Calcutta High Court
State Of West Bengal vs Afcons Pauling (India) Limited on 10 September, 2013
Author: Indira Banerjee
Bench: Indira Banerjee
ORDER SHEET Sheet No...
A.P. No. 346 of 2005
IN THE HIGH COURT AT CALCUTTA
ORDINARY ORIGINAL CIVIL JURISDICTION
ORIGINAL SIDE
In the matter of:
STATE OF WEST BENGAL
Vs.
AFCONS PAULING (INDIA) LIMITED
BEFORE:
The Hon'ble Justice
INDIRA BANERJEE.
Date: 10.09.2013
JUDGMENT
This application under Section 34 of the Arbitration and Conciliation Act, 1996, hereinafter referred to as the 1996 Act, is for setting aside an award dated 19 th September, 2005 passed by the Arbitral Tribunal awarding in favour of the respondent a sum of Rs.7,36,80,440/- with interest at the rate of 12% per annum.
The respondent claimant is engaged in the business of execution of civil engineering construction work for different departments of the Central and State Governments as well as public sector undertakings.
The State of West Bengal being the petitioner was granted loan assistance by the Asian Development Bank under the second road improvement project, which is known as the Asian Development Road Project.
Pursuant to tender notice No.ADB-2/WB/S-9/1991-92, the respondent claimant submitted its tender and was awarded contract for improvement of a stretch of Panagarh - Moregram Road of about 33 kilometres, between Dubrajpur (48km point) and Mohammad Bagar (81km point) at a total cost of Rs.39,67,23,985/- with a 28% rebate.
The general terms and conditions governing the contract are embodied in the "Conditions of Contract for works of Civil Engineering Construction"
published by the Federation of International Des Ingenieurs - Conscils, hereinafter referred to as the FIDIC Conditions.
Some of the relevant clauses of the FIDIC Conditions are set out hereinbelow for convenience:
"12.1 The Contractor shall be deemed to have satisfied himself as to the correctness and sufficiency of the Tender and of the rates and prices stated in the Bill of Quantities, all of which shall, except insofar as it is otherwise provided in the Contract, cover all his obligations under the Contract (including those in respect of the supply of goods, materials, Plant or services or of contingencies for which there is a Provisional Sum) and all matters and things necessary for the proper execution and completion of the Works and the remedying of any defects therein.
12.2 If, however, during the execution of the Works the Contractor encounters physical obstructions or physical conditions, other than climatic conditions on the Site, which obstructions or conditions were, in his opinion, not foreseeable by an experienced contractor, the Contractor shall forthwith give notice thereof to the Engineer, with a copy to the Employer. On receipt of such notice, the Engineer shall, if in his opinion such obstructions or conditions could not have been reasonably foreseen by an experienced contractor, after due consultation with the Employer and the Contractor, determine:
(a)any extension of time to which the Contractor is entitled under Clause 44, and
(b) the amount of any costs which may have been incurred by the Contractor by reason of such obstructions or conditions having been encountered, which shall be added to the Contract Price, and shall notify the Contractor accordingly, with a copy to the Employer. Such determination shall take account of any instruction which the Engineer may issue to the Contractor in connection therewith, and any proper and reasonable measures acceptable to the Engineer which the Contractor may take in the absence of specific instructions from the Engineer.
42.2 If a contractor suffers delay and/or incurs costs from failure on the part of the Employer to give possession in accordance with the terms of Sub-
Clause 42.1, the Engineer shall, after due consultation with the Employer and the Contractor, determine:
(a) any extension of time to which the Contractor is entitled under Clause 44, and
(b) the amount of such costs, which shall be added to the Contract Price, and shall notify the Contractor accordingly, with a copy to the Employer.
.........
53.1 Notwithstanding any other provision of the Contract, if the Contractor intends to claim any additional payment pursuant to any Clause of these Conditions or otherwise, he shall give notice of his intention to the Engineer, with a copy to the Employer, within 28 days after the event giving rise to the claim has first arisen. 53.2 Upon the happening of the event referred to in Sub-
Clause 53.1, the Contractor shall keep such contemporary records as may reasonably be necessary to support any claim he may subsequently wish to make. Without necessarily admitting the Employer's liability, the Engineer shall, on receipt of a notice under Sub-Clause 53.1, inspect such contemporary records and may instruct the Contractor to keep any further contemporary records as are reasonable and may be material to the claim of which notice has been given. The Contractor shall permit the Engineer to inspect all records kept pursuant to this Sub-Clause and shall supply him with copies thereof as and when the Engineer so instructs.
53.3 Within 28 days, or such other reasonable time as may be agreed by the Engineer, of giving notice under Sub- Clause 53.1, the Contractor shall send to the Engineer an account giving detailed particulars of the amount claimed and the grounds upon which the claim is based. Where the event giving rise to the claim has a continuing effect, such account shall be considered to be an interim account and the Contractor shall, at such intervals as the Engineer may reasonably require, send further interim accounts giving the accumulated amount of the claim and any further grounds upon which it is based. In cases where interim accounts are sent to the Engineer, the Contractor shall send a final account within 28 days of the end of the effects resulting from the event. The Contractor shall, if required by the Engineer so to do, copy to the Employer all accounts sent to the Engineer pursuant to this Sub-Clause.
