Bangalore District Court
Karnataka State Highways Improvement vs M/S Rvcpl Ridl Jv on 5 January, 2022
1
Com.A.P.No.15/2020
In The Court of LXXXIV Additional City Civil and Sessions
Judge (CCH-85 - Commercial Court) Bengaluru
Dated this the 5th day of January 2022
Present: Smt.H.R.Radha B.A.L., LL.M.
LXXXIV Addl.City Civil and Sessions Judge,
(CCH-85 - Commercial Court)
Bengaluru
Com.A.P.No.15/2020
Petitioner: Karnataka State Highways Improvement
Project, Government of Karnataka, Public
works, Ports & Inland Water Transport
Department, having its office at KR Circle,
Bengaluru-560001, represented by its
Project Director
(By Sri.Srikara, Advocate for M/s Dua
Associates)
Vs
Respondents 1. M/s RVCPL RIDL JV, having its registered
office at Classic Court, 2 nd Floor, 9/1,
Richmond Road, Bengaluru-560025,
represented by its Authorized
representative Mr.Reddy Veeranna
2. Sri.B.S.Patil, Arbitration Consultant,
"Satish", 120, National Society, Pune - 411
007
3. Sri.Basavaraj Koti, Retired Chief
Engineer, PWD, D.No.690, 9th Cross Road,
Vijayanagar 1st stage, Mysuru - 17
4. Sri.V.Murahari Reddy, Engineer-in-chief
(Retired), Govt. of Andhra Pradesh
No.C/77, Madhuranagar Colony,
Hyderabad - 500038.
(R1 rep. By Sri.S.Rajan, Advocate)
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Com.A.P.No.15/2020
Date of Institution 07-02-2020
Nature of the U/s 34 of the Arbitration and
application Conciliation Act, 1996
Date on which
judgment pronounced 05-01-2022
Years Months Days
Total Duration
01 10 29
LXXXIV Addl.City Civil and Sessions Judge
(CCH-85 Commercial Court) Bengaluru
JUDGMENT
This petition is filed U/s 34 of the Arbitration and Conciliation Act, 1996 ('the Act' in short) by the respondent in the arbitration case for setting aside the award dated 25.11.2019 passed by respondents 2 to 4 constituting the Arbitral Tribunal.
2. This case was transferred from CCH-83 to this court by notification dated 20.09.2021.
3. The parties are referred as per their original rank before the Arbitral Tribunal for the sake of clarity. 3
Com.A.P.No.15/2020
4. Brief facts of the case are that the claimant's bid for the work of upgradation of 38.5 KM road from Dharwad to Saundatti was accepted for Rs.84,44,05,100/- by the respondent and letter of acceptance was issued on 11-03-2011; contract agreement was entered into on 07-04-2011. 23 months time was stipulated for completing the work from the date of commencement i.e., 28-07-2011. The entire stretch was divided into two sections; Section I consisting of 20 KM stretch of road had to be completed in 12 months and the remaining 18.5 KM stretch in Section-II, in 23 months. The execution of work stretched beyond 23 months. When the claimant sought for extension of time, it was extended initially upto 24-10-2012 for section I subject to the condition that they will be liable to pay liquidated damages for further delay. However, the respondent granted further extension time till 22-06-2013 and 22-01-2014 for Sections I and section II, respectively and also approved the change in the chainage subject to no financial implications. 4(a). The claimant raised dispute seeking extension of time till 30-06-2015 and 31-12-2015; compensation for increase in the cost of construction for the works executed during the extended period, due to delay on the part of governmental agencies 4 Com.A.P.No.15/2020 granting approvals / permissions / licence, towards increase in the price of materials, labour and other inputs, towards loss of overheads, cost of idling the resources for the works executed beyond the original contract period on the ground that the amount paid under under clause 13.8 of GCC towards price adjustment did not compensate them. All the three disputes were referred to Arbitral tribunal (herein after referred as 'the First AT'). The respondent too raised counter claim for damages for delay and non completion of the work, towards additional expenses on the construction supervision consultant, loss of internal rate of return for a period of two years and reimbursement of excess amount paid on account of delay in completion of the work with interest at 18% p.a. After contest, the first AT granted extension of time in disputes 1 and 3, and partly allowed the claim for compensation in dispute No.2 and dismissed the counter claim, by common award dated 16.07.2018. The same was challenged by the respondent in Com.A.S.201, 202 and 207 of 2018.
4(b). During the pendency of the proceedings before the first AT, the claimant raised additional claim for payment towards adjustment for change in the legislation in respect of royalty of 5 Com.A.P.No.15/2020 input materials, adjustment of cost due to variation in bitumen quantity, financing charges on account of delayed payment, refund of illegal recoveries made by KSHIP, compensation for delayed payment for the work done under the variation order, non payment of work done, loss of profit, loss of overheads and loss due to idling of plant and machinery. The respondent too raised counter claim for liquidated damages, charges towards consultancy services for Construction Supervision and Contract Administration ('CSC' for short) and declaratory relief with respect to order dated 15.05.2018 of the Dispute Board ('DB' for short). After contest, the Arbitral Tribunal passed the impugned award, awarding Rs.11,28,59,263/- in all towards the claims made by the claimant, except compensation for delayed payment of the work done under variation order and dismissed the respondent's counter claim.
