Bangalore District Court
Sree Krishna Gardenia Builders And ... vs Spectra Shelters Pvt Ltd on 24 June, 2024
KABC170182372020
IN THE COURT OF LXXXIII ADDL. CITY CIVIL & SESSIONS JUDGE,
COMMERCIAL COURT, BENGALURU (CCH-84)
Present: Sri S. Sudindranath, LL.M., M.B.L.,
LXXXIII ADDL. CITY CIVIL & SESSIONS JUDGE
BENGALURU.
COM.A.S.No.22/2008
Dated on this 24th day of June 2024
Petitioner M/s.Sree Krishna Gardenia Builders
and Developers,
Registered Office at No.559,
RMV II Stage, New BEL Road,
Bengaluru-560094
Represented by its Proprietor
Dr.K. Balaraman.
(By Sri. C.K. Nanda Kumar,
Senior Counsel for Sri. Sanjay H.
Sethiya, Advocate)
// versus //
Respondents 1. M/s. Spectra Shelters Private Limited
No.5, 1st Floor, 9th Cross, Indiranagar,
1st Stage, Bengaluru-560038.
Represented by its Managing Director
Sri.C. Chandrashekar.
2. Sri.K.S.Anantharamaiah,
Retired Chief Engineer,
PWD, Government of Karnataka,
Presiding Arbitrator
No.985, 13th Main,
Banashankari 1st Stage, 1st Block,
Bengaluru-560050.
2
CT 1390_Com.A.S 22-2008_Judgment.doc
KABC170182372020
3. Sri.M.Shivananda,
Retired Engineer in Chief,
PWD, Government of Karnataka,
Arbitrator,
No.345, 'SIRI' 2nd Stage, 1st Block,
15th Main, 3rd Stage,
Basaveshwaranagar,
Bengaluru-560079.
4. Sri.L.V.Sreerangaraju,
Retired General Manager,
Karnataka Power Corporation Limited,
Arbitrator,
No.537, 'Jyeshta' 3rd Main,
Hosakerehalli Cross,
BSK III Stage, III Main,
Bengaluru-560085.
(R1 by Smt. Nidhishree B.V,
Advocate,
R2 to R4 by Sri.M.S.Ashwin Kumar,
Advocate)
Date of Institution of suit : 25/06/2008
Nature of the suit : Arbitration Suit under
Arbitration Act
Date of commencement of :
recording of the evidence
Date on which the : 24/06/2024
Judgment was pronounced.
: Year Month/ Day/s
Total duration /s s
16 00 00
JUDGMENT
This is a petition under Section 34 of the Arbitration & Conciliation Act, filed by the respondent before the Arbitral 3 CT 1390_Com.A.S 22-2008_Judgment.doc KABC170182372020 Tribunal, challenging the award passed by the Arbitral Tribunal consisting of three learned arbitrators, namely Respondent No. 2 to 4 herein, dated 14-04-2008, in Case No. K.S.A./Case 1 of 2006, partly allowing the claims of claimant / Respondent No. 1 herein and also partly allowing the counter-claims of Respondent / Petitioner herein.
2. On issuance of notice of the present petition, the Respondent No. 1 [claimant before the Arbitral Tribunal], has entered appearance through counsel and filed detailed objections to the present petition.
3. To complete the narration of facts, the Respondent No. 1 herein had also challenged the arbitral award by filing A.S. No. 27/2008. The present petition as well as said A.S. No. 27/2008 were pending before CCH-83. In the first round of litigation, by judgment dated 23-02-2022, both petitions were allowed and arbitral award was set aside. The Respondent No. 1 challenged the said judgment in Commercial Appeal No. 133 of 2022. In the said appeal, Hon'ble High Court of Karnataka by judgment dated 17-03-2022 set aside the 4 CT 1390_Com.A.S 22-2008_Judgment.doc KABC170182372020 Judgment of this Court and remitted the present petition for reconsideration. Before Hon'ble High Court of Karnataka, Respondent No. 1 undertook to withdraw A.S. No. 27/2008 and accordingly in the said judgment in Commercial Appeal No. 133 of 2022, it was also noted that, on first date of appearance before the Commercial Court, the Respondent No. 1 herein undertakes to file memo withdrawing Commercial AS 27 of 2008 and therefore, the matter was remitted back only for reconsideration of only present petition. After the matter was remitted by Hon'ble High Court of Karnataka, this petition was again disposed off by judgment dated 17-12- 2022 allowing the petition & setting aside the arbitral award. Against the said judgment, Respondent No. 1 preferred Commercial Appeal No. 27 of 2023 and by judgment dated 8-03-2023, Hon'ble High Court of Karnataka set aside the judgment and remanded the matter for reconsideration by directing that the matter may be allotted to CCH 84 and that is how the matter is before this Court.
4. I have heard the arguments of both sides and perused the records of the case.
5
CT 1390_Com.A.S 22-2008_Judgment.doc KABC170182372020
5. On behalf of the petitioner, Sri. C. K. Nanda Kumar, Learned Senior Counsel, has advanced arguments. On behalf of Respondent No. 1, Ms. Nidhishree B.V. has argued the matter. Both sides have filed written submissions and memo of citations and I have perused the same.
6. I have perused the records of the case.
7. The only point that arises for my consideration is :-
Whether the arbitral award dated 14-04-2008 passed by Respondent No. 2 to 4 in Case No. KSA/ Case 1 of 2006, calls for interference under Section 34 of the Arbitration and Conciliation Act?
8. My answer to the above point is as per finding for the following :-
REASONS
9. The petitioner herein, namely Krishna Gardenia Builders and Developers and the Respondent No. 1 herein, namely Spectra Shelters Pvt. Ltd., entered into agreement dated 5-11-2004 which is marked as Ex. C-2. In the said agreement, petitioner herein, namely Krishna Gardenia Builders and Developers is described as Employer and the 6 CT 1390_Com.A.S 22-2008_Judgment.doc KABC170182372020 Respondent No. 1 herein, namely Spectra Shelters Pvt. Ltd. is described as the contractor.
10. For the sake of convenience, the same nomenclature is adopted in the course of this judgment and the claimant before the arbitral tribunal, namely Spectra Shelters is referred to as contractor and the Respondent before the arbitral tribunal, namely Krishna Gardenia Builders and Developers is referred to as the employer.
11. Under the said agreement, which is an undisputed document between the parties, the employer entrusted the work of construction of proposed Krishna Diamond Apartments at Sahakarnagar, Bangalore to the contractor. The value of the work as stated in the agreement is Rs. 17.08 crores, [wrongly stated as Rs. 17.80 crores at paragraph 4 of the award]. The time for completion of the work was 24 months. The work commenced on 5-11-2004 and therefore the work had to be completed on 4-11-2006. Till 22-06-2006, there were no serious disputes between the parties. On 22- 06-2006, it appears the entry to the construction site was 7 CT 1390_Com.A.S 22-2008_Judgment.doc KABC170182372020 blocked by the landowner. Admittedly, even as per the finding of the arbitral tribunal, the gate was unlocked on 26- 06-2006. However, the contractor did not resume the work on the ground that drawings and specifications were not furnished and material was not supplied and pending payment was not cleared. This led to exchange of correspondence between the parties, with employer calling upon the contractor to resume work and contractor citing the aforestated difficulties for resuming the work. In the meantime, the architect employed by the employer namely M/ s Maark Vision, hereinafter referred to as the architect, also issued a letter to the employer stating that non-supply of material and drawings is coming in the way of resuming the work. Things came to a head on 1-09-2006 when the employer terminated the agreement with retrospective effect from 27-07-2006. This was protested to by the contractor who initiated arbitration proceedings since the contract between the parties undisputedly contains an arbitration clause. As per the arbitration clause, each party had to nominate an arbitrator who then nominated the third 8 CT 1390_Com.A.S 22-2008_Judgment.doc KABC170182372020 arbitrator and as per Paragraph 1 of the award, the contractor appointed Respondent No. 4, the Respondent No. 3 was appointed by Hon'ble High Court of Karnataka in CMP, on failure of employer to appoint arbitrator and Respondent No. 3 and 4 nominated Respondent No. 2 to act as Presiding Arbitrator.
