Bangalore District Court
M/S. S.P.R.Sugars Pvt.Ltd vs M/S. G.J.Fernandus on 27 January, 2020
1
Com.AS.No.69/2009
IN THE COURT OF LXXXII ADDL.CITY CIVIL & SESSIONS
JUDGE,BANGALORE CITY.(CCH.83)
Dated, this the 27th day of January 2020.
PRESENT:Sri.Jagadeeswara.M.,B.Com,LL.B.,
LXXXII Addl.City Civil & Sessions Judge, Bangalore.
Com.AS.No.69/2009
Petitioner M/s. S.P.R.Sugars Pvt.Ltd., a Company incorporate
under the Companies Act, 1956, Office at No.31/1,
1st floor, Kanakapura Road, Basavanagudi,
Bangalore -560 004, represented by its MD Sri.
M.Thimme Gowda.
(By M/s Lex Nexus-Advocates)
VS
Respondents 1. M/s. G.J.Fernandus, Engineers & Contractors,
No.13, ImperialCourt, Cunninghm Road, Bangalore,
represented by its Proprietor Sri.G.J.Fernandez.
2. Hon'ble Mr.Justice Sri. T.Jayaram Chouta,Judge,
High Court of Madras (Retd.), No.385, 5th main, 11th
cross, RMV 2nd stage, Bangalore -560 094.
(D.1 by M/s Lawyers Inc- Advocates)
JUDGMENT
This is the petition filed by the petitioner under Sec.34 of the Arbitration & Conciliation Act 1996 with a request to set aside Arbitral Award dated 20.6.2009 passed by learned Sole Arbitrator, who is respondent No.2 herein.
1(a). Respondent No.1 herein was Contractor and it was Claimant 2 Com.AS.No.69/2009 before the Arbitral Tribunal. Petitioner herein is M/s S.P.R.Sugars Pvt.Ltd., and it was respondent in the arbitral proceeding.
1(b). Petitioner herein will be referred to as "Petitioner" or "S.P.R.Sugars" and respondent No.1 herein will be referred to as "respondent No.1 or Contractor", as the case may be, herein afterwards.
2. Brief facts of the case are as under:
The petitioner had entrusted the execution of certain contracts viz., construction of civil works for 2500 TCD sugar factory with co-generation at Kanchuganahalli, Bengaluru, by accepting the tender submitted by the 1st respondent and the first respondent alleging that certain disputes had arisen as to the non-payment of the RA bills and also claiming escalation charges, idling cost and interest thereon, had sought for appointment of an Arbitrator before the Hon'ble High Court of Karnataka in CMP No.15/2006. The Hon'ble High Court of Karnataka appointed the 2nd respondent as Sole Arbitrator, by order dated 11.9.2006. Accordingly Arbitration proceeding commenced in which both side parties participated. The respondent No.1 was claimant in the Arbitration proceeding and placed its claim petition. Petitioner herein was respondent in the Arbitration proceeding and it also filed its objection statement to the claim petition. Both side parties placed their respective records and other materials in the Arbitral proceeding. After hearing both sides, impugned Arbitral Award was passed on 20.6.2009 allowing the claim of the first 3 Com.AS.No.69/2009 respondent and directed the petitioner to pay a sum of Rs.4,75,65,267.89 within one month from the date of receipt of the Award and on failure, to pay interest at 18% p.a., from that date till the date of payment. Aggrieved by the said order, petitioner has filed this petition under Sec.34 of the Arbitration & Conciliation Act.
3. The grounds urged in the suit may be summed up as under:
(a). Issue No.1 related to the amount due towards bills submitted by the first respondent. It was specifically provided that the RA bills upon submission required scrutiny and what was payable against such bills was only the net amount after exercising such scrutiny. After completion of works, in case of a final bill, it was to provide that the contractor should forward the Final Bill to the owner (petitioner) along with the reconciliation statement showing particulars of all the payments and materials received by it from the owner and also the materials agreed by it to the site, surplus materials if any with the value thereof. The final settlement of the bills would arise only after submission of final bill. In the present case no final bill was submitted. The clearance of final bill was only after all deductions and adjustments as per the terms of the contract.
Therefore, since no final bill is submitted and no joint inspection had taken place leading to a architect's report, no claim could arise for final settlement of the bill under the contract, and therefore, question of getting the same adjudicated by the Tribunal was beyond the scope of submission 4 Com.AS.No.69/2009 to the Tribunal and this aspect was not at all dealt by the Tribunal and therefore, the Tribunal has acted beyond the scope of submission.