5. Aggrieved by the same, the petitioner/respondent has filed this petition on the ground that the award is arbitrary, perverse and bad in law. The claimant since did not seek compensation loss of overheads, loss due to idling of plant and machinery, delay in approval of variation and resultant delay in making payments before the first AT the same and the Arbitral 6 Com.A.P.No.15/2020 Tribunal's findings that the same is not hit by Order II Rule 2 CPC is patently illegal, when the cause of action for the two disputes is the same. The claim towards adjustment of cost due to Bitumen variance was a question of fact and the burden of proving the same was entirely on the claimant. But the Arbitral Tribunal failed to appreciate this under the misconception that it falls in the realm of interpretation of contract. The Arbitral Tribunal has awarded the claim for loss of profits by ignoring the evidence on record and treating extract profit of loss account certified by the claimant's Chartered Accountant, a disputed document, as the audited balance sheet. No compensation for loss of profit could be awarded to the claimant's joint venture partner in view of the claimant's letter at Ex.R1 stating that they had abandoned the project in the year 2014 itself. 5(a). That, in the absence of plea of breach of contract due to variation of scope of work and also for want of proof of loss occasioned by such variation, the Arbitral Tribunal could not have awarded any amount for the loss of profit. The cause of action for the claim for compensation for breach starts when the breach is alleged to have occurred and not at the time of raising the final bill. The Arbital Tribunal also erred in awarding 7 Com.A.P.No.15/2020 compensation for the loss due to idling of plant and machinery merely on pro-rata calculation and without there being any proof of loss. The claim towards adjustment for change in legislation in respect of royalty of input material is covered under price adjustment under clause 13.8 of GCC and barred by time, as the change in legislation occurred in March 2014; and the delay was attributable to the claimant. The delay in furnishing clarification/documents by the claimant led to delay in releasing payment and certifying of the interim payment certificate No.30. The claimant's undertaking dated 07.05.2015 at Ex.R25 should have been treated as modification of the terms of contract U/s 62 of the Indian contract Act. The claimant had failed to furnish relevant documents, warranty and guarantee certificates in spite of several reminders. Therefore, the claim towards non payment of the work done is contrary to the contract. 5(b). That their counter claim for liquidated damages from 31.12.2015 to 31.01.2016 was based on actual date of completion. The contract data providing for damages of Rs.2,61,000/- and Rs.2,42,000/- per day of delay in respect of Sections I and II respectively is not taken into consideration by the Arbitral Tribunal. The claimant had promised to bear 8 Com.A.P.No.15/2020 expenses of CSC for the period beyond June 2015 and the Arbitral Tribunal erred in ignoring the same and rejecting their counter claim for additional charges CSC from September 2017 to January 2019. The Arbitral Tribunal has traversed beyond the agreement, its findings are not based on the evidence, contrary to the terms of the contract agreement and in contravention of fundamental policy of Indian law, perverse and the impugned award is vitiated by patent illegality.
6. The claimant / respondent has not filed the statement of objections.
7. Both parties have filed written arguments and I have perused the same.
8. Heard arguments.
9. The learned counsel for the respondent/petitioner has relied on the following judgments:
(a) Ssangyong Engineering and Construction Company Ltd. Vs National Highways authority of India (NHAI) reported in (2019) 15 SCC 131 wherein it is held that public policy of India is now constricted to mean firstly, that a domestic award is contrary to the fundamental policy of 9 Com.A.P.No.15/2020 Indian law as understood in paras 18 and 27 of Associates Builders, or secondly, that such an award is against the basic notions of Justice or morality as understood in paras 36 to 39 of Associate Builders. Explanation 2 to Section 34(2)(b)(ii) and Explanation 2 to Section 48 (2)
(b)(ii) was added by the amendment act only so that Western Geco as understood in Associate Builders, as paras 28 and 29 in particular, is now done away with.
(b) Associate Builders Vs Delhi Development Authority reported in (2015) 3 SCC 49 wherein it is clarified that disregarding the binding effect of the judgment of the superior court would be violative of the fundamental policy of Indian law.
(c) Edifice Developers and Project Engineers Ltd. Vs M/s Essar Projects (India) Ltd. reported in 2013 SCC Online Bom 5 a case where there was no direct evidence to prove overhead losses, when the resources were mobilized and also to the effect that the delay in execution of the work was not attributable to the contractor. The Arbitral Tribunal despite recording a finding that no evidence was adduced to prove the overhead losses, concluded that in the construction industry a contractor becomes entitled to overhead losses on the basis of Hudson's formula. Under these circumstances, the Hon'ble High Court of Bombay has clarified that Brijpal Singh's case (AIR 1994 SC 1703) does not stipulate as a doctrine of law that the formula prescribed in Hudson's treatise must invariably be accepted in all cases as a 10 Com.A.P.No.15/2020 measure of damages sustained on account of loss of overheads. On the other hand, the court must consider only strict legal obligations and not the expectations, however reasonable, of one contractor that the other will do something that he has assumed no obligation to do, as held in McDemott International case [2006 (2) Arb. LR 498 (SC)].