12. Before the arbitral tribunal, the claimant namely the contractor / Spectra Shelters filed claim petition contending that termination of the agreement by the employer is invalid and sought for 21 reliefs, which are reproduced at page 4 and 5 of the arbitral award. The employer filed detailed statement of objections denying the claims and justifying termination of the agreement due to failure on the part of the contractor in resuming the work. In addition, employer raised 9 counterclaims.
13. On the basis of the rival pleadings of both sides, the arbitral tribunal framed the following issues;
1) Whether the parties prove the legality or otherwise of the order of termination dated 27-07-2006?
9
CT 1390_Com.A.S 22-2008_Judgment.doc KABC170182372020
2) Whether the parties prove that they have fulfilled their obligation under the contract in a timely and accurate manner?
3) Whether the claimant proves his entitlement to various claims amounting to sum of Rs 35,67,06,673 as claimed in Para 32 of the claim statement or to any other smaller extent?
4) Whether the claimant is entitled to declaration that the service tax is payable by the respondent under the contract?
5) Whether the respondent proves that counterclaim raised by him is maintainable and arbitrable?
6) Whether the respondent is entitled to the counterclaim for a sum of Rs 12,83,58,800 as stated in Para 16 to 25 of the counterclaim?
7) Whether the interest is recoverable by either party from the other?
8) What award?
14. Before the arbitral tribunal, initially, the parties agreed to dispense oral evidence and proceed on the basis of only documentary evidence, as stated at Para 8 of the award. Subsequently, the employer requested permission for 10 CT 1390_Com.A.S 22-2008_Judgment.doc KABC170182372020 adducing oral evidence through witnesses and thereby, the arbitral tribunal permitted oral evidence only on question of termination of the contract. On behalf of the claimant / contractor, CW1 and CW2 were examined and documents at Ex. C1 to C68 were marked. On behalf of the Respondent / employer, only one witness was examined as RW1 and Ex. R1 to R85 were marked. Initially, on behalf of the respondent, the engineer was cited as a witness, but subsequently withdrawn and it appears, in the written arguments, a contention was raised that engineer has been won over by the other side and therefore withdrawn as a witness.
15. During the arbitral proceedings, one Mr. Krishna Shetty, who is the engineer-in-charge of the architect Maark Vision, was summoned by the tribunal and examined by the tribunal in order to elicit information regarding the quality and quantity of the works carried out by the contractor.
16. To complete the narration of facts, it is to be noted that, as per Paragraph 3 of the Award, a list of unopened covers were produced before the Arbitral Tribunal, which were 11 CT 1390_Com.A.S 22-2008_Judgment.doc KABC170182372020 produced by the Claimant / Contractor on the premise that, they are the unopened covers addressed to the employer- respondent, which had been returned as refused. The Award, at Paragraph 3, notes that, the said unopened covers were opened in the 22nd meeting held on 14-02-2008 and the details of the covers after opening were examined to find out if there were any corresponding documents already before the Arbitral Tribunal and the contents of these covers are noted at Annexure 3 of the Award.
17. After appreciating the material on record, the Arbitral Tribunal allowed the claim of the Claimant partly by declaring that termination of the contract by the employer is unjust and illegal. Consequently, the Arbitral Tribunal awarded compensation towards loss of profit and overhead charges of Rs 2.24 crores along with interest at 18% per annum on the said sum from the date of the Award. The Arbitral Tribunal also awarded the claim for recovery of payment towards Bill No. 18 and 19 along with interest at 15% per annum from respective due dates till date of the Award and interest at 18% 12 CT 1390_Com.A.S 22-2008_Judgment.doc KABC170182372020 thereafter. The Arbitral Tribunal also awarded recovery of payment towards two escalation bills with similar rate of interest as in respect of the running bills. The Arbitral Tribunal also allowed Claim No. 7 for payment of compensation of Rs 2,89,642 towards power charges supplied to other contractors of the employer. The Tribunal rejected Claim No. 8 and 9 towards idling of men and machinery. The Tribunal allowed Claim No. 10 regarding payment of service tax. The Tribunal rejected Claim No. 11 to 16. The Tribunal allowed Claim No. 17 towards TDS by directing certificate to be issued in respect of TDS deducted by employer. The Tribunal allowed Claim No. 18 for refund of retention money of Rs 14.78 lakhs. The Tribunal rejected Claim No. 19 and did not make any award in respect of Claim No. 20. Claim No. 21 which is for interest was partly allowed by granting interest on awarded claims as noted supra. In all, the Tribunal awarded Rs 4,53,14,327 towards the principal claim, Rs 49,60,053 towards interest up to the date of the award and future interest on the total amount awarded of Rs 13 CT 1390_Com.A.S 22-2008_Judgment.doc KABC170182372020 5,02,74,380 at 18% from date of award up to date of realization.
18. In respect of the counterclaims, the Tribunal noted that, in the written synopsis the employer gave up Counter-Claim No. 2, 4, 6, 7 and 9 and therefore what remained for consideration were Claim No. 1, 3, 5 and 8. Amongst these, the Tribunal rejected Claim No. 1 for compensation of Rs 21 crores for unilateral stoppage of work. In respect of Claim No. 3, the Tribunal awarded Rs 25.22 lakhs. The Tribunal rejected Claim No. 5 and also rejected Claim No. 8 for cost of litigation. In so far as the interest component, the Tribunal awarded interest at 15% per annum on sum of Rs 25.22 lakhs from 24-04-2007 till date of the award and thereafter future interest at 18% per annum on the total award amount i.e., Rs 25.22 lakhs and accrued interest of Rs 3.78 lakhs i.e., Rs 29,00,997 at 18% per annum from date of award till date of realisation. The Arbitral Tribunal directed both sides to bear the cost of arbitration equally.
14
CT 1390_Com.A.S 22-2008_Judgment.doc KABC170182372020
19. Aggrieved by this arbitral award, both sides filed petitions under Section 34 of the Arbitration & Conciliation Act challenging the award. The employer has filed the present petition challenging the award in so far as awarding the claims of the claimant / contractor. The contractor filed A.S. 27 of 2008 challenging the award in so far as awarding of the counterclaim No. 3 and refusing certain claims. As already noted Supra, before the Hon'ble High Court of Karnataka in Commercial Appeal No. 133 of 2022, the contractor undertook to withdraw the Section 34 petition filed by it and accordingly in the judgment dated 17-03-2022, Hon'ble High Court directed that on the first date of appearance on 04-04-2022 after the matter is remanded, the Respondent No. 1 herein undertakes to file memo to withdraw Commercial A.S. 27 of 2008. Accordingly, the only petition which now remains for consideration is the present petition filed by the employer challenging the arbitral award in so far as allowing the claims of the claimant / contractor and refusing certain counterclaims of the employer. 15
CT 1390_Com.A.S 22-2008_Judgment.doc KABC170182372020
20. At the outset, it is to be noted that, in a petition under Section 34 of the Arbitration & Conciliation Act, this court does not sit as appellate authority over the award of the arbitral tribunal. The scope for interference in a Section 34 petition is limited to the grounds stated in Section 34 [2] of the Act. This is a case involving award prior to 2015 Amendment of the Act and the Section 34 petition is also filed prior to 2015 Amendment of the Act. Therefore, this petition has to be considered on the basis of Section 34 as it then stood prior to 2015 Amendment. Therefore, it follows that the ground under Section 34 [2A] of the Act, which was only introduced in 2015, is not available to the petitioner herein in impugning the award.
21. It is for this reason that Learned Senior Counsel for Petitioner Sri C. K. Nanda Kumar confined his arguments on the basis of the grounds which were available prior to 2015 Amendment. At the outset, Learned Senior Counsel for Petitioner pressed into service the ground under Section 34 [2] [a] [iii] to contend that the award is vitiated since the 16 CT 1390_Com.A.S 22-2008_Judgment.doc KABC170182372020 petitioner was unable to present his case before the arbitral tribunal in a fair manner. In this regard, he pointed out that, as encapsulated at paragraph 3 of the award, annexure 3 of the award is a list of 15 unopened covers which were opened in the last and 22nd meeting on 14-02-2008. He submitted that Claims No. 3 and 4 which relate to payment for Running Bill No. 18 and 19 have been awarded by the tribunal on the basis of the contents of said covers which were opened in the last hearing of the tribunal. He highlighted that after the said covers were opened, no opportunity of hearing was given to the petitioner to put forth its case in respect of the contents of the said opened covers. Thereby, he submitted that the award is vitiated by relying upon material which is relied upon by the tribunal in respect of which no opportunity was given to the petitioner to submit its case and thereby the petitioner was prevented from presenting its case and on this score the award has to be set aside.