53.4 If the Contractor fails to comply with any of the provisions of this Clause in respect of any claim which he seeks to make, his entitlement to payment in respect thereof shall not exceed such amount as the Engineer or any arbitrator or arbitrators appointed pursuant to Sub-Clause 67.3 assessing the claim considers to be verified by contemporary records (whether or not such records were brought to the Engineer's notice as required under Sub-Clauses 53.2 and 53.3).
53.5 The Contractor shall be entitled to have included in any interim payment certified by the Engineer pursuant to Clause 60 such amount in respect of any claim as the Engineer, after due consultation with the Employer and the Contractor, may consider due to the Contractor provided that the Contractor has supplied sufficient particulars to enable the Engineer to determine the amount due. If such particulars are insufficient to substantiate the whole of the claim, the Contractor shall be entitled to payment in respect of such part of the claim as such particulars may substantiate to the satisfaction of the Engineer. The Engineer shall notify the Contractor of any determination made under this Sub-Clause, with a copy to the Employer."
On or about 18 th March, 1993 formal work order was issued to the respondent for commencement of work. The scheduled date of commencement of the contract work was 23rd March, 1993. The contract work was to be completed in 42 months, that is, within 22 nd September, 1996.
The respondent claims to have submitted a work programme for execution of work as per clause 14.1 which the respondents scrutinized and suggested that the respondent should take up stretches having less impediments as a result of which the claimant had to revise the work programme.
According to the respondent, due to reasons beyond the control of the respondent, the contract work could not be taken up as per schedule and could not be completed within the stipulated time. The contract work was apparently completed within 28th January, 1999 as will appear from the 'Take Over' Certificate issued to the contractor.
By a letter dated 8 th January, 2000 the claimants contended that they had to incur additional expenses for execution of work during the extended period. It was contended that extension of time was granted by the petitioners as the delay was for reasons not attributable to the respondent.
By a letter dated 23 rd February, 2000, the respondent claimant claimed an additional amount of Rs.13,26,92,262/- as per the break-up given below:
(a) Overhead expenses Rs.3,12,56,955/-
(b) Equipment charges Rs.4,21,80,060/-
(c) Additional POL expenses Rs.65,25,379/-
(d) Additional Financial costs Rs.1,90,20,538/-
(e) Loss of opportunity costs Rs.2,55,03,685/-
(f) Additional Expenses on account Rs.1,32,05,645/-
of increase in costs of Labour
The Project Director of the petitioner informed the respondent claimant that the claims submitted by the respondent were not admissible under the provisions of the contract.
Disputes and differences that arose between the petitioner and the respondent claimant, in connection with the execution of the contract, could not be settled amicably and were referred to arbitration. The petitioner made counterclaims.
The Arbitral Tribunal was constituted of one arbitrator nominated by the petitioner, one arbitrator nominated by the respondent and a third arbitrator nominated by the Director General, Road Development, Ministry of Surface Transport, Government of India.
The petitioner represented by the Chief Engineer, Public Works (Roads) submitted that the Statement of Claim filed before the Arbitral Tribunal by the respondent was baseless.
The Arbitral Tribunal rejected the counterclaims of the petitioner and awarded Rs.7,36,80,440/- to the claimant along with pendente lite interest @ 12% per annum from the date of the first sitting till the date of the award, in favour of the respondent as per the break-up given hereinbelow:
"Claim No.1 Overhead Expenses.
Claimed Amount:Rs.3,12,56,955/-
(Rupees Three crores twelve lakhs fifty-six
thousand nine hundred fifty-five only.)
Awarded Amount:Rs.1,66,63,000/-
(Rupees one crore sixty-six lakhs and sixty three
thousand only)
Claim No.2 Equipment Charges.
Claimed Amount:Rs.4,21,80,060/-
(Rupees four crore twenty-one lakhs eighty
thousand sixty only)
Awarded Amount:Rs.1,29,01,000/-
(Rupees one crore twenty nine lakhs one
thousand only)
Claim No.3 Additional POL Expenses
Claimed Amount:Rs.65,25,379/-
(Rupees sixty-five lakhs twenty-five thousand
three hundred seventy-nine only)
Awarded Amount: NIL
Claim No.4 Additional Financial Costs
Claimed Amount:Rs.1,90,20,538/-
(Rupees one crore ninety lakhs twenty thousand
five hundred thirty-eight only)
Awarded Amount:80,72,207/-
(Rupees eighty lakhs seventy-two thousand two
hundred seven only)
Claim No.5 Loss of Opportunity costs.
Claimed Amount:Rs.2,55,03,685/-
(Rupees two crore fifty-five lakhs three hundred six hundred eighty-five only) Awarded Amount:Rs.1,14,71,000/-
(Rupees one crore fourteen lakhs seventy-one thousand only) Claim No.6 Additional Expenses on Labour Claimed Amount:Rs.1,32,05,645/-
(Rupees one crore thirty-two lakhs five thousand six hundred forty-five only) Awarded Amount: NIL Counter Claims Counter Claim No.1: Overhead.
Claimed Amount:Rs.3,44,37,386/-
(Rupees three crore forty-four lakhs thirty-
seven thousand three hundred eighty-six only)
Awarded Amount: NIL
Counter Claim No.2: Non entitlement of obtaining profits.