(b). The claim for the RA bills was a sum of Rs.81,49,993.89 paise and the admitted sum was Rs.55,45,220/-. The tenor of the contract itself indicated that the RA bills indicated only the total value of the contract and after making deductions only, the payments had to be made. The claimant had miserably failed to prove as to how it was entitled to claim over and above the admitted sum of Rs.55,45,220/-. In the absence of any materials, the learned Arbitrator was not justified in awarding the entire amount as per the RA Bills and directing the payment of entire amount without any materials on record, amounts to an order made against the public policy.
(c). The claimant/first respondent had made claim for escalation cost but how and on what basis the escalation cost was calculated is neither forthcoming in the claim petition nor in the evidence produced. Clause-43 of the contract was struck off and thereby parties had mutually agreed to delete the escalation cost clause and Clause-45 imposing of penalty for delayed construction was also deleted by mutual consent. Once the issue relating to escalation charges is deleted, the consideration of claim for escalation was beyond the scope of submission and therefore, the Award to that extent requires to be set aside.
(d). The imposition of interest itself is in the nature of awarding damages and awarding escalation cost is also in the nature of awarding 5 Com.AS.No.69/2009 damages. A party cannot be penalized and re-penalized on the same set of violation. If it is found that there was delay in payment of bills, there was no contract for awarding interest and therefore, the learned Arbitrator was not entitled to award any interest thereon. The awarding of interest on the escalation cost was not even an issue and without an issue, a sum of Rs.55,31,560/- has been imposed, which is wholly unjustified and requires interference.
(e). Learned Arbitrator during the course of the order has mentioned at several instances that the delay in execution of the contract was on account of the delay in supply of materials by the petitioner. Clause-21 of Vol.II of Ex.C2 at Page-19 provides that the contractor shall furnish to the engineer in charge of the petitioner, an advance statement indicating the requirement of quantities of materials to be supplied by the purchaser/owner and the time when the same will be required by it. There is no material produced by the claimant/first respondent to show that any such list was given as required under the contract and there is no compliance in terms of the contract. Hence, the entire finding recored by the learned Arbitrator is wholly one-sided without taking into consideration any of the contentions raised and without considering the written arguments submitted by the petitioner. The non-following of a binding precedent under Article 142 of the Constitution of India is also against the public policy and therefore, the entire Award requires to be set aside.
6Com.AS.No.69/2009 Accordingly, petitioner has requested to set aside the impugned Award.
4. In pursuance of the suit summons the 1 st respondent appeared through its counsel and filed its statement of objection contending that the petition filed by the petitioner is not maintainable either in law or on facts. None of the grounds available under Sec.34 of the Act has been made out by the petitioner to set aside the Award. The 1st respondent was a successful bidder of tender for construction of Civil Works for 2500 TCD Sugar Factory with co-generation at Kanchuganahally, Bangalore, for Rs.10,05,33,289/- and a Letter of Acceptance was issued to the respondent on 9.12.1998 and the 1st respondent executed an agreement with the petitioner for the said work, having 09 months time limit for completion of the work and the same was extended from time to time. The extension of time was on account of the fact that there was default/failure on the part of the petitioner to provide required materials such as steel, cement, drawings etc., as required for the timely completion of the contract. Various correspondence made from June 1999 to June 2003 sent by the 1 st respondent clearly establish the failure on the part of the petitioner in adhering to the terms of contract, non-payment of the dues to this respondent, resulting in escalation in cost of the work.
4(a). It is further contended in the statement of objection of the 1 st respondent that it has executed the work and submitted its running bills and 7 Com.AS.No.69/2009 in terms of the contract the petitioner was obligated to pay 75% of the net payable amount to this respondent within 10 days from the date of submission of running bills and balance 25% shall be paid after verification of the bills by the Chief Engineer of the petitioner. But, inspite of submission of bills, the petitioner failed to release payments in time which resulted in accumulation of huge outstanding, which has caused serious financial loss to it. Inspite of repeated reminders and requests, the petitioner was due in a sum of Rs.81,49,905/- excluding the interest payable towards the outstanding amount for the delay in making payment of each RA bills. On account of the delay and failure on the part of the petitioner in providing adequate materials and support to execute and complete the work, the first respondent's plant, machinery and labour and the organization set up had become idle and on account of the said fact, respondent lost enormous amount and could not utilize its plant and machinery on account of paucity of funds with the petitioner and change of location of the factory after commencement of work by the petitioner, necessitating huge grading and leveling of the new plant location which work was executed by the petitioner through others consequently causing delay in handing over of site to the respondent. Further increase in quantities and meeting with hard rock in excavation for foundations, delay in issue of drawings and finalisation of designs, furnishing of designs required by the equipment suppliers, stoppage of works during April 2000 8 Com.AS.No.69/2009 to December 2000 have resulted in additional cost to the respondent and hence, there was an increase in cost of contract to an extent of Rs.13.80 Crores.
