set aside by the Court, if the Court finds that the award is vitiated by patent illegality appearing on the face of the award:
OMP (Comm.) No. 48/2018 Union of India vs M/s Bansal Construction Co. Page 10 of 40Provided that an award shall not be set aside merely on the ground of an erroneous application of the law or by reappreciation of evidence.
(3) An application for setting aside may not be made after three months have elapsed from the date on which the party making that application had received the arbitral award or, if a request had been made under section 33, from the date on which that request had been disposed of by the arbitral tribunal:
Provided that if the Court is satisfied that the applicant was prevented by sufficient cause from making the application within the said period of three months it may entertain the application within a further period of thirty days, but not thereafter."
8. Supreme Court in case of Associate Builders vs. Delhi Development Authority, (2015) 3 SCC 49 has held that the interference with an arbitral award is permissible only when the findings of the arbitrator are arbitrary, capricious or perverse or when conscience of the Court is shocked or when illegality is not trivial but goes to the root of the matter. It is held that once it is found that the arbitrator's approach is neither arbitrary nor capricious, no interference is called for on facts. The arbitrator is ultimately a master of the quantity and quality of evidence while drawing the arbitral award. Patent illegality must go to the root of the matter and cannot be of trivial nature.
Also was held therein that:
"33. "...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....
Once it is found that the arbitrators approach is not arbitrary or capricious, then he is the last word on facts.."
9. Supreme Court in case of Ssangyong Engineering & Construction Co. Ltd. vs. National Highways Authority of India, 2019 SCC OnLine SC 677 has held that under Section 34 OMP (Comm.) No. 48/2018 Union of India vs M/s Bansal Construction Co. Page 11 of 40 (2A) of the Act, a decision which is perverse while no longer being a ground for challenge under "public policy of India", would certainly amount to a patent illegality appearing on the face of the award. A finding based on the documents taken behind the back of the parties by the arbitrator would also qualify as a decision based on no evidence inasmuch as such decision is not based on evidence led by the parties and therefore would also have to be characterized as perverse. It is held that a finding based on no evidence at all or an award which ignores vital evidence in arriving at its decision would be perverse and liable to be set aside on the ground of patent illegality.
10. Supreme Court in the case of Patel Engineering Ltd. vs North Eastern Electric Power Corporation Ltd., MANU/SC/ 0447/2020 inter alia held that wherein the findings of Ld. Arbitrator are arrived at by taking into account irrelevant facts and by ignoring the vital clauses, the same suffers from the vice of irrationality and perversity and that the award will be liable to be set aside when while interpreting the terms of the contract, no reasonable person could have arrived at such a conclusion and the award passed by the arbitrator suffers from the vice of irrationality and perversity.
11. Vide letter dated 26.08.2011/07.10.2011 respondent/ claimant sought referral of disputes for adjudication of five claims, which are as follows:-
"Claim No. 1. Towards idea ling labour and machines at site and staff.
We have been maintaining our establishment through out contract period the delay in shifting the Taxi Parking to OMP (Comm.) No. 48/2018 Union of India vs M/s Bansal Construction Co. Page 12 of 40 Pvt. Car Parking and Vice Versa at New Delhi Railway Station where the work of laying curb stone and laying of bitumastic was to be done. Due to this our labour and bitumastic machine was standing ideal. We suffered great losses on this account-- Rs. 2 Lacs Claim No.2 Towards Penalties imposed The penalties imposed upon ourselves was totally un warranted & illegal as the delay occurs due to administrative reasons which was realized later on and extension granted without penalties and with PVC. So the penalties deduction in our bills may be not justified.-- Rs. 2.20 Lacs Claim No.3 Towards PVC Clause As per agreement there is a provision of PVC clause. But it was not paid to us, the amount may also be awarded to us. Rs. 7,00,000/-
Claim No.4 Interest @ 24% per annum We would like to prefer our claim for interest @ 24% per annum on the sum / dues pending towards railways and the amount which is likely to be awarded by the Ld. Arbitrator for unjustifiable amount held from the date there had been fallen to us till the date of realization.
Claim No.5 Rs. 10,000/- toward litigation charges This amount may be awarded to us as we enforced / dragged by the Administration to the present Arbitration.
Rs. 10,000/-
Total Amount Rs. 11,30000"
12. Vide letter dated 02/02/2012 Dy CE/Genl. for the General Manager Northern Railway for petitioner had referred following two claims to Sh. Dinesh Kumar Pandey, appointed as Ld. Sole Arbitrator to enter into reference and adjudicate:-
S. No. Contractor's Claim Amount
1. Towards penalties imposed Rs. 2,20,000/-
2. Toward PVC Clause Rs. 7,00,000/-
13. Vide letter dated 18/04/2012 respondent/claimant laid statement of facts and five claims totaling Rs. 11,30,000/- before Sh. Dinesh Kumar Pandey, first appointed Ld. Sole Arbitrator, OMP (Comm.) No. 48/2018 Union of India vs M/s Bansal Construction Co. Page 13 of 40 which were those very claims which are mentioned above as per letter dated 26.08.2011/07.10.2011 of respondent/claimant to General Manager, Northern Railway of petitioner.
14. Contract agreement bearing no. 11/2010-11/NDLS/W3 dated 23/07/2010 was executed between the parties and on behalf of respondent/claimant Sh. Sat Prakash (Attorney) of respondent/ claimant had signed it with Annexures, Special Tender Conditions etc. Their perusal reveals that in above said contract agreement dated 23/07/2010 following is the agreed Clause 2:-
"2. WHEREAS THE CONTRACTOR has agreed with the Railway for the performance of the work 'AS ABOVE' set forth in the schedule hereto annexed upon the general conditions of contract, regulations and instructions for tenderers and standard forms of contract 1999 edition and N.Rly., Engg.Deptt. stnd. specifications for material and works 1989 edition Engg. Dept. stnd. Schedule of rates 1996 edn. As applicable (corrected upto date) and special conditions and special specifications, if any conformity with the drawings of the work and whereas the performance of the said work is an act in which the public are interested."
15. Accordingly, General Conditions of Contract, 1999 as well as the signed Special Tender Conditions were applicable for the work in question.
16. Following are the relevant Clauses 16(3), 43 (2), 64(1)(iii) and 64.5 of GCC:-
"16. ...............................................................................................
(3) No interest will be payable upon the Earnest Money and Security Deposit or amounts payable to the Contractor under the Contract, but Government Securities deposited in terms of Sub-clause (1) of this clause will be payable with interest accrued thereon.
..........................................................................................................
43. ................................................................................................
