Delhi District Court
Northern Railways vs Kiran Infra Engineers Limited on 8 April, 2022
In the Court of Shri Sanjiv Jain, District Judge,
(Commercial Court-03), Patiala House Courts New Delhi
OMP (Comm) No. 64/19
Northern Railways,
Baroda House,
New Delhi-110001 .... Petitioner
versus
Kiran Infra Engineers Limited,
B-141, Road No. 9-D,
V. K. I. Area, Jaipur-302013
Also at: 35-A, LIG DDA Flats,
Motikhan, Pharganj, New Delhi .... Respondent
Date of institution : 01.04.2019 Date of reserving judgment : 31.03.2022 Date of decision : 08.04.2022 JUDGME NT
1. This petition under Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter called the 'Act') challenges the award dated 30.11.2018 passed by the Arbitrator Sh. Charanjit Jawa, Retd. District & Sessions Judge, whereby, a sum of Rs. 65,95,277.73 was awarded to the respondent with costs of Rs. 30,000/-.
OMP Comm No. 64/19 Northern Railway Vs. Kiran Infra Engineers Limited Page No.1 of 19 Brief facts:
2. The facts giving rise to this petition are that in 2009, the petitioner had floated tender for 'indoor & outdoor signaling arrangement of route relaying interlocking works at Barabanki Railway Junction'. The respondent participated in the tender and was awarded the work vide letter of acceptance dated 26.02.2010. The parties signed the contract agreement on 30.06.2010. The estimated cost of the work was Rs.
4,66,41,979.55. It was to be completed in a period of six months i.e. upto 25.08.2010. The work could not be completed in time owing to delays on the part of the petitioner. As many as nine extensions were given by the petitioner under clause 17 A
(iii) of General Conditions of Contract (GCC) 1999 upto 30.06.2015 without any liquidated damage, which were accepted by the respondent without any demur or protest. The respondent claimed Price Variation (PVC) under clause 45 of the contract. It was denied by the petitioner vide letter dated 19.05.2015 stating that PVC formula is not applicable in the contract as the contract is purely a Signal & Telecommunication (S & T) contract and PVC formula is applicable only in civil contracts / works, where, fuel, material & labour components are involved. Although, the respondent had given 'No Claim Certificate' (NOC) dated 10.05.2017 but it instead giving calculations for the losses / damages suffered on account of price variation, vide letter dated 21.05.2015 retorted back OMP Comm No. 64/19 Northern Railway Vs. Kiran Infra Engineers Limited Page No.2 of 19 emphasizing that clause 45 is applicable in its case requesting for releasing the payments under PVC. The petitioner passed the final bill on 07.09.2015 and issued the completion certificate but did not include the PVC in the final bill. The respondent issued a legal notice dated 15.02.2016. It was replied by the petitioner vide dated 22.10.2016 denying the applicability of PVC clause in the present case. This made the respondent approach the High Court for appointment of an Arbitrator. After the appointment of the Arbitrator, the respondent filed its statement of claims to which the petitioner filed its reply. The respondent filed the rejoinder. The parties led their evidences by way of affidavits and thereafter, the Arbitrator passed the impugned award.
3. The petitioner challenged the award on the following grounds:
A. That the award passed by the Arbitrator is against the public policy of India. The Arbitrator acted illegally in exercising the judicial discretion, which resulted into miscarriage of justice. He did not consider the fact that the the completion date was extended by the petitioner with the condition that no increase in rate on any account would be payable to the respondent. He failed to appreciate that clause 45 of GCC qua price variation was applicable, if the prices went higher. In this case, the respondent did not suffer any loss / damages, as a result of price variation of the material, fuel & labour. It is stated that this clause is not applicable in Signal & Telecommunication contract, since, material / fuel component had no role to play. In this case, the petitioner never asked the respondent not to supply the materials during the original period of validity of the contract nor OMP Comm No. 64/19 Northern Railway Vs. Kiran Infra Engineers Limited Page No.3 of 19 refused to take the supply of the same and as such the respondent could not have claimed compensation for its own faults. It is stated that the respondent did not provide any document as to the payment of higher wages to its labour and based its claim on speculation. It is stated that the site work was completed and the completion certificate was issued on 07.09.2015 and the respondent was responsible for further extensions.