4(b). It is further contended that though the respondent made all arrangements to execute and complete the work within stipulated period, the same could not be done on account of various above stated reasons. Therefore, the respondent issued legal notice dated 3.8.2005 calling upon the petitioner to pay a sum of Rs.7,26,22,000/- together with interest at 18% per annum. But the petitioner has withheld the dues payable to the respondent. Hence, this respondent made the following claims before the Arbitral Tribunal:
Towards the amount due towards the bills submitted: Rs. 81,49,993.89 Interest on delayed payment of RA bills from 3.5.99 till date of claim : Rs.2,85,88,352.69 Towards escalation cost : Rs. 60,95,361.31 Interest on escalation costs till date : Rs. 55,31,560.00 Cost incurred towards idle plant & machinery etc. : Rs. 4,06,98,000.00 Interest on idle cost till date : Rs. 3,69,33,568.00 Total : Rs.12,49,96,835.00 Petitioner has filed its counter statement denying the claim of this respondent and admitted Rs.55,45,220/- as payable to the respondent. The Tribunal after hearing the arguments on both sides, passed the impugned Award directing the petitioner to pay a sum of Rs.4,75,65,267.89 within 9 Com.AS.No.69/2009 one month.
4(c). It is further contended that the Award passed by the Arbitration Tribunal is a reasoned Award and the same is on the basis of the evidence both documentary and oral adduced before it. The reasons assigned in the Award is sound and it does not call for any interference from this court. The documents produced by the respondent clearly shows how there is escalation on material, labour etc. The documents produced by the respondent shows the delay and failure on the part of petitioner in providing adequate materials, support to execute and complete the work and non-payment of bills submitted. Therefore, the Arbitral Tribunal has awarded the amount under the said head and the reasoning adopted by it is just and proper. The interest awarded is a consequence of non-payment of the money due and payable to the respondent and on account of failure on the part of the petitioner in complying with its obligations and hence, there is no perversity in the reasoning given by the Arbitral Tribunal in the Award. Accordingly, the respondent has requested to dismiss the petition.
5. From the above, the following points have arisen for my consideration:
1.Whether impugned Arbitral Award to the extent of awarding Rs.81,49,993.89 towards amount due of the Bills submitted and Rs.2,75,88,352.69 towards interest on delayed payments and unpaid bills, is patently illegal and opposed to public policy and the same is liable to be set aside ?10
Com.AS.No.69/2009
2. Whether impugned Arbitral Award to the extent of awarding Rs.60,95,361.31 towards escalation cost is patently illegal and opposed to public policy and the same is liable to be set aside ?
3. Whether impugned Arbitral Award to the extent of awarding Rs.55,31,560/- towards interest on awarded escalation cost and also future interest awarded at 18% on interest of Rs.2,75,88,352.69 awarded on the delayed payments and unpaid bills and also future interest on Rs.55,31,560/- awarded on the escalation cost, is patently illegal and opposed to public policy and the same is liable to be set aside ?
4. What Order ?
6. I have heard arguments of both sides.
7. My findings to the above points are as under:
Point No.1 & 2 : Negative Point No.3 : Affirmative Point No.4 : As per final order for the following:
REASONS
8. Point No.1 : At this stage it is material to note that Section 34(2) of the Arbitration & Conciliation Act 1996, relating to grounds to set aside Arbitral Award, reads as under:
" (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 11 Com.AS.No.69/2009
(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 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 decision on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside; or
(v) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Part from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Part; or
(b) the Court finds that -
(i) the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or
(ii) the arbitral award is in conflict with the public policy of India.
(Explanation 1 - For the avoidance of any doubt, it is clarified that an award is in conflict with the public policy of India, only if,-
(i) the making of the award was induced or affected by fraud or corruption or was in violation of Section 75 or Section 81; or
(ii) it is in contravention with the fundamental policy of Indian law; or
(iii) it is conflict with the most basic notions of morality or justice.
Explanation 2 - For the avoidance of doubt, the test as to whether there is a contravention with the fundamental policy of Indian law shall not entail a review on the merits of the dispute.) (2-A) An arbitral award arising out of arbitrations other than 12 Com.AS.No.69/2009 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."