(d) Essar Procurement Services Ltd. Vs Paramount Constructions reported in Manu/MH/2511/2016 (Bom) wherein it is
enunciated that the interest for the delay in payment could be claimed only from the date on which payment became due till the date of actual payment; it attracts Article 25 of the Limitation Act and the cause of action starts from the date when the payment was made and cannot be postponed till the final bill was prepared by the contractor and certified by the engineer.
(e) K.V.George Vs Secretary to
Government, Water and Power
Department, Trivendrum & Anr. reported in (1989) 4 SCC 595 wherein it is clarified that where there is one entire cause of action the plaintiff cannot split the same into parts so as to bring separate suits in respect of those parts.
(f) Banumathi Jaisukhbhai Bhuta Vs Ivory Properties and hotels Pvt. Ltd. & Anr.
reported in 2020 SCC Online Bom 157 wherein the judgment in Ssangyong Engineering and construction Ltd. Case is followed and held that a finding based on no evidence at all or an award which ignores vital 11 Com.A.P.No.15/2020 evidence in arriving at the decision would be perverse and liable to be set aside on the ground of patent illegality. A finding based on the document taken behind the back of the parties by the arbitrator would also qualify as a decision based on no evidence inasmuch as such decision is not based on evidence led by the parties and therefore would have to be characterized as perverse.
(g) Kushehwar Prasad Singh Vs State of Bihar & Ors. reported in (2007) 11 SCC 447 wherein the principle that no party can take undue advantage of his own wrong has been reiterated.
(h) The Board of Trustees of the Port of Mumbai Vs Afcons Infrastructure Ltd.
reported in Manu/MH/2757/2016 (Bom) wherein it is held that though the Arbitral Tribunal is not bound by the provisions of the Evidence Act, the principles of Evidence Act applies to arbitration proceedings in view of Sec.19 of the Arbitration and Conciliation Act and the Arbitral Tribunal cannot rely upon an unproved document as a piece of evidence. If a claim is allowed based on disputed document which was not proved, the award amounts to violation of principles of natural justice and is liable to be set aside.
(i) State of Gujarat Vs Kothari & Associates reported in (2016) 14 SCC 761 wherein it is held that even if the issue of limitation is not raised it is incumbent on the court to consider the same and when successive breach of contract is alleged, the suit for compensation was required to be filed 12 Com.A.P.No.15/2020 within three years of the happening of each breach, which would constitute a distinct cause of action.
10. The learned counsel for the claimant/respondent has also relied upon the decision in Associate Builders case and Ssangyong Engineering case in addition to the following:
(a) Sutlej Construction Ltd. Vs Union Territory of Chandigarh reported in 2018 (4) Arb.LR 210 (SC) wherein it is clarified that when it comes to setting aside an award under the public policy ground it would mean that the award should shock the conscience of the court and not what the court thinks is unjust on the facts of the case seeking to substitute its view for that of the arbitrator to do what it considers to be justice. The court cannot reappreciate the evidence as first appellate court and an arbitrator is a chosen judge by the parties. It is on limited parameters the award can be interfered with.
(b) NHAI Vs Progressive MVR (JV) reported in (2018) 2 Arb. LR 111 SC wherein it is held that interpretation of a term of contract is within the domain of the Arbitral Tribunal and if the Arbitral Tribunal interprets a particular in a particular manner, which a possible interpretation then the court ought not to interfere in its jurisdiction under section 34 of the Act, the only exception being where the interpretation results in a perversity and shocks the conscience of the court.
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Com.A.P.No.15/2020
(c) MMTC Ltd. Vs Vedanta Ltd. reported in (2019) 4 SCC 163 wherein it is held that the court exercising the jurisdiction U/s 34 of the Act does in appeal over the Arbitral award and may interfere on merits on the limited ground provided U/s 34 (2)(b)(ii) i.e., if the award is against the public policy of India. But such interference does entail a review of the merits of the dispute, and is limited to situations where the findings of the arbitrator are arbitrary, capricious or perverse, or when the conscience of the court is shocked or when the illegality is not trivial but goes to the root to the matter. Also the law laid down in ONGC Ltd. Vs Sawpipes Ltd. and D.D.Sharma Vs Union of India, is reiterated by holding that an arbitral award may not be interfered with if the view taken by the arbitrator is a possible view based on facts and it is within the arbitrator's jurisdiction to consider the terms of contract, the conduct of parties and correspondence exchanged between them.