Claimed Amount:Rs.4,52,23,100/-
(Rupees four crore fifty-two lakhs twenty three thousand one hundred only) Awarded Amount: NIL Counter Claim No.3: Loss of Project Benefit.
Claimed Amount:Rs.14,66,67,273/-
(Rupees fourteen crore sixty-six lakhs
sixty-seven thousand two hundred
seventy-three only)
Awarded Amount: NIL
Counter Claim No.4: Liquidated Damages.
Claimed Amount:Rs.15,02,780/-
(Rupees fifteen lakhs two thousand seven
hundred eighty only)
Awarded Amount: NIL
Counter Claim No.5: Price Adjustment.
Claimed Amount:Rs.2,69,77,061/-
(Rupees two crore sixty-nine lakhs
seventy-seven thousand sixty-one only)
Awarded Amount: NIL"
Mr. Supriyo Bose, learned Additional Government Pleader, appearing on behalf of the petitioner submitted that the award was not in terms of the contract between the parties.
Mr. Bose argued that claims for additional payments are to be made in accordance with the procedure prescribed in Clause 53.1 to 53.5 of the FIDIC Conditions. The Contractor was obliged to intimate the employer of its intention to claim additional payments and further had to substantiate its claim.
Mr. Bose submitted that Clause 53.1 of the FIDIC Conditions expressly provided that notwithstanding any other provision of the contract, notice of the additional claim would have to be given during the execution of the contract.
Mr. Bose submitted that the contract in respect of the current stretch of Panagarh - Moregram Road was completed within 30 th Januarys, 1999 as would be evident from the Take Over Certificate.
The notice intimating intention to claim additional payments is, however, dated 8 th January, 2000. The notice was issued long after the contract had been executed and long after the last segment had been taken over and also after the additional/extra works had been completed.
Mr. Bose argued that even at the time of seeking the last extension of time the respondent claimant did not convey its intention to claim additional payments. The contractor had thus failed to comply with the mandatory terms as contained in Clause 53.1 of the FIDIC Conditions.
By a letter dated 23 rd February, 2000 the claims were quantified for the first time. Mr. Bose submitted that the respondent claimant had thus failed to comply with the mandatory condition as contained in Clause 53.1 of the FIDIC Conditions.
Mr. Bose submitted that the arbitrator failed to decide in accordance with the terms of the contract, in violation of the express mandate of Section 28(3) of the 1996 Act and the award was thus liable to be set aside.
Mr. Bose submitted that Clauses 53.2 and 53.3 of the FIDIC Conditions made it abundantly clear that any claim for additional payment had to be supported by contemporary records, interim accounts and final accounts which would have to be submitted to the engineer.
Clause 53.4 of the FIDIC Conditions permitted the respondent to place contemporary records, interim accounts and final accounts before the arbitrators whether or not the same had been brought to the notice of the engineer as required under Clauses 53.2 and 53.3 of the FIDIC Conditions.
Mr. Bose submitted that no interim accounts or final accounts were placed by the respondent either before the engineer or the Arbitral Tribunal, nor were any contemporary records placed. The respondent had thus failed to abide by the terms of the contract namely, Clause 53.2 to 53.4 of the FIDIC Conditions and was thus not entitled to any payment towards its purported claims, which had not been substantiated.
Mr. Jayanta Kumar Mitra appearing on behalf of the respondent emphatically argued that all the arbitrators were experts in the field of civil construction. The presiding arbitrator was a Chief Engineer of the Public Works Department (PWD). The arbitrator nominated by the petitioner was the Chief Engineer retired, PWD, West Bengal and the arbitrator nominated by the respondent was a retired Chief Engineer of the Metro Railway, Kolkata.
Mr. Mitra argued that the choice of the Arbitral Tribunal was a conscious choice, for constituting an Arbitral Tribunal comprising of experienced arbitrators with expertise in the field of civil engineering. The award was made unanimously.
Mr. Mitra submitted that experts in the field were expected to know of the problems in execution of such contracts. The Courts acknowledge the expertise of an Arbitral Tribunal comprising of experts. The modern tendency, specially in commercial arbitration, is to endeavour to uphold an award of skilled persons, that the parties have themselves selected, for adjudication of disputes.
Mr. Mitra further submitted that when the parties had selected their own forum, the deciding forum must be conceded the power of appraisement of evidence. The arbitrators are the sole judges of the quality as also the quantity of evidence and it is not for the Court to take up the task of judging the adequacy of the evidence before the arbitrators. In support of his submission Mr. Mitra referred to Mediterranean and Eastern Export Co. Ltd. vs. Fortress Fabrics Ltd. reported in 1948(2) All. E.R. 186.
As argued by Mr. Mitra, the Court does not look with jealousy on the jurisdiction of the arbitrator. The Court is to endeavour to uphold the award of a skilled person that the parties have themselves selected. However, in view of the statutory provisions of Arbitration and Conciliation Act, 1996 including in particular Section 34 thereof, read with Section 28(3), this Court is bound and obliged to examine whether the award is in accordance with the contract. The Arbitral Tribunal is a creature of the contract and is bound by the terms and conditions of the contract. In no circumstances can the Arbitral Tribunal ignore and/or overlook the terms of the contract, which creates the Arbitral Tribunal.