(2) Signing of "No Claim" certificate- The Contractor shall not be entitled to make any claim whatsoever OMP (Comm.) No. 48/2018 Union of India vs M/s Bansal Construction Co. Page 14 of 40 against the Railway under or by virtue of or arising out of this contract, nor shall the Railway entertain or consider any such claim, if made by the Contractor, after he shall have signed a "no Claim" Certificate in favour of the Railway in such from as shall be required by the Railway after the works are finally measured up. The Contractor shall be debarred from disputing the correctness of the item covered by "No Claim" Certificate or demanding a clearance to arbitration in respect thereof. .......................................................................................................... 64(1)(iii)-- No new claim shall be added during proceedings by either party. However, a party may amend or supplement the original claim or defence thereof during the course of arbitration proceedings subject to acceptance by Tribunal having due regard to the delay in making it.
.......................................................................................................... 64.5 Where the arbitral award is for the payment of money, no interest shall be payable on whole or any part of the money for any period till the date on which the award is made."
17. Following are the relevant Clauses 8.4, 23.2 and 23.16 in the Special Tender Conditions applicable to the contract:-
"8.4 Price Variation Clause (PVC) shall be applicable for tenders of value more than Rs. 50 Lakhs irrespective of the contract completion period.
........................................................................................................... 23.2 The contractor will be required to give 'NO CLAIM CERTIFICATE' while signing the final bill. This 'NO CLAIM CERTIFICATE' furnished by the contractor constitute special agreement where he admits and acknowledge that no money is due to him in connection with the particular contract by him thus after the contractor has given no claim certificate and has final bill has been finalised and paid to him the contractor can not ask for any more payment even if post audit records show that he had been paid less hence after no claim is given, the contractor will not be entitled to ask for arbitration.
........................................................................................................... 23.16 No claim for idle labour and or idle machinery etc. on any account will be entertained. Similarly no claim shall be entertained for business loss or any such loss."
18. Following is the appreciation of pleadings, evidence and findings of Arbitral Tribunal on Claim nos. 1(i) and Claim no. 1(iii):-
OMP (Comm.) No. 48/2018 Union of India vs M/s Bansal Construction Co. Page 15 of 40Claim Description of claim Amount Claimed Amount No Awarded CONTRACTOR'S CLAIM
1. Towards Idling of machine and staff at site 1(i) For non-availability of ₹ 2,50,000/- ₹ 1,25,000/-
site (Two Lakh Fifty (One Lakh Thousands) Twenty Five Thousands) Reasons of amount awarded
1. After hearing the arguments of both claimant and respondent and going through the documents produced before undersigned, the claim is accepted.
2. it was understood that the work site was a busy place (circulating area of railway station). The contractor must have been mentally prepared to face such situation as its very difficult to control/manage the traffic/crowd and make available clear site on demand of the contractor.
3. However on the respondents(railway) side onus lied upon them to be fully prepared and take all efforts to earmark the rea beforehand, make announcement, placards/display board to earmark the area for start of work and take all other effort to minimize delay in handing over of site to the claimants(contractor).
4. In para-5 above while discussing the background of the case detailed discussion on this issue is available. Hence need no repetition.
5. Hence the claim of claimant(contractor) is not cent percent justified. Precautions from respondents(railway) side might have, if not avoided, at least minimized the delay in start of work / idling of resources(men/machinery).
6. A token amount of ₹ 1,25,000/- (50% of claim) is awarded.
CL For delay variation of ₹ 5,00,000/- ₹ 2,50,000/- No. quantities of different 1(iii) items of works (Five Lakhs) (Two Lakhs Fifty Thousands) Reasons for amount awarded
1. After hearing the arguments of both claimant and respondent and going through the documents produced before undersigned, the claim is accepted.
OMP (Comm.) No. 48/2018 Union of India vs M/s Bansal Construction Co. Page 16 of 402. it was understood that the work were getting completed by the claimants(contractor) but payments were not being released by the respondents(railway). Reason being there were variations in quantities that were existing in the agreement compared with actual quantities of execution. In Railway System efforts need to be taken variation/vitiation and if it becomes unavoidable the same may be processed for SANCTION of the competent authority within reasonable time frame.
4. As explained in para above (para-5) while discussing background of the case the quantum of works executed far exceeded the payments released. The 5th on account bill was paid on 13.12.2010 for an amount of ₹ 19,05,647/- (cumulative ₹ 62,35,838/- which exceeded the contract value and was 102% of the contractual amount). The 5th on account bill was paid without including the variation amount. The respondents processed variation in contract and arranged payments of 6 th on account bill on 18.03.2011 for amount ₹ 22,83,959/- (cumulative ₹ 85,19,797/- which was about 140% of contract amount)
5. The struck amount always becomes a hindrance to the working contractor and causes problems of CASH-FLOW. In this cases resources (men/material/money) were pooled by the claimant (contractor) and work were executed but the payments were not released timely, blocking the working capital.
6. However such incidence do occur and machine purchased/hired and work executed site was a busy place (circulating area of railway station). The contractor must have been mentally prepared to face such situation as its very difficult to control/manage the traffic/crowd and make available clear site on demand of the contractor.
7. However on the respondents(railway) side onus lied upon them to be fully prepared and take all efforts to earmark the rea beforehand, make announcement, placards/display board to earmark the area for start of work and take all other effort to minimize delay in handing over of site to the claimants(contractor).
8. The respondents arranged the payments for variation but with long delays. Hence a token amount of ₹ 2,50,000/- (Two Lakhs Fifty Thousands) i.e. 50% of claim is awarded.
19. In the original Statement of Claim dated 18/04/2012 as well as in letter dated 26.08.2011/07.10.2011 of respondent/claimant to petitioner the Claim no. 1 towards idealing labour and machines at site and staff above said was for quantum of OMP (Comm.) No. 48/2018 Union of India vs M/s Bansal Construction Co. Page 17 of 40 Rs. 2,00,000/-. Respondent/claimant had invoked the arbitration clause by serving above said letter dated 26.08.2011/07.10.2011 upon petitioner on 07/10/2011 incorporating five claims, totaling Rs. 11,30,000/-. Vide letter dated 02/02/2012 petitioner had referred two claims, totaling Rs. 9,20,000/- as detailed above to first appointed Ld. Sole Arbitrator for adjudication.
20. Section 21 of The Act provides that unless and otherwise agreed by the parties, the arbitral proceedings in respect of a particular dispute commence on the date on which the request for that dispute to be referred to the arbitration is received by the respondent. Limitation in respect of which a request is made by one party to other party to refer such dispute to the arbitration stops when such notice is received by other party.
