Himachal Pradesh High Court
State Of H.P. & Another vs Suresh Verma on 26 April, 2016
Author: Rajiv Sharma
Bench: Rajiv Sharma
IN THE HIGH COURT OF HIMACHAL PRADESH, SHIMLA.
Arb. Case No. 61 of 2012.
Reserved on: 7.04.2016.
Decided on: 26.04.2016.
.
State of H.P. & another ......Petitioners.
Versus
Suresh Verma .......Respondent.
Coram
The Hon'ble Mr. Justice Rajiv Sharma, Judge.
Whether approved for reporting? 1. Yes.
For the petitioners: Mr. Parmod Thakur, Addl. AG.
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For the respondent: Mr. Suneet Goel, Advocate.
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Justice Rajiv Sharma, J.
The State has preferred objections under Section 34(2) of the rt Arbitration and Conciliation Act, 1996 (hereinafter referred to as the Act, for convenience sake), against the arbitral award dated 5.5.2012.
2. Key facts, necessary for the adjudication of this petition are that the respondent is a registered contractor. He was enlisted as such with the Himachal Pradesh Public Works Department. He was awarded the work vide award letter dated 1.12.2008 amounting to Rs. 1,72,26,850/-. The agreement was also entered into between the parties. The completion period of work was 18 months. The work was to be completed by 16.6.2010. The respondent has executed work of more than Rs. 10,43,401/-. The respondent approached this Court for appointment of the Arbitrator. Sh.
M.D.Sharma, learned District and Sessions Judge (Retd.) was appointed as Arbitrator vide order dated 31.3.2011. The petition was filed. The counter claim was also filed by the petitioners. He claimed refund of earnest money, claim of damages on account of machinery lying idle at the site, damages on account of idle labour and staff, claim for loss of profit, cost of litigation and 1 Whether reporters of the local papers may be allowed to see the judgment?
::: Downloaded on - 15/04/2017 20:11:00 :::HCHP 2interest @ 18% per annum. The petitioners also filed counter claim claiming compensation due to delay of work, compensation for damages of Shallu .
Dhabas road, expenditure incurred by the petitioners department for the removal of debris from Shallu Dhabas road, compensation for not establishing canteen at site, compensation for not employing Engineer at the site, compensation to deprive the people from getting benefit from the road, compensation on account of extra expenditure if the work was to be executed of by the other agency and lastly interest @ 18% per annum. The counter claim was dismissed. The learned Arbitrator made the award on 5.5.2012. The rt respondent was awarded sum of Rs. 1,47,000/- under claim for refund of earnest money, Rs. 18,15,000/- for claim of damages on account of machinery lying idle at the site and Rs. 60,000/- on account of labour lying idle, Rs. 16,18,345/- for claim for loss of profit. The total amount of Rs.
36,40,345/- along with interest @ 9% p.a from September, 2009 when the construction work was stopped till realization plus costs, including arbitration fee of Rs. 35,000/- (Rs. 30,000/- being arbitration fee plus Rs.
5000/- as ministerial charges) and a sum of Rs. 120/- as stamp charges was awarded by the learned Arbitrator. Hence, these objections under Section 34(2) of the Act.
3. Mr. Parmod Thakur, Addl. Advocate General for the State has vehemently argued that the contractor was merely asked to stop the work till forest clearance was received. The approval under the Forest Conservation Act, 1980 was accorded on 18.4.2011. The earnest money could not be allowed to be refunded. The respondent could not be paid Rs. 18,15,000/- on account of claim of damages on account of machinery lying idle at the site ::: Downloaded on - 15/04/2017 20:11:00 :::HCHP 3 w.e.f. October, 2009 to December, 2009 and also Rs. 60,000/- for the labour remaining idle. The respondent was not entitled to anticipatory profit of 10% .
amounting to Rs. 16,18,345/-. The interest @ 9% p.a. from September, 2009 till its realization was on the higher side. On the other hand, Mr. Suneet Goel, Advocate has supported the award dated 5.5.2012.
4. I have heard learned counsel for the parties and gone through the impugned award dated 5.5.2012, carefully.
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5. The work was awarded to the respondent vide letter No. PWCSD/Tender/08915-73-73 dated 1.12.2008. The work was to be rt completed within 18 months. The contractor has executed the work amounting to Rs. 10,43,401/-. The Forest Range Officer, Chopal vide letter dated 22.7.2009, directed him to stop the work and further directed not to allow agency for the use of forest land for non-forest purposes. He stopped the execution of the construction work. He was also informed on 26.9.2009 as well as on 22.12.2009 not to further execute the work. However, the respondent has already made necessary arrangements for execution of the work by engaging one L & T machine, three compressors, two JCB machines, two tippers and one tractor. He had also employed 20 beldars for the work.
He informed the department vide letters dated 1.10.2009, 28.10.2009 and 18.11.2009 (Annexures C-5 to C-7) to the effect that his labour and machinery has remained idle causing him loss.
6. Now, as far as refund of earnest money is concerned, the petitioners had issued letter dated 22.7.2009 followed by another letter dated 26.9.2009 asking the respondent to stop the execution of the work for want of clearance and permission of the forest department. In fact, the forest ::: Downloaded on - 15/04/2017 20:11:00 :::HCHP 4 department has accorded the permission only on 18.4.2011. The department ought to have taken the permission before entering into agreement with the .
respondent. The learned Arbitrator has rightly come to the conclusion that the fault lied with the department and not with the respondent. Thus, an amount of Rs. 1,47,000/- has rightly been awarded in favour of the respondent.