9. It is held by Hon'ble Apex Court in (1989)1 SCC 411 (Puri Construction Private Limited Vs. Union of India) that the Court deciding objections against the award cannot examine correctness of the award on merits by re-appreciating evidence. When a court is called upon to decide the objections raised by a party against an Arbitration Award, the jurisdiction of the court is limited, as expressly indicated in the Arbitration Act, and it has no jurisdiction to sit in appeal and examine the correctness of the award on merits with reference to the materials produced before the Arbitrator. The court cannot sit in appeal over the views of the Arbitrator by re-examining and re-assessing the materials. Further, it is also held by Hon'ble Apex Court in (2015)5 SCC 698 (Navodaya Mass Entertainment Limited Vs. J.M Combines) that re-appraisal of material on record by the court and substituting its own view in place of arbitrator's view, not permissible in absence of perversity, merely because two views are possible. Once the Arbitrator has applied his mind to the matter before him, court cannot re-appraise said matter as if it were an appeal. Even if two views are possible, view taken by the Arbitrator would prevail.
10. By keeping in the mind the above proposition of law of Hon'ble Apex Court and also the nature of the provision of Section 34(2) of the 13 Com.AS.No.69/2009 Arbitration & Conciliation Act 1996, it is necessary to go through the materials on record to find out as to whether petitioner/S.P.R.Sugars has made out grounds as contemplated under said Section 34(2) of the Act to set aside the Arbitral Award.
11. Both parties placed oral and documentary evidence in the Arbitral Proceeding. Authorized representative of the claimant/contractor gave his oral evidence as CW.1 and marked records as Exs.C.1 to C.44 in the Arbitral proceedings. Petitioner herein being respondent in the Arbitral proceedings, examined two witnesses as RWs.1 & 2 and marked records as Exs.R.1 to R.4. Since all the records of the Arbitral proceeding were not available in this case, instruction was given on 25.9.2019 to both side learned advocates herein to file memo in the next date showing where Arbitral records are lying. But learned advocates have not complied this instruction. On the next date, that is on 14.10.2019, learned counsel for respondent No.1/contractor has filed memo with some Arbitral records i.e., copies of claim petition, counter statement, chief examination affidavits of CW.1, RW.1 & RW.2, original deposition sheets of cross-examination of CW.1, RW.1 & RW.2 and copies of some letters which were marked as Exs.C.1 to C.18. But learned advocate for petitioner herein has failed to produce Arbitral records.
12. At this stage itself it is relevant to note that the respondent No.1 herein, who was claimant before the Arbitral Tribunal, filed its claim 14 Com.AS.No.69/2009 statement claiming Rs.12,49,96,835.90 under different heads detailed as under:
1. Towards the amount due towards the Bills submitted -Rs.81,49,993.89
2. Interest on delayed payment of R.A. Bills from 3.5.99 till the date of the claim - Rs. 2,75,88,352.69
3. Towards escalation cost - Rs. 60,95,361.31
4. Interest on escalation cost till date - Rs. 55,31,560.00
5. Cost incurred towards idle plant & machinery - Rs. 4,06,98,000.00
6.Interest on idle cost till date - Rs. 3,69,33,568.00 TOTAL - Rs. 12,49,96,835.90 Based on the claim statement filed by the contractor and also counter statement filed by the SPR Sugars, Arbitral Tribunal framed the following issues for consideration:
1. Whether the Claimant proves that they are entitled to a sum over and above Rs.55,45,220/- towards the Bills submitted as made in the claim petition ?
2. Whether the Claimant proves that they are entitled to Rs.60,95,361.31 towards the escalation cost ?
3. Whether the Claimant proves that they are entitled to Rs.4,06,98,000/-
towards the cost incurred towards idle plant and machinery etc. ?
4. Whether the Claimant proves that they are entitled for interest on the claims made by it in the claim petition at 18% p.a. ?
After giving opportunity to the parties to place their oral and documentary evidence and after hearing both sides, learned Arbitrator has passed the Award on 20.6.2009 in which amounts awarded are as 15 Com.AS.No.69/2009 under:
(a). Amount due towards Bills submitted -Rs. 81,49,993.89
(b). Interest on delayed payment of R.A. Bills from 3.5.99 till the date of the claim - Rs. 2,75,88,352.69
(c). Escalation cost - Rs. 60,95,361.31
(d). Interest on escalation cost till filing of the claim - Rs. 55,31,560.00
(e). Cost of proceedings - Rs. 2,00,000.00 TOTAL - Rs. 4,75,65,267.89
13. Learned Arbitrator has answered Issue No.1 in the affirmative.
Relating to this finding recorded to Issue No.1 is concerned, it is submission of learned advocate for petitioner/S.P.R.Sugars and it is also contended in the notes of arguments filed by the learned advocate for petitioner that the finding recorded to Issue No.1 is against to the materials on record, law and therefore, it is patently illegal and opposed to public policy of India as per the proposition laid down by Hon'ble Apex Court in (2003) 5 SCC 705 (ONGC Vs. Western Geco International Ltd.) since learned Arbitrator has failed to consider the fact that admittedly R.A. Bills, upon submission, required scrutiny and after the completion of the works, the Final Bill was required to be prepared and there is no Final Bill is prepared after making deductions and adjustments as per the certificate of Architect and as per the Joint Inspection Report and therefore, the Award made towards R.A.Bills in excess of Rs.55,45,220.00 is patently illegal and same is liable to be set aside.