21. Accordingly, the arbitral proceedings in respect of the dispute in question commenced on 07/10/2011 when letter of respondent/claimant dated 26.08.2011/07.10.2011, above said, was received by petitioner. True that as per Clause 64(1)(iii) of GCC applicable, a party may amend or supplement the original claim during the course of arbitration proceedings but it was so subject to acceptance by Tribunal having due regard to the delay in making it.
22. Impugned arbitral award records the discussion on the revised claim amount in para 6, which reads as follows:-
"6. Discussion on the revised claim amount:
a) The original claim as referred by Northern railway Headquarters was ₹ 9,20,000/- (Rs Nine Lakhs Twenty Thousands Only) vide letter No. 63-
W/5/1040-WA dt. 11.05.2018) OMP (Comm.) No. 48/2018 Union of India vs M/s Bansal Construction Co. Page 18 of 40
b) However, the claimant(contractor) requested the respondents(railway) for revision in claims vide their letter No. NIL dated 14.05.208. In reply to the request of claimant(contractor) the respondents (railway) issued a letter directing to get the claim revised (vide letter No. 63-W/5/1040-WA dt.
18.05.2018) during the course of arbitration.
c) During the very first arbitral proceeding (held on 11.06.2018) course of arbitration the claimant submitted their request again vide their letter No BCC/ARB./18-19 dated 11.06.2018 that as per clause 23 of new "Arbitration and Conciliation Act-1996" and clause 64 (i) (iii) of General Conditions of contract, they can amend or supplement their claim or difference during the course of arbitral proceedings. The request of claimant to amend/revise the claim was found in coherence with the amended Arbitration Act and in line with GCC. The respondents were however against the revisions of claims, but same was accepted as the provision of revision of claims was in line with the prevalent acts.
d) The claim amount considered for arbitration was revised to ₹ 41,00,000/- (Rs Forty One Lakhs Only)."
23. Arbitral proceedings record and impugned arbitral award reveals that with respect to acceptance by Tribunal of addition/ revision in claims of respondent/claimant there was no due regard given to the delay in making it. Request of respondent/ claimant for revision/addition in the claims finds no whisper on the facet or reasons for delay in making it. Arbitral proceedings record as well as impugned arbitral award also find no mention of any due regard given by Tribunal for the delay in making the revision/addition in the claims by respondent/claimant before their acceptance by Arbitral Tribunal. Request of respondent/ claimant for revision in claim dated 14/05/2018 to petitioner and OMP (Comm.) No. 48/2018 Union of India vs M/s Bansal Construction Co. Page 19 of 40 in the revised Statement of Claim dated 11/06/2018 before Ld. Sole Arbitrator embodies no premise laid for delay in making/ putting forth revised/additional claims in excess of what were laid in original Statement of Claim of claimant/respondent dated 18/04/2012. Article 137 of the Schedule of The Limitation Act, 1963 prescribes period of limitation of three years for making the claims by claimant and time begins to run when right to apply accrues to claimant. Article 18 of the Schedule of The Limitation Act, 1963 prescribes period of limitation of three years for making the claims by claimant for price of work done and time begins to run when work is done by claimant. As has been discussed above, time had begun to run for claimant, latest, on serving of notice dated 26.08.2011/ 07.10.2011 purportedly under Section 21 of the Act upon petitioner on 07/10/2011. Accordingly, the revised/additional claims not put forth in the above said original Statement of Claim in year 2012 and in the above said letter dated 26.08.2011/07.10.2011 of claimant/ respondent to petitioner were barred by limitation and were so put forth beyond the period of limitation. Reliance is placed upon law laid in case of Satender Kumar vs Municipal Corporation of Delhi & Anr. (supra) wherein it was inter alia held that limitation commences when cause of action accrues/arises and by subsequent/later letters no fresh period of limitation can arise. Also the arbitral proceedings record, the material before Arbitral Tribunal, orders of the Arbitral Tribunal and impugned arbitral award do not embody any discussion or finding on the facet of Arbitral Tribunal having taken due regard to the delay of making revised/additional claims by claimant/respondent before it.
OMP (Comm.) No. 48/2018 Union of India vs M/s Bansal Construction Co. Page 20 of 4024. Above elicited Clause 23.16 of the Special Tender Conditions envisaged that no claim for idle labour and/or idle machinery etc. on any account was to be entertained and accordingly any such claim was an excepted claim. Even such claim towards idle labour or idle machinery was not referred by petitioner to Ld. Sole Arbitrator for adjudication. Respondent/ claimant had sent letter dated 14/05/2018 incorporating the revised/amended/additional claims; all totaling Rs. 41,00,000/- to petitioner but said letter also was having no mention of any fact on the facet of delay in putting forth/filing revised/amended/ additional claims beyond original claims laid in letter of respondent/claimant dated 26.08.2011/07.10.2011, above said. Pursuant thereto petitioner had issued letter dated 18/05/2018 to respondent/claimant advising respondent/claimant to give their revised claims to Ld. Sole Arbitrator for their consideration. Nowhere is the admission of petitioner in said letter dated 18/05/2018 that the revised claims were accepted without demur by petitioner and it was left for Ld. Sole Arbitrator for their consideration. Ld. Sole Arbitrator being creature of the agreement had to act in accordance with Section 28(3) of the Act and had to take into account the terms of the contract and trade usage applicable in the transaction. Without having due regard to the delay in making revised/additional claims by respondent/ claimant, the Arbitral Tribunal accorded/accepted revise/additional claims of respondent/claimant per contra to Clause 64(1)(iii) of GCC applicable and Clause 23.16 of Special Tender Conditions applicable. Per se for said adjudication of Claims 1(i) and 1(iii) the impugned arbitral award suffers from OMP (Comm.) No. 48/2018 Union of India vs M/s Bansal Construction Co. Page 21 of 40 the vice of patent illegality and is liable to be set aside; as also the claims beyond Rs. 2,00,000/- towards idling of machine and idling of staff at site were well beyond the period of limitation, which were accepted by Arbitral Tribunal without having due regard to the delay in making them by claimant/respondent. In terms of law laid in the cases of (1) Indian Oil Corporation Ltd. vs M/s Shree Ganesh Petroleum Rajgurunagar, Civil Appeal Nos. 837-838 of 2022, decided by Supreme Court on 01/02/2022; (2) PSA SICAL Terminals Pvt. Ltd. vs Board of Trustees of V.O. Chidambranar Port Trust Tuticorin and Ors., (2021) SCC OnLine SC 508; (3) South East Asia Marine Engineering & Constructions Limited vs Oil India Limited, (2020) 5 SCC 164; (4) MD, Army Welfare Housing Organisation vs Sumangal Services (P) Ltd., (2004) 9 SCC 619; (5) Vivek Jain vs Union of India & Anr., 2008 (3) R.A.J. 508 (Del); Ld. Sole Arbitrator cannot rewrite the contract between the parties nor can create a new contract between the parties nor can give the award ignoring the terms and conditions of the contract nor can travel beyond the terms and conditions of the contract. Per se the adjudication of Claim no. 1(i) and Claim no. 1(iii) by Ld. Sole Arbitrator in the impugned arbitral award suffers from the vice of patent illegality in terms of law laid in the case of Patel Engineering Ltd. vs North Eastern Electric Power Corporation Ltd. (supra).
