Madras High Court
Public Works Department vs M/S.East Coast Constructions & ... on 23 February, 2023
Author: Krishnan Ramasamy
Bench: Krishnan Ramasamy
O.P.(Com.Div.)No.224 of 2021
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED: 23.02.2023
CORAM
THE HON'BLE Mr. JUSTICE KRISHNAN RAMASAMY
O.P.(Com.Div.)No.224 of 2021
Public Works Department,
State of Tamil Nadu,
Rep.by the Superintending Engineer,
Building (Construction & Maintenance) Circle,
Chepauk, Chennai 600 005.
... Petitioner
Vs.
M/s.East Coast Constructions & Industries Ltd.,
No.4, Buhari Buildings,
Moores Road,
Chennai 600 006
Represented by its Director.
... Respondent
Original Petition filed under Section 34(2)(a) of the Arbitration
and Conciliation Act, 1996 to set aside the impugned award dated
27.07.2020 passed by the learned Arbitrator.
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https://www.mhc.tn.gov.in/judis
O.P.(Com.Div.)No.224 of 2021
For petitioners : Mr.A.Edwin Prabakar,
Special Government Pleader
Assisted by Mr.R.Siddharth,
Government Advocate.
For Respondent : Mr.Rahul Balaji
ORDER
Being aggrieved and dissatisfied with the award dated 27.07.2020 passed by the learned Arbitrator, the petitioner had filed the present Arbitration Original Petition under Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter referred as “the Act”) to set aside the award.
2. The arbitration proceedings were initiated in respect of disputes arising between the petitioner and the respondent out of the Contract Agreement bearing Ref.No.23/BCM/08-09 dated 12.11.2008 (hereinafter referred as “agreement”) entered between them for the purpose of construction of a new complex for the Tamil Nadu Legislative Assembly at Omandurar Government Estate.
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3. Though the petitioner had raised very many grounds, at the time of arguments, he had restricted his arguments with regard to the Claim No.A2 (Refund of Liquidated Damages) and Claim No.D (Consequential Damages due to stoppage of work) and also filed the written submissions only with regard to the aforesaid claims.
4. As far as Claim No.A2 is concerned, the learned counsel for the petitioner would submit that despite holding that the respondent is also responsible for the delay in execution of the project, the Arbitral Tribunal proceeded to award the claim for refund of liquidated damages, which is contrary to the clause 49 of the agreement dated 12.11.2008.
5. It was also submitted by the learned counsel for the petitioner that at paragraph No.62 of the award, the Arbitral Tribunal had rightly rejected the request made by the respondent for the extension of time on the ground of stoppage of work during assembly session and held that the respondent was permitted to work. Hence, awarding the claim of 3/17 https://www.mhc.tn.gov.in/judis O.P.(Com.Div.)No.224 of 2021 liquidation damages in favour of the respondent is inconsistent to its own findings and totally contrary to Clause Nos.28, 29, 32 and 49 of the agreement.
6. It was also contended by the learned counsel of the petitioner that the respondent sought for the extension of time for the reasons attributed by both Contractor and the Employer. The contractor had given a reason of lack of resources and the Employer had given a reason of restricted access during assembly sessions. Therefore, if there is any delay, attributable either to the contractor or the employer or to both, and the contractor seeks and obtains extension of time for execution on that account, he will not be entitled to claim compensation of any nature, on the ground of such delay, in addition to the extension of time obtained by him.
7. Further, by referring the letter dated 06.12.2010 vide L. No:
DB/JDO2/F440-10/1315/2010, the learned counsel submitted that subsequent to the request for extension of time, the petitioner had sent 4/17 https://www.mhc.tn.gov.in/judis O.P.(Com.Div.)No.224 of 2021 the aforesaid letter (Ex.R.15) by which the time was extended by imposing a condition on the respondent that the petitioner would continue to levy the liquidated damages as per the terms of the agreement. Since the respondent had accepted to the terms of the aforesaid letter, they are estopped from challenging the liquidated damages. However, these aspects were not taken into consideration by the Arbitral Tribunal.
8. The learned counsel for the petitioner would submit that as held by the Hon'ble Apex Court in the case of Ramnath International Constrcution Pvt Ltd vs. Union of India and ors reported in AIR 2007 SC 509, when the extension of time was granted with a specific condition to continue the levy liquidated damages, the same cannot be disputed at a later stage and hence, the Arbitral Tribunal's award for Liquidated Damages is blatantly hit by the above judgment and therefore, the award is against the fundamental policy of Indian law. 5/17 https://www.mhc.tn.gov.in/judis O.P.(Com.Div.)No.224 of 2021
9. The learned counsel would also contend that the Arbitral Tribunal had failed to taken into consideration of another judgment of the Hon'ble Apex Court in Construction and Design Services vs. Delhi Development Authority reported in 2015 14 SCC 263, wherein it has held that for public utility project even if there is no specific evidence of loss suffered by the Employer, the delay itself can be taken to have resulted in loss in the form of interest on capital to the Government.