22. Learned Senior Counsel for Petitioner then pressed into service Section 34 [2] [a] [iv] of the Act and submitted that award deals with dispute which does not fall within the terms 17 CT 1390_Com.A.S 22-2008_Judgment.doc KABC170182372020 of submission to arbitration & contains decision on matters beyond the scope of submission to arbitration. In this regard, he vehemently argued that in awarding Claims No. 5 and 6, the arbitral tribunal has gone beyond the contract because it is observed by the tribunal itself that the contract between the parties does not contain escalation clause. In spite of the contract not containing an escalation clause, by inferring an implied contract between the parties to pay escalation costs, the tribunal has awarded Claims No. 5 and 6 towards escalation bills. Learned Senior Counsel vehemently argued that when the contract does not contain escalation clause and what can be referred to arbitration are only disputes which arise out of the contract, then it follows that the claim for escalated bills is a dispute which does not arise out of the contract, but is outside the contract. Therefore, the said dispute could not have been submitted to arbitration and by allowing the claim for escalation bills, the arbitral tribunal has traversed beyond the scope of arbitration and thereby the award contains decision on matter beyond the scope of 18 CT 1390_Com.A.S 22-2008_Judgment.doc KABC170182372020 submission to arbitration and thereby award is liable to be set aside.
23. Apart from the above two contentions, the main focus of the arguments of the Learned Senior Counsel for Petitioner has been by pressing into service section 34 [2] [b] [ii] of the Act to contend that the award is in conflict with public policy of India since it is against the basic notions of the law. In this regard, Learned Senior Counsel has attacked the findings of the arbitral tribunal that the termination of contract by the employer was unjustified in general and in particular, Learned Senior Counsel has focused his attack on the findings of the arbitral tribunal regarding cement register to hold that the cement stock had reached almost nil at the relevant point of time and thereby the employer could not have called upon the contractor to resume the work without supplying the cement. Learned Senior Counsel in its arguments has focused on these findings of the arbitral tribunal and contended that these findings of the tribunal have perversity writ large on its face and therefore, these 19 CT 1390_Com.A.S 22-2008_Judgment.doc KABC170182372020 findings of the arbitral tribunal are in conflict with public policy of India and are against basic notions of morality besides being patently illegal and hence call for interference. Another ground urged by the Learned Senior Counsel was that without any material being produced in support thereof, the arbitral tribunal has adopted an ad-hoc method of awarding 15% of pending work value towards loss of profit and loss of overheads, which is also erroneous on the very face of the award. On these grounds, Learned Senior Counsel prayed to set aside the award.
24. Per contra, Learned Counsel for Respondent No. 1 - Ms Nidhishree B.V. supported the impugned award. The arguments advanced by Learned Counsel for Respondent No. 1 are not specifically encapsulated here, since, I will be dealing with those arguments when I take up the contentions one by one.
25. Having considered the rival contentions of both sides, at the outset let me consider the principal question which is raised in the present petition as to whether the 20 CT 1390_Com.A.S 22-2008_Judgment.doc KABC170182372020 finding of the arbitral tribunal that the termination of contract by the employer was unjustified and on that basis granting compensation to the contractor for loss of profits and loss of overheads calls for interference under section 34 of the Arbitration and Conciliation Act.
26. Before addressing this question, at this stage itself, it is to be noted that, the original arbitration records have not been secured before this court. Perusal of the order sheet discloses that on 11-12-2014, counsel for petitioner filed a memo seeking direction to the arbitral tribunal to produce entire original records. On next date that is 12-12-2014, respondent No. 1 filed objections to the said memo. On 15- 12-2014 and 18-12-2014, court heard on the said memo. On 3-1-2015, the submission of counsel for petitioner to pass orders on the memo and call for record from the arbitral tribunal is recorded but no order was passed on the memo and on that day the matter was adjourned for hearing on the said memo. The matter was repeatedly adjourned for hearing on the memo and in the meantime the case was transferred to 21 CT 1390_Com.A.S 22-2008_Judgment.doc KABC170182372020 CCH-3. After transfer to CCH-3, the matter was repeatedly adjourned awaiting further orders. Thereafter, on 7-9-2019, the copy of Orders in Writ Petition 56001 of 2014 was produced whereby Hon'ble High Court rejected the writ petition challenging the orders whereby court had rejected IA No. 2 for raising additional grounds in the petition. Thereafter, the matter has been posted for final arguments. It is in these circumstances that the original records have not been secured. Anyhow, the copy of the award is produced along with the petition and Learned Counsel for Respondent No. 1 has filed compilation of documents containing all the important documents on 27-06-2022. Thereby, both sides have addressed their arguments on the basis of the said compilation of documents produced by Respondent No. 1 and accordingly, I have proceeded to dispose off the petition although the original arbitral records have not been secured.
27. Now turning to the question whether the arbitral tribunal was correct in holding that the termination of contract by the employer was illegal, a few facts have to be 22 CT 1390_Com.A.S 22-2008_Judgment.doc KABC170182372020 adverted to. It is not in dispute that the employer and the contractor entered into contract dated 5-11-2004 which is marked as Ex. C-2. Under the said contract, the employer entrusted the work of construction of proposed Krishna Diamond Apartment at Sahakarnagar, Bangalore to the contractor. The work had to be completed within 24 months i.e., the period for completion of the work was from 5-11-2004 to 4-11-2006. The contractor commenced the work and continued to do the work at the site till 22-06-2006 without any interruptions. It has come on record in Affidavit and Objection filed by the employer in AA-49-2006 that as on that day 87% of the work had been completed. The final orders in AA-49-2006 which was a litigation between the original landowner N. Srinivas Murthy and Petitioner herein namely the employer is marked as Ex. C-53. Perusal of the said order also discloses that the specific stand of the employer in the said petition was that 87% of the work in both owner's and developer's share has been completed. It is on this basis that, the arbitral tribunal records the undisputed finding at paragraph 11 and 14.3 of the award that from 5-11-2004 to 23 CT 1390_Com.A.S 22-2008_Judgment.doc KABC170182372020 22-06-2006 out of the total stipulated period of 24 months, 19 months had elapsed which comes to 79.17% of the contract period and in the said period 87% of the work had been completed. This finding of the arbitral tribunal which is in fact based on arithmetical calculation of contract period elapsed and admission made by employer in AA No. 49/2006 is not seriously challenged in this petition by either side. Therefore, the undisputed fact is that from 5-11-2004 to 22-06-2006 the contractor did the work expeditiously so that in the contract period of 79.17% he had completed 87% of the work. In fact, till 22-06-2006 there was no serious dispute between the parties. Undisputedly on 22-06- 2006 the access to the construction site was blocked by the original landowner due to interse disputes between the landowner and employer. In this regard, the finding of the arbitral tribunal which is based upon admission made by the employer / RW-1 is at paragraph 14.6 of the award and the arbitral tribunal holds that entry of the contractor to the work site was admittedly barred from 22-06-2006 to 26-06-2006. 24
CT 1390_Com.A.S 22-2008_Judgment.doc KABC170182372020
28. The crux of the dispute between the parties is that, according to the employer although the access to the construction site was restored on 26-06-2006 despite several correspondence addressed by the employer to the contractor to resume the work, the contractor did not resume the work as a result of which the employer was left with no other option but to terminate the contract. On the other hand, the contention of the contractor is that, he could not resume the work due to non-furnishing of drawings and specifications by the employer, due to non-supply of material particularly cement which was the responsibility of the employer and due to non-clearing of pending bills. Therefore, the contractor attributes the fault for non-resumption of the work to the employer and thereby contends that the termination of the contract by the employer is invalid and illegal. This version of the contractor / claimant has been accepted by the arbitral tribunal in answering issue No. 1 and 2.