25. Following is the appreciation of pleadings, evidence and findings of Arbitral Tribunal on Claim no.2:-
CL Towards waiving of Amount Claimed Amount No. 2 penalties imposed ₹ 2,20,000/- Awarded wrongly. (Two Lakhs ₹ 2,20,000/-
Twenty (Two Lakhs
OMP (Comm.) No. 48/2018 Union of India vs M/s Bansal Construction Co. Page 22 of 40
Thousands) Twenty
Thousands)
Reasons for amount awarded
1. After hearing the arguments of both claimant and respondent and going through the documents produced before undersigned, the claim is accepted in-toto.
2. The background of the case and details of first extension of time is furnished above at para-5.1 and 5.2 above. Detailed examination were done during arbitral meeting and facts are available in minutes of the meeting (1st meeting). However extract of relevant portion is reproduced as extract for ready reference:
3. Following are some of the reasons for delay in work for which claimant(contractor) cant be solely held responsible:
a. Change of Site caused delay: Respondents were not having clear planning as far as sequence of work was concerned. They must have got the parking stand shifted before awarding the contract. First, they awarded the contract, then when the claimants arrived at site to work with his resources, the respondents advised to work at adjacent site. Now when the claimant shifted all their resources to work on alternate site, the respondents again advised to work on the original site, as by this time they have got the parking lot shifted. It's worth mentioning that the road work involves on-site operations, scrapping of old surface, mixing of bitumen with aggregates, hot-mix-plants. All these shifting caused loss of time and for this the respondents were responsible and in spite of this the extension of time was given with penalty.
b. Bituminous Roads are generally not constructed during rains: The claimants submitted technical details regarding behaviors of bitumen. They submitted that bitumen have more affinity for water molecules, so during construction of bituminous roads, if it happens to rains, the aggregates coated with bitumen, leaves the aggregates and tries to adhere to water molecules. This brings in-built weakness in the roads which gets eroded/damaged very fast. The responded had imposed the "pre-condition" of maintenance of bituminous roads upto 6 months from date of completion (vide para 22 of the contract agreement). Now in this condition if the claimants had continued work in rains (July-August) it would have got damaged during the maintenance period only, more so the area being of heavy- rush being in circulating area.
c. Congestion near work site: The claimants submitted that it is well known fact that the construction of bituminous roads involve lots of small and medium size machinery (like hot-mix-plant to heat the bitumen and mix them with aggregate). Further diversion of traffic/pedestrians is required during construction. In the present case the OMP (Comm.) No. 48/2018 Union of India vs M/s Bansal Construction Co. Page 23 of 40 respondents tried to betray, the claimants as the work site offered to claimants were very near to the diverted parking lot and due to the heavy rush the claimants faced lots of practical problems in construction of the road. Actually the pace of work reduced to the extant that they had many a times worked at night. In day time they were able to work only when there was sufficient margin in arrivals/departure of trains as during arrival/departure SEA OF PERSONS moved towards/away from station leaving no scope of work. They requested that any person can go and watch the situation of crowd at these two-circulating areas of New Delhi railway station.
4. Imposition of harsh penalty was unfair:
a. It was quite unfair and quite harsh that without being responsible solely for the delay in work, the respondents imposed penalty and then further to worsen the situation they made the claimants kneel-down and accept the conditions and continue the work under penal provisions.
b. The respondents imposed penalty (½ % of the contractual amount per week) while the claimants were continuing the work and tried to keep it in good progress.
c. The provision in GCC for liquidated damages is to punish the defaulters and so to contain the extent of arbitrariness, a maximum rate of ½ % penalty of contractual amount per week is provided. The extreme of penal provision are to be revoked in extreme case like death penalty (capital punishment) is given in rarest of rarest cases, but in this case the respondents have "adopted unfair trade practice".
d. After imposing penalty the respondents had got the work executed in excess of the contractual amount and due to this reason, they could arrange payments of only 45% of quantum of work, as against 70% of work executed. In such situation the respondents have either not imposed penalty or even if they so wished (being in supra position) they could have imposed at a lower rate or might had imposed token penalty. In contrary, the respondents (railway) imposed penalty at the maximum possible rate. In situation explained above and also at para-5, the situation didn't warranted such harsh action.
e. The respondents didn't submit any reasons for the imposition of maximum rate of penalty except the fact their penalty was imposed due to delay in work. No comments were offered by the respondents as to what were those situations that attracted the harsh action of imposing of maximum rate instead of lower rate or a token penalty.
f. It was evident that the respondent exploited the claimants to their full capacity being in superior position, being a central government agency and made the claimants agree to OMP (Comm.) No. 48/2018 Union of India vs M/s Bansal Construction Co. Page 24 of 40 all their imposed conditions, right or wrong, as there was no option with them, being in inferior position, a petty contractor willing to execute the work in his process to earn his livelihood through doing business with the respondents.
5. So full amount of penalty as recovered by the respondents(railway) from the claimants(contractor) is returned back in-toto, i.e. 100% in form of the arbitral award of ₹ 2,20,000/-.
26. In filed reply to Statement of Claim of respondent/claimant, petitioner neither pleaded nor proved later in arbitral proceedings that it had suffered any loss due to alleged delay in execution of the work by respondent/claimant.