B. That the respondent submitted the first 13 bills pertaining to price variation after six months of the completion of the work and 14th bill after 21 months of the completion of the work, though, it had submitted the bills for the actual work done within the time of completion. The Arbitrator also did not consider the fact that the respondent had withdrawn PVC claim giving NOC on 10.05.2017.
4. Along with the petition an application was moved by the petitioner under Section 34 (3) of the Act stating that though, the award was passed on 30.11.2018 but on the application under Section 33 of the Act filed by the petitioner, the Arbitrator passed an order on 21.02.2019. It is stated that the objections have been filed by the petitioner on 27.03.2019 i.e. within 3 months and the petition is within limitation.
5. On getting notice of the petition, the respondent filed its reply denying the averments made in the petition and stated that the objections raised by the petitioner are false & frivolous. The Arbitrator has passed a reasoned award after hearing the parties at length and it does not call for interference. It is stated that the alleged 'no claim certificate' was signed by the respondent OMP Comm No. 64/19 Northern Railway Vs. Kiran Infra Engineers Limited Page No.4 of 19 under financial duress and coercion.
6. I have heard Ld. Counsel Sh. R. K. Goel for the petitioner and Ld. Counsel Sh. Deepak Viswas for the respondent.
7. Ld. Counsel for the petitioner reiterated what has been stated in the petition. He contended that the PVC is not payable to the respondent. In this case, respondent did not suffer any loss nor it produced any evidence before the Arbitrator that it had paid higher wages to the labour claiming PVC. Ld. Counsel stated that as per clause 10, the price variation implies both increase as well as decrease in input prices and since in this case, the petitioner did not suffer any loss, the Arbitrator could not have awarded the amount against PVC.
8. Ld. Counsel for the respondent per contra argued that in a petition under Section 34 of the Act, the Court has not to appreciate / re-appreciate the evidence. In the impugned award, the Arbitrator has considered all the letters and thereafter passed the impugned award. Ld. Counsel stated that there is no inadvertent act of the petitioner and the PVC clause is equally applicable in the contracts relating to signal & telecommunication works. Ld. Counsel stated that parties are bound by the contract. Ld. Counsel stated that there is no infirmity in the impugned award and the petition deserves to be OMP Comm No. 64/19 Northern Railway Vs. Kiran Infra Engineers Limited Page No.5 of 19 dismissed.
9. I have given my thoughtful consideration to the rival contentions and perused the award and the documents.
10. Section 34 the Arbitration and Conciliation Act provides the grounds for setting aside the arbitral award. It reads as un- der:
"34.Application for setting aside arbitral award- (1)Re- course to a court against an arbitral award may be made only by an application for setting aside such award in accordance with sub-section (2) and sub- section (3).
(2)An arbitral award may be set aside by the court only if-
(a) the party making the application furnishes proof that-
(i) a party was under some incapacity, or
(ii) the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law for the time being in force; or
(iii) the party making the application was not given proper notice of the appointment of an arbitrator or of the 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 arbi-
tration, or it contains decisions on matters beyond the scope of the submission to arbitration;
Provided that, if the decisions on matters submitted to arbi- tration 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 pro- cedure was not in accordance with the agreement of the par- ties, 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-
OMP Comm No. 64/19 Northern Railway Vs. Kiran Infra Engineers Limited Page No.6 of 19
(i) the subject-matter of the dispute is not capable of settle- ment 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- I For the avoidance of any doubt, it is clarified that an award is in conflict with the public policy of India only if the making of the award was induced or affected by fraud or corruption or was in violation of Section 75 or Sec- tion 81."
ii) It is in contravention with the fundamental policy of In- dian law;
iii) It is in conflict with the most basic notions of morality or justice.