29. The findings in respect of issue No. 1 and 2 regarding legality or otherwise of the order of termination of the contract 25 CT 1390_Com.A.S 22-2008_Judgment.doc KABC170182372020 and whether the parties prove they have fulfilled their obligation under the contract in a timely and accurate manner is contained at paragraph 11 to 25 of the award. Apart from this, at paragraph 26 to 29 of the award, the arbitral tribunal has dealt with claim No. 1 which is also related to issue No. 1 and 2 viz. the claim of the contractor for declaration that the termination is illegal and unjust and therefore, contractor is entitled to damages and costs. Therefore, in order to determine whether the arbitral tribunal was justified in recording the finding that the termination of contract by the employer was illegal, it is necessary to analyze the findings contained at paragraph No. 11 to 29 of the award.
30. In order to understand the reasoning of the arbitral tribunal, it is necessary to refer to the correspondence between the parties which has been referred to in the above paragraphs of the award. Ex. C-17 is the letter dated 1-9- 2006 issued by the employer terminating the contract with retrospective effect from 27-07-2006. In the said letter, as 26 CT 1390_Com.A.S 22-2008_Judgment.doc KABC170182372020 many as eight reasons are given for termination i.e. unilateral stoppage of work since 23-06-2006, poor and haphazard manner of work, improper organisation without proper personnel at site, no proper machinery and equipment, substandard material supply and bad finishing, abnormal hike in prices of non-tendered items, non-compliance of bar chart and violation of agreed time frame of completion of work, intimidation of co-contractor by cutting off electric supply. The said termination letter refers to earlier letter dated 27-07-2006 and terminates the contract retrospectively from said date. If the said letter dated 27-07-2006 is looked into, which is marked as Ex. R-3, in the said letter the subject cited is resuming work and in the body of the letter it is stated that in spite of request to resume civil work as per letter dated 02-07-2006, the contractor has not responded positively and therefore it is presumed that the contractor is no longer interested to continue and finish the civil work and under the circumstances the contractor may submit final bill which will be cleared by project manager consultancy appointed for the purpose. Therefore, the said letter in turn 27 CT 1390_Com.A.S 22-2008_Judgment.doc KABC170182372020 makes reference to earlier letter dated 02-07-2006. The said letter is marked as Ex. R-1 and it is stated in the said letter that since 26-06-2006 civil work progress is nil and work has been stopped without information and therefore contractor is requested to resume the work urgently without further delay in the interest of the project. The letter dated 27-07-2006 has been replied to by the contractor by letter dated 7-08-2006 which is marked as Ex. C-7. In the said letter it is stated that the work has come to a standstill due to failure of the employer to arrange clearances, drawings, supply of construction material and payment. Grievance is also raised regarding unilateral appointment of project manager consultant. Another letter which is of importance is dated 19- 07-2006 at ExC29, which is letter of the architect has called upon the employer to issue the necessary construction material, clearances and payments as per architect's certification to enable the contractor to progress the work. Another letter which has been referred to by the arbitral tribunal at paragraph 17C of the award is letter dated 4-08- 2006 [marked at ExR4] issued by the employer to the 28 CT 1390_Com.A.S 22-2008_Judgment.doc KABC170182372020 contractor stating that due to suspension of work by contractor, the employer is forced to put parallel work force to start the civil work along with other agencies.
31. Before proceeding to analyze the reasoning of the Learned Arbitral Tribunal, at this stage itself it may be noted that in the letter dated 1-9-2006 whereby the employer terminated the contract with retrospective effect from 27-7- 2006, as already noted Supra, as many as 8 reasons are stated for termination. However, the termination is with effect from 27-7-2006 and in the letter dated 27-7-2006, it is only stated that Contractor has not resumed civil work and therefore it is presumed that Contractor is no longer interested to continue and finish the work. Therefore it is clear that the reasons other than non-resumption of work cited in letter dated 1-9-2006 as reasons for termination of contract are clearly an afterthought since the same were never stated earlier to 1-9-2006 and till 1-9-2006 the only refrain of the employer was calling upon the Contractor to resume the work. Therefore the various reasons stated in the 29 CT 1390_Com.A.S 22-2008_Judgment.doc KABC170182372020 letter dated 1-9-2006 for termination of contract are clearly an afterthought and unacceptable and therefore the termination of contract by the employer will have to be judged only on the yardstick whether the employer was right in terminating the contract for non-resumption of work by the Contractor.
32. In this background, let me analyse the reasons of the arbitral tribunal on this important question.
33. The Arbitral Tribunal has summarized its reasons for holding the termination of the contract as illegal at paragraph 27 of the award at (i) to (xi). The first reason given is that the employer did not give access to the site immediately after issuance of acceptance letter. This reason is discussed in detail at paragraph 22 wherein Arbitral Tribunal observes that the employer was trying to negotiate with the landowner to exchange land so as to make north-eastern corner a right angle and this process took more than 6 months. Therefore, this non-handing of the possession of the land by the employer pertains to period at the very beginning of the 30 CT 1390_Com.A.S 22-2008_Judgment.doc KABC170182372020 contract. The Arbitral Tribunal addressed unto itself the correct question at paragraph 14 wherein it has observed that there is no dispute that work was in progress till 22-06-2006 i.e. for a period of 19 months in a contract of 24 months. The dispute pertains to period from 22-06-2006 to 01-09-2006. During this period, the contractor states that he was prevented deliberately from carrying out the work. A little earlier in the same paragraph, Arbitral Tribunal has noted that it is relevant to consider whether contractor refused to perform his part of the contract or whether employer prevented the contractor from performing the contract based on the facts and evidences. Therefore, the Arbitral Tribunal was well aware and it is the finding of the tribunal itself that till 22-06-2006 the work was in progress and the Arbitral Tribunal has itself noted that for the contract period of 79.19%, work to the extent of 87% was accomplished. The Arbitral Tribunal was also aware that the principal question before it was whether after 22-06-2006 whether the contractor refused to resume the work or whether the contractor was prevented from resuming the work. In this 31 CT 1390_Com.A.S 22-2008_Judgment.doc KABC170182372020 background, the reason given by the Arbitral Tribunal that access to site was not given which pertains to period at the beginning of the contract is totally irrelevant in considering the question whether the employer was justified in terminating the contract. All that the Arbitral Tribunal was expected to consider was whether after 22-06-2006 there was unjustified refusal to resume the work by the contractor or whether the employer prevented the contractor from resuming the work by committing any default either in supply of drawings or in supply of material or in any other manner. Therefore, the first reason given by the Arbitral Tribunal for holding that the termination of the contract was unjustified is totally irrelevant and perverse and cannot be accepted.
34. The second reason given is non-issuing of drawings. This reason is discussed at paragraph 19 to 21 of the award and the conclusion of the Arbitral Tribunal at paragraph 21 is that excavation layout drawing for H block was issued on 14- 02-2006 involving a delay of 8-9 months. Again, this pertains to period earlier to 22-06-2006 because according to the 32 CT 1390_Com.A.S 22-2008_Judgment.doc KABC170182372020 Tribunal itself the excavation layout drawing was issued on 14-02-2006. Therefore, as on 22-06-2006 there was no default on the part of the employer in so far as issuance of drawings or handing over possession of land is concerned. The Arbitral Tribunal was expected to apply its mind as to what was the default committed by the employer as on 22-06- 2006 and subsequent thereto which prevented the contractor from resuming the work. The Arbitral Tribunal has although posed unto itself the correct question at paragraph 14 as already noted Supra deliberately misdirected itself in giving the first two reasons i.e. not giving access to the site and not issuing the drawings which were for period earlier to 22-06- 2006. Therefore, the first two reasons given by the Arbitral Tribunal for holding that the termination of the contract is illegal is totally perverse and cannot be accepted.