27. In reaching the aforesaid findings, Arbitral Tribunal had appreciated the material and evidence before it as well as the submissions/arguments of the parties/Counsel. Ld. Sole Arbitrator appreciated that petitioner was not having clear planning as well as sequence of work was concerned and when claimant/respondent arrived at site to work with resources after award of contract, petitioner advised respondent to work at adjacent site but when claimant/respondent shifted all resources to work on alternate site, petitioner again advised respondent/ claimant to work on the original site, as by that time they got the parking lot shifted. It was also appreciated by Ld. Sole Arbitrator that the road work involved on-site operations, scrapping of old surface, mixing of bitumen with aggregates, hot-mix-plants; shifting of all these caused loss of time and for that petitioner was responsible and inspite of this the 1 st extension of time was given with penalty. Ld. Sole Arbitrator also appreciated that bituminous roads are generally not constructed during rains as otherwise inbuilt weakness in the roads happens and roads gets OMP (Comm.) No. 48/2018 Union of India vs M/s Bansal Construction Co. Page 25 of 40 eroded/damaged very fast. Petitioner had itself imposed the pre- conditions of maintenance of bituminous roads upto 6 months from the date of completion, as per para 22 of the contract agreement; so, if claimant/respondent had continued work in rains (July-August) it would have got damaged during the maintenance period only, more so the area being of heavy rush being in circulating area. Ld. Sole Arbitrator also appreciated that construction of bituminous roads involved lots of small and medium size machinery and as well diversion of traffic/ pedestrians is required during construction, whereas petitioner tried to betray respondent/claimant as the work site offered to claimant/respondent was very near to the diverted parking lot and due to the heavy rush claimant/respondent faced lots of practical problems in construction of the road, whereas actually the pace of work reduced to the extent that many a times respondent/ claimant worked at night and during day time could only work when there was sufficient margin in arrivals and departure of trains as during arrival/departure SEA OF PERSONS moved towards/away from station leaving no scope of work. Ld. Sole Arbitrator in appreciation of evidence and material concluded that imposition of penalty was harsh as well as unfair for the reasons detailed in such findings and elicited above. All extensions granted after grant of 1st extension were so granted without any penalty and in terms of Clause 17-A of GCC. Ld. Sole Arbitrator also reached the finding that petitioner exploited claimant/respondent to its full capacity being in superior position, being a central government agency and made the claimant/ respondent agree to all their imposed conditions, right or wrong, as there was no option with respondent/claimant, being in OMP (Comm.) No. 48/2018 Union of India vs M/s Bansal Construction Co. Page 26 of 40 inferior position, a petty contractor willing to execute the work in his process to earn livelihood through doing business with petitioner. It led the Arbitral Tribunal for returning the findings for return back of full amount of penalty as recovered by petitioner as the levy of penalty/damages was totally unwarranted, unlawful and unjustified.
28. In the case of M/s Tamilnadu Telecommunication Ltd vs Bharat Sanchar Nigam Ltd., OMP (Comm.) 430/16, decided by Delhi High Court on 11/11/2016, in para 17, following pronouncements of the case of ONGC Ltd. Vs Saw Pipes Ltd., (2003) 5 SCC705 were elicited:
64. ....Under Section 73, when a contract has been broken, the party who suffers by such breach is entitled to receive compensation for any loss caused to him which parties knew when they made the contract to be likely to result from the breach of it. This Section is to be read with Section 74, which deals with penalty stipulated in the contract, inter alia (relevant for the present case) provides that 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, the party complaining of breach is entitled, whether or not actual 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. Section 74 emphasizes that in case of breach of contract, the party complaining of the breach is entitled to receive reasonable compensation whether or not actual loss is proved to have been caused by such breach. Therefore, the emphasis is on reasonable compensation. If the compensation named in the contract is by way of penalty, consideration would be different and the party is only entitled to reasonable compensation for the loss suffered. But if the compensation named in the contract for such breach is genuine pre-estimate of loss which the parties knew when they made the contract to be likely to result from the breach of it, there is no question of proving such loss or such party is not required to lead evidence to prove actual loss suffered by him.....
67.....In our view, in such a contract, it would be difficult to prove exact loss or damage which the parties suffer because of the breach thereof. In such a situation, if the parties have pre-
estimated such loss after clear understanding, it would be OMP (Comm.) No. 48/2018 Union of India vs M/s Bansal Construction Co. Page 27 of 40 totally unjustified to arrive at the conclusion that party who has committed breach of the contract is not liable to pay compensation. It would be against the specific provisions of Section 73 and 74 of the Indian Contract Act. There was nothing on record that compensation contemplated by the parties was in any way unreasonable. It has been specifically mentioned that it was an agreed genuine pre-estimate of damages duly agreed by the parties. It was also mentioned that the liquidated damages are not by way of penalty. It was also provided in the contract that such damages are to be recovered by the purchaser from the bills for payment of the cost of material submitted by the contractor. No evidence is led by the claimant to establish that stipulated condition was by way of penalty or the compensation contemplated was, in any way, unreasonable. There was no reason for the tribunal not to rely upon the clear and unambiguous terms of agreement stipulating pre-estimate damages because of delay in supply of goods ......"
29. In the case of Vishal Engineers & Builders vs Indian Oil Corporation Ltd., FAO (OS) 204 of 2010, decided by Delhi High Court on 30/11/2011, it was inter alia held that it was duty of the Court not to enforce penalty clause but only to award a reasonable compensation, which had been held to be statutorily imposed upon Courts by Section 74 of the Contract Act and Court had to adjudge in every case, reasonable compensation for breach of contract having regard to conditions which existed on date of breach.
It was held therein that if there was absence of any loss, whatsoever, an aggrieved party could not claim that it was still entitled to liquidated damages without, at least, proving a semblance of loss.
30. Supreme Court in the case of Kailash Nath Associates vs Delhi Development Authority, MANU/SC/0019/2015 had elicited the law on compensation for breach of contract under OMP (Comm.) No. 48/2018 Union of India vs M/s Bansal Construction Co. Page 28 of 40 Section 74 as follows:-
"43. On a conspectus of the above authorities, the law on compensation for breach of contract Under Section 74 can be stated to be as follows:
1. Where a sum is named in a contract as a liquidated amount payable by way of damages, the party complaining of a breach can receive as reasonable compensation such liquidated amount only if it is a genuine pre-estimate of damages fixed by both parties and found to be such by the Court. In other cases, where a sum is named in a contract as a liquidated amount payable by way of damages, only reasonable compensation can be awarded not exceeding the amount so stated. Similarly, in cases where the amount fixed is in the nature of penalty, only reasonable compensation can be awarded not exceeding the penalty so stated. In both cases, the liquidated amount or penalty is the upper limit beyond which the Court cannot grant reasonable compensation.
2. Reasonable compensation will be fixed on well known principles that are applicable to the law of contract, which are to be found inter alia in Section 73 of the Contract Act.
3. Since Section 74 awards reasonable compensation for damage or loss caused by a breach of contract, damage or loss caused is a sine qua non for the applicability of the Section.
4. The Section applies whether a person is a Plaintiff or a Defendant in a suit.
5. The sum spoken of may already be paid or be payable in future.
6. The expression "whether or not actual damage or loss is proved to have been caused thereby" means that where it is possible to prove actual damage or loss, such proof is not dispensed with. It is only in cases where damage or loss is difficult or impossible to prove that the liquidated amount named in the contract, if a genuine pre-estimate of damage or loss, can be awarded.
7. Section 74 will apply to cases of forfeiture of earnest money under a contract. Where, however, forfeiture takes place under the terms and conditions of a public auction before agreement is reached, Section 74 would have no application."