7. Now, as far as the claim of damages on account of machinery of lying idle and on account of labour remaining idle is concerned, the work was to be completed within 18 months. The respondent has worked up to 2.8.2009.
rt The work was stopped on the basis of letters dated 22.7.2009, 26.9.2009 and 22.12.2009, issued by the department whereby the respondent was directed to stop the work for want of clearance and permission of the forest department under the Forest Conservation Act, 1980.
By that time, the respondent had already started work and executed it worth Rs. 10,00,000/-. He had deployed one L & T machine, three compressors, two JCB machines, two tippers and one tractor for the same. The respondent has also given the details of rents on which each of the machinery was hired by him. The monthly rent of two JCB machines was Rs. 1,10,000/-, of one L & T machine was Rs. 1,50,000/- per month and for each Compressor was Rs.
40,000/- per month. It was Rs. 40,000/- per month for each of the two tippers. The respondent was to pay Rs. 35,000/- per month for hiring tractor.
8. Mr. Parmod Thakur, Addl. Advocate General for the State has vehemently argued that the learned Arbitrator has awarded the amount under these heads w.e.f. September, 2009 till June, 2010. However, the fact ::: Downloaded on - 15/04/2017 20:11:00 :::HCHP 5 of the matter is that the learned Arbitrator has only awarded the compensation to the contractor under these two claims for the months of .
October to December, 2009. The respondent has placed on record the extract of attendance register for the month of October, November and December, 2009. The expenditure incurred by him was shown to be Rs.
30,000/-, 20,000/- and 20,000/-, respectively. Thus, there is no infirmity in the compensation awarded for three months w.e.f. October, 2009 to of December, 2009 to the tune of Rs. 18, 15, 000/- and Rs. 60,000/- on account of machinery and idle labour at the site.
9. rt The total value of the contract was 1,72,26,850/-. The work was to be executed within 18 months, as noticed hereinabove. It is not in dispute that the respondent has executed the work worth Rs. 10,43,401/- up to August, 2009. The work was stopped vide letter dated 22.7.2009 followed by letters dated 26.9.2009 and 22.12.2009, only for the reason that the necessary clearance and permission of the forest department under the Forest Conservation Act, 1980 has not been obtained. The petitioners have permitted the respondent to start the work and it was only mid-way he was informed that the necessary permission under the Forest Conservation Act, 1980, has not been obtained. Thus, in these circumstances, the respondent could not be deprived of expected profit. He was rather prevented from completing the work. He had engaged the labour and hired machinery for the work. The learned Arbitrator has awarded Rs. 16,18,345/- to the respondent for the damages on account of expected profit to the extent of 10% of the left over value of contract. The awarding of 9% p.a. interest on a sum of Rs.
36,40,345/- from September, 2009 till its realization is strictly in accordance ::: Downloaded on - 15/04/2017 20:11:00 :::HCHP 6 with law. The arbitration fee of Rs. 35,000/- and ministerial charges are in conformity with law. The learned Arbitrator has rightly rejected the counter .
claim filed by the objectors. They have not led any evidence to prove their entitlement. The petitioners themselves are at fault by permitting the respondent to commence the work and thereafter asking him to abruptly stop the work for want of clearance under the Forest Conservation Act, 1980. The issues raised in the counter claim have already been dealt with by the learned of Arbitrator while deciding the claims raised by the respondent. The award dated 5.5.2012 cannot be held to be against the public policy. The fact of the rt matter is that the permission under the Forest Conservation Act, 1980, was only obtained on 18.4.2011. The learned Arbitrator has correctly appreciated the entire material placed on record by the petitioners as well as the respondent.
10. Their lordships of the Hon'ble Supreme Court in the case of M/S A.T. Brij Paul Singh and others vs. State of Gujarat, reported in (1984) 4 SCC 59, have held that ordinarily, when a contractor submits his tender in response to an invitation to tender for a works contract, a reasonable expectation of profit is implicit in it and its loss has to be compensated by way of damages if the other party to the contract is guilty of breach of contract. Their lordships have further held that what would be the measure of profit would, however, depend upon facts and circumstances of each case.
While estimating the loss of profit for the breach of contract, it would be unnecessary to go into the minutest details of the work executed in relation to the value of the works contract. Their lordships have held as follows:
::: Downloaded on - 15/04/2017 20:11:00 :::HCHP 7"9. It was not disputed before us that where in a works contract, the party entrusting the work commits breach of the contract, the contractor would be entitled to claim damages for loss of profit which he expected to earn by undertaking the works contract. What must be the measure of .
profit and what proof should be tendered to sustain the claim are different matters. But the claim under this head is certainly admissible.
Leaving aside the judgment of the trial court which rejected the claim for want of proof, the High Court after holding that the respondent was not justified in rescinding the contract proceeded to examine whether the plaintiff-contractor was entitled to damages under the head 'loss of profit.' In this connection, the High Court referred to Hudson's Building and Engineering Contract (1970), tenth edition and observed that 'in major contracts subject to competitive tender on a national basis, the evidence given in litigation on many occasions suggests that the head-
of office overheads and : profit is between 3 to 7% of the total price of cost' which is added to the tender. In other words, the High Court was of the view that the claim under this head was admissible. The High Court, however, addressed itself to the question whether adequate proof is tendered to sustain the claim. In this connection, it was observed that rt the loss of profit when