Bangalore District Court
The Union Of India vs )M/S.Soham Engineering Constru on 5 November, 2016
IN THE COURT OF IX ADDL.CITY CIVIL AND
SESSIONS JUDGE AT BANGALORE (C.C.H.5)
Dated: This the 5th day of November 2016
Present: Shri Krishnamurthy B.Sangannanavar,
B.Com.LL.B.,(Special)
IX Addl. C.C & S.J, Bangalore.
A.S. NO.128/2014
Applicant/ The Union of India, By its Chief
Petitioner: Administrative Officer (Construc-
tions), South Western Railway,
No.18, Millers Road, Bangalore 560
046.
[By Sri.N.S.Sanjay Gowda,
Advocate]
-Vs-
Respondents: 1)M/s.Soham Engineering Constru-
ctions, 1-2-385/2, Gagan Mahal
Road, Hyderabad. Represented by
its K.L.Manoj Kumar, GPA Holder
for M/s.Soham Engineering Con-
structions
2) Vijay Agarwal, Chief Track
Engineer, South Western Railway,
1st Floor, GM's Bldgs, Club Road,
Keshwapur, Hubli.
3) Shyamadhar Ram, CMPE/Dsl,
South Western Railway, New GMs
Bldg, Gadag Road, Hubli.
2 A.S.No.128/2014
4) A.Selvaraj, FA&CAO(G), Southern
Railway, Park Town, Chennai.
(R1: By Sri.V.Krishnamurthy,
advocate)
JUDGMENT
This is a petition filed u/s.34 of the Arbitration and Conciliation Act, 1996 to set aside the Arbitral Award dated 4th August 2014 passed by respondents 2 to 4 in the matter of construction of grade separator and super structure for Railway portion at LC No.132 at WFD Railway Station for Hoskote-WFD Road.
2. This Petition is filed along with I.A.No.1 to condone delay of 23 days in filing the application to set aside the award passed by the Arbitral Tribunal dated 04.08.2014 in respect of Agreement No.CAO/CN/BNC/72391/A/54/VIII/06 dated 27th July 2006.
3. On facts, case of the applicant is pleaded below:
The 1st respondent was the successful tenderer in the tender called for construction of a 3 A.S.No.128/2014 grade separator (other than Railway limits) and super structure for railway portion at LC No.132 at Whitefield Railway Station for Hoskote-WFD road. On 12.6.2006, a letter of acceptance was issued in respect of work valued at Rs.9.94 crores in favour of 1st respondent which has to be completed within 15 months from the date of LOA dated 11.9.2007.
Subsequently, on 27.7.2006, a formal agreement was also entered into with 1st respondent. However, 1st respondent was not able to complete the work entrusted to him despite the 10 extensions granted from 12.9.2007 to 15.2.2010. Consequently, petitioner left with no other alternative terminated the contract on 18.12.2009 after issue of 7 days notice and 48 hours notice as per procedure agreed upon in the mutually agreed contractual conditions. The 1st respondent, even before the termination of the contract had sought for arbitration by invoking the arbitration clause and accordingly, an Arbitral Tribunal comprising of respondents 2 to 4 was constituted and a total of 10 claims were referred to the Tribunal. A counter claim was also raised by the petitioner. The Tribunal thereupon entered upon reference. A few claims raised by the claimant have not been 4 A.S.No.128/2014 referred to Arbitration by the Authority appointed Arbitral Tribunal as these claims were non- arbitrable matters and excluded from purview of Arbitration.
The claimant has approached the Hon'ble High Court in CMP No.08/2010 for appointment of independent arbitrator and the Hon'ble High Court by its order dated 15.06.2010 has taken into cognizance of the fact that Arbitral Tribunal has already been formed by Railway and the same Arbitral Tribunal has been appointed by High Court. Hon'ble High Court has further directed that as the contract was terminated by then, the claims arising from termination may also be adjudicated. The Arbitral Tribunal was advised to act in accordance with the order of the Court with liberty to parties to raise all their claims/ objections as well as counter claims. The Tribunal, on consideration of the matter has proceeded to pass an award and refused to award any sums in respect of claim Nos.1, 2, 4, 6 to 8, 13, 15 to 18. The Tribunal has accepted claim Nos.3, 5, 9(a) to
(c), 10 to 12 and 14, has awarded a total sum of Rs.1,53,69,734/-. The Tribunal has stated that if the award amount was not paid within 45 days of 5 A.S.No.128/2014 the award, claimant is entitled for interest at 12% p.a. till the date of payment.
4. It is therefore, petitioner herein aggrieved by such award filed this suit u/s.34 of the Arbitration & Conciliation Act, 1996 to set aside the said award dated 4.8.2014 on the following GROUNDS The contract stipulates that if the contract was terminated owing to the default on the part of the contractor, the termination would be at the risk and cost of the contractor. Once the termination was held to be valid and legal, the Tribunal could never have come to the conclusion that the contractor would not be liable to the risk and cost. The award of the Tribunal relating to the 'risk and cost' is wholly illegal.