Explanation-II- 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.
[2 (A) 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 reappreciation of evidence.
11. Normally, the general principles are that the decision of the Arbitrator unless there is an error apparent on the face of the award which makes it unsustainable, is not to be set aside even if the court as a court of law would come to a different conclusion on the same facts. The court cannot reappraise the evidence and it is not open to the court to sit in appeal over the conclusion of the arbitrator. It is not open to the court to set aside a finding of fact arrived at by the arbitrator and only grounds on which the award can be cancelled are those OMP Comm No. 64/19 Northern Railway Vs. Kiran Infra Engineers Limited Page No.7 of 19 mentioned in the Arbitration Act. Where the arbitrator assigns cogent grounds and sufficient reasons and no error of law or misconduct is cited, the award will not call for interference by the court in exercise of the power vested in it.
12. In the case of Associate Builders Vs. DDA, (2015) 3 SCC 49, it was held that the interference with an arbitral award is permissible only when the findings of the Arbitrator are arbitrary, capricious or perverse or when the conscience of the Court is shocked or when patent illegality is not trivial but goes to the root of the matter. In the case of Ssangyong Engineering & Construction Co. Ltd Vs. NHAI, 2019 SCC Online SC 677, it was held that under Section 34 (2A) of the Act, a decision, which is perverse while no longer being a ground for challenge under "public policy of India" would certainly amount to a patent illegality appearing on the face of the award.
13. A perusal of the arbitral record reveals that the parties had entered into an agreement on 30.06.2010 at New Delhi for the work of indoor & outdoor signaling arrangement. The final cost of the work was Rs. 4,95,36,168/-. The agreement contained a price variation clause i.e. clause 45. Though, the work was to be completed within a period of six moths i.e. upto 25.08.2010 but it could not be completed within time. The completion certificate was issued on 07.09.2015, though, the OMP Comm No. 64/19 Northern Railway Vs. Kiran Infra Engineers Limited Page No.8 of 19 time to complete the work was extended upto 30.06.2015. The extensions were granted in terms of clause 17 A (iii) of GCC without any liquidated damage as there were administrative delays on the part of the petitioner. On 24.04.2015, the respondent had raised 13 running bills of Rs. 63,40,837.73 for price variation as per clause 45.2 of the contract being the cost of the work above Rs. 50.0 lakhs but those bills were returned by the petitioner with the letter dated 19.05.2015 putting the remarks "the same were not in order". In the meantime, 14 th bill for price variation of Rs. 2,54,440.73 vide letter dated 11.09.2015 was raised by the respondent. The bills related to the period from June 2010 to March 2015. When it did not receive the payments, it sent a notice dated 17.05.2016 followed by a legal notice dated 15.09.2016 invoking the arbitration clause.
14. In this case, in the reply to the claim, the petitioner never disputed about the contract and the terms thereof except the price variation clause alleging that it is not applicable in the Signal & Telecommunication works. Nevertheless, it admitted that the work was completed to its satisfaction and within the extended period. It had pleaded before the Arbitrator that clause 45 is applicable for the civil works only, so the claim is not justified being beyond contract. The Arbitrator had framed the following issues:
OMP Comm No. 64/19 Northern Railway Vs. Kiran Infra Engineers Limited Page No.9 of 19
1. Whether clause 45 of the agreement between the parties relating to price variation is not applicable in the present facts as claimed by the respondent (petitioner herein).
2. If above issue is decided in negative, whether claimant (re-
spondent herein) is entitled to the amount claimed and inter- est, if so at what rate.