(d) Patel Engineering Ltd. Vs North Eastern Electric Power Corporation Ltd.
reported in AIR 2020 SC 2488 wherein it is held that the ground of patent illegality is available for setting aside a domestic award if the decision of the arbitrator is found to be perverse, or, so irrational that no reasonable person would have arrived at the same; or, the construction of the contract is such that no fair or reasonable person would take; or, that the view of the arbitrator is not even a possible view.
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Com.A.P.No.15/2020
11. Therefore, it is well established that the judicial interference with arbitral awards is limited to only the grounds U/s 34 of the Act. In Delhi Airport Metro Express Pvt. Ltd. Vs Delhi Metro Rail Corporation Ltd. [Civil Appeal No. 5627 of 2021 dated 09-09-2021], while dealing with the contours of the Court's power to the review Arbitral awards the restraint required to be shown by the courts while examining the validity of arbitral awards as enunciated in Associate Builder's case and Ssangyong Engineering Pvt. Ltd., case has been stressed upon.
12. That apart, the division bench of our Hon'ble High Court has clearly laid down the guidelines to be followed while dealing with a petition U/Sec.34 of the Act in Union of India Vs M/s Warsaw Engineers & Anr. (COMAP No.25/2021 dated 17.04.2021) (DB). The court is required to advert to the grounds, examine whether the same are available U/Ss. 34(2) and 34(2A) of the Act and if available, the court should consider the grounds separately to see whether the same is established.
13. In the light of the rival contention of the parties and having regard to the ratio laid down in the afore cited decisions, 15 Com.A.P.No.15/2020 the following are the points that arise for consideration in this petition:
1. Whether the respondent/petitioner has established that Arbitral Tribunal granting the claim in respect of adjustment cost due to variance in bitumen quantity is contrary to the terms of contract?
2. Whether the respondent/petitioner establishes that granting of claim in respect of adjustment for change in legislation in respect of royalty of input materials is perverse?
3. Whether the respondent/petitioner has established that awarding of financing charges due to delay in payment is contrary to the terms of GCC?
4. Whether the respondent/petitioner has established that order directing payment of Rs.8,05,783/- towards refund of recoveries made by KSHIP towards CSC charges s contrary to the evidence on record in the form of Ex.R25?
5. Whether the respondent/petitioner has established that awarding of Rs.38,77,111/-
by the Arbitral Tribunal towards non
payment for the work done is without
16
Com.A.P.No.15/2020
jurisdiction as several items under the IPC were not permissible under the contract?
6. Whether the respondent/petitioner has established that awarding compensation for loss of profits, delayed payment for the work done under variation order, loss of overheads, loss due to idling of plant and machinery is hit by Order II Rule 2 of CPC and principle of constructive res judicata?
7. Whether the respondent/petitioner has established that the arbitral tribunal rejected the counter claim, ignoring the admission of the claimant with regard to actual date of completion of work in the amended statement of claims and Ex.R1, and also the contract data of contract document stipulating delay damages for section I and II?
8. Whether the respondent/petitioner has made out grounds for setting aside the impugned award as provided U/s 34(2)(b)
(ii) and 34(2A) of the Act?
9. What Order?
14. My findings on the above points are :
Point No.1: In the Affirmative 17 Com.A.P.No.15/2020 Point No.2: In the Negative Point No.3: In the Negative Point No.4: In the Negative Point No.5: In the Negative Point No.6: Partly in the Affirmative Point No.7: In the negative Point No.8: In the Affirmative Point No.9: As per the final order for the following REASONS
15. Point No.1: From the discussion at internal page 35 of the impugned award it is seen that by amending the claim statement, the claimant sought for Rs.42,74,553/- towards adjustment of cost due to bitumen variance contending that they submitted the bid quoting 4.25% bitumen for certain works on the basis of technical specification clause 507.9 of MORT&H. During October 2012 the engineer required them to execute dense graded bituminous macadam work ('DBM work' for short) based on job mix formulae ('JMF' for short) and the percentage of bitumen content was indicated as 4.65%, as such they should be paid additionally for the increased bitumen content.
16. The respondent contested the claim by contending that the minimum bitumen content for the DBM of grading-2 should be 18 Com.A.P.No.15/2020 4.5 as per MORT&H specification 507.2.5. For base and surface courses (bituminous) in volume III of the Contract agreement provides for use of DBM of grading-2. The claimant's unit rate quoted for DBM grading was less than the minimum prescribed. For the present project, grading for DBM was specified as grade- 2 and therefore clause 507.9 would not apply; and the claimant was fully aware of the minimum percentage of bitumen content provided in table 500-10 for DBM grading-2.
17. The learned counsel for the respondent/petitioner argues that the arbitral tribunal ignored the contract terms and awarded the claim towards adjustment of cost due to Bitumen variance merely because the respondent had already paid for the use of excess bitumen over and above 4.25% by treating it as a question of interpretation of the contract and accepted the claimant's argument that they quoted the rate on technical specification, without any evidence to substantiate the same.