14. On the other hand, it is submission of learned advocate for 16 Com.AS.No.69/2009 respondent No.1/contractor and it is also contended in the notes of argument that during the execution of work contractor submtited running bills after providing a rebate of 10% upto a maximum of Rs.One Crore as agreed at the time of award of work. But after adjusting the payments made by the petitioner/S.P.R.Sugars beyond the time stipulated under the agreement of each running bills, a sum of Rs.81,49,883.89 was due and payable. Petitioner has failed to make payment to the contractor, as agreed in the reply notice dated 14.9.2005. But the petitioner has made unilateral and untenable deductions to the tune of Rs.26,04,685/- in Ex.R.1 and those deductions were not justified. Accordingly it is submission of learned advocate for respondent No.1/contractor that learned Arbitrator has considered the materials on record properly and has rightly made Award with regard to Issue No.1 along with interest by appreciating the facts and oral and documentary evidence of the parties and there is no scope for this court under Sec.34(2) of the Arbitration & Conciliation Act, to set aside the said finding of the Arbitral Tribunal by re-appreciating the facts and materials.
15. After having heard both sides, I have carefully gone through the notes of arguments of both sides, materials on record and reasonings in the impugned Award. Learned Arbitrator has recorded the finding to the Issue No.1 that petitioner/S.P.R.Sugars is liable to pay Rs.81,49,993.89 towards running bills and Rs.2,75,88,352.69 towards interest on delayed payment 17 Com.AS.No.69/2009 on R.A. Bills from 3.5.1999 till the date of claim, to the contractor. To record this finding, learned Arbitrator has recorded reasonings in the Award that contractor in his claim petition has contended and it is also oral evidence of CW.1 that the contractor has executed the work and submitted the running bills. In terms of the contract, the S.P.R.Sugars was obliged to pay 75% of the bill amounts within 10 days from the date of submission of the bills and balance 25% shall be paid after verification of the bills by the Chief Engineer of the S.P.R.Sugars. But, S.P.R.Sugars failed to release the amount of bills as per the terms of the contract which resulted in huge outstanding and caused heavy loss to the contractor. Contractor has made several demands and reminders by writing letters for release of the bill amounts. To support this contention, contractor produced bill Nos. 1 to 15 as per which the amount of Rs.81,49,993.89 is due from the S.P.R.Sugars. Contractor produced letters at Exs.C.3 to C.18 entered into with the S.P.R.Sugars requesting to settle the bills amount. These letters were not replied by the S.P.R.Sugars. Hence, contractor got issued lawyer's notice to the S.P.R.Sugars demanding to pay bills amount of Rs.81,49,993.89. In the reply notice issued by the S.P.R.Sugars it was stated as under:
"As regards to your client's claim of Rs.87,49,905.17 towards the Bills submitted by your client, your client may be informed that after such deductions from materials supplied, deduction towards rectification of the defective work, the payment already made to your client and any other legal liabilities of your client, 18 Com.AS.No.69/2009 my client shall arrange to pay your client as early as possible, however, subject to your client withdrawing all other illegal claims made in your notice."
Inspite of such reply notice was sent, no payment was made. As per the S.P.R.Sugars, the Bills amount due is Rs.55,45,220/-. Even this admitted amount has not been paid. Contractor has produced calculation statement, as Annexure-I, relating to the details of the bills, due date for payment, date of payment, balance amount and interest for the delayed period etc. It was marked as Ex.C.2 which stands unchallenged. Withholding of the running bills amount on the ground that final bill has not been prepared cannot be accepted.
16. It is relevant to note that, as noted above, learned advocate for respondent No.1/contractor has produced some copies of Arbitral records. Petitioner/S.P.R.Sugars herein has not produced either original or copies of entire arbitral records for the reasons best known to it. I have carefully gone through the records produced by the learned advocate for respondent No.1/contractor, which were produced on 14.10.2019. Contractor had produced calculation statement in page No.8 of claim petition, as Annexure-I, relating to the details of the bills, due date for payment, date of payment, balance amount and interest for the delayed period etc. In this calculation statement all the details of the bills are shown. Further it is shown in this statement that Rs.81,49,993.89 is due towards bills amount and further it is shown that interest on this bills amount comes to 19 Com.AS.No.69/2009 Rs.2,75,88,352.69. As rightly observed by learned Arbitrator, this calculation statement stands unchallenged for the reasons that in the cross- examination at page No.4 it is evidence of RW.1 relating to this calculation statement which is page No.8 and Annexure-I of the claim statement, as under:
"Annexure-I of the claim petition has been got verified through my GM and Accounts Department. All the payments made in those bills are correct. The R.A. Bill details and its due dates are also correct. It is true that the details mentioned at page-8 of the claim petition are correct."