15. The Arbitrator has referred Section 10 of the Indian Contract Act 1872 and held that the contract was entered by the parties by free consent for lawful consideration and object. If the parties incorporate terms in the contract, the incorporated terms must be construed as if those have been written out in full in the contract. The terms of the contract cannot be changed at the will of the parties. Any variation may not be possible except with the consent of the parties and the parties are bound by the written terms of the agreement by operation of Section 91 of the Indian Evidence Act, which provided that where the terms are in writing, the parties thereto are not entitled to lead any oral evidence to ascertain the terms.
16. The Arbitrator has held that clause 45, which relates to price variation is the part of the contract. In this case, the respondent had completed the job to the satisfaction of the petitioner. It was observed that in para 1.4 of the reply to the claim, it was stated by the petitioner that all the payments have been made except PVC payment, which is 'Not in order'. Reason for non payment mentioned is 'Not in order' not that OMP Comm No. 64/19 Northern Railway Vs. Kiran Infra Engineers Limited Page No.10 of 19 'PVC is not applicable'. It is however not explained how it is 'not in order'. It was observed that clause 45 is admittedly the part of the written contract and no exception clause was added or cited as to the part clause of PVC. Thus, not agreeing to clause 45, the petitioner had committed the breach of contract. He referred clause 8 Vol. 1 of the Tender Document, which clearly provided that clause 45 related to price variation is applicable to the contract. So, what more was required to add to the acceptance of this clause by the petitioner as applicable to this contract. It was observed that the petitioner indeed has admitted the material facts in reply in para 4.1 to para 4.5 of the reply to the claim by stating that these paragraphs contained the facts, which are not necessary to reply. The solitary witness examined by the petitioner has admitted clearly that the price variation clause is applicable in this contract meaning thereby, it is applicable to the Signal & Telecommunication (S & T) works. He quoted the cross examination of RW1, where, the witness had admitted that material component is included in the S & T works. He referred para 8 Chap. 2 Vol. II of the Instructions to Tenderer and held that it can be safely concluded that clause of price variation is applicable to all type of works. He also considered the letters vide which the extensions were granted with the conditions that no increase in rates shall be allowed. He held that present is not a case for increase in rates. In the case of PVC, formula is to be applied.
OMP Comm No. 64/19 Northern Railway Vs. Kiran Infra Engineers Limited Page No.11 of 19
17. The Arbitrator has also considered the contention that the work was completed earlier while the PVC claim was raised in September 2015 and there was a delay of 9-10 months and clause 45 is applicable in the case of civil works and in the work relating to Signal & Telecommunication i.e. the present work, this clause is not applicable. He also considered the contentions of the petitioner that no demand of PVC was made by the respondent in 2014. It was held that since, the extensions were admittedly granted under Section 17 A (iii) of the agreement due to delays on the part of the petitioner, so, it cannot be said that the extensions were given due to any delays committed by the respondent. He interpreted the contract and held that clause 45 would include the work contracts of the categories other than the civil works. Further, RW1 has admitted that material & labour are the part of the formula in the case of S & T works. He referred the contract and the General Conditions of the Contract and held that in the present case, clause 41 & 42 (i) were not followed by the petitioner while refusing to abide by PVC clause in the main contract in view of the settled preposition of law interalia that the petitioner cannot change / modify the terms of the contract during its enforcement without the consent of the other party. In this case, in respect of bills 1 to 13 submitted by the respondent, the objection was not with regard to the non applicability of OMP Comm No. 64/19 Northern Railway Vs. Kiran Infra Engineers Limited Page No.12 of 19 PVC clause but it was to the effect "bills are not in order". It was not explained 'how' and 'why'. He observed that the petitioner had granted completion certificate in 2015 and thereafter the claim was raised, so it cannot plead that the claim is belated, which is otherwise within the period of limitation. He held that a party can approach the authority even on the last date of limitation.