10. With regard to the Claim No.D, the learned counsel appearing for the petitioner would submit that the respondent had claimed Rs.25,00,00,000/- as consequential damage and the Arbitrator has granted the relief of a sum of Rs.5,00,00,000/-as just and reasonable. The methodology adopted by the Arbitral Tribunal is directly in violation of Section 28(2) of the Act as there was no authorization by the parties to decide the dispute ex aequo et bono or as amiable compositor. 6/17 https://www.mhc.tn.gov.in/judis O.P.(Com.Div.)No.224 of 2021
11. Further he would contend that the Arbitral Tribunal had partly awarded the claim in favour of respondents by holding that the respondent had failed to substantiate their statements with proper evidence and the manner of estimation was also not clear regardless. Since the award for damages is without any evidence and is solely based on the statement made in the claim statement, the award for damages is in contravention with the substantive law for awarding damages and also against the public policy of India.
12. Refuting the above submissions, the learned counsel for the respondent would submit that as far as the Claim No.A2 is concerned, at paragraph No.56 of the award, the Tribunal has categorically recorded that the petitioner had not pleaded as to why they are not entitled to refund the liquidated damages deducted by them. Further by referring Clause 49 of the agreement, he would submit that the petitioner was permitted to claim liquidated damages in case of delay in completion of project at the instance of the respondent. However, the Tribunal has rightly held that the delay in completion of the project was due to the 7/17 https://www.mhc.tn.gov.in/judis O.P.(Com.Div.)No.224 of 2021 petitioner and further, since the extension of time was granted by the petitioner to the respondent in order to complete the project, after an extension, no liquidation damage could have been claimed. It is further submitted that time is not the essence of contract in a construction agreement and especially, in the present case, the petitioner conducted the Assembly sessions on time as planned and thereafter did not utilize the building. However, after a substantial time, the petitioner proceeded to convert and modify the same into a Multi Specialty Hospital. Thus, the question of injury/loss does not even arise in the facts of the case to claim liquidated damages. No basis in law has been provided to challenge this finding.
13. As far as the awarding of the consequential damages is concerned, the learned counsel for the respondent would submit that with respect to the grounds raised against the award of Rs.5,00,00,000/- as consequential damages to the respondent, the respondent has categorically set out its pleading at paragraph Nos.53 to 55 of the claim statement before the Arbitral Tribunal and also filed the documents 8/17 https://www.mhc.tn.gov.in/judis O.P.(Com.Div.)No.224 of 2021 demonstrating the loss of revenue suffered and project suffered by the respondent as well as recovery notices issued by various lenders to the respondent.
14. In support of his contention, the learned counsel for the respondent referred to the following judgments:
(i) Hyder Consulting (UK) Limited vs. Governor, State of Orissa reported in (2015) 2 SCC 189;
(ii) Bhai Jaspal Singh vs. CCT, reported in (2011)1 SCC 39;
(iii) The Governor of Tamil Nadu vs. GMR Chennai Outer Ring Road Limited reported in 2021 SCC OnLine Mad 5849;
15. This Court had given due consideration to the submissions made by the learned counsel appearing for the petitioner as well as the respondent.
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(i) Claim No.A2- Refund of Liquidated Damages:
16. A perusal of the award dated 27.07.2020 would demonstrate that the learned Tribunal had considered the various judgment passed by the Hon'ble Apex Court and Delhi High Court, which have been relied on by the petitioner in his grounds and has set out the entitlement of liquidated damages at paragraph No.53 of the award. Only after considering the aforesaid judgments and recording the reasons at paragraph No.54 that the respondent has completed the project within the extended time and even after the same, the petitioner did not utilized it for the purpose of Tamil Nadu Legislative Assembly but converted it as a Multi-Speciality Hospital, the learned Tribunal had awarded refund of liquidation damages. The same was awarded after given a finding that there was no loss to the petitioner at the instance of the respondent.
17. That apart, the fact remains that the extension was given only by the petitioner. Due to the said extension only, the respondent had carried out the construction. The said extension was granted only based on the circumstances and other reasons by which the respondent was not 10/17 https://www.mhc.tn.gov.in/judis O.P.(Com.Div.)No.224 of 2021 able to complete the construction in time. The said circumstances and the other reasons provided by the respondent was accepted by the petitioner. Having accepted the reason provided by the respondent and after granting the extension, now it is not fair on the part of the petitioner to come forward before this Court and agitate that they are not liable to refund the liquidation damages. As stated above, at the time of granting the extension of time, the petitioner had neither made any objections nor referred any loss to the petitioner. Only when the request was made for the refund of liquidation damages, all of a sudden the petitioner took a stand that they cannot refund the liquidation damages citing the reason of delay, which is totally not sustainable and the Tribunal has well considered this aspect on the basis of available facts.
18. Therefore, this Court, sitting in Section 34 of the Act, feels that no ground has been made out to consider the submission of the petitioner when on the facts the Tribunal had decided and provided a well considered award.