31. Delhi High Court in the case of Essban Paints Pvt. Ltd. vs Union of India & Anr., MANU/DE/0648/2001 held that in case the contract was not performed and there was breach thereof by OMP (Comm.) No. 48/2018 Union of India vs M/s Bansal Construction Co. Page 29 of 40 the petitioner, it was for the respondent to prove the loss suffered because of such breach and to forfeit the security only to the extent of loss.
32. Delhi High Court in the case of United Telecoms Limited vs Mahanagar Telephone Nigam Limited, MANU/DE/ 0969/2012 inter alia held that it is well established that in a contract on its breach, penalty can be levied on the defaulting party only if the other party had suffered and the same is proved.
33. Relying upon the law laid in the cases of (i) M/s Tamilnadu Telecommunication Ltd vs Bharat Sanchar Nigam Ltd. (supra);
(ii) Vishal Engineers & Builders vs Indian Oil Corporation Ltd. (supra); (iii) Kailash Nath Associates vs Delhi Development Authority (supra); (iv) Essban Paints Pvt. Ltd. vs Union of India & Anr. (supra) and (v) United Telecoms Limited vs Mahanagar Telephone Nigam Limited (supra) and in the back drop of the fact on record that petitioner did not suffer any loss due to delay in execution of the work by respondent/claimant; no fault can be found with the findings of Ld. Sole Arbitrator with respect to adjudication of Claim no. 2, elicited herein above.
34. Following is the appreciation of pleadings, evidence and findings of Arbitral Tribunal on Claim no.3:-
CL Towards payments due Amount Claimed Amount No. 3 under PVC clause. ₹ 7,80,000/- Awarded (Seven Lakhs ₹ 7,80,000/-
Eighty Thousands) (Seven Lakhs
Eighty
Thousands)
OMP (Comm.) No. 48/2018 Union of India vs M/s Bansal Construction Co. Page 30 of 40
Reasons for amount awarded
1. The background of the case and details of first extension of time is furnished above at para-5. Detailed examination were done during arbitral meeting and facts are available in minutes of the meeting (1st meeting). However, extract of relevant portion is reproduced as extract for ready reference.
2. During arbitral meeting it was established that the claimant (contractor) requested for payments under PVC clause on dated 10.10.2011 and 15.02.2011 but the respondents decided not make payments. The claimant submitted that its very ironical that the respondents advised the claimants to extend the date of completion (DOC) three times, enhanced the contract agreement value by 50% and then decided not to pay the payments.
3. The respondents(railway) tried to give justification for non- payments of the amount under PVC clause and said that though the contract agreement was having provision of price escalation vide clause 8.4.7 but this PVC Clause was not applicable up-to 5% of cost of work. The claimant showed the letter of Railway Board (Letter No-2007/CE-1/CT/18 dated 07.03.2008) where it was recommended to remove the condition of minimum 5% cost.
a. Clause 10 of Railway Board's Letter ( No. 2007/CE- 1/CT/18 dated 07.03.2008) is reiterated for ready reference.
"In partial modifications to item 2 (iii) of Boards letter no 2007/CE-1/CT/18 dated 28.09.2007, it has been decided to delete the existing lower limit of 5% for disallowing the PV Claim"
b. The applicability of this letter is with prospective effect and the remark at last para of the letter is reiterated :
"These modified clauses/provisions shall be applicable with prospective effect in all future works contract. This issues with concurrence of Finance Directorate of Ministry of Railways"
4. Hence full amount of payments regarding PVC clause is awarded i.e. ₹ 7,80,000/- (Rs Seven Lakhs and Eighty Thousands).
35. Clause 8.4 existed in the Special Tender Conditions applicable to the contract in question between the parties to the lis and it is the Price Variation Clause (in short PVC) and for calculation of the price variation the formula was given therein; so the adjudication of Ld. Sole Arbitrator with respect to the OMP (Comm.) No. 48/2018 Union of India vs M/s Bansal Construction Co. Page 31 of 40 award for claim of price variation does not require any inference as it was so done with full appreciation of evidence and material on record and inconsonance with the terms of contract. Also on the final bill the respondent/claimant simply gave no objection against measurement and not regarding any other facet of the final bill, so as to attract the rigour of Clause 23.2 of the Special Tender Conditions applicable to the contract. There appears no premise to set aside the award with respect to Claim no. 3.
36. Following is the appreciation of pleadings, evidence and findings of Arbitral Tribunal on Claim no.5:-
CL Claims towards interest Amount Claimed Amount No. 5 @ 18% p.a. on the Awarded amount of claim from ₹ 18,00,000/- ₹ 6,00,000/- 01.01.2012 to (Eighteen Lakhs) (Six Lakhs) 30.09.2018 Reasons for amount awarded
1. The amount of arbitral award against claim no 1(i), 1(iii), 2 and 3 are ₹ 62,500/-, ₹ 1,25,000/-, ₹ 2,20,000/-, and ₹ 7,80,000/-
respectively totaling to ₹ 11,87,500/-.
2. However Interest @ 9% is being awarded only on those claims which were actually due to the claimant(contractor) i.e. item no 2 and 3. The amount of award against claim no 2 and 3 are ₹ 2,20,000/- and ₹ 7,80,000/- respectively totaling to ₹ 10,00,000/- for a period of 80 months (01.01.2012 to 30.09.2018). The interest amount calculates to ₹ 6,00,000/- (Rs Six Lakhs)
3. Interest on Litigation has been raised by the Claimant(contractor) and his claims are being considered for compensation by means of arbitral award, hence separate claim is not accepted.
37. Sections 28(3) and 31 (7) of The Act read as follows:
"28. Rules applicable to substance of dispute.-- ........................................................................... (3) While deciding and making an award, the arbitral tribunal shall, in all cases, take into account the terms of the contract and trade usages applicable to the transaction.
..........................................................................
31. Form and contents of arbitral award.--
............................................................................
OMP (Comm.) No. 48/2018 Union of India vs M/s Bansal Construction Co. Page 32 of 40(7) (a) Unless otherwise agreed by the parties, where and in so far as an arbitral award is for the payment of money, the arbitral tribunal may include in the sum for which the award is made interest, at such rate as it deems reasonable, on the whole or any part of the money, for the whole or any part of the period between the date on which the cause of action arose and the date on which the award is made.
(b) A sum directed to be paid by an arbitral award shall, unless the award otherwise directs, carry interest at the rate of two per cent. higher than the current rate of interest prevalent on the date of award, from the date of the award to the date of payment.
Explanation.- The expression "current rate of interest" shall have the same meaning as assigned to it under clause (b) of section 2 of the Interest Act, 1978 (14 of 1978)."