18. The Arbitrator has also considered the contention of the petitioner that the respondent had given up its claim of PVC under the letter dated 10.05.2017. He held that this letter related to a different contract and it does not bind the respondent in the present case. The Arbitrator held that in this case, the amounts with details of each bill stated in the petition are not controverted in the sense that this amount would be different or less. The controversy is with regard to applicability of clause 45 of PVC in the present contract. The common law rule of contract applies "verba chartarum fortius accipluntur proferentem", which is relevant in this case meaning thereby that if there is ambiguity in the working of any contract, it is to be resolved against the party, who prepared it. He referred the case of Industrial Promotional Investment Vs. New India Assurance Company, CA N. 1130/2007 dated 22.08.2016, decided by the Supeme Court of India. He applied the ratio of the case in the present case and held that clause 45 of PVC OMP Comm No. 64/19 Northern Railway Vs. Kiran Infra Engineers Limited Page No.13 of 19 being part of the contract, duly signed and accepted by the parties is binding on the parties and now the petitioner cannot wriggle out of this clause with no objection of any other clause agreement. If it takes an ambiguity, it has to suffer after considering the other terms of the contract. The Arbitrator has held that it was an unwanted attempt of the petitioner to delay the payments of the amounts claimed without any valid reasons since 2015. He held that clause 45 relating to PVC is applicable in this case and the respondent is entitled to recover.
19. As regards interest, clause 16 (2) of GCC, which was also accepted by the respondent provided that no interest would be payable on amount claimed in view of the judgment in the case of Sri Chitranjan Maitry Vs. UOI, CA No. 15545-466 of 2017 decided on 03.10.2017. The Arbitrator has further held that there was deliberate delay on the part of the petitioner in clearing the timely bills submitted by the respondent. The petitioner itself worked against the agreed terms & conditions of the contract, which was binding on the parties. For this, respondent is entitled to additional cost of Rs. 30,000/-.
20. I do not find any reason to differ with the observations / findings given by the Arbitrator. The Arbitrator has rightly referred clause 45 of GCC, which interalia provided that the rates quoted by the tenderer and accepted by Railways shall OMP Comm No. 64/19 Northern Railway Vs. Kiran Infra Engineers Limited Page No.14 of 19 hold good till the completion of work. It contained a formula for price variation calculation showing the percentage of labour, material and fuel components in the works. In this case, the value of the contract is more than Rs. 50.0 lakhs and the extensions were granted by the petitioner on administrative ground under clause 17 A (iii), so PVC would be payable during the extended period of contract.
21. It is a settled preposition of law that the contract document is the binding on the parties, so clause 45 being part & parcel of the contract is binding on the parties and the petitioner cannot be allowed to claim that price variation clause was included by mistake. A tenderer quotes its rate taking into consideration the provisions of the tender, which cannot be unilaterally changed to be disadvantageous to the other party. In the present case, there was no requirement for the respondent to submit the bills / vouchers of increased wages / prices of labour. The PVC was to be paid as per the formula given in 45.5 A-1 on the basis of price indices. Further, Signal & Telecommunication works also involve components of labour & material for which PVC is applicable as per the formula. There is no force in the contention of the counsel for the petitioner that clause 45 was inadvertently included in this contract. For the sake of arguments, even if it is presumed that inadvertently, the clause 45 was included in the contract OMP Comm No. 64/19 Northern Railway Vs. Kiran Infra Engineers Limited Page No.15 of 19 document but applying the principle of Contra Proferentem, which provides that if a clause in a contract appears to be ambiguous, it should be interpreted against the interests of the person who has inserted/included that the clause, the benefit should go to the respondent. The party who draws the agreement and is responsible for the draft cannot take advantage of the ambiguity. In this case, the calculation given by the respondent using the formula has not been challenged by the petitioner nor the petitioner has submitted any rebuttal about the inputs used and the calculations / RBI indices for the aforesaid period. The bills against PVC were raised within time. When the payments against the bills were denied by the petitioner, the respondent invoked the arbitration and filed the claims, which were within the period of three years, the cause of action accrued in favour of the respondent.