It is relevant to note that, as noted above, the details such as the details of the bills, due date for payment, date of payment, balance amount and interest for the delayed period etc., are shown in the calculation statement which is in page-8 and Annexure-I of the claim petition and the outstanding amount of the bills is shown as Rs.81,49,993.89 and interest thereon for the delayed and unpaid bills is shown as Rs.2,75,88,352.69 in it. As noted above, it is clear admission of RW.1 that the details shown in calculation statement, which is page No.8 and Annexure-I of the claim petition are correct. When petitioner/S.P.R.Sugars has withheld the bills amount, which is against to the contractual terms and when undisputedly there was delay in making payment, it cannot escape from the liability to pay interest on the delayed payments and also unpaid bills on the ground that there is no clause in the contract to claim interest. Due to these materials on record, learned Arbitrator has rightly awarded Rs.81,49,993.89 towards the amount due 20 Com.AS.No.69/2009 under the Bills and also Rs.2,75,88,352.69 towards interest on delayed payment on R.A.Bills from 3.5.1999 till the date of claim. So far this part of Award is concerned, there are no materials to hold that this part of Award is patently illegal or opposed to the public policy or against to the materials on record or against to the contractual terms. Therefore, there are no reasons to set aside this part of the Award is concerned. For these reasons, this point No.1 is answered in the 'Negative'.
17. Point No.2 : It is argument of learned advocate for petitioner/S.P.R.Sugars that impugned Award to the extent of awarding escalation cost of Rs.60,95,361.31 is patently illegal and it is opposed to public policy since clause-43.1(a) to (e) have been deleted indicating thereby that contract clearly excluded the escalation cost and thereby there is no clause in the agreement to claim escalation cost. On the other hand, it is submission of learned advocate for respondent No.1/contractor that undisputedly there was delay in completing the work and this delay is attributable to the S.P.R.Sugars. There was delay in handing over site, in supplying materials such as cement, steel and drawings and since there was no fault of the contractor, S.P.R.Sugars extended the time without imposing penalty. Original completion period was 9 months. Letter of Acceptance was issued on 9.12.1998 and agreement was entered on 22.2.1999. Work was completed in February 2003. During this delayed period, there was considerable escalation in the cost of construction materials, plant & 21 Com.AS.No.69/2009 machinery, labour etc. and therefore petitioner has suffered huge loss due to escalation. Accordingly it is submission of learned advocate for respondent No.1 herein that learned Arbitrator has considered all the materials on record and has rightly awarded escalation cost and the Award in this regard is not patently illegal nor opposed to public policy and it is not liable to be set aside.
18. In its claim petition filed before the Arbitral Tribunal, contractor has made claim for Rs.60,95,361.31 towards escalation cost on the ground that the execution of the work was delayed due to failure/default on the part of the S.P.R.Sugars in providing adequate materials such as fuel, steel, cement and drawings and this resulted in escalation of price towards construction materials, fuel and labour except steel and cement and due to this reason plant & machinery, labour and organization which were set up in the work site, became idle for considerable length of time. The agreement was executed on 22.2.1999. But site was handedover in the month of April 1999. Thus there was delay in handing over of site. Original completion period was 9 months. But due to delay and default on the part of S.P.R.Sugars, work was not completed within the original period of 9 months and due to this reason, time was extended from time to time without imposing penalty on the contractor and subsequently work was completed in the month of February 2003. Accordingly contractor has made this claim for Rs.60,95,361.31 towards escalation.
22Com.AS.No.69/2009
19. S.P.R.Sugars being respondent in the Arbitral proceeding, filed its counter statement denying claim of the contractor for escalation on the ground that the agreement does not provide any payment either as interest or as escalation charges. It was item rate contract and therefore, it was responsibility of contractor to procure building materials required for the construction. In order to help the contractor, S.P.R.Sugars supplied building materials. The delay in completion of the work was not due to fault of S.P.R.Sugars. Accordingly S.P.R.Sugars has requested to reject the claim of the contractor for escalation.