If the parties are competent to contract and execute an agreement on their own free will and volition, if the arbitration agreement is valid, if the parties were put to notice of constitution of the Arbitral Tribunal, if the parties had opportunity of presenting their case and if the arbitral award deals only with matters which fall within the scope of submission to arbitration, the award may not be set aside, except on grounds contained in Section 34 of the 1996 Act.
This Court adjudicating an application under Section 34 of the 1996 Act, for setting aside an award, does not sit in appeal over the Award. This Court is required to examine whether there was a valid agreement between parties, not under any incapacity and competent to contract; whether the parties had reasonable opportunity of presenting their case; whether the arbitral award dealt with or decided any dispute not contemplated by or falling within the scope and/or the terms of submission to arbitration; and whether any of the grounds stipulated in Section 34 of the 1996 Act, for setting aside an award existed.
The choice of the Arbitral Tribunal comprising of experienced arbitrators with experience in the field of Civil Engineering must have been a conscious choice, as rightly argued by Mr. Mitra. As experts in the field of Civil Engineering, the arbitrators were expected to have special knowledge of technical aspects of the execution of civil engineering contracts such as contracts pertaining to construction of roads and therefore, in a better position to appreciate the documents and evidence on record.
It is axiomatic that experts in the field of Civil Engineering would, by reason of their technical knowledge and experience, be better equipped to appreciate and understand formula based technical matters and also to adjudicate technical issues such as, inter alia, proportions in which different materials are required to be used for construction of roads, the normal and/or permissible percentage of waste of materials, the usual time for casting of concrete slab and/or frames, melting of bitumen, hardening of the road surface, the normal time period for execution having regard to the magnitude and intricacies of the work.
However, even an Arbitral Tribunal, comprising of experts, is bound by the terms and conditions of the contract between the parties, and is required to adjudicate the disputes in accordance with the law in force in India, as per the contract, on the basis of cogent materials and/or evidence on record.
Section 34(2) of the 1996 Act provides as follows:-
"34(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 subsection (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 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.-Without prejudice to the generality of sub-clause (ii), it is hereby declared, for the avoidance of any doubt, that an award is in conflict with the public policy of India if the making of the award was induced or affected by fraud or corruption or was in violation of section 75 or section 81.
Mr. Mitra rightly argued that the arbitrators were the sole judges of the quality and the quantity of the evidence before the Arbitral Tribunal. It is not for this Court to detect errors in an award, upon reassessment of the materials on record, or to weigh the sufficiency of the evidence before the Arbitral Tribunal.
An arbitral award that is in conflict with the public policy of India must be set aside. The question is, when can an arbitral award be said to be in conflict with the public policy of India. In Oil and Natural Gas Commission Ltd. vs. Saw Pipes Ltd. reported in AIR 2003 SC 2629 = (2003) 5 SCC 705, the Supreme Court held:
"Therefore, in our view, the phrase "public policy of India" used in Section 34 in context is required to be given a wider meaning. It can be stated that the concept of public policy connotes some matter which concerns public good and the public interest. What is for public good or in public interest or what would be injurious or harmful to the public good or public interest has varied from time to time. However, the award which is, on the face of it, patently in violation of statutory provisions cannot be said to be in public interest. Such award/judgment/decision is likely to adversely affect the administration of justice. Hence, in our view in addition to narrower meaning given to the term "public policy" in Renusagar case10 it is required to be held that the award could be set aside if it is patently illegal. The result would be -- award could be set aside if it is contrary to:
(a) fundamental policy of Indian law; or
(b) the interest of India; or
(c) justice or morality, or
(d) in addition, if it is patently illegal.
Illegality must go to the root of the matter and if the illegality is of trivial nature it cannot be held that award is against the public policy. Award could also be set aside if it is so unfair and unreasonable that it shocks the conscience of the court. Such award is opposed to public policy and is required to be adjudged void." The explanation to Section 34 (2)(b)(ii) is only illustrative and not exhaustive. An award induced or affected by fraud or corruption or in violation of Section 75 or Section 81 of the 1996 Act would definitely be in conflict with public policy. However, even in other cases, an arbitral award can be said to be in conflict with public policy, for example, where an award is contrary to law or is based on no evidence at all. In the absence of agreement dispensing with requirement to give reasons, a non-speaking award in disregard of the express mandate of Section 31(3) would in conflict with public policy, for public policy envisages compliance of laws in force in the country. An award which is based on a process of reasoning, which is totally absurd and/or perverse, would also be in conflict with public policy. An award that is patently illegal has to be set aside as otherwise it would cause gross injustice.
The judgment of the Supreme Court in Municipal Corporation of Delhi vs. Jagannath Ashok Kumar reported in AIR 1987 SC 2137 was rendered under Section 30 of the Arbitration Act, 1940. With the enactment of the 1996 Act, the law relating to arbitration has undergone a change. As pointed out by Mr. Bose, Section 28 casts a statutory obligation on the Arbitral Tribunal to decide the dispute submitted to arbitration in accordance with the substantive law for the time being in force in India. The Arbitral Tribunal is, in all cases, bound to decide in accordance with the terms of the contract in view of Section 28(3) of the 1996 Act. Moreover, Section 31(3) of the 1996 Act provides as follows:
"31.(3) The arbitral award shall state the reasons upon which it is based, unless--
(a) the parties have agreed that no reasons are to be given, or
(b) the award is an arbitral award on agreed terms under Section
30."