35. The third reason given by the Arbitral Tribunal at paragraph 27 is that the performance of the work by the contractor was prevented due to closing of the gates from 22- 06-2006 to 26-06-2006. This is an admitted and undisputed 33 CT 1390_Com.A.S 22-2008_Judgment.doc KABC170182372020 fact. In fact, it is because the gate was locked by the original landowner on 22-06-2006 that there was a break in the work. Admittedly, the access to the construction site was restored on 26-06-2006 and the question before the Arbitral Tribunal was whether after 26-06-2006 there was any hindrance for the contractor to resume the work. If the contractor refused to resume the work without any hindrance then certainly under section 39 of the Contract Act the employer would be justified in terminating the contract since the contractor refused performance. Therefore, this reason given regarding four days locking of the gates is again irrelevant and it is a perverse reason and on this ground it cannot be said that the termination of contract by the employer was illegal.
36. The fourth reason given is that the employer failed to supply the cement as mandated under the contract and called upon the contractor to perform the work when there was nil balance of cement at the site. This is one of the most important reasons given by the Tribunal which requires a detailed discussion and on this aspect both sides have 34 CT 1390_Com.A.S 22-2008_Judgment.doc KABC170182372020 addressed lengthy arguments and therefore I will consider this reason at the end.
37. Reason No. 5 also relates to cement and this is also considered inra.
38. Reason No. 6 and 7 are that in the earlier letters dated 27-07-2006 and 4-08-2006 the employer does not speak about termination of the contract whereas in the letter dated 1-09-2006 the employer terminates the contract retrospectively with effect from 27-07-2006. It is to be noted that neither the Tribunal nor this Court can expect the parties to issue notices with precision of legal language expected of a legally trained mind. I have already referred to supra, the correspondence exchanged between the parties. The correspondence between the parties shows that the employer was continuously calling upon the contractor to resume the work and this was the refrain of the employer in the notices dated 02-07-2006, 27-07-2006 & 4-08-2006. When contractor refused to resume the work, left with no other alternative the employer terminated the contract by the 35 CT 1390_Com.A.S 22-2008_Judgment.doc KABC170182372020 letter dated 1-09-2006. The contract was terminated retrospectively from 27-07-2006 since it was on the said date that letter had been issued to the contractor stating that, it appears the contractor is not ready to resume the work and therefore it is presumed that contractor is no longer interested to continue and finish the civil work. Therefore, it is clear that, unless it is shown that the contractor was prevented by any valid reason attributable to the employer in resuming the work, the employer was entitled to terminate the contract due to failure of the contractor to resume the work. Therefore, these reasons given by the arbitral tribunal that the word termination was not used in the notices dated 27-07-2006 and 4-08-2006 are perverse since the arbitral tribunal cannot expect the parties who are in the construction business to issue notices with legal precision like advocates. For the same reason, the reasoning given at serial No. 9 that termination is with retrospective effect from 27-07-2006 whereas the said letter dated 27-07-2006 does not speak of termination is also perverse and unacceptable. In the letter dated 27-07-2006, the employer had made it 36 CT 1390_Com.A.S 22-2008_Judgment.doc KABC170182372020 clear that contractor has not responded positively to earlier request to resume the work and therefore it is presumed that contractor is no longer interested to continue and finish the work and under the circumstances, to submit final bill which will be cleared by the project manager. Although the word termination is not used in the letter dated 27-07-2006, from the tenor of the language it is crystal clear that the employer stated that contractor is no longer interested to finish the work and to submit the final bill. The employer being in the construction business cannot be expected to draft letters with legal precision like an advocate. Instead of focusing on the crux of the matter, the arbitral tribunal trying to pick fault in the language of the correspondence between the parties is a perversity writ large on the face of the arbitral award. The issue before the arbitral tribunal was simple i.e. whether the contractor without valid reason refused to resume the work and instead of focusing on the same, the arbitral tribunal has focused on irrelevant factors and reached perverse conclusion and therefore this reason also cannot be accepted. Reason No. viii is that the letter of termination gives 8 reasons which 37 CT 1390_Com.A.S 22-2008_Judgment.doc KABC170182372020 are not found in the earlier letter of termination. This has already been noted by me supra and I have already held that, the other reasons other than non-resumption of the work are afterthoughts and therefore the termination of the contract will have to be judged only on question whether the contractor without valid reason refused to resume the work. Therefore, reason No. 8 given by the arbitral tribunal is not of much importance in deciding the question involved. Reason No. 10 given by the tribunal at paragraph 27 is that there is no record to show that contractor refused to perform the contract but on the contrary he requested the employer to issue drawings and supply cement etc. The arbitral tribunal has itself recorded the finding that the only drawing in respect of which there was delay in furnishing the same to the contractor was the excavation layout drawing for block H which was issued on 14-02-2006 itself. Therefore, as per the finding of the arbitral tribunal itself as on 26-06-2006 there was no drawing which was pending to be issued by the employer to the contractor. The very fact that the contractor did not resume the work in spite of several letters issued by 38 CT 1390_Com.A.S 22-2008_Judgment.doc KABC170182372020 the employer to resume the work is itself sufficient and therefore the finding that there is no record to show that contractor refused to perform the contract is again a perverse finding. The final reason given is that there is no clause in the contract for termination. In this regard, the Learned Senior Counsel for Employer has relied upon section 39 of the Contract Act. Section 39 of the Contract Act is as follows;
39. Effect of refusal of party to perform promise wholly.--When a party to a contract has refused to perform, or disabled himself from performing his promise in its entirety, the promisee may put an end to the contract, unless he has signified, by words or conduct, his acquiescence in its continuance.
39. It is crystal clear on plain reading of the above statutory provision that where a party to the contract refuses to perform his promise, the opposite side may terminate the contract. Therefore, if it can be shown that the contractor refused to perform the contract and resume the work and there was no hindrance for the same on the part of the employer, then certainly the employer cannot be expected to keep the contract alive and wait indefinitely for the contractor 39 CT 1390_Com.A.S 22-2008_Judgment.doc KABC170182372020 to resume the work.. Therefore, the fact that the contract does not contain a termination clause is irrelevant and this reasoning of the arbitral tribunal is also perverse.
40. Let me now focus my attention on the reason No. 4 and 5 given by the arbitral tribunal i.e. there was no cement stock at the site and without supplying the cement as mandated under the contract, the employer was unjustified in calling upon the contractor to resume the work. The crux of the reasoning of the arbitral tribunal as discussed at paragraph 15 of the award is that as on 1-7-2006, there were only two bags of cement at the site and therefore, there was default on the part of the employer in supplying the cement and in the face of this default, the contractor was justified in refusing to resume the work.
41. The cement stock register is marked as Ex. C-50 and it is at serial No. 12 of the compilation of documents filed by Respondent No. 1. The relevant page of the cement stock register is page 138 of the compilation of documents produced by Respondent No. 1. The said page commences 40 CT 1390_Com.A.S 22-2008_Judgment.doc KABC170182372020 with entry dated 19-06-2006 and continues up to 17-07- 2006. The Arbitral Tribunal has noted that the last supply of cement by the employer was on 19-06-2006 when 300 bags of cement was supplied and therefore at the end of the day on 19-06-2006 the cement balance was 400 bags. On 22-06- 2006 at the end of the day the cement balance was 154 bags. The Arbitral Tribunal notes that as on 22-06-2006 50 bags were issued to the employer himself and that is how the balance at the end of the day is 154 bags. Again on 01-07- 2006 another 50 bags is issued to the employer. Between 22- 06-2006 to 01-07-2006 on the ground that various works have been carried out at the site, the cement balance has reduced from 154 to 52 bags and therefore when 50 bags were issued to the employer on 01-07-2006, the cement balance was only 2 bags. It is on this basis that the Arbitral Tribunal holds that when there was balance of only 2 bags at the site and it was the responsibility of the employer to supply the cement, there was default on the part of the employer in supplying the cement and therefore in the absence of cement the contractor was justified in refusing to resume the work. 41
CT 1390_Com.A.S 22-2008_Judgment.doc KABC170182372020 This finding is on its very face perverse for the simple reason that the Arbitral Tribunal itself holds that there was no work done at the site after 22-06-2006. This is admitted position of both the parties. In fact, in the letter dated 24-07-2006 issued by the contractor himself which is at page 70 of the compilation of documents produced by Respondent No. 1, a categorical statement is made by the contractor that work has come to a standstill from 22-06-2006. It is admitted position that thereafter the contractor never resumed the work. Such being the case, it follows that, the entries in the cement stock register showing that cement was used for doing the work from 22-06-2006 to 01-07-2006 bringing down the cement stock balance from 154 bags to 52 bags is unacceptable and false entries. Without noticing this admitted fact, the Arbitral Tribunal has blindly accepted that on 01-07-2006 the cement stock balance was only 2 bags. Learned Counsel for Respondent No. 1 vehemently argued that in a petition under section 34 of the Act, this court cannot re-appreciate the evidence and the above finding of the Arbitral Tribunal that as on 01-07-2006 only 2 cement bags balance was there 42 CT 1390_Com.A.S 22-2008_Judgment.doc KABC170182372020 cannot be interfered by this court. I am unable to accept this submission because when a finding is recorded by the Arbitral Tribunal which is contrary to the records and contrary to the admitted facts, certainly such a finding being a perverse finding can be interfered by this court. The court cannot turn a Nelson's eye to the Arbitral Tribunal deliberately ignoring admitted facts and recording a wrong and perverse finding. Therefore, from the cement stock register, it is evident that as on 22-06-2006 the cement stock balance was 154 bags. Even assuming that on 01-07-2006 50 bags were issued to the employer, that will still mean that, there were 102 bags cement stock available at the site as on 01-07-2006 because from 22-06-2006 to 01-07-2006 no work was done since as admitted by the contractor himself the work was at a standstill. By ignoring these facts, the Arbitral Tribunal has recorded an incorrect and perverse finding by accepting the entry in the cement stock register at face value that as on 01-07-2006 cement stock was only 2 bags and therefore there was default on the part of the employer. This finding of the Arbitral Tribunal being erroneous on the very 43 CT 1390_Com.A.S 22-2008_Judgment.doc KABC170182372020 face of the record and a perverse finding is liable to be set aside by this Court.