20. After hearing both sides and after going through the records and also oral evidence of the parties and also relevant clause in the agreement, learned Arbitrator has allowed this claim of the contractor for Rs.60,95,361.31 towards escalation on the ground that it is undisputed fact that the agreement was executed on 22.2.1999. But site was handed over in the month of April 1999. Thus there was delay in handing over of site. Original completion period was 9 months. But due to delay and default on the part of S.P.R.Sugars, work was not completed within the original period of 9 months and due to this reason, time was extended from time to time without imposing penalty on the contractor and subsequently work was completed in the month of February 2003. Contractor wrote several letters as per Exs.C.3 to C.5, C.7, C.8, C.11, C.13, C.17, C.20 & C.23 explaining the delay factors and claiming escalation charges. Delay was caused in 23 Com.AS.No.69/2009 handing over work site and in supplying the steel, cement and drawings as narrated in the letters sent by the Contractor to S.P.R.Sugars. There is a clause for escalation in the agreement, but the cost details of which have been deleted. Even otherwise, if there is no escalation clause, contractor is entitled for the escalation cost as per the decision of Hon'ble High Court of Madras reported in 2003(2) ARBLR 546 Madras, (2003) 2 MLJ 393 (Superintending Engineer, Tamilnadu Housing Board and the Executive Engineer and Administrative Officer, Special Division Vs. M. Paramsivam & C. Srinivasa Rao, Chief Engineer (Retd.) Railways).
21. I have carefully gone through the materials on record. It is undisputed fact that contractor had submitted a tender for construction of civil works for 2500 TCD Sugar factory with co-generation at Kanchuganahally, Bangalore. The said tender was accepted for a sum of Rs.10,05,33,289/- by issuing Letter of Acceptance on 9.12.1998 to the contractor. In terms of the Letter of Acceptance, agreement was entered into on 22.2.1999. Under the said agreement, the time limit for completion of the work was 9 months. However, time was extended from time to time on account of the fact that there was default/failure on the part of the S.P.R.Sugars to handover work site, to release Bills amount and to supply required materials such as steel, cement and drawings. Time was extended without imposing penalty on the contractor and this shows there was no fault of the contractor for the delay in completing the work. Work was 24 Com.AS.No.69/2009 completed in the month of February 2003. Therefore, there are no materials to hold that there was no escalation in the plant, men, machinery, construction materials, labour etc., during the delayed period. Therefore, when the delay is attributable to the employer, to complete the work by the contractor, even in the absence of any clause in the agreement, still contractor is entitled for escalation charges. As could be seen from the impugned Award, it was contended by S.P.R.Sugars before the Arbitral Tribunal that Clause-43.1(a) to (e) have been deleted and thereby it was indicated that contract has excluded the escalation cost. But after going through the agreement and its clauses, it is observation of learned Arbitrator that there is a clause of escalation, but the cost details of which have been deleted and even otherwise, if there is no escalation clause, still contractor is entitled for the escalation cost as held in the above noted judgment of Hon'ble High Court of Madras. Copy of agreement with such clauses is not produced by the petitioner/S.P.R.Sugars herein to show that contract has clearly excluded escalation cost. As noted above, though instruction was given to produce entire Arbitral records, petitioner/S.P.R.Sugars herein has failed to produce arbitral records. Therefore there are no materials to hold that there was a clause in the agreement to exclude the escalation cost. Therefore, impugned Arbitral Award to the extent of awarding escalation cost of Rs.60,95,361.31 is not patently illegal and it is not opposed to public policy. There are no grounds to set aside this part of the impugned 25 Com.AS.No.69/2009 Award. For these reasons, point No.2 is answered in the 'Negative'.
22. Point No.3 : It is submission of learned advocate for petitioner/S.P.R.Sugars herein and it is also contended in the notes of argument that the imposition of interest on the delayed payments and unpaid bills, itself is in the nature of awarding damages. Awarding escalation cost is also in the nature of awarding damages. There cannot be two different heads or different methods that can be adopted simultaneously. But, the Award to the extent of awarding future interest on the interest awarded on delayed payments and unpaid bills and also interest of Rs.55,31,560/- awarded on the escalation with future interest on it at 18% is patently illegal and it is against to the statute and it is against to the public policy. Accordingly learned advocate for petitioner/S.P.R.Sugars herein has requested to set aside this part of Award.
23. On the other hand, it is submission of learned advocate for respondent No.1/contractor that learned Arbitrator has discretion to award interest and accordingly based on the materials on record interest is awarded on the escalation cost and further interest is awarded on the interest awarded on delayed payments and unpaid bills and therefore there are no grounds to set aside this part of the Award.