In this case, the Arbitral Tribunal was obliged to give reasons, there being no agreement dispensing with the requirement to give reasons. In fact the award impugned is reasoned.
This Court has little opinion, but to set aside an award which is not in public interest. An award, which is not in accordance with contract and is not based on cogent evidence, cannot possibly be in public interest, particularly when public funds are involved.
Mr. Bose argued and rightly that in terms of Clause 53.4 of the FIDIC Conditions, a duty was cast upon the Arbitral Tribunal to assess the claim of the respondent and verify the same from contemporary records. There are, however, no contemporary records. The award in respect of the respective claims were based on calculations which had apparently not been made in terms of the contract.
The Arbitral Tribunal cannot ignore the substantive law in force in India or the express provisions of the contract governing the parties. However, if a provision of the contract is reasonably capable of more interpretations than one, and the interpretation of the Arbitral Tribunal is a plausible interpretation, it would not be appropriate for this Court to interfere, only because this Court takes the view that an alternative interpretation is the better one. Just because the Court takes a different view, this Court cannot substitute the interpretation given by the Arbitral Tribunal with its own interpretation.
The Arbitral Tribunal might have considered the grounds of delay urged by the respondent, as contended by the respondent, but has done so cryptically in a casual slipshod manner. The Arbitral Tribunal did not properly apply its mind to the extent of responsibility of the petitioner.
For example, the Arbitral Tribunal found that the time taken for completion of the job was 6 years and 9 months, that is, about 81 months, whereas the original stipulated time was 42 months. The extra time was about 39 months. The claim on account of delay was apparently not decided as per the provisions of the contract referred to hereinabove.
The mode of computation of the amounts awarded in respect of the respective items of claim was not supported by reasons. The contract had not dispensed with the obligation of the Arbitral Tribunal to give reasons. The Arbitral Tribunal had thus failed to comply with the condition of Section 31 (3) of the 1996 Act, which cast an obligation on the Arbitral Tribunal to state the reasons upon which the award was based.
Mr. Mitra submitted that the contractor had in its application for extension of time for completion of the contract given detailed reasons on consideration of the grounds on which the contractor sought extension of time for completion of the contract work. The petitioners granted extension without imposing any penalty or liquidated damages. However, mere extension of time without imposition of penalty or damages does not in itself amount to acknowledgement of liability for the delay. Moreover, as argued by Mr. Bose appearing on behalf of the petitioner, even assuming that there was liability on the part of the petitioner for the delay that would not in itself give rise to any claim for escalation. The contractor would have to substantiate its claim to escalation by demonstrating with cogent evidence that it had actually incurred lose or damage on account of the delay.
Mr. Mitra argued that the Arbitral Tribunal complied with the principles of natural justice. Principles of natural justice may have been complied with, in the sense that the petitioner as also the respondent might have been given a hearing. The Arbitral Tribunal was obliged to decide the disputes in accordance with the contract, which has not been done.
It is true that the Arbitral Tribunal is competent to interpret the contract. However, where there is an obligation cast on the Arbitral Tribunal to give a reasoned award, the award should evince the exercise of construction and/or interpretation of contractual provisions. The relevant contractual provisions would necessarily have to be referred to and discussed in the award and the reason for the conclusion of the arbitrators deducible from the award.
Moreover, the interpretation given by the arbitrators would have to be a reasonable and/or plausible interpretation, based on application of mind and not an absurd interpretation that smacks of total non-application of mind. In this case, the Arbitral Tribunal did not perform the exercise of construing the provisions relied upon by the petitioner. There could be no plausible reason for making an award in the absence of contemporaneous documents and the award does not disclose the purported reasons, if any.
As argued by Mr. Mitra Clause 53.4 provides that if the contractor failed to comply with the provisions of Clause 53.1 of submission of notice during the execution of the work or Clause 53.2 of production of contemporaneous records before the Engineer, the contractor could still make a claim before the arbitrators appointed under Clause 67.3. However, the arbitrators would have to adjudicate the claim upon verification of contemporaneous records, whether or not such records were brought to the engineer's notice.
In the instant case, there were no contemporaneous records before the Arbitral Tribunal. The Arbitral Tribunal has not referred to contemporaneous records in its purportedly 'reasoned' award. In a sense, the award was based on no evidence. When the contract provided for the manner of adjudicating admissibility of claims, it was not open to the Arbitral Tribunal to adopt a different procedure, upon reference to provisions of the contract which could not, upon any reasonable construction, be held to authorize such procedure.
The claim for overhead expenses of Rs.3,12,56,955/- based on a certificate of the auditor of the claimants to the effect that overhead expenses were to the tune of 15% of the project costs.
An award rendered by an Arbitral Tribunal, selected by the parties by agreement, cannot be judged by the standards of a judgment rendered by a Court of Law which is written by Judges trained in law and experienced in judgment writing. However, in view of the express provision of Section 31(3) of the 1996 Act, an obligation was cast on the Arbitral Tribunal to give reasons.