18. Per contra, the learned counsel for the claimant/respondent argues that this claim for payment was made due to variation between contract specification and the actual quantity of the Bitumen used for the execution of work. They quoted the rate based on the specification under section 507.9 at Ex.C101 that 19 Com.A.P.No.15/2020 they had to provide bitumen of 4.25%, but they were asked to provide 4.65% by weight; and payment made earlier for the difference between 4.25% and 4.65% was recovered by changing the base rate to 4.5%. The findings of the Arbitral Tribunal directing refund of the said amount cannot be interfered with as it is based purely on the interpretation of the specifications.
19. Taking note of the fact that there is a possibility of increase in the price of components like labour, cement, steel, plant and machinery, spares and bitumen during the execution of the project, the Hon'ble Supreme Court has held in NHAI Vs Progressive MVR (JV) relied upon by the claimant/ respondent that, for calculating the price adjustment of bitumen while applying price adjustment formula the base rate has to be considered and not the current rate. The very nature of price adjustment suggests that such variation would have relevance with the price which was indicated in respect of these components at the time of submitting the tender by the successful bidder and in that sense, it can only refer to the base rate and the formula for working out the price adjustment has to be examined in this hue.
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Com.A.P.No.15/2020
20. In view of the rival contention of the parties and having regard to the ratio laid down in Progressive MVR (JV)'s case cited supra, it is necessary to ascertain from the terms of the contract agreement dated 07.04.2011 if BOQ and the specifications formed a part thereof and whether the interpretation placed by the Arbitral Tribunal on the terms of the contract is a possible one.
21. From paras 1 and 2 of the contract agreement dated 07.04.2011 the letter of acceptance, the letter of bid, the addenda, the particular conditions, the general conditions, the specification, the drawings, the completed schedules (priced BOQ) and JV agreement was agreed to form a part and parcel of the agreement, and the words and expressions to have the same meaning as are respectively assigned to them in the contract documents. It is not in dispute that the bid of the claimant was accepted by letter of acceptance dated 11.03.2011.
22. However, while accepting the bid the respondent made it clear that the weightings indicated by the claimant in the appendix to bid-schedule of adjustment data are not justified and therefore in accordance with footnote of table-A of the 21 Com.A.P.No.15/2020 appendix to bid, the base value and weightings as specified by the employer shall prevail. The same included bitumen in BOQ items in bill No.5 (base and surface courses), bill No.6 (culverts), bill No.7 (bridge works), bill No.1 (preliminary and general), bill No.2 (site clearance), bill No.8 (drainage and protection work), bill No.9 (traffic signs, marking and other road appurtenances), bill No.10 (safety in road construction zone), bill No.11 (EMP cost), bill No.12 (day works).
23. As per sub Clause 1.5 of GCC, the documents forming the contract are to be taken as mutually explanatory of one another and for the purposes of interpretations the priority of documents shall be, contract agreement, letter of acceptance, tender, particular conditions - part A and B, GCC, specifications, drawings, schedule and any other document forming part of the contract.
24. Sub clause 4.1(b) mandates that the contractors document shall be in accordance with the specifications and the drawings. As per Sub clause 12.2(b) the method of measurement shall be in accordance with BOQ or other applicable schedule. Sub clause 12.3 indicates that for each item of work the appropriate rate or price for the item shall be the rate or price specified for such 22 Com.A.P.No.15/2020 item in the contract or, if there is no such item, the rate or price specified for similar work. Any item of work included in BOQ for which no rate or price is specified shall be considered as included in other rates and prices in the BOQ, and shall not be paid for separately.
25. However, as further clarified by sub clause 12.3(a) and (b) of GCC, a new rate or price is provided for an item of work if the measured quantity of the item changes by more than 25% from the quantity of the same in the BOQ or other schedule; the change in quantity multiplied by such specified rate for the item exceeded 0.25% of the accepted contract amount; the change in quantity directly changed the cost per quantity of the item by more than 1% and the item was not specified in the contract as fixed rate item or the work is instructed under clause 13 (variations and adjustment) or no rate or price is specified in the contract for the item.
26. As noted by the Arbitral Tribunal the specifications at Table 500-10 of MORT&H 4th revision the minimum composition of DBM pavement layers for grade-2 is 4.5% (min.) and volume III of Bill of Quantities for BOQ item No.5.03 requires providing and laying DBM course grading-2 of Table 500-10 using paving bitumen 23 Com.A.P.No.15/2020 complying to IS specification IS:73-206 of Viscosity grade bitumen VG-30 complete as per technical specification clause
507.
27. Admittedly, it is not the case of the claimant that, no price or rate was specified for this item of work in the BOQ or the measured quantity of this item changed by more than 25% from the quantity in the BOQ or the change in quantity multiplied by such specified rate for the item exceeded 0.25% of the accepted contract amount or the change in quantity directly changed the cost per unit of bitumen more than 1%. Nor is it the case of the claimant that they had adduced evidence with regard to the same.