42. Once this conclusion is reached, it follows that there was in fact no hindrance or justifiable reason for the contractor to refuse to resume the work. Admittedly, the lock on the gates had been removed and access to the site restored on 26-06-2006 itself. Even as per the findings of the Arbitral Tribunal, there were no drawings or specifications which were pending as on 26-06-2006. The possession of the construction site had also been handed over much earlier because it is the finding of the Arbitral Tribunal itself that the work was going on without any interruptions from commencement of the contract till 22-06-2006. The only reason given by the Arbitral Tribunal which can be considered to be a hindrance or default on the part of the employer as on 26-06-2006 is that there was no cement available at the site. This finding, as already held Supra, is a perverse finding and liable to be set aside. Further, it is not the finding of the Arbitral Tribunal that non-clearance of any pending bill 44 CT 1390_Com.A.S 22-2008_Judgment.doc KABC170182372020 prevented the contractor from resuming the work. Such being the case, the only conclusion to be drawn is that without any hindrance or justifiable reason, the contractor refused to resume the work after 26-06-2006. Therefore, under Section 39 of the Contract Act, the employer was justified in terminating the contract. The finding of the Arbitral Tribunal to the contrary, holding that the termination of contract by the employer was unjustified and illegal, being against the records of the case and being a perverse finding, is liable to be set aside.
43. At this stage, it is appropriate to refer to the ruling of Hon'ble Apex Court as to the scope of interference by the Court in Section 34 Petition prior to amendment of 2015, in the case of S.V. Samudram v. State of Karnataka, (2024) 3 SCC 623 : 2024 SCC OnLine SC 19 at page 638, as follows;
30. The position in Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204 (two-Judge Bench)] was recently summarised as hereinbelow recorded by Indian Oil Corpn. Ltd. v. Shree 45 CT 1390_Com.A.S 22-2008_Judgment.doc KABC170182372020 Ganesh Petroleum [Indian Oil Corpn.
Ltd. v. Shree Ganesh Petroleum, (2022) 4 SCC 463 : (2022) 2 SCC (Civ) 672 (two-Judge Bench)] :
(Shree Ganesh Petroleum case [Indian Oil Corpn. Ltd. v. Shree Ganesh Petroleum, (2022) 4 SCC 463 : (2022) 2 SCC (Civ) 672 (two-Judge Bench)] , SCC p. 485, para 42) "42. In Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204 (two-Judge Bench)] , this Court held that an award could be said to be against the public policy of India in, inter alia, the following circumstances:
42.1. When an award is, on its face, in patent violation of a statutory provision. 42.2. When the arbitrator/Arbitral Tribunal has failed to adopt a judicial approach in deciding the dispute.
42.3. When an award is in violation of the principles of natural justice. 42.4. When an award is unreasonable or perverse.
42.5. When an award is patently illegal, which would include an award in patent contravention of any substantive law of India or in patent breach of the 1996 Act.
42.6. When an award is contrary to the interest of India, or against justice or morality, in the sense that it shocks the conscience of the Court."
(Emphasis Supplied) 46 CT 1390_Com.A.S 22-2008_Judgment.doc KABC170182372020
44. In the light of the above law and having already recorded the finding that the conclusion of the Arbitral Tribunal that termination of contract by the employer was illegal, is a perverse finding, I hold that, the said finding calls for interference in this petition. Accordingly, the declaration granted by the Arbitral Tribunal that the termination of contract by the employer is illegal and unjust is liable to be set aside.
45. Once this conclusion is reached, it follows that the compensation sought by the contractor on the basis of unjust termination of the contract under the head of loss of profits and overhead charges also calls for interference. This is because the very basis of awarding the said claim for loss of profits and overheads is that the contract was illegally terminated by the employer as a result of which the contractor has suffered loss of profits and also loss of overhead charges. I have already held supra that the contract was validly terminated by the employer because of unjustifiable refusal of the contractor to resume the work. 47
CT 1390_Com.A.S 22-2008_Judgment.doc KABC170182372020 Such being the case, it follows that the contractor cannot take advantage of its own wrong and claim compensation under the head of loss of profits and overhead charges when it is the contractor who is at fault in refusing to resume the work without any justifiable reason. Consequently, it follows that, as a consequence of having set aside the finding of the Arbitral Tribunal that the termination of contract was illegal, it follows that the finding of the Arbitral Tribunal granting compensation of Rs. 2,24,02,530/= under the head of loss of profits and overhead charges in respect of claim No. 2 also requires to be set aside.
46. Now, turning to claim 3 and 4 are concerned, the Arbitral Tribunal has taken note of the fact that, the bill No. 18 and 19 has been duly certified by the architect who is the proper authority to certify bills under the contract between the parties. Therefore, the Arbitral Tribunal has concluded that the contractor is entitled to payment in respect of said certified bills and also awarded interest at 15% per annum from the due dates of the respective bills up to date of the 48 CT 1390_Com.A.S 22-2008_Judgment.doc KABC170182372020 award and interest at 18% per annum from date of award till date of realisation. The Arbitral Tribunal has taken note of the contention of employer that the architect has colluded with the contractor and rejected the said contention on the ground that the employer has not terminated agreement with the architect and therefore the Arbitral Tribunal cannot doubt the due certification of the bills by the architect. In this regard, the contention raised by the Learned Senior Counsel for Petitioner is that, in awarding these claims in respect of the bills, at paragraph 41 of the award, the Arbitral Tribunal has noted that the R.A. Bill No. 18 and 19 at Ex. C-44 and Ex. C- 60 were sent by the contractor to the employer, but employer intentionally refused to take delivery of these bills. It is the contention of Learned Senior Counsel for Petitioner that, in order to award these claims, the Arbitral Tribunal has relied upon documents which were found in the unopened covers and which were opened on the 22nd hearing date [meeting] of the Arbitral Tribunal and thereafter no opportunity was given to the petitioner to respond to the said documents. On this basis, it is argued that, this finding based on documents 49 CT 1390_Com.A.S 22-2008_Judgment.doc KABC170182372020 found in the covers, is rendered without giving opportunity to the Petitioner to submit on those documents and therefore, without giving opportunity to Petitioner to present its case on these documents and therefore, hit by Section 34 (2) (a) (iii) of the Act. However, it is to be noted that the duly certified R.A. Bill No. 18 and 19 were marked in evidence at Ex. C-44 and C-60 and therefore it is not that the petitioner was taken by surprise in respect of the said claims or in respect of the said R.A. Bills. Therefore, it cannot be said that the finding of the Arbitral Tribunal in awarding these claims was perverse or made without giving opportunity to petitioner to present its case. Therefore, the Arbitral Award in so far as awarding claim No. 3 and 4 for payment of certified running bills does not call for interference.