A speaking award necessarily means an award which indicates the reasons why the arbitrator allowed or disallowed a claim, whether in full or in part. Even though it may not be necessary to give reasons in great details, the award would have to speak for itself. The process of reasoning, which prompted the award, should be apparent. Mere reference to some exhibits would not suffice. For example an award, as in this case, which just states "Exhibit C-1, C-2 and C-3' establish the claim", without even discussing what those exhibits are, cannot be said to be a speaking award. A table or a chart may also be placed as an exhibit before an Arbitral Tribunal where the strict rules of evidence envisaged in the Evidence Act not apply. A mere reference to an exhibit number without any description of or discussion on the document is in my view impermissible, where the arbitral award has to be reasoned. The award would necessarily have to discuss the evidence.
It is true that there may be hybrid awards that may be partly speaking and partly non-speaking. Such awards may be valid. However, where there is a statutory obligation to give a speaking award, a hybrid award would have to be set aside to the extent it allowed or rejected any claim either in full or part, without intelligible reasons.
A speaking award must refer to the exact documents relied upon by the parties, disclose reasons, even if cryptic, for accepting or rejecting those documents or any of them, and reflect the mode of computation of the amounts awarded. The reasons need not be detailed.
With the greatest of respect to the learned Arbitral Tribunal, which is undoubtedly comprised of experts in the field, submissions have elaborately been recorded, but there is practically little or no discussion of the evidence. There is reference to certain exhibits, but no discussion of the nature and contents thereof, whether the documents are bills or vouchers or charts or tables or correspondence.
Even if it is assumed that there were materials to show that there were reasons for delay not attributable to the claimant, which entitled the claimant to damages and/or compensation and/or reimbursement for additional cost incurred, the claims would necessarily have to be proved. It is reiterated, at the cost of repetition, that the award does not indicate what prompted the learned Arbitral Tribunal to arrive at its conclusion that the claimant had been able to establish its entitlement in law to the amounts awarded.
It is a settled proposition of law that the intention of the parties is to be gathered from the express terms of the agreement. When the agreement provides the mode, manner, method and time for lodging and substantiating claims, the Arbitral Tribunal cannot arrive at its conclusion by adopting a different mode, manner, method or by giving a go bye to the time stipulation. This view finds support from the judgment of the Supreme Court in Oil and Natural Gas Commission Ltd. vs. Saw Pipes Ltd. (supra), cited by Mr. Bose.
In India, delay in performance of contracts is governed by Sections 55 and 56 of the Indian Contract Act, 1872. As held by the Supreme Court in General Manager Northern Railway vs. Sarvesh Chopra reported in AIR 2002 SC 1272 : (2002) 4 SCC 45 cited by Mr. Bose, abnormal rise in prices of material and labour may frustrate the contract and enable the innocent party to avoid the contract. Thus where there is abnormal delay by reason of failure and/or delay of the employer to perform a mutual obligation, the contractor is discharged of its obligation to perform the contract. If, instead of avoiding the contract, the contractor accepts the belated performance of reciprocal obligation on the part of the employer, as in this case, the contractor cannot claim compensation for any loss occasioned by the non- performance of the reciprocal promise by the employer within time, unless at the time of acceptance of delayed performance the contractor had given notice to the employer of his intention to do so. The respondent accepted extensions of time to complete the contract work without protest and without notifying the employer of its intention to claim additional payment.
Parties executing a contract may have their own reasons for incorporating certain terms and conditions. The parties could very well have felt that claims made during the execution of the contract could be more easily verified and, therefore, would not require documentary support. In case of claims which were not contemporaneous, documentary proof would be necessary for verification thereof. Moreover, the formula applicable to a contract would not, unless agreed, apply to additional and/or extra works and/or to claims which are in the nature of claims for extra expenses in the form of idle labour, idle establishment and the like.
The Arbitral Tribunal summarized the ratio of the judgment in General Manager, Northern Railway and Anr. Vs. Sarves Chopra (supra) in the following manner:-
"Under the Indian Law, in spite of there being a contract between the parties whereunder the contractor has undertaken not to make any claim for delay in performance of the contract occasioned by and act of the Employer, still a claim would be entertainable in one of the following situations:
(a) If the contractor repudiates the contract exercising his right to do so under Section 55 of the Contract Act;
(b) The employer gives and extension of time either by entering in to Supplementary agreement or by making it clear that escalation of rates or compensation for delay would be permissible;
(c) If the contractor makes it clear that escalation of rates or compensation for delay shall have to be made by the employer and the employer accepts performance by the contractor in spite of delay and such notice by the contractor putting the employer on terms."
The Arbitral Tribunal found that contingency No. C was applicable in the instant case, when claimants repeatedly put the respondents on notice for claiming damages and compensation and the claimants were allowed to continue with the execution of work till completion beyond the stipulated period of completion.
The aforesaid finding that the claimants had repeatedly put the respondent on notice for claiming damages and compensation was patently perverse. The learned tribunal has not adverted to a single document or correspondence prior to 8th January, 2000 stating any claim to compensation for delay.
A perusal of the impugned award of the learned Tribunal reveals that the petitioner had specifically taken the point that the respondent claimant had not been given notice of its intention to claim compensation when it sought extension of time for completion of the contract. Yet the learned Tribunal cryptically dealt with the aforesaid submission in a single sentence "contingency No.C is applicable in the instant case when the complainants repeatedly put the respondents on notice on claiming damages and compensation......." without referring to a single document or correspondence.
There being no reasons for the aforesaid finding which goes to the route of the award, the award is liable to be set aside on that ground alone. The learned Tribunal has by its failure to give reasons for its aforesaid finding, which goes to the route of the award, in effect and substance given a non-speaking award. Even otherwise in the absence of reference to any document or correspondence the aforesaid finding smacks of perversity.
The learned Tribunal while recording the submissions of the petitioner noted letters written by the petitioner to the respondent claimant at the time of execution of the contract itself expressing dissatisfaction over the slow tardy of work and has also referred to correspondence from the end of the petitioner attributing delay and tardy progress to factors such as mobilization of inadequate machinery/equipment and other factors attributable to the respondent claimant. The learned Tribunal has, however, not dealt with the aforesaid correspondence in its award.
In P.M. Paul Vs. Union of India reported in AIR 1989 SC 1034 that if delay in execution of the work is caused owing to the conduct to the respondents, the respondents are liable to the consequences of such delay including increase in price. However, the contractor would, in view of the law laid down in Sarves Chopra (supra) have to give notice of intimation to claim damages which was not done in this case.
As pointed out by Mr. Mitra, the Arbitral Tribunal has not allowed the entire claim of the respondent. Against a total claim of Rs.13,26,92,262/- together with pendente lite interest at 18% per annum, the Tribunal has awarded Rs.7,36,80,440/- with interest at the rate of 12% per annum.
However, the mode of computation of the award of Rs1,66,63,000/- in respect of the claim on account of Overhead expenses, the award of Rs.1,29,01,000/- in respect of the claim on account of Equipment charges, the award of Rs.80,72,207/- towards Additional Financial Costs and the award of Rs.1,14,71,000/-towards Loss of Opportunity Costs have not been explained.
An arbitrator is not a conciliator. In view of Section 28(2) of the 1996 Act an Arbitral Tribunal might decide "ex aequo et bono or as amiable compositeur" only if the parties have expressly authorized it to do so and not otherwise. The Arbitral Tribunal was bound and obliged to decide the disputes in accordance with law, as per the contract, giving its reasons for its award in respect of each item of claim.
Reliance has been placed on certain charts and tables and theoretical calculations which have not been discussed in the impugned award. There are no contemporaneous documents to substantiate the claim on account of the aforesaid heads.
With regard to claims and counterclaims which have outright been rejected, it might reasonably be deduced that claimants/counter-claimants failed to establish claims, for it is a well-established proposition of law that he who claims has the onus of substantiating his claims. However, if a claim is allowed, either in full or in part, the award would necessarily have to be substantiated by cogent evidence, unless of course, the contract expressly provides for a different mode of computation of claim, either formula based or otherwise.
From the reasons disclosed it does not appear that the provisions of 53.1, 53.2 and 53.4 have, at all, been considered. The award is not based on any contemporary records. No contemporaneous accounts, either interim or final were produced or considered.
An award that is not in accordance with the contract is liable to be set aside. Extension of time for completion of work does not in itself amount to acknowledgement of liability for the delay. Nor does it absolve a contractor of its liability for delay, if any.
A contract might be extended for reasons of expedience to avoid further delay and to avoid further escalation of costs. Recourse to the pragmatic decision to extend the time for completion of a contract does not, in itself, tantamount to acknowledgement of responsibility for the delay or to condonation of latches and/or lapses, if any, on the part of the other party to the contract. The finding of the Arbitral Tribunal with regard to the cause of delay, on the basis of which the Tribunal has awarded claims towards additional expenses, is apparently unsupported by evidence.
In State of Rajasthan & Anr. Vs. Ferro Concrete Construction Ltd. reported in 2009 (3) Arb.LR 140 (SC) cited by Mr. Mitra, the Supreme Court held that an award was not open to challenge on the ground that arbitrator had reached a wrong conclusion or had failed to appreciate facts. While considering a challenge to an award, the Court would not sit in appeal over the award nor re- appreciate evidence for purpose of finding out, whether the award in question could have been made in the facts and circumstances of the case.
The aforesaid proposition is unexceptionable. While the Court cannot re- appreciate the evidence, the Court can examine whether there was cogent evidence on the basis of which the award could have been made. A perverse award is, however, liable to set aside. This Court is constrained to hold that the respondent could not produce any evidence whatsoever in support of its claim.
In Eastern Trading Company Vs. Kalipara Lamps & Components Ltd. reported in 2009 (1) Arb.LR 62 (Madras) cited by Mr. Mitra, a Division Bench of Madras High Court held that the Court considering an application under Section 34 of Arbitration and Conciliation Act, 1996 for setting aside an award would not re-appraise the evidence. There can be no doubt that the Court examining the validity of an award in exercise of its power under Section 34 cannot re-appraise evidence. However, the Court must certainly examine whether the award was as per contractual provisions and whether the claims were supported by evidence.
In National Highway Authority of India Vs. Afcon Infrastructure Ltd. reported in 2008 (3) Arb.LR 56 (Delhi) cited by Mr. Mitra, a Single Bench of the Delhi High Court found that the Arbitral Tribunal had not ignored the terms of the contract but had interpreted the same. Merely because the interpretation that had been arrived at by Tribunal was not palatable to the petitioner, it could not be ground enough for interfering with the award. There being no patent illegality, and the award not being opposed to public policy, the Delhi High Court refused to interfere with the award. The judgment rendered in the particular facts of the aforesaid case, is factually distinguishable.
In Union of India Vs. Associated Construction Company reported in 2008 (2) Arb. LR 526 (Delhi) cited by Mr. Mitra the Supreme Court found on facts that the award was not vitiated by any error, and that the Arbitral Tribunal had not committed any misconduct. The award was in consonance with principles of natural justice. The Supreme Court, however, modified the rate of interest.
In the aforesaid face, the Supreme Court concluded that there was reasonable ground to allow escalation, observing that escalation was a normal and routine instant arising out of gap of time in this inflationary age in performing any contract of any type, in view of its specific finding based on the evidence on record, that there had been escalation by statutory wage revision. The Supreme Court held that once the arbitrator had jurisdiction to decide if there was a delay in execution of the contract due to delay of the employer, the employer was liable for the consequences of the delay including increase in statutory wages.
The judgement of the Supreme Court in Food Corporation of India Vs. A.M. Ahmed & Co. And Anr. reported in 2006 (4) Arb.LR 155 (SC) is clearly distinguishable on facts in view of the clear finding that the delay was caused by fault of the employer and that escalation was claimed on the ground of increase in statutory wages.
As pointed out by Mr. Supryo Bose appearing on behalf of the petitioner, Clause 53.1 quoted above which is a non obstante clause, paramount in nature beginning with the words "notwithstanding any provision of the contract..........." Clause 53.1 made it obligatory for the contractor to give notice of escalation during execution of the work.
In the instant case the contract job was over within 30th January, 1999. However, notice-intimating intention to claim additional payments is dated 8th January, 2000.
Mr. Bose, pointed out that the letter dated 8th January, 2000 did not mention the amounts claimed against the respective heads of claim. It was only by a further letter dated 23rd February, 2000 that the claims were quantified for the first time.
As argued by Mr. Bose, even at the time of seeking the last extension, the claimant did not indicate its intention to claim additional payments. The contractor, thus, failed to comply with the mandatory requirements of Clause 53.1 of FIDIC, which the learned arbitrator did not appreciate. If it is assumed that the letter dated 8th January, 2000 was written on the 28th day from the occurrence of the event giving rise to the claim of additional payments, then that event is deemed to have occurred on 11th December, 1999, whereas the arbitrators have awarded damages for the period much prior thereto. The learned Tribunal thus acted in violation of the express terms of the arbitration agreement.
Clauses 53.2 and 53.3 makes it abundantly clear that any claim for additional payment must be supported by contemporary records, interim accounts and final accounts, which shall have to be submitted to the Engineer.
Clause 53.4 permits the contractor to place such contemporary records, interim accounts and final account, before the Arbitrators whether or not the same were brought to the Engineers notice as required under clauses 53.2 and 53.3.
No contemporary interim accounts and/or final accounts were ever placed by the contractor before the Engineer or the Arbitral Tribunal. The contractor has thus failed to abide by the terms of the contract namely clauses 53.2 to 53.4 of FIDIC and was not entitled to any payment towards its purported claims, which were not substantiated in terms of clause 53.4 of FIDIC, which the Arbitrators failed to appreciate.
In the entire Award there is no mention of any contemporary records or interim/final accounts produced before the Arbitral Tribunal by the claimant contractor. The Award in respect of claims nos. 1, 2, 4 and 5 towards overhead expenses, equipment charges, additional financing costs and loss of opportunity costs, respectively, are all theoretical in nature and not based on contemporary records, interim accounts and/or final accounts and are thus not in conformity with the terms of the contract between the parties.
Furthermore, no reasons have been given in the Award for adopting any of the figures appearing in the purported theoretical calculations for any of the claims. The Arbitral Tribunal has failed to abide by the conditions imposed upon it by Section 31(3) of the Arbitration and Conciliation Act, 1996, that is to state the reasons upon which the Award is based.
Parties may have agreed that they would only rely on documentary evidence. If the claimant chose not to adduce oral evidence, it did so at its own peril. An award could only have been made on the basis of evidence. The claimant might have to prove and/or explain contemporaneous documents and/or accounts by adducing oral evidence. There being an obligation on the Arbitral Tribunal to give a reasoned award, the Arbitral Tribunal was obliged to discuss the evidence and/or materials on which reliance was placed. The Arbitral Tribunal need not have discussed all the materials in minute details but it was obliged to give intelligible reasons for its award upon reference to the documents and records relied upon by it, which the learned Arbitral Tribunal has not done.
Power to award interest at all stages vests with the Arbitral Tribunal as held by the Supreme Court in Indian Hume Pipe Co. Ltd. Vs. State of Rajasthan reported in 2009 (4) Arb.LR 185 (SC) cited by Mr. Mitra. However, unless the principal claim is established there can be no question of award of interest.
The issues involved in this application are identical to the issues involved in A.P. No. 331 of 2004 (State Of West Bengal Vs. Afcons Infrastructure Ltd.) disposed of by this Bench by its judgment and/or order dated 07.07.2010 whereby the award was set aside.
The impugned award cannot be sustained and the same is set aside. The disputes are remitted to the Tribunal for fresh adjudication in accordance with law on basis of cogent evidence including contemporaneous records.
Certified copy of this order, if applied for, be supplied to the parties subject to compliance of all requisite formalities.
(Indira Banerjee, J.)