28. Even according to the claimant the method of measurement of completed work at para 8 of preamble to BOQ shall be in accordance with the provisions of MORT&H specifications for road and bridge works (4 th revision) published by Indian road congress (IRC). Further, the BOQ in volume III of the contract agreement specifically provides for the use of DBM of grading-2 for base surface courses (bituminous). But the Arbitral Tribunal has concluded that the engineer had paid over and above 4.25% upto IPC 28 and therefore the claimant is 24 Com.A.P.No.15/2020 entitled for adjustment of price over and above the same, ignoring MORT&H specification (Table 500-10) which stipulates minimum bitumen content for grading-2 at 4.5%.
29. Thus, the clauses in the GCC, MORT & H specifications at table 500-10 read with BOQ clearly show that the claimant was required to provide and lay of DBM course grading-2 for BOQ item No.5.03 and the minimum composition of DBM pavement layers for grade-2 is 4.5%. The Arbitral Tribunal having accepted that the contract BOQ clearly specified providing DBM grading-2 (vide table 500-10 of MORT&H 4th revision) where the minimum percentage of bitumen content for grading-2 is 4.5%, has gone on to hold that the question as to the percentage of bitumen actually provided will not be material when the engineer had allowed and recommended for payment upto IPC 28, for the same over and above 4.25%. This, by no stretch of imagination can be accepted as reasonable interpretation of the contract, as sought to be canvassed by the learned counsel for the claimant/respondent.
30. For the forgoing reasons, I am of the considered opinion that in the absence of evidence, the Arbitral Tribunal ought not to have held 4.25% bitumen was agreed between the parties 25 Com.A.P.No.15/2020 specially in the presence of clear specifications at table 500-10 of MORT&H and the BOQ requirements. The same is contrary to the terms of contract agreement. The minimum percentage of bitumen content for grading-2 should have been taken as 4.5% for BOQ item No.5.03 for calculating adjustment of cost due to variation in the bitumen quantity. The interpretation placed by the Arbitral Tribunal on the terms of GCC, the specifications and BOQ, cannot be held to be reasonable. Therefore, the point for consideration is answered in the affirmative holding that allowing of the claim in respect of adjustment of cost due to variance in bitumen quantity is contrary to the terms of contract and without any basis.
31. Points 2 to 5: The Arbitral Tribunal has granted the claim in respect of adjustment for change in legislation in respect of royalty of input materials, financing charges on account of delayed payment, refund of recoveries made by KSHIP and towards non payment for the work done.
32. The respondent/petitioner has challenged the same contending that the claim in respect of royalty was time barred as change in the legislation took place in 2014 and the same was covered under the head price adjustment under clause 13.8 26 Com.A.P.No.15/2020 of GCC; delay in payment of IPC 30 was due to claimant not furnishing clarifications and documents required for certifying the same by the engineer; Ex.R25 amounts to novation of contract U/s 62 of the Indian Contract Act as the claimant had undertaken to bare CSC service charges in the minutes of the meeting dated 07.05.2015 and the same was not sought to be avoided by the claimant; and the claimant had not produced any documents to prove non payment for the work done and therefore the award is bad in law.
33. Per contra, the learned counsel for the claimant/respondent argues that the bid was submitted on 31.05.2010 and the prevailing royalty was payable on some of the BOQ items. During execution of the work royalty charges were revised with effect from 18.02.2014. clause 13.7 provides for price adjustment taking into account any increase or decrease in cost resulting from change in the law. Therefore, Rs.1,26,69,179/- recovered by the respondent from 01.03.2014 under IPC 15 to 30 was claimed. Clause 13.8 is not applicable to such situation. Finance charges were awarded on account of delayed payment in view of Clause 14.6 and 14.8 of GCC in respect of the delay in payment of IPC 30. The respondent's contention with regard to 27 Com.A.P.No.15/2020 novation of contract has been considered by the Arbitral Tribunal in detail and rejected in view of non compliance of clause 2.5 of GCC. In spite of furnishing all the required documents the respondent had not made payment and the Arbitral Tribunal has awarded Rs.38,77,111/- based on Ex.C81(b), the amount which was certified by the respondent's engineer, though the claim was for Rs.49,05,078/- and these findings cannot be interfered with in a petition U/s 34 of the Act the same would involve reappreciation of evidence and interpretation of contractual terms.
34. Sub clause 13.7 of GCC provides for adjusting the contract price by taking into account any increase or decrease in cost due to change in the laws of the country after the base date and affecting the contractor's performance of the contract; such cost shall be included in the contract price and the contractor shall be entitled for payment of the same. Under sub clause 1.1.3.1 of GCC 'base date' means the date 28 days prior to the latest date for submission of tender.