The Award made by the learned Arbitrator is as under:
(a). Amount due towards Bills submitted -Rs. 81,49,993.89
(b). Interest on delayed payment of R.A. Bills from 3.5.99 till the date of the claim - Rs. 2,75,88,352.69 26 Com.AS.No.69/2009
(c). Escalation cost - Rs. 60,95,361.31
(d). Interest on escalation cost till filing of the claim - Rs. 55,31,560.00
(e). Cost of proceedings - Rs. 2,00,000.00 TOTAL - Rs. 4,75,65,267.89 The above noted details of the Award shows that learned Arbitrator awarded Rs.81,49,993.89 towrads the amout due of the Bills submitted, awarded Rs.2,75,88,352.69 towards interest on delayed payment of R.A.Bills and unpaid bills from 3.5.1999 till the date of claim, awarded Rs.60,95,361.31 towards escalation cost and awarded Rs.55,31,560/-
towards interest on escalation cost. Further, learned Arbitrator has also awarded future interest at 18% per annum on the awarded amount, if the awarded amount is not paid within one month from the date of receipt of the Award. This type of future interest awarded on the interest of Rs.2,75,88,352.69 towards delayed payments and unpaid bills, and also interest of Rs.55,31,560/- awarded on the escalation cost with future interest at 18% per annum, is patently illegal and it is opposed to the public policy for the reasons that, as rightly submitted by learned advocate for petitioner/S.P.R.Sugars, the imposition of interest on the delayed payments of the R.A.Bills and also unpaid bills itself is in the nature of awarding damages. Similarly, awarding escalation cost is also in the nature of awarding damages. There cannot be two different heads or two different methods that can be adopted simultaneously and the damages being awarded cumulatively in both the cases. Future interest on the interest of 27 Com.AS.No.69/2009 Rs.2,75,88,352.69 towards delayed payments and unpaid bills, and also interest of Rs.55,31,560/- on the escalation cost with future interest at 18% per annum, should not have been awarded as the same amounts to two different heads or two different methods adopted simultaneously and the damages being awarded cumulatively in both the cases. At this stage itself it is relevant to note that learned advocate for petitioner/S.P.R.Sugars herein has placed citation in (2010) 3 SCC 690 (State of Haryana & Ors. Vs. S.L.Arora & Co.), in which in para Nos.18 & 19 it is held as under:
"18. Sec.31(7) makes no reference to payment of compound interest or payment of interest upon interest. Nor does it require the interest which accrues till the date of the award, to be treated as part of the principal from the date of award for calculating the post-award interest. The use of the words "where and in so far as an arbitral award is for the payment of money" and use of the words "the arbitral tribunal may include in the sum for which the award is made, interest...... on the whole or any part of the money" in clause (a) and use of the words "a sum directed to be paid by an arbitral award shall carry interest" in clause (b) of sub-section (7) of section 31 clearly indicate that the section contemplates award of only simple interest and not compound interest or interest upon interest. `A sum directed to be paid by an arbitral award' refers to the award of sums on the substantive claims and does not refer to interest awarded on the `sum directed to be paid by the award'. In the absence of any provision for interest upon interest in the contract, the arbitral tribunals do not have the power to award interest upon interest, or compound interest, either for the pre-award period or for the post- award period.
19. There is a tendency among contractors to elevate the claims for interest and costs to the level of substantive disputes by describing them as separate and independent heads of claim. The long pendency of arbitration matters either due to prolonged 28 Com.AS.No.69/2009 arbitration proceedings or due to litigations (both intervening and post-arbitral), has the unfortunate effect of swelling the interest payable on the amount awarded and costs to very substantial amounts. In many arbitral awards for money, the interest awarded often exceeds the amount awarded, by several times."
Due to above discussed reasons and in view of above proposition of law of Hon'ble Apex Court, the impugned Arbitral Award to the extent of awarding future interest at 18% per annum on the interest of Rs.2,75,88,352.69 awarded on delayed payments and unpaid bills and also interest of Rs.55,31,560/- awarded on the escalation with future interest on it at 18% per annum is patently illegal and it is against to the statute and it is against to the public policy. This part of Award is liable to be set aside. For these reasons, this point No.3 is answered in the 'Affirmative'.
24. Point No.4: For the reasons stated above, I proceed to pass the following:
ORDER This petition filed under Sec.34(2) of the Arbitration & Conciliation Act,1996 is partly allowed in the following terms:
The impugned Arbitral Award to the extent of awarding future interest at 18% per annum on the interest of Rs.2,75,88,352.69 awarded on delayed payments and unpaid bills and also interest of Rs.55,31,560/- awarded on the escalation cost with future interest on it at 18% per annum is set aside.29
Com.AS.No.69/2009 Rest of the part of the Arbitral Award stands undisturbed. Under the circumstances of this case, both parties shall bear their own cost.
(Dictated to the JW, typed by her, corrected and then pronounced by me in Open Court, on this the 27th day of January 2020 .) (JAGADEESWARA.M.) LXXXII Addl.City Civil & Sessions Judge, Bangalore.