The Tribunal could not have upheld the termination and at the same time, relaxed the consequences of the termination by lifting the risk and cost. The reasoning of the Tribunal that there was some initial delay on the part of the Railways and that there was also a delay on account of both parties and 6 A.S.No.128/2014 therefore, the work should have been terminated without risk and cost is wholly incorrect. The Tribunal has basically failed to notice that the Contractor was given a total of 10 extensions totally amounting to 2 years 7 months and yet, he could not complete the work. Railways had given several extensions without imposition of any penalty, the delay if any on the part of the Railways was automatically condoned and the contractor still had the benefit of the original tenure of the contract. The contractor could not complete the work despite several extensions granted, the Railways were right in terminating the contract and once termination was due to the default of the contractor, the Railways had the contractual right to impose the risk and cost liability. This aspect of the matter is totally lost sight of by the Tribunal.
The contract basically stated that once a contract was terminated due to the default on the part of the contractor, the security deposit would also be forfeited. The Tribunal could not have come to the conclusion that 7 A.S.No.128/2014 forfeiture of the security deposit was incorrect.
The reasoning of the Tribunal that the imposition of penalty was incorrect is unsustainable. The contractor did not seek for extension of time on nine occasions and admittedly, the extensions were granted on certain occasions, subject to the imposition of penalty and this was accepted by the contractor. Once the contractor granted an extension as per his request, the Tribunal could not have lifted the onerous condition that has been imposed by the Railways.
The Tribunal has seriously erred in coming to the conclusion that the restitution of the Bank Guarantee amount of Rs.43.20 lakhs plus the accrued interest was incorrect. The contract provided for the furnishing of Bank Guarantee to ensure the supply, fabrication, erection and launching of Steel Girder complete with Contractors steel section and this was one comprehensive item of work. Admittedly, the said work was not completed as stipulated and hence, the Bank Guarantee was rightly encashed. The 8 A.S.No.128/2014 Tribunal could not have amended the terms of the contract by reasoning that the movement the steel was brought to the site and the girder was fabricated, the right of the Railways to encash the Bank guarantee was lost because the Bank guarantee was liable to be redeemed in part. The Bank Guarantee was issued basically to ensure that the steel was brought by the Contractor and the fabrication and erection was completed. So long as the entire work was not complete, the Railways had a unbridled right to encash Bank Guarantee. The reasoning of the Tribunal that a part of the work was done, the Bank Guarantee could not be encashed is incorrect and consequently, the award for restitution of Bank Guarantee amount and the interest accrued thereon is totally incorrect.
The award of the Tribunal regarding restoration of excess amount encashed by invoking of Bank Guarantee submitted towards mobilization advance is incorrect. Admittedly, mobilization advance of nearly Rs.1.00 crore was given and a sum of 9 A.S.No.128/2014 Rs.91.05 lakhs had been recovered from running bills. The Railways had the absolute right to encash the Bank Guarantee for the sum provided more so, when the contract was terminated at the risk and cost of the contractor.
The Tribunal has erred in granting interest pendente-lite and preference interest which is out of its jurisdiction as the agreed terms of the contract does not provide for payment of interest for such periods and only post award interest can be made in terms of Clause 64(5) of GCC.
The Tribunal could not have rejected the counter claim of the Railways, when admittedly the Railways had incurred a cost of Rs.33.26 lakhs in getting the work completed by another agency. When a contractor fails to execute the work entrusted to him leading to a termination of contract and Railways incur additional cost to get the work executed, the Railways are bound to recover the said sum. The rejection of the counter claim relating to the risk and cost amount is incorrect and inequitable, 10 A.S.No.128/2014 especially after the Tribunal held that the termination was justified.
The Arbitral Tribunal has granted interest for pre-reference and pendente-lite period which is clearly prohibited by agreed conditions of Contract under GCC clause 16(3) r/w. Clause 64(b) and also as per Sec.31(7) of Arbitration & Conciliation Act, 1996, claim for interest is not maintainable unless otherwise agreed by the parties.
Thus, for the above among other grounds, impugned award is liable to be set aside u/s.34 of the Act.
5. The Deputy Chief Engineer in the South Western Railways in support of the I.A.No.-I has sworn in that they received the award on 5.8.2014 and they should have prefer the application to set aside the award on or before 5.11.2014, however, award is challenged with a delay of 23 days. Since they were in the process of securing opinions from various officers including the Law Officers. Thus, this process caused a minor delay, deserves to be condoned and if not they would be severely 11 A.S.No.128/2014 prejudiced by the impugned award passed by Arbitral Tribunal, since public exchequer would be put to loss. Thus, he has further sworn in that such delay could be condoned by allowing the I.A.I.