35. There is no dispute that the claimant submitted the bid on 31-05-2010 and the same was based on the prevailing royalty at that point of time. Subsequently, the royalty charges were 28 Com.A.P.No.15/2020 revised with effect from March 2014 vide GO No.C181 MMN 2014 dated 18-02-2014. Relying on the ratio laid down in ITD cementation Ltd Vs NHAI, has directed the respondent to pay Rs.1,26,69,174/- towards payment of additional royalty in view of the subsequent GO.
36. Clause 14.8 of GCC contemplates finance charges at 1% over the prime lending rate fixed by SBI for payment in local currency and at 1% over the three month's London inter bank offer rate for foreign currency, if the claimant does not receive payment in accordance with sub clause 14.7. As provided under sub clause 14.6 the engineer shall deliver to the claimant the IPC stating the amount which he fairly determines to be due, within 28 days after receiving the statement with supporting documents and sub clause 14.7 provides that the respondent shall pay the amounts certified in each IPC within 56 days.
37. The Arbitral Tribunal has considered the claim in this regard at internal page 52 and based on the documents on record it has come to the conclusion that IPC 30 was submitted on 19.03.2016, due date for payment was 14.04.2016 as per clause 14.7. But the respondent issued cheque dated 29.09.2016 for payment of the amount due under IPC 30 as such there was 29 Com.A.P.No.15/2020 delay of 138 days. Therefore, Arbitral Tribunal awarded financial charges for the said period in terms of clause 14.8.
38. It is not in dispute that CSC was to perform the duties of the engineer and the respondent had to bare the charges payable to the engineer. A meeting was held on 07.05.2015 in this regard. The respondent relying on C108 contended that the claimant should bare CSC charges beyond the period of July 2015 as by that time the tenure of engineer's appointment had come to an end. Recovery of Rs.8,05,783/- towards CSC charges was made from IPC 28 at C105, IPC 29 at C109 and IPC30 at C79. The claim in this behalf was refuted based on the undertaking letters C108 (R25) dated 20.05.2015, R26 (C110) dated 26.10.2015 and R27 (C111) dated 07.01.2016.
39. Considering clause 2.5, 8.7 of GCC dealing with the method and manner of employer's claims and having regard to the fact that the respondent had not taken any steps as mandated thereunder to claim CSC charges incurred beyond the original contract period, from the claimant, the Arbitral Tribunal has rightly come to the conclusion that the employer could not have unilaterally recovered CSC charges from the claimant's pending bills, as the dispute for extension of time was pending at that 30 Com.A.P.No.15/2020 time. Further, on considering pleadings and documents on record the Arbitral Tribunal has come a clear conclusion the record of minutes of meeting cannot be construed as claimant's admission of liability to pay the charges of the employer's employee.
40. In so far as the claim towards non payment for the work done, the Arbitral Tribunal has considered the evidence at Ex.C81(c), C5, R29, clause 14.6, 11.2, 11.4, 3.5 to conclude that the respondent was not justified in non payment of the work done, the cost of which was certified by the engineer as due for payment and the procedure laid down in the agreement was not followed in respect of the extra expenditure allegedly incurred to remedy the defect arising out of the claimant's failure to fulfill the contract; and that there was not even any evidence adduced in support of such contention. Therefore, I am of the considered opinion that there is no merit in the challenge to these findings of the Arbitral Tribunal and accordingly, points 2 to 5 for consideration are answered in the negative.
41. Point No.6: It is argued by the learned counsel for the respondent/petitioner that the claim for loss of overhead, delay in approval of variation and consequent delay in making 31 Com.A.P.No.15/2020 payments, loss due to idling of plant and machinery are hit by Order II Rule 2 CPC and constructive res judicata. That the loss of overheads up to the original period of completion i.e., 27.06.2013 was not included in disputes 2 and 3 or in the notice issued prior to initiating arbitration in that behalf. Before the first AT extension of time was sought on the ground of delay in payment for variation but no compensation was sought though the cause of action is the same. when notice dated 22.07.2015 seeking extension of time upto 31.12.2015 was sought the claimant was aware of idling charges but did not include the same in disputes 2 and 3.
42. Per contra, the learned counsel for the claimant/respondent argues that these claims could not have been raised earlier and therefore, they are not barred under order II rule 2 CPC. Clause 14.11 of the agreement does not permit raising of these claims after the work and while submitting their DFS and hence the cause of action for the present claim and the previous claim cannot be one and the same. the Arbitral Tribunal has elaborately considered the legal and factual position to come to the conclusion that these claims are not barred under Order II Rule 2 CPC or hit by the principles of constructive res judicata. 32
Com.A.P.No.15/2020 The said finding is based on facts and agreement provisions and therefore, not amenable to challenge U/s 34 of the Act.
43. There is no dispute that the claimant and the respondent were parties before the first AT which heard disputes 1 to 3 for extension of time and compensation, arising out of the same contract and passed common award dated 16.07.2018. The claimant however did not chose to include the claim for loss of overheads, loss of profit and variation in the notice dated 09.03.2016 or the letter dated 13.01.2015, though they sought for extension of time on the ground of delay in approval of variation, delay in making payment. The cause of action as rightly argued by the learned counsel for the respondent/petitioner is the same in respect of the claim for extension of time in earlier disputes and the claim for compensation under the head loss of overheads, profits and loss due to delay in approval of variation.