47. The next claim considered by the Arbitral Tribunal is claim No. 5 and 6 for payment of certified escalation bills. Although these escalation bills have been certified by the architect, the vehement contention of the petitioner is that, the contract itself does not contain escalation clause and 50 CT 1390_Com.A.S 22-2008_Judgment.doc KABC170182372020 therefore the Arbitral Tribunal was unjustified in awarding the escalation bills. In this regard, at paragraph 44 of the award, the Arbitral Tribunal takes note that admittedly there is no provision under the contract for payment of escalation bills. However, in spite of recording this finding, the Arbitral Tribunal goes on to hold that, on earlier occasion Rs. 27 lakhs was paid towards escalation and therefore on this basis, the Arbitral Tribunal holds at paragraph 47 as follows;
"It is a fact that payment of escalation was a claim repeatedly made by the claimant and it is certified by the architect. Part payment was made by the respondent. Hence we hold that there is an implied agreement expressly performed by both the parties. Now the dispute is whether such implied agreement can be enforced. We find that it is logical, reasonable and legal to honour such an agreement and hence we hold that payment of escalation is subsequently an agreed term and the payment of Rs. 27 lakhs made by the respondent towards the claim of the claimant and certified by the architect and confirmed by contemporaneous documents as stated above constitutes an agreement valid in law."
(Emphasis Supplied)
48. The Arbitral Tribunal, on facts, has rejected the contention of the employer that Rs. 27 lakhs payment was 51 CT 1390_Com.A.S 22-2008_Judgment.doc KABC170182372020 made as additional advance and not towards escalation. In this regard, the argument of Learned Senior Counsel for Petitioner is twofold. Firstly, the arbitrator cannot go beyond the terms of the contract and therefore when the Arbitral Tribunal admits that there is no escalation clause in the contract, the Arbitral Tribunal committed an error in construing an implied contract and on that basis awarding escalation bill. Secondly, it is argued that when admittedly the contract does not contain escalation clause, any claim for escalation is a dispute beyond the terms of the contract. What has been submitted for resolution of the arbitrators is disputes arising under the contract and therefore by awarding escalation bill, the Arbitral Tribunal has traversed beyond the matters which were referred for arbitration and therefore the award to that extent is liable to be set aside. Per contra, in the additional submissions filed by Learned Counsel for Respondent No. 1, in response to clarifications sought for by this Court in the Orders dated 30-3-2024, on the point of escalation, it is contended that, escalation is a routine incident of the contract and whether the same is provided in 52 CT 1390_Com.A.S 22-2008_Judgment.doc KABC170182372020 the contract or not, escalation has to be awarded. In this regard, reliance is placed upon the following rulings of Hon'ble Apex Court;
i) P.M. Paul v. Union of India, (1989) Suppl 1, S.C.C. 368 : In the said case, Hon'ble Apex Court held that, "escalation is a normal incident arising out of gap of time in this inflationary age in performing any contract. The Tribunal in the instant case has held that there was delay and it has further referred to this aspect in his award......This was a matter which was within the jurisdiction of the Arbitrator and hence Arbitrator had not misconducted himself in awarding the amount as he has done."
ii) FCI v. A.M. Ahmed & Co., reported in (2006) 13, S.C.C. 779. In the said ruling, Hon'ble Apex Court has held that, "In our opinion, the argument of Learned Senior Counsel for FCI that there is no clause in the contract providing for escalation to reimburse the expenses and therefore the Arbitrator had exceeded his jurisdiction has no substance." 53
CT 1390_Com.A.S 22-2008_Judgment.doc KABC170182372020
iii) NTPC Ltd v. Deconar Services Pvt. Ltd., reported in (2021) S.C.C. Online 498
iv) K.N. Satyapalan v. State of Kerala, reported in (2007) 13 S.C.C. 43
v) Naba Power Ltd. v. Punjab State Power Corporation Ltd., reported in (2018) 11 S.C.C. 508
vi) S.V. Samudram v. State of Karnataka, reported in (2024) 3 S.C.C. 623.
49. Having considered the rival contentions regarding the claim for escalation bills, the distinctive feature of this case which distinguishes this case from the facts of the reported rulings supra is that, escalation is awarded not for any period of delay, but for the period of contract itself. It is to be noted that, admittedly, the contractor stopped work on 22-06-2006. This was within the period of contract because the period of contract was from 5-11-2004 to 4-11-2006. If work had continued beyond the period of the contract, then escalation could have been awarded, but for work done during the period of contract itself, escalation could not be awarded, 54 CT 1390_Com.A.S 22-2008_Judgment.doc KABC170182372020 particularly when there was no escalation clause in the contract. Therefore, the arbitral tribunal committed error apparent on the face of the record and rendered a perverse finding by awarding escalation cost for work done during the period of the contract itself and when admittedly the contract did not contain escalation clause only on the ground that same had been certified by the architect. No doubt the arbitral tribunal has construed an implied agreement between the parties by holding that, on earlier occasion, escalation had been paid by the employer to the tune of Rs. 27 lakhs and on facts the arbitral tribunal rejected the contention of the employer that said amount of Rs. 27 lakhs had been paid not as escalation but as additional advance. Needless to state, even accepting that there was such an implied agreement, the implied agreement being an oral agreement, would not contain arbitration clause. It is to be noted that, it is only the disputes arising under the contract at Ex. C2 which were referred to the arbitral tribunal. A dispute arising out of a separate implied agreement could not be a subject matter of arbitration before the arbitral tribunal. Thereby, the 55 CT 1390_Com.A.S 22-2008_Judgment.doc KABC170182372020 arbitral tribunal has proceeded to pass award on a dispute arising out of such an implied agreement which was outside the scope of terms of arbitration since it is only the disputes arising out of Ex. C2 which were referred to arbitration. Therefore, even on this score, the arbitral award to the extent of awarding the escalation bills calls for interference under Section 34 [2] [a] [iv] of the Act.
50. The next claim awarded by the arbitral tribunal is Claim No. 7 for Rs. 2,89,642 towards compensation for power charges supplied by the contractor to other contractors of the employer. This finding is not seriously challenged before me. Even otherwise, I find from the discussion made at paragraph 49 of the arbitral award that the principal defense raised by the employer was that the power was supplied on the basis of oral arrangement amongst the contractors themselves and not at the instance of the employer. This contention is contrary to Reason No. 8 given for termination of the contract dated 1-9-2006 i.e. one of the reasons cited for termination of the contract is "intimidation of co-contractor by cutting off 56 CT 1390_Com.A.S 22-2008_Judgment.doc KABC170182372020 electric supply". By taking up the said stand, it is clear that the electricity was being supplied to co-contractors by the claimant with the knowledge and concurrence of the employer. Such being the case, the employer is duty bound to pay the contractor for electricity charges supplied to co- contractors and therefore the arbitral tribunal did not commit any error in awarding the said claim.
51. Claim No. 8, 9, 11 to 16, 19 and 20 have been rejected. As already noted supra, although the claimant / Respondent No. 1 herein had filed A.S. 27 of 2008 challenging that portion of the award, rejecting these claims, subsequently the same has been withdrawn. Therefore, the rejection of these claims do not form subject matter of the present petition and it is not necessary to discuss the same.
52. Claim No. 10 for payment of service tax has been allowed. The discussion in this regard is found at paragraph 54 of the award. In fact, the awarding of this claim is not seriously challenged in the present petition. Essentially, the finding of the arbitral tribunal is that, as per the contract, the 57 CT 1390_Com.A.S 22-2008_Judgment.doc KABC170182372020 claimant quoted his rates, taking into consideration prevailing tax structure, but subsequent to the contract, service tax has been introduced and therefore the same has to be borne by the employer. The arbitral tribunal has accepted this contention and held that, the service tax has come into operation after the contract was entered into and therefore this extra tax has to be borne by the employer and thereby directed the employer to bear the liability of the service tax and issue necessary certificate as statutorily required. The said finding is in accordance with law and does not call for interference.