6. As the respondents 2 to 4 are members of Arbitral Tribunal are recorded absentee parties. The 1st respondent being claimant has submitted his statement of objections, contending that the petitioner herein, just to escape from the liability and to gain time, filed this petition. The 1st respondent is a firm represented by its Managing Partner Mr.V.V.Narayana, who is aged about 82 years. The entire reasons assigned by the Railways are contrary to the facts and circumstances of the case which cannot be looked into for any purposes much less, legal purposes. Neither documents nor cogent reasoning has been assigned by the petitioner-Railways to substantiate their case that the awards passed by the respondents 2 to 4 is contrary to the public policy of India. The award passed by the Arbitral Tribunal is just and proper is not liable to be set aside for the reasons stated in the petition. Further the petitioner has not made out grounds to condone delay of 23 days in filing 12 A.S.No.128/2014 the application to set aside the award passed by Arbitral Tribunal, as such the petition is liable to be dismissed at the threshold.
7. The parties to this suit did not choose to adduce either oral or additional documentary evidence in support of their case, other than the records of the arbitral award passed by respondents 2 to 4 dated 4.8.2014. As such, this Court having heard the learned counsels on record for petitioner and respondent No.1, now the following points arise for consideration of this court:
(1) Whether petitioner has made out grounds to condone delay of 23 days in filing the suit to set aside the award dated 4.8.2014 passed by respondents 2 to 4 and if so, to entertain to hear the main petition on merits?
(2) Whether petitioner has made out sufficient grounds as contemplated u/s.34 of the Arbitration & Conciliation Act, 1996 for setting aside the impugned award passed by respondents 2 to 4 on 04.08.2014 in respect of Agreement No.CAO/CN/ BNC/72391/A/54/VIII/06 dated 27.07.2006 in so far as non-
consideration of counter-claim and 13 A.S.No.128/2014 accepting of claim Nos.3, 5, 9(a) to
(c), 10 to 12 and 14 awarding a total sum of Rs.1,53,69,734/-?
(3) What order?
8. The findings on the above points are recorded as under:
Point No.1 : In favour of petitioner Point No.2 : Partly in favour of petitioner Point No.3 : As per final order, for the following:
REASONS
9. Point No.1: Sec.34(3) of the Arbitration & Conciliation Act, 1996 (hereinafter for short "Act") provides for filing of "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 14 A.S.No.128/2014 three months it may entertain the application within a further period of thirty days, but not thereafter."
It is therefore, herein this case, learned counsel for 1st respondent would submit that application being filed on 28.11.2014 is made after 3 months have elapsed from the date on which the petitioner making this application could not be entertained by the Court is liable to be dismissed at the threshold.
10. On the contrary, learned counsel for petitioner submits that the delay occurred neither inordinate nor intentional, since they were in the process of securing opinions from various officers including Law Officer and this process caused a minor delay about 23 days deserves to be condoned. Mr.V.Hari Babu, Deputy Chief Engineer, Constructions, South Western Railways, has sworn in about this fact, as such the Court to construe liberally in so far to condone delay within the limit of 30 days, since the Act provides for to condone delay. In such view of the matter, considering the fact that the petitioner is Indian Railways and these matters are always dealt by legal sections, as such by condoning delay of 23 15 A.S.No.128/2014 days no prejudice or hardship would caused to the 1st respondent. In other words to say that the reasons assigned by the deponent to the enclosed I.A.I could not be said unsatisfactory, since the award passed on 04.08.2014 and 3 months from passing of such award would lapse by 04.11.2014 and as per Sec.34(3) of the Act, same could have been filed on or before 5.11.2014. However, this petition is filed on 28.11.2014 after lapse of 23 days. The proviso to Sub-section (3) of this Act, empowers the Court to entertain the application within a further period of 30 days, but not thereafter, as such, considering the contents of affidavit sworn in by Mr.Hari Babu, this Court found satisfied that the applicant was prevented by sufficient cause from making the application within the period of 3 months and the delay of 23 days deserves to be condoned in exercise of proviso to sub-section (3) to Sec.34 of the Act. Thus, with such view, finding on this point would be record in favour of the petitioner.
11. Point No.2: In view of the affirmative finding on point No.1, since Court proceeded to hear the case filed by the petitioner on merits or 16 A.S.No.128/2014 the Court has entertained the application filed u/s.34 of the Act, now the petitioner to establish that the award passed by respondents 2 to 4 on 4.8.2014 in respect of Agreement No.CAO/CN/ BNC/72391/A/54/VIII/06 dated 27.7.2006 is liable to be set aside on the ground that the Arbitral Tribunal is in conflict with the Public Policy of India or Indian Laws.