38. In the case of Ashi Limited vs Union of India, O.M.P. 200/2015 decided by Delhi High Court on 19/05/2020, Hon'ble Ms. Justice Jyoti Singh had also appreciated law laid by Supreme Court in the case of Sree Kamatchi Amman Constructions vs The Divisional Railway Manager (Works) Palghat & Ors. MANU/SC/0625/2010 and inter alia held as follows:
"54. In so far as the grant of interest by an Arbitrator is concerned, the law is no longer res integra, Section 31(7)(a) of the Act clearly stipulates that unless otherwise agreed by the parties, where the Award is for payment of money, the Tribunal may grant such rate as it deems reasonable, on the whole or any part of the money and for the whole or any part of the period between the date of cause of action and the date of the Award. In the case of Jaiprakash Associates Ltd. (Jal) v. Tehri Hydro Development Corporation India Ltd., MANU/SC/0157/2019, the Supreme Court after noticing the provisions of the 1996 Act and various judgments on the issue of interest, more particularly, the recent judgment in the case of Reliance Cellulose Products Ltd. v. ONGC Ltd., MANU/SC/0777/2018: (2018) 9 SCC 266, summed up the law on interest as under:
"13. Insofar as power of the arbitral tribunal in granting pre- preference and/or pendente lite interest is concerned, the principles which can be deducted from the various judgments are summed up below:
(a) A Constitution Bench judgment of this Court in the case of Secretary, Irrigation Department, Government of OMP (Comm.) No. 48/2018 Union of India vs M/s Bansal Construction Co. Page 33 of 40 Orissa vs G.C. Roy exhaustively dealt with this very issue, namely, power of the arbitral tribunal to grant pre-
reference and pendente lite interest. The Constitution Bench, of course, construed the provision of the 1940 Act which Act was in vogue at that time. At the same time, the Constitution Bench also considered the principle for grant of interest applying the common law principles. It held that under the general law, the arbitrator is empowered to award interest for the pre- reference, pendente lite or post award period. This proposition was culled out with the following reasoning:
"43 The question still remains whether arbitrator has the power to award interest pendente lite, and if so on what principle. We must reiterate that we are dealing with the situation where the agreement does not provide for grant of such interest nor does it prohibit such grant. In other words, we are dealing with a case where the agreement is silent as to award of interest. On a conspectus of aforementioned decisions, the following principles emerge:
(i) A person deprived of the use of money to which he is legitimately entitled has a right to be compensated for the deprivation, call it by any name. It may be called interest, compensation or damages. This basic consideration is as valid for the period the dispute is pending before the arbitrator as it is for the period prior to the arbitrator entering upon the reference. This is the principle of Section 34, Civil Procedure Code and there is no reason or principle to hold otherwise in the case of arbitrator.
(ii) An arbitrator is an alternative form (sic forum) for resolution of disputes arising between the parties. If so, he must have the power to decide all the disputes or differences arising between the parties. If the arbitrator has no power to award interest pendente lite, the party claiming it would have to approach the court for that purpose, even though he may have obtained satisfaction in respect of other claims from the arbitrator. This would lead to multiplicity of proceedings.
(iii) An arbitrator is the creature of an agreement. It is open to the parties to confer upon him such powers and prescribe such procedure for him to follow, as they think fit, so long as they are not opposed to law. (The proviso to Section 41 and OMP (Comm.) No. 48/2018 Union of India vs M/s Bansal Construction Co. Page 34 of 40 Section 3 of Arbitration Act illustrate this point).
All the same, the agreement must be in conformity with law. The arbitrator must also act and make his award in accordance with the general law of the land and the agreement.
(iv) Over the years, the English and Indian courts have acted on the assumption that where the agreement does not prohibit and a party to the reference makes a claim for interest, the arbitrator must have the power to award interest pendente lite. Thawardas [Seth Thawardas Pherumal v.
Union of India, MANU/SC/0070/1955 : (1955) 2 SCR 48: AIR 1955 SC 468] has not been followed in the later decisions of this Court. It has been explained and distinguished on the basis that in that case there was no claim for interest but only a claim for unliquidated damages. It has been said repeatedly that observations in the said judgment were not intended to lay down any such absolute or universal rule as they appear to, on first impression. Until Jena case [MANU/SC/ 0004/ 1987: (1988) 1 SCC 418: (1988) 1 SCR 253] almost all the courts in the country had upheld the power of the arbitrator to award interest pendente lite. Continuity and certainty is a highly desirable feature of law.
(v) Interest pendente lite is not a matter of substantive law, like interest for the period anterior to reference (pre-reference period). For doing complete justice between the parties, such power has always been inferred."
It is clear from the above that the Court decided to fall back on general principle that a person who is deprived of the use of money to which he is legitimately entitled to, has a right to be compensated for the deprivation and, therefore, such compensation may be called interest compensation or damages.
(b) As a sequitur, the arbitrator would be within his jurisdiction to award pre-reference or pendente lite interest even if agreement between the parties was silent as to whether interest is to be awarded or not.
(c) Conversely, if the agreement between the parties specifically prohibits grant of interest, the arbitrator cannot award pendente lite interest in such cases. This proposition is predicated on the principles that an arbitrator is the creature of an agreement and he is OMP (Comm.) No. 48/2018 Union of India vs M/s Bansal Construction Co. Page 35 of 40 supposed to act and make his award in accordance with the general law of the land and the agreement. This position was made amply clear in G.C Roy case in the discussion thereafter:
"44. Having regard to the above consideration, we think that the following is the correct principle which should be followed in this behalf:
Where the agreement between the parties does not prohibit grant of interest and where a party claims interest and that dispute (along with the claim for principal amount or independently) is referred to the arbitrator, he shall have the power to award interest pendente lite. This is for the reason that in such a case it must be presumed that interest was an implied term of the agreement between the parties and therefore when the parties refer all their disputes or refer the dispute as to interest as such to the arbitrator, he shall have the power to award interest. This does not mean that in every case the arbitrator should necessarily award interest pendente lite. It is a matter within his discretion to be exercised in the light of all the facts and circumstances of the case, keeping the ends of justice in view."
(d) Insofar as 1940 Act is concerned, it was silent about the jurisdiction of the arbitrator in awarding pendente lite interest. However, there is a significant departure on this aspect insofar as 1996 Act is concerned. This distinction has been spelt out in Sayeed Ahmed case in the following manner:
"Re: Interest from the date of cause of action to date of award
7. The issue regarding interest as noticed above revolves around Clause G1.09 of the Technical Provisions forming part of the contract extracted below:
"G. 1.09. No claim for interest or damages will be entertained by the Government with respect to any money or balance which may be lying with the Government or any become due owing to any dispute, difference or misunderstanding between the Engineer-in- Charge on the one hand and the contractor on the other hand or with respect to any delay on OMP (Comm.) No. 48/2018 Union of India vs M/s Bansal Construction Co. Page 36 of 40 the part of the Engineer-in-Charge in making periodical or final payment or any other respect whatsoever."