53. The next claim which has been granted is Claim No. 17 which is towards TDS and this is discussed at paragraph 61 of the award. In this regard, the arbitral tribunal has observed that the employer has admitted in statement of objection that employer has made tax deduction to the extent of Rs. 13,24,640 while paying the RA bills and it is the contention of the employer that said tax deducted at source has been paid to the concerned authorities. In view of this 58 CT 1390_Com.A.S 22-2008_Judgment.doc KABC170182372020 admission, the arbitral tribunal has directed the respondent to issue TDS certificate for the said amount of Rs. 13,24,640. The said finding of the arbitral tribunal is in accordance with law and does not call for interference.
54. The next claim that has been awarded by the tribunal is Claim No. 18 for refund of retention money. The arbitral tribunal has held at paragraph 62 of the award that once the contract has been terminated, there is no reason for withholding the claimant's retention money and thereby directed to refund the retention money of Rs. 14,78,393. The fact that retention money has been withheld by the employer is forthcoming from the running bill itself and therefore this finding of the arbitral tribunal is in accordance with law and does not call for interference.
55. Apart from this, the arbitral tribunal has awarded one counterclaim, namely, counterclaim No. 3 for refund of mobilization advance and additional advance, with interest. In this regard, insofar as awarding of this counterclaim is concerned, it would have been subject matter of A.S. 27 of 59 CT 1390_Com.A.S 22-2008_Judgment.doc KABC170182372020 2008 filed by Respondent No. 1 herein, since the said counterclaim is awarded against Respondent No. 1 herein. It is already noted supra that said petition has been withdrawn and therefore the awarding of the said counterclaim cannot be considered in this petition.
56. The arbitral tribunal has noted that the petitioner herein has withdrawn counterclaim No. 2, 4, 6, 7 and 9 and the arbitral tribunal has only considered counterclaim No. 1, 3, 5 and 8 and amongst these rejected counterclaim No. 1, 5 and 8. In the present petition, there is no serious challenge by the petitioner insofar as disallowing of counterclaim No. 1, 5 and 8. Even otherwise, the finding of the arbitral tribunal is that, in respect of these claims, no reliable material is produced by petitioner herein and on that ground, the said counterclaims are rejected and these findings being purely factual findings cannot be interfered in this petition under Section 34 of the Act.
57. Accordingly, in view of the detailed discussion made above, I hold that the findings of the arbitral tribunal in 60 CT 1390_Com.A.S 22-2008_Judgment.doc KABC170182372020 awarding claim No. 1, 2, 5 and 6 call for interference and the other findings of the arbitral tribunal do not call for interference.
58. At this stage, the question to be considered is whether having found that, it is a fit case to interfere with certain findings of the award, whether the award has to be set aside as a whole or whether only those portions of the award dealing with above claims are required to be set aside. In this regard, Counsels for both sides were in unison in submitting that, the award has to be set aside as a whole or confirmed as a whole and it was the submission of both sides that it is only, in case, it is found that arbitral tribunal has dealt with matter falling outside the scope of arbitration that, portion of the award can be set aside by recourse to Section 34 [2] [a] [iv] of the Act.
59. However, as far back as in the case of J.G. Engineers (P) Ltd. v. Union of India, (2011) 5 SCC 758 : (2011) 3 SCC (Civ) 128 : 2011 SCC OnLine SC 704 at page 775, Hon'ble Apex Court held as follows;
61
CT 1390_Com.A.S 22-2008_Judgment.doc KABC170182372020
25. It is now well settled that if an award deals with and decides several claims separately and distinctly, even if the court finds that the award in regard to some items is bad, the court will segregate the award on items which did not suffer from any infirmity and uphold the award to that extent. As the award on Items 2, 4, 6, 7, 8 and 9 was upheld by the civil court and as the High Court in appeal did not find any infirmity in regard to the award on those claims, the judgment of the High Court setting aside the award in regard to Claims 2, 4, 6, 7, 8 and 9 of the appellant, cannot be sustained. The judgment to that extent is liable to be set aside and the award has to be upheld in regard to Claims 2, 4, 6, 7, 8 and 9.
(Emphasis Supplied)
60. Therefore, in the light of the above law, it is clear that where the award deals with various aspects which are severable and the Court finds that it is only part of the award which is liable to be set aside, then only such portion of the award has to be set aside. That this position of law has not undergone any change is evident from observation made in latest ruling of Hon'ble Apex Court in the case of Larsen Air Conditioning and Refrigration Company v. Union of India and Others 2023 SCC OnLine SC 982, as follows;
13. In the present case, given that the arbitration commenced in 1997, i.e., after the Act of 1996 62 CT 1390_Com.A.S 22-2008_Judgment.doc KABC170182372020 came into force on 22.08.1996, the arbitrator, and the award passed by them, would be subject to this statute. Under the enactment, i.e. Section 31(7), the statutory rate of interest itself is contemplated at 18% per annum. Of course, this is in the event the award does not contain any direction towards the rate of interest. Therefore, there is little to no reason, for the High Court to have interfered with the arbitrator's finding on interest accrued and payable. Unlike in the case of the old Act, the court is powerless to modify the award and can only set aside partially, or wholly, an award on a finding that the conditions spelt out under Section 34 of the 1996 Act have been established. The scope of interference by the court, is well defined and delineated [refer to Associate Builders v. Delhi Development Authority , Ssangyong Engineering Construction 11 Co. Ltd v. National Highways Authority of India (NHAI)12 and Delhi Airport Metro Express Pvt. Ltd. v. Delhi Metro Rail Corporation Ltd.13]. (Emphasis Supplied)
61. Therefore, it is clear that, award can be set aside "partially or wholly" and only because portion of award which is severable from rest of the award is tainted, there is no need to set aside the award as a whole.
62. Be it noted that, in Gayatri Balasamy v. M/S ISG Novasoft Technologies Limited in Special Leave to Appeal (C) Nos.15336-15337/2021 in orders dated 20-02-2024, 63 CT 1390_Com.A.S 22-2008_Judgment.doc KABC170182372020 the question which has been referred to the larger bench is whether, under Section 34 of the Act, court has the power to modify the award and it has not been doubted that, the Court has the power to partially set aside the award and it is not necessary to set aside the award as a whole.
63. Accordingly, I am of the view that in this petition, the arbitral award calls for interference only in so far as awarding of Claims No. 1, 2, 5 and 6 and in respect of the other portions of the award, it does not call for interference. Accordingly, answering the point for consideration, I proceed to pass the following :-
ORDER The Petition under Section 34 of the Arbitration and Conciliation Act is allowed, in part.
Consequently, the Impugned Arbitral Award passed by the Arbitral Tribunal consisting of Respondent No. 2 to 4 herein 64 CT 1390_Com.A.S 22-2008_Judgment.doc KABC170182372020 dated 14-04-2008 in Case No. KSA/Case 1 of 2006 is partly set aside in respect of the following findings and claims;
i) Award in so far as granting declaration in favour of Respondent No. 1 herein / Claimant that, the termination of contract by the petitioner herein is unjust and illegal, is set aside.
ii) Award in so far as awarding claim No. 2 for compensation towards loss of profit and overhead charges of Rs. 2,24,02,513/= along with interest, is set aside.
iii) The Arbitral Award in so far as awarding claim No. 5 and 6 for payment of escalation bills to the tune of Rs 72,64,058 and Rs 24,95,337 along with interest is also set aside.65
CT 1390_Com.A.S 22-2008_Judgment.doc KABC170182372020 In all other respects, the impugned arbitral award is undisturbed.
Ordered accordingly.
In the facts and circumstances of the case, there shall be no order as to cost.
Office to issue soft copy of this judgment to both sides, by email, if furnished. [Dictated using Dragon Professional Speech Recognition Software Version 15.3, transcript revised, corrected, signed and then pronounced by me in open court on this the 24th day of June, 2024] (Sri. S. Sudindranath) LXXXIII ADDL.CITY CIVIL AND SESSIONS JUDGE, COMMERCIAL COURT; BANGALORE.