22. In this case, the petitioner has failed to explain how the award is against the public policy of India or the Arbitrator acted illegally in exercising his judicial discretion. The completion date was extended owing to the administrative delays on the part of the petitioner. The calculation towards PVC were based on the RBI indices and not on the losses / damages as a result of price variation. I do not find any force in the contention of the petitioner that the respondent could have stored / stacked all the materials required for the work. As per OMP Comm No. 64/19 Northern Railway Vs. Kiran Infra Engineers Limited Page No.16 of 19 the contract, it had to execute the contract within the time specified and arrange the materials accordingly. There is no record to indicate that respondent was at fault for the delays. As regards NOC, admittedly, the respondent had given NOC but before giving NOC, it had raised the claims towards PVC. Further, the respondent had alleged that NOC was signed by it under duress & coercion. Since, NOC was obtained prior to the payment against the final bills, the possibility of the respondent giving the NOC to get its payments cannot be ruled out. It cannot be made out from this that the respondent had voluntarily given the NOC and forgone its claim under PVC.
23. I am of the view that the award is not only within the confines of terms of reference but also based on the terms and conditions of contract agreement. The Arbitrator has duly explained the reasons for arriving at his decisions and the petitioner before this Court has failed to bring its case within the contours of Section 34(2) of the Arbitration and Conciliation Act, 1996. It is evident on perusal of objections made by the petitioner/objector that the challenge is on substantive questions of facts which is not permissible under law. Even otherwise, from a careful perusal of the arbitration proceedings and the award therein, it is evident that the Arbitrator has given his findings only after considering the pleadings, documents and arguments advanced before him, that OMP Comm No. 64/19 Northern Railway Vs. Kiran Infra Engineers Limited Page No.17 of 19 too after taking into account the oral and documentary evidence. Further, the scope and purview of deciding the objections being limited one does not permit this Court to replace the findings given by the Arbitrator, by its own by re- appreciating the evidence produced before the Arbitrator.
Conclusion:
24. Now to sum up, in the instant case, most of the grounds raised by the petitioner to challenge the award have been already considered and adjudicated in the impugned award. It is outside the scope of Section 34 of the Act to reappreciate the entire evidence and come to conclusion because such an approach would defeat the purpose of arbitration proceedings. It has been consistently held that when a court is applying the public policy test to an arbitration award, it does not act as a court of appeal and consequently, errors of facts cannot be corrected. A possible view by the Arbitrator on facts has necessarily to pass muster as the Arbitrator is the ultimate master of the quality and quantity of evidence to be relied upon when he delivers his arbitral award. Once, it is found that his approach is not arbitrary or capricious, then he is the last word on facts. (P.R Shah, Shares & Stock Brokers (P) Ltd v. B.H.H Securities (P) Ltd. [(2012) 1 SCC 594).
25. Having examined the various contentions of the OMP Comm No. 64/19 Northern Railway Vs. Kiran Infra Engineers Limited Page No.18 of 19 petitioner on the touchstone of the parameters of interference as explicitly laid down by the Supreme Court in several judgments referred to above, I am of the view that the impugned Award does not suffer from any infirmity or error apparent on the face of record. It is not for this Court to sit in appraisal of the evidence led before the Arbitrator and this Court will not open itself to the task of being a judge on the evidence placed before the Arbitrator which was subject matter of dispute. In the present case, The Arbitrator has duly explained the reasons for arriving at his decisions. There is nothing to indicate that award is in conflict with the basic notions of justice and the fair play and fundamental policy of Indian law or in contravention of the terms of the agreement or it lacks reasoning as pleaded in the petition.
26. For the aforesaid reasons, the impugned award is maintained and the petition is dismissed with no order as to costs.
27. File be consigned to record room.
Announced in open court today i.e. 8th April 2022 (Sanjiv Jain) District Judge (Commercial) - 03 Patiala House Courts, New Delhi OMP Comm No. 64/19 Northern Railway Vs. Kiran Infra Engineers Limited Page No.19 of 19