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14. The decisions of this Court with reference to the awards under the old Arbitration Act making a distinction between the pre-reference period and pendente lite period and the observation therein that the arbitrator has the discretion to award interest during pendente lite period in spite of any bar against interest contained in the contract between the parties are not applicable to arbitrations governed by the Arbitration and Conciliation Act, 1996."
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56. In the case of Union of India v. Bright Power Projects (India) (P) Ltd., MANU/SC/0712/2015 : (2015) 9 SCC 695, Supreme Court held that when agreement between the parties bars interest on the amounts from cause of action to the date of the Award, the Arbitrator is bound by it and cannot award interest as Section 31 (7)(a) clearly begins with the words 'unless otherwise agreed by parties'.
57. In State of Haryana v. S.L Arora & Co., MANU/SC/ 0131/2010 : (2010) 3 SCC 690, Supreme Court has held that it is not open to the courts to interfere in the discretion exercised by an Arbitrator in granting the rate of interest. This is purely the domain, power and prerogative of the Arbitrator. Relevant part of the judgment reads as under:-
"23. The difference between clauses (a) and (b) of Section 31(7) of the Act may conveniently be noted at this stage. They are:
(i) Clause (a) relates to pre-award period and clause
(b) relates to post-award period. The contract binds and prevails in regard to interest during the pre-award period. The contract has no application in regard to interest during the post-award period.
(ii) Clause (a) gives discretion to the Arbitral Tribunal in regard to the rate, the period, the quantum (principal which is to be subjected to interest) when awarding interest. But such discretion is always subject to the contract between the parties. Clause (b) also gives discretion to the Arbitral Tribunal to award interest for the post-award period but that discretion is not subject to any contract; and if that discretion is not exercised by the Arbitral Tribunal, then the statute steps in and OMP (Comm.) No. 48/2018 Union of India vs M/s Bansal Construction Co. Page 37 of 40 mandates payment of interest, at the specified rate of 18% per annum for the post-award period.
(iii) While clause (a) gives the parties an option to contract out of interest, no such option is available in regard to the post-award period.
In a nutshell, in regard to pre-award period, interest has to be awarded as specified in the contract and in the absence of contract, as per discretion of the Arbitral Tribunal. On the other hand, in regard to the post-award period, interest is payable as per the discretion of the Arbitral Tribunal and in the absence of exercise of such discretion, at a mandatory statutory rate of 18% per annum."
39. Supreme Court in the case of Union of India vs Manraj Enterprises, 2021 SCC OnLine SC 1081 held that if the terms of the contract prohibit award of interest, then no such interest can be awarded by the Arbitrator on amount due and payable to the contractor under the contract.
40. Clauses 16(3) and 64.5 of GCC, detailed above, when read in harmonious construction, embody that no interest is payable on whole or any part of the money for any period till the date on which the award is made if the arbitral award is for the payment of money. In this fact of the matter, relying upon the law laid in the cases of (i) Union of India vs Manraj Enterprises (supra) and (ii) Ashi Limited vs Union of India (supra); in terms of Section 31(7) of the Act, on conjoint reading of above said Clauses 16(3) and 64.5 of GCC; the award of interest up to the date of award for sum of Rs. 6,00,000/- by Ld. Sole Arbitrator is liable to be set aside and is accordingly set aside.
41. Relying upon the law laid in the cases of (i) Associate Builders (supra); (ii) Ssangyong Engineering & Constructions OMP (Comm.) No. 48/2018 Union of India vs M/s Bansal Construction Co. Page 38 of 40 Co. Ltd. (supra); (iii) Patel Engineering Ltd. vs North Eastern Electric Power Corporation Ltd. (supra); (iv) Vivek Jain vs Union of India & Anr. (supra) it can be said that not only the reasonings of Ld. Sole Arbitrator with respect to findings on Claim nos. 2 and 3 and future interest awarded for award sum with respect to Claim nos. 2 and 3; are logical, but all the material and evidence were taken note of by Ld. Sole Arbitrator and this Court cannot substitute own evaluation of conclusion of law or fact to come to the conclusion other than that of Ld. Sole Arbitrator. Cogent grounds, sufficient reasons have been assigned by Ld. Sole Arbitrator in reaching the just conclusion with respect to findings on Claim nos. 2 and 3 and future interest awarded for the award on these claims; no error of law or misconduct is apparent on the face of the record on this facet. This Court cannot re-appraise the evidence and it is not open to this Court to sit in the appeal over the conclusion/findings of facts arrived at by Ld. Sole Arbitrator, who is experienced Dy. Chief Engineer (Survey & Construction) and was competent to make assessment while taking into consideration the facet of the matter with respect to findings on Claim nos. 2 and 3 and future interest awarded for the award on these claims. Re-appraisal of the matter cannot be done by this Court; no error is apparent in respect of the impugned award with respect to findings on Claim nos. 2 and 3. The impugned award does not suffer from vice of irrationality and perversity with respect to findings on Claim nos. 2 and 3. The conclusion of the Ld. Sole Arbitrator with respect to findings on Claim nos. 2 and 3 is based on a possible view of the matter, so the Court is not expected to interfere with the award. Even impugned award passed by Ld. Sole Arbitrator OMP (Comm.) No. 48/2018 Union of India vs M/s Bansal Construction Co. Page 39 of 40 cannot be set aside on the ground that it was erroneous with respect to findings on Claim nos. 2 and 3. The award is not against any public policy nor against the terms of contract of the parties with respect to findings on Claim nos. 2 and 3; so for it no ground for interference is made out. None of the grounds raised by the petitioner attract Section 34 of the Act with respect to findings on Claim nos. 2 and 3. In view of fore going discussions, the findings of Ld. Sole Arbitrator with respect to award on Claim no 1(i); Claim no 1(iii) and Claim no 5 are set aside. In above terms the present petition is partly allowed.
42. The parties are left to bear their own costs.
43. File be consigned to record room.
Digitally signed by GURVINDER GURVINDER PAL SINGH
PAL SINGH Date: 2022.02.11
15:22:56 +0530
ANNOUNCED IN (GURVINDER PAL SINGH)
OPEN COURT District Judge (Commercial Court)-02
th
On 11 February, 2022. Patiala House Court, New Delhi.
(DK) OMP (Comm.) No. 48/2018 Union of India vs M/s Bansal Construction Co. Page 40 of 40