12. Initially, ten claims namely claim No.2, 4, 5, 6, 7, 11, 12, 14, 15 and 16 were referred to Tribunal. Further, Tribunal was directed to adjudicate the counter claims, if any submitted to the Tribunal during the Arbitral Proceedings by Railways. It is an undisputed fact that on 13.7.2010, claimant represented to General Manager, South Western Railway, Hubballi for inclusion of claim Nos.1, 3, 8, 9, 10 and 13 also to be adjudicate as per order of the Hon'ble High Court in CMP No.8/2010. The respondents 2 to 4 are all from Indian Railways, they are Engineers and Administrators and they were initially appointed as agreed between the petitioner and the 1st respondent. The contract value for the construction of grade separator (other than 17 A.S.No.128/2014 Railway limits) and super structure for Railway portion at LC No.132 at White Field Railway Station for Hoskote to Whitefield Road was Rs.9,94,94,709-42 and to that effect, L.O.A. was issued to the 1st respondent herein contractor on 12.6.2006 to complete the same within 15 months from 11.9.2007. Later on, an agreement was drawn for the contract work on 27.7.2006. As per agreement, mobilization advance was sanctioned by Railways in two stages namely Rs.49,74,735/- on 10.8.2006 and Rs.51,33,144/- on 15.9.2006 against the Bank Guarantee submitted by the contractor namely, 1st respondent herein. Bank Guarantee was given in two installments of Rs.59.00 lakhs and Rs.61.00 lakhs which would be Rs.1,20,00,000/-. Learned Arbitrators of the Arbitral Tribunal consisting of respondents 2 to 4 being senior engineers and administrator of Indian Railways adjudicated all the claims of petitioner and respondent No.1 herein as well as counter- claim if any, awarded claim No.1 towards Compensation for abnormal price increase in the prices of cement and steel value at Rs.92,06,000/-. Claim No.2 : Overhead expenses incurred due to delays caused and thrust upon the contractor 18 A.S.No.128/2014 valued at Rs.1,80,00,000/-. Claim No.4 towards Cost of commission on Bank Guarantee paid on delay valued at Rs.7,20,000/-. Claim No.6 towards Compensation for loss of profit due to delay in handing over the site and approval of designs valued at Rs.1,32,00,000/- and on claim No.7 for the prayer of the contractor to declare that the agreement is null and void ab-initio. Tribunal held against the contractor - 1st respondent herein. On claim No.13 for Restoration of 13.235 MT deducted while making final measurement quantity of supply of steel already measured and paid, did not consider the claim of the contractor. On claim No.14 towards Cost of proof checking of designs and drawings valued at Rs.95,000/-, Tribunal did not consider this claim. On claim No.16 towards Loss of profit at 15% on the total value of contract and direction for issuance of certificate for 80% of the work already done, valued at Rs.1,50,00,000/-, Tribunal did not consider to admit the claim of the contractor. On claim No.17 towards Cost of litigation to get Arbitration granted and cost of Arbitration valued at Rs.1,50,000/- plus arbitration cost. The Tribunal did not consider to admit this claim. On claim No.18 towards 19 A.S.No.128/2014 Compensation for the loss of money value over years from the date the claims fell due, Tribunal did not find any merit in this claim and decided not to admit this claim. Thus, all these claims of respondent No.1 - Contractor were not considered by Arbitral Tribunal and in this application, the 1st respondent herein has not filed any counter-claim on these dis-allowed claims. It is therefore, not necessary to go in detail as to the findings recorded by Arbitral Tribunal on all these claims.
13. The Arbitral Tribunal has decided that though termination of contract is legal, terminating the same at 'Risk and Cost' is not in order. The contract should have been terminated without 'Risk and Cost'. As such, Tribunal does not consider the counter claim for recovery of 'Risk and Cost' of Rs.33,26,527/-. In other words to say that did not consider counter-claims of petitioner herein and failed to award any amount in favour of petitioner herein. It is therefore, now the Court to examine as to the claims which are allowed by the Arbitral Tribunal.
20 A.S.No.128/201414. The learned counsel for petitioner brought to the notice of Clause-II in Agreement for works for UCC Code:72391 wherein Contractor has agreed with the Railway for the performance of the works:
Construction of Grade separator (other than Railway limits) and super structure for Railway portion at LC No.132 at Whitefield Railway Station for Hoskote and Whitefield Road in conformity with the drawings hereto annexed, if any, and whereas the performance of the said works is an act in which the public are interested.
Clause-4 provides for Security Deposit. The security deposit for the work shall be fixed in accordance with clause 16(1) of the General Conditions of Contract. The Tender shall strike off the mode of furnishing security deposit that he does not choose and sign against the mode chosen by him and the discretion of accepting it will lie with the Railway.
Clause-8 provides for Inspection of Site. The Contractor before tendering shall inspect the site of work, examine the nature of soil to be excavated, check up the availability of working space and also inform himself of the available by access to the site 21 A.S.No.128/2014 of work and make due provision in the rate for all such contingencies.
Clause-8(a): The contractor shall make his own arrangement for site clearance, clearance of debris, jungle, bushes etc., without any extra payment. If any heavier materials like Railways sleepers etc., are to be shifted from the site of work, the same should be carried out by the contractor for which separate payment will be made under relevant items of BSR 2000 where applicable. Contractor is also responsible to clear all construction debris, labour camps, surplus materials from site of work without any extract payment and would submit that Arbitral Tribunal lost site of this term awarded Rs.95,000/- towards Cost of proof checking of designs and drawings and awarded Rs.2.0 lakhs towards demolition and clearance of debris and considered the claim of the 1st respondent in respect of claim No.5 is wholly illegal and the award passed by Arbitral Tribunal is liable to be set aside.
15. On the contrary, learned counsel for 1st respondent would submit and brought to the notice of the Court, about GCC Works Contract.