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(ii) Claim No.D- Consequential Damages:
19. As far as claim for consequential damages is concerned, the original claim was made for a sum of Rs.25 crores. However, the Tribunal considered and awarded a sum of Rs.5 crore. After taking into various considerations and also after considering the various documents filed by the claimant before the Tribunal, the Tribunal has come to the conclusion that due to the delay in payment of money, the respondent had incurred huge loss and they lost several contracts and thereby suffered a lot. Due to the reason of non-payment of money in time, the petitioner had also lost their interest. Taking all these facts into consideration, the learned Tribunal had awarded a sum of Rs.5 crore as interest. As referred above, the Hon'ble Supreme Court in Hyder Consulting (UK) Limited vs. Governor, State of Orissa reported in (2015) 2 SCC 189 has held as follows:
“74. It would be necessary to understand the meaning of "interest" as used under the said clause as well. Again, in the absence of a definition under the Act, 1996, I would rely upon its meaning in common parlance. For this, support of dictionaries can be taken.12/17
https://www.mhc.tn.gov.in/judis O.P.(Com.Div.)No.224 of 2021 74.1. Wharton's Law Lexicon, Fourteenth Edition, defines "interest" as follows:
"Interest. 1. Money paid at a fixed rate per cent for the loan or use of some other sum, called the principal."
74.2. Black's Law Dictionary, Seventh Edition, 1999, defines "interest" as:
"interest. 1. Advantage or profit, esp. of a financial nature."
74.3. Webster's Third New International Dictionary, Volume III defines "interest" to mean, inter alia, the following:
"interest. The price paid for borrowing money generally expressed as a percentage of the amount borrowed paid in one year."
74.4. Corpus Juris Secundum, Volume XLVII, explains the word "interest" as follows:
"Interest is the compensation allowed by law, or fixed by the parties, for the use or forbearance of money, or as damages for its detention."
74.5. Stroud's Judicial Dictionary, Seventh Edition, 2008, Volume 2, p. 1385, defines the term "interest" as follows:
"Interest is compensation paid by the borrower to the lender for deprivation of the use of his money."
75. Therefore, in light of the above, "interest" would be the return or compensation for the use or retention by one person of a sum of money belonging to or owed to another. It may be understood to mean the amount which one has contracted to pay for the use of borrowed money. It is a 13/17 https://www.mhc.tn.gov.in/judis O.P.(Com.Div.)No.224 of 2021 consideration paid either for the use of money or for forbearance in demanding it, after it has fallen due, and thus, it could be said to be a charge for the use or forbearance of a particular amount of money. In this sense, it is a compensation allowed in law for use of money belonging to another or for the delay in paying the said money after it has become payable. This principle has also been noticed in the Central Bank case (supra).
76. It may be pertinent to take note of the approach of English Courts to interpret the term "interest". In Westminster Bank Ltd v. Riches, [1947] A.C. 390, the House of Lords elaborated upon the term "interest" for payment of moneys. Lord Wright observed that:
".......the essence of interest is that it is a payment which becomes due because the creditor has not had his money at the due date. It may be regarded either as representing the profit he might have made if he had had the use of the money, or conversely the loss he suffered because he had not that use. The general idea is that he is entitled to compensation for the deprivation. From that point of view it would seem immaterial whether the money was due to him under a contract express or implied or a statute or whether the money was due for any other reason in law."
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79. Further, this Court in the case of Bhai Jaspal Singh 14/17 https://www.mhc.tn.gov.in/judis O.P.(Com.Div.)No.224 of 2021 v. CCT, (2011) 1 SCC 39, observed that:
"36. Interest is compensatory in character and is imposed on an assessee who has withheld payment of any tax as and when it is due and payable. The interest is levied on the actual amount of tax withheld and the extent of delay in paying the tax on the due date. Essentially, it is compensatory and different from penalty which is penal in character [see Pratibha Processors v. Union of India, (1996) 11 SCC 101]."
80. Therefore, it may be concluded that the term "interest", appears to be distinct from the principal amount on which it is imposed. Furthermore, the imposition of an interest is stated to be for the purpose of providing compensation for withholding the said principal amount or, as in the case of clause (a) of sub- section (7) of Section 31 of the Act, 1996, for withholding the money awarded as per the claim, as determined by the arbitral tribunal, from the date the cause of action arose till the date when such award was made. In other words, interest is imposed to compensate for the denial to one party, by the other party, of the money which rightfully belongs to the said former party under the relevant agreement governing the arbitration proceedings.”
20. A perusal of the above judgment makes it very clear that if the parties are agreed in the contract, the Arbitral Tribunal is entitled to award the interest in the form of compensation. However, in the event of 15/17 https://www.mhc.tn.gov.in/judis O.P.(Com.Div.)No.224 of 2021 non agreement by the parties, the Arbitrator can award interest to the extent of delay in payment of money in the form of compensation. In such view of the matter, I do not find any merit in the present arbitration original petition and the same as liable to be dismissed.
21. Accordingly, this Arbitration Original Petition is dismissed.
23.02.2023 Speaking/Non-speaking order Index : Yes / No Neutral Citation : Yes / No nsa 16/17 https://www.mhc.tn.gov.in/judis O.P.(Com.Div.)No.224 of 2021 KRISHNAN RAMASAMY.J., nsa O.P.(Com.Div.)No.224 of 2021 23.02.2023 17/17 https://www.mhc.tn.gov.in/judis