44. Order II rule 2 CPC provides that every suit should include the whole of the claim which plaintiff is entitled to make in respect of the cause of action. Where the plaintiff omits to sue in respect of any portion of his claim or intentionally relinquishes, he shall not afterwards sue in respect of the portion so omitted 33 Com.A.P.No.15/2020 or relinquished. Where a person is entitled to more than one relief in respect of the same cause of action may sue for all or any of such relief's; but if he omits to sue for all such reliefs, he shall not afterwards sue for the relief omitted.
45. In the case of State of Gujarat Vs Kothari & Associates cited supra and relied upon by the respondent before this court as well as the Arbitral Tribunal, it is observed that in a works contract more often then not delays occur and that is why it is assumed that the time is not the essence. Where extensions are asked for and granted, there must be a clear and discernible stand on behalf of either of the parties that the extension is granted and/or accepted without prejudice to the claim of damages. It has become common place that neither party lodges a claim for damages but waits for the end of the contract to raise these disputes, taking advantage of the nebulous and equivocal nature of the transactions between them.
46. In this case, the first claim was made before the engineer vide notice dated 13.01.2015 and 13.03.2015 and then before the DB, in the same year in respect of disputes 2 and 3. It was open for the claimant to include the claim for loss of overheads, loss of profits and loss due to delay in approval of the variation. 34
Com.A.P.No.15/2020 But they have admittedly not included the same in their notice dated 09.03.2016. The cause action for claiming the compensation under above heads is the same as the cause of action pleaded in disputes 2 and 3.
47. Therefore, as observed by the Hon'ble Supreme Court in K.V. George's case Order II rule 2 CPC applies and the claim relating to period of original completion date was thus hit by Order II rule 2 CPC and also barred by time. However the respondent has failed to demonstrate that the principles of constructive res judicata applies to the facts of the case. Therefore, I am of the considered opinion that the findings of the Arbitral Tribunal in this regard cannot be accepted and accordingly, the the point for consideration is answered partly in the affirmative.
48. Point No.7: The counter claim of the respondent for liquidated damages from 31.12.2015 to 31.01.2016 amounting to Rs.75,02,000/- and reimbursement of CSC charges amounting to Rs.82,95,492/- are based on delay in completion of the work. In so far as the counter claim for CSC charges is concerned, the respondent had not raised claim for the same by issuing the notice within 28 days from the date of becoming aware of the 35 Com.A.P.No.15/2020 events giving rights to the claim as contemplated under clause 2.5 of the GCC.
49. Clause 8.7 of the contract provides for delay damages from the contractor for default. But as seen from the discussion at page 97 the respondent admitted that their counter claim for damage before the first AT was dismissed on merits and therefore it was restricted to the period beyond 31.12.2015.
50. After considering the documentary evidence on record the Arbitral Tribunal has come to the conclusion that the work was substantially complete and put to use before the extended date the said finding of fact cannot be disturbed by reappreciating the evidence as per the proviso to Section 34(2A) of the Act. Therefore, the point for consideration is answered in the negative.
51. Point No.8: The above discussion makes it clear that the Arbitral Tribunal has unreasonably interpreted the clauses in the contract agreement in so far as adjustment of cost in variance in bitumen quantity is concerned. No reasonable person would place such an interpretation on the terms of contract agreement. The award is therefore vitiated by patently illegality. 36
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52. Further, the Arbitral Tribunal has disregarded the law laid by the Hon'ble Supreme Court in State of Gujarat Vs Kothari & Associates relied upon by the respondent, despite demonstrating that the cause of action for loss of overheads, loss due to idling of plant and machinery, loss of profits and loss due to delay in making payment on approval of variation arose from the cause of action for disputes 2 and 3 before the first AT. The Arbitral Tribunal also failed to appreciate that such a claim was barred by limitation. Disregard for the law laid down by the superior courts amounts to violation of the fundamental policy of Indian law. Therefore, the point for consideration is answered in the affirmative holding that the impugned award is liable to be set aside U/s 34(2)(b)(ii) and 34(2A) of the Act.
53.Point No.9: In the result, I pass the following ORDER The petition U/Sec.34 of the Arbitration and Conciliation Act is hereby allowed.
Award dated 25.11.2019 passed by the Arbitral Tribunal consisting of respondents 2 to 4, is hereby set aside.
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Com.A.P.No.15/2020 Issue copy of the judgment to the parties through e-mail as provided U/o XX Rule 1 of CPC, if mail ID is furnished.
(Dictated to the stenographer, transcribed and typed by her, corrected and then pronounced by me in the open court on this the 5th day of January 2022) (H.R.Radha) LXXXIV Addl. City Civil and Sessions Judge, (CCH-85 Commercial Court) Bengaluru