22 A.S.No.128/2014Clause 17-A(ii) Extension for delay not due to Railway/Contractor. Clause 17-A(iii) which provides for Extension of time for delay due to railway which provides for, In the event of any failure or delay by the Railway to hand over the Contractor possession of the lands necessary for the execution of the works or to give the necessary notice to commence the works or to provide the necessary drawings or instructions or any other delay caused by the Railway due to any other cause due whatsoever, then such failure or delay shall in no way affect or vitiate the contract or alter the character thereof or entitle the Contractor to damages or compensation therefore but in any case, the Railway may grant such extension or extensions of the completion date as may be considered reasonable.
16. Learned counsel for petitioner herein has also brought to the notice of the Court as to Clause 62 (Y) which provides "To measure the whole or part of the work from which the Contractor has been removed and to get it completed by another Contractor, the manner and method in which such work is 23 A.S.No.128/2014 completed shall be in the entire discretion of the Engineer whose decision shall be final:
and in both the cases (x) and (y) mentioned above, the Railway shall be entitled (i) to forfeit the whole or such portion of the security deposit as it may consider fit, and (ii) to recover from the Contractor the cost of carrying out the work in excess of the sum, which would have been payable according to the certificate of the Engineer to the Contractor if the works had been carried out by the Contractor under the terms of the contract, such certificate being final and binding upon the Contractor. Provided, however, that such recovery shall be made only when the cost incurred in excess is more than the security deposit proposed to be forfeited and shall be limited to the amount by which the cost incurred in excess exceeds the security deposit proposed to be forfeited. The amounts thus to be forfeited or recovered may be deducted from any moneys then due or which at any time thereafter may become due to the Contractor by the Railway under this or any other contract or otherwise."24 A.S.No.128/2014
17. Learned counsel for 1st respondent herein bring to the notice of the Court about Corrigendum to Acceptance Letter dated 19.7.2006 issued at the lowest rate. Para No.6: Vitiation clause: Vitiation Clause as covered in tender is reiterated below for your intimation.
"In the event of vitiation occurring due to increase or decrease in quantities among the first, second and third lowest valid tenderer, the vitiation shall be to contractors account. The total value of the work done shall be calculated at the rate offered by those tenderers and the amount payable shall be limited to the lowers aggregate value as worked out. The clause will be applicable to the Agreement as a whole including all variations in quantities."
18. Thus, by the above clauses, learned counsel for petitioner herein would submit that the contract between the parties is governed by the clauses mentioned in the Agreement and in addition, the General Conditions of Contract (GCC), Special Conditions, special specifications and diagrams as provided in para-2 of the 25 A.S.No.128/2014 agreement and would submit award of Rs.2.0 lakhs under claim No.5 which deals with compensation for removing encroachers is patently illegal, since clause-8 deals with Inspection of Site and mandates that the Contractor before tendering shall inspect the site of work and inform himself about the site of work and make due provision in the rate for all contingencies and Clause-8(a) states that Contractor shall make his own arrangement for site clearance without any extra payment. It is therefore, this Court is of the view that award of Rs.2.0 lakhs by the Arbitral Tribunal is contrary to the terms of the agreement. Further, of the view that award of Rs.95,000/- towards Cost of proof checking of designs and drawings claimed by the contractor at claim No.14 awarded subject to submission of the receipt in support of payment of proof checking is again incorrect, since Arbitral Tribunal did not examine the receipts in support of payment of proof checking and on such anticipated documents claim cannot be allowed. In other words to say that award under the said claim is incorrect, since the 1st respondent even now before the Court has failed to produce the receipt for scrutiny with due notice to the petitioner herein.
26 A.S.No.128/2014Thus, with such view, it would be said learned counsel for petitioner is right in contending that award of Rs.95,000/- towards cost of proof checking subject to submission of the receipt in support of payment of proof checking is wholly incorrect. As already stated above that the 1st respondent herein has failed to produce receipt in support of payment of proof of checking even before the Court in the present proceedings initiated by petitioner. In other words to say that respondent No.1 herein has failed to set up counter-claim on the dis-allowed claims and failed to produce receipts in support of payment of proof checking awarded at Rs.95,000/-. Thus, reaching to such conclusion on these two claims, this Court is of the view that the award of Rs.2.0 lakhs against claim No.5 and award of Rs.95,000/- as against claim No.14 of the 1st respondent herein awarded by Arbitral Tribunal - respondents 2 to 4 are hereby disallowed as they are contrary to GCC, Special Conditions, special specifications and diagrams as provided in para-2 of the agreement which has been brought to the notice by learned counsel for the petitioner.
27 A.S.No.128/201419. The Arbitral Tribunal as against claim No.9(a) held the delay was on account of both parties namely, claimant and respondent. However, initial delay was on the part of respondent. As the work has not progressed as desired by respondent, the work should have been terminated without making 'Risk and Cost'. Hence, the Tribunal declared that termination on "Risk and Cost" is not in order and awards to lift the "Risk and Cost" imposed which cannot be substituted by another view of this Court. In other words to say that Arbitral Tribunal being experts have concluded to lift 'Risk and Cost' imposed is maintainable.
20. As against claim No.9(b) to Refund of security deposit as the Tribunal has decided that even though termination was legal, termination at 'Risk and Cost' on claimant is not justified and awarded to lift the 'Risk and Cost' and therefore, security deposit available with respondent needs to be refunded. Thus with such view, Arbitral Tribunal decided that security deposit available with respondent should be refunded to the claimant. Thereby, awarded to refund security 28 A.S.No.128/2014 deposit of Rs.49,74,735/- which cannot be said contrary to Public Policy of India as defined under the Act.
21. The Arbitral Tribunal as against claim No.9(c) towards Waiver of penalty and refund of penalty already recovered held that levying of penalty is not in order and to that effect, Tribunal has also noted that currency on contract was extended from 1.5.2009 to 31.7.2009 from 1.8.2009 to 13.9.2009, from 1.10.2009 to 30.11.2009, from 1.12.2009 to 15.2.2010 under clause 17(a)(ii) of GCC without any penalty which implies that no penalty is to be levied from 1.5.2009 onwards till extensions have been granted under Clause 17(a)(ii). Conveying imposition of penalty on 28.4.2009 and subsequent extensions under Clause 17(a)(ii) namely without any penalty are contradictory. Once it was decided to put a penalty, this should have been incorporated in the subsidiary agreement indicating extension with penalty which would not have created any confusion. Since from 01.05.2009 till 15.2.2010, a total of 4 extensions were given without penalty, a communication on 29 A.S.No.128/2014 28.4.2009 regarding imposition of penalty w.e.f. 01.05.2009 does not have any bearing. It is therefore, Arbitral Tribunal decided to admit the claim for refund of penalty already recovered which cannot be said contrary either to Public Policy of India or contrary to any Laws in India as defined in the Act.
22. The Arbitral Tribunal as against claim No.10 towards Restitution of Bank Guarantee amount of Rs.43.20 lakhs encashed plus interest accrued, decided to admit the claim of refund of Bank Guarantee in favour of the claimant, as claimant has also raised the issue of interest charged by the Bank for above Bank Guarantees from the date of invocation of Bank Guarantees to the date when the Bank Guarantee amount was deposited by the claimant into Bank. The claimant has submitted a statement obtained from Vijaya Bank that Bank has charged interest on all the thee Bank Guarantees amounting to Rs.14,40,000/- each which were invoked by the respondent Railways on 01.01.2010 and the total amount of interest charged by the said Bank from 1.1.2010 amounting to Rs.15,23,775/- was 30 A.S.No.128/2014 considered by Hon'ble Tribunal assigned reasons Had respondent Railways not encashed these Bank Guarantees, there would have been no need for claimant to pay back the amount to the Bank and also there would have been no need for paying any interest from the date of invocation to the date of paying back the amount to the Bank. In such view, Arbitral Tribunal awarded Rs.67,94,175/- consisting of Rs.43,20,000/- towards encashed Bank Guarantees; Rs.15,23,775/- towards interest paid by the claimant to the Bank and Rs.9,50,400/- towards interest between 01.11.2011 to 30.6.2014 for 33 months at the simple interest at 8% p.a. cannot be said the Arbitral Tribunal have traveled beyond GCC terms, since the award of interest is the interest charged by the Banker only after invocation of these Bank Guarantees w.e.f. 01.01.2010. In other words to say that such amount could not be termed as an amount payable for the work done by the contractor as per the terms and conditions of GCC. It is therefore, this Court now cannot substitute a different view than the view taken up by Arbitral Tribunal. The Tribunal has assigned well reasons before they could award interest on 31 A.S.No.128/2014 Bank Guarantees, invoked by Railways w.e.f. 01.01.2010. It is therefore, award of the Arbitral Tribunal as against claim No.10 to be maintained.
23. The Arbitral Tribunal admitted the claim No.11 and decided to order for refund of excess amount recovered at Rs.10,43,024/- the claim as claimed for Restoration of the excess amount encashed by invoking Bank Guarantee submitted towards mobilization advance and sought for interest at 18% p.a. The Arbitral Tribunal recorded finding that the respondent Railway while discussing the claim has admitted that this was a mistake on their part. However, they indicated that they agreed to refund the excess amount encashed but declined to pay the interest part of it. However, Tribunal noted that Bank Guarantees were invoked by the Railways, as such the Claimant had to restore back these Bank Guarantees duly paying the amount of Rs.19.00 lakhs. Since it has taken some time, Bank has charged the interest on Rs.19.00 lakhs. A total amount of Rs.6,70,187/- was charged by the Bank towards interest. It is therefore, the Tribunal decided to order for refund of excess amount recovered Rs.10,43,024/- and 32 A.S.No.128/2014 decided to award interest charged by the Bank was additional cost to claimant which they had to incur on account of illegal act on part of Railways and awarded payment of additional cost to claimant. Further, Tribunal decided that out of Rs.19.00 lakhs, extra amount encashed was Rs.10,43,024/- Hence, for a period of 22 months decided to award interest only on Rs.10,43,024/- amounting to Rs.3,44,178/- thereby awarded Rs.13,87,202/- as against claim No.11 which cannot be said either illegal or contrary to Public Policy of India as defined in the Act.
24. The Arbitral Tribunal as against claim No.12 towards Restoration of quantity deducted from final measurement relating to Fabrication of Girder, award Rs.5,19,008/- duly deducting the cost of balance items which has been indicated as Rs.7,33,600/- by Railways. The Arbitral Tribunal considered cost of items for which deductions have been made from Railways and the Railways indicated cost of items amounting to Rs.7,33,600/- and after deducting, the Arbitral Tribunal awarded Rs.5,19,008/- refundable to claimant cannot be said contrary to the terms and conditions of GCC 33 A.S.No.128/2014 or contrary to Public Policy of India as defined in the Act.
25. It is to be noted herein that the Tribunal have not awarded any amount as against claim No.1, 2, 4, 6 to 8, 13, 15 to 18. It is not that the Tribunal has decided the matter in dispute having no expatriation. They are, Engineers and Administrators of the Indian Railways. Further to be noted here that the they are decided unilaterally without considering any of the contentions urged by the Railways. In so far as counter-claims of the petitioner herein for recovery of 'Risk and Cost' amounting to Rs.33,26,527/- and recovery of balance mobilization advance along with pending interest Rs.8,51,615/- decided not to award, since the Tribunal has decided not to entertain these claim of the Railways for simple reason that in claim No.9, Arbitral Tribunal has decided that though termination of contract is legal, terminating the same at 'Risk and Cost' is not in order. They have decided that the contract should have been terminated without 'Risk and Cost'. As such, Tribunal did not consider the counter-claim for recover of 'Risk and Cost' of Rs.33,26,527/- which 34 A.S.No.128/2014 cannot be said either illegal or contrary to Public Policy of India as defined in the Act.
26. It would be relevant herein to make mention of the fact that by Act No.3 of 2016 The Arbitration & Conciliation (Amendment) Act, 2015 is enacted by Parliament in the 66th year of the Republic of India which shall be deemed to have come into force on 23rd October 2015.
In Sec.34 of the principal Act, -
(I) in sub-section (2), in clause (b), for the Explanation, the following Explanations shall be substituted, namely :-
"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.35 A.S.No.128/2014
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."; (II) after sub-section (2), the following sub- section shall be inserted, namely:-
"(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;
Provided that an award shall not be set aside merely on the ground of an erroneous application of the law or by re-appreciation of evidence."
27. Learned counsel for petitioner herein placed a reliance reported in (2003) 5 SCC 705 in Oil & Natural Gas Corporation Ltd., vs. Saw Pipes Limited wherein in para-16 on page 719, "What meaning could be assigned to the phrase "Public Policy of India"?
The next clause which requires interpretation is clause (ii) of sub-section (2)(b) of Section 34 36 A.S.No.128/2014 which inter alia provides that the Court may set aside the arbitral award if it is in conflict with the "public policy of India". The phrase "public policy of India" is not defined under the Act. Hence, the said term is required to be given meaning in context and also considering the purpose of section and scheme of the Act. It has been repeatedly stated by various authorities that the expression "public policy"
does not admit of precise definition and may vary from generation to generation and from time to time. Hence, the concept "public policy"
is considered to be vague, susceptible to narrow or wider meaning depending upon the context in which it is used. Lacking precedent, the Court has to give its meaning in the light and principles underlying the Arbitration Act, Contract Act and constitutional provisions."
In para-31, "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.
37 A.S.No.128/2014Hence, in our view in addition to narrower meaning given to the term "public policy" in Renusagar case 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."
28. Learned counsel further placed reliance reported in (2006) 4 SCC 445 in Hindustan Zink Ltd., vs. Friends Coal Carbonisation, wherein it was held, Award contrary to terms of the contract would be open to interference by the Court 38 A.S.No.128/2014 u/s.34(2)(b)(ii) as being patently illegal and being opposed to the public policy of India.
29. Further, learned counsel for petitioner in the matter of awarding interest placed citation (2010) 8 SCC 767 in Sree Kamatachi Amman Construction vs. The Divisional Railway Manager (Works), Palghat and others wherein held, "Clause 16(2) of the General Conditions of contract governing the contract between the parties bars payment of interest payable to the Contractor under the Contract" In the view of the Court, this ratio could not be applied to the facts of the present case as the Arbitral Tribunal was not awarded interest either on the earnest money or the security deposit or amount payable to the Contractor under the Contract but awarded interest paid by respondent No.1 herein only after illegal invocation of Bank guarantees that too supported by Bankers document, as after invocation of Bank Guarantees, respondent No.1 has paid the interest which was awarded by the Arbitral Tribunal cannot be said the Arbitral Tribunal traveled beyond clause 16(2) of the GCC or any of the terms of the GCC.
39 A.S.No.128/201430. Learned counsel for petitioner placed reliance reported in AIR 2014 SC 1914 in Union of India (UOI) vs. Concrete Products and Const. Co.Etc., wherein held, "The sole arbitrator in awarding interest to the contractors has failed to take into account the provisions contained in the aforesaid two clauses. We find merit in the submission made by learned Additional Solicitor General that award of interest at least from the date when the amount was deposited in Court was wholly unwarranted. Therefore, the High Court as well as the Arbitrator, in our opinion, have committed an error of jurisdiction in this respect. This view of ours will find support from the judgment of this Court in the case of Sayeed Ahmed and Company (supra), wherein it has been held as follows:
In view of Clause (a) of Sub-section (7) of Section 31 of the Act, it is clear that the arbitrator could not have awarded interest up to the date of the award, as the agreement between the parties barred payment of interest. The bar against award of interest would operate not only 40 A.S.No.128/2014 during the pre-reference period, that is, up to 13.3.1997 but also during the pendente lite period, that is, from 14.3.1997 to
31.7.2001.
Further in para-19 "Section 37(1) of the new Act by using the words "unless otherwise agreed by the parties" categorically clarifies that the arbitrator is bound by the terms of the contract in so far as the award of interest from the date of cause of action to the date of award. Therefore, where the parties had agreed that no interest shall be payable, the Arbitral Tribunal cannot award interest between the date when the cause of action arose to the date of award."
31. On facts of the case on hand the above decision has no bearing on the point to be decide by the Court, since Arbitral Tribunal not awarded such interest, which could be seen from the award as stated above and the learned Arbitral Tribunal has concluded passing an award should be paid within a period of 45 days from the date of 41 A.S.No.128/2014 declaration namely from 04.08.2014 failing which the cash part of award will attract an interest of 12% per annum from 19.09.2014 to date of payment. It is therefore, viewed from any angle, the principles enunciated in the decision relied by learned counsel for the petitioner cannot be said applicable to the facts in dispute in the matter of award of interest. It is to be noted herein that in the case stated supra relied on by the petitioner, Arbitral Tribunal has awarded interest to the Contractor for his work done to the respondent Railways was held contrary to the terms of the agreement.
32. Learned counsel for respondent No.1 herein has placed a reliance reported in AIR 2011 SC 2477 in M/s.J.G.Engineers Pvt. Ltd., v. Union of India & Another wherein it was held, "Right to levy liquidated damages would arise only when contractor was responsible for delay."
On facts, the Arbitral Tribunal held for the delay, both are responsible and thereby lifted the 'Risk and Cost' imposed. In other words to say, declared that termination on 'Risk and Cost' is not 42 A.S.No.128/2014 in order and awarded to lift the 'Risk and Cost' imposed, as such learned counsel for respondent No.1 is right in contending that quantification of liquidated damages for delay or breech of contract does not arise at all. Further, he would rightly submit that the Arbitral Tribunal has categorically found that no legal injury had been caused to the Railways, as such not awarded most of the claims made by the contractor-1st respondent herein. Thus, in the light of the categorical findings of the Arbitral Tribunal, on facts, this Court is of the view not to interfere with the findings recorded by Arbitral Tribunal except in so far as award of Rs.2.0 lakhs and Rs.95,000/- as against claim No.5 and 14 respectively.
33. Learned counsel placed another reliance reported in AIR 1963 SC 1405 in Fatech Chand vs. Balkishan Dass wherein it was held, "Court not bound to award compensation when no legal injury has resulted."
and he would contend that the principles enunciated in this decision would answer counter- claim set up by petitioner. The Arbitral Tribunal has decided not to award counter-claim does mean 43 A.S.No.128/2014 that petitioner has failed to prove the legal injury sustained by the petitioner. In such view of the matter, contention of learned counsel for petitioner that the Railways were entitled to recover the entire penalty as stipulated in the agreement and the counter-claim being the balance amount of the penalty liable to be allowed by the Tribunal is not accepted.
34. In the light of the discussions made above, as the petitioner has shown that awarding of Rs.2.0 lakhs as against claim No.5 and awarding of Rs.95,000/- as against claim No.14 subject to submission of the receipt in support of payment of proof checking are alone held contrary to GCC are alone to be disallowed. It does not mean to say that the award in question passed by the respondents 2 to 4 has to be set-aside in to-to but to modify the award passed at Rs.1,53,69,734/- restricting to Rs.1,50,74,734/-. Thus, reaching to such conclusion, finding on this point would be record partly in favour of the petitioner.
35. Point No.3: In view of the above findings and in the result, this court passes the following:
44 A.S.No.128/2014O R D E R The petition filed u/s.34 of the Arbitration and Conciliation Act, 1996 in A.S.No.128/2014 is hereby allowed in part with cost in the following terms:
The arbitral award passed by learned Arbitral Tribunal comprising of respondents 2 to 4 dated 4.8.2014 is hereby modified and restricted at Rs.1,50,74,734/- as against Rs.1,53,69,734/-.
(Dictated to the J.W., transcribed by her, corrected and then pronounced by me in the open court, on this the 5th day of November 2016).
(Krishnamurthy B.Sangannanavar) IX Addl. City Civil & Sessions Judge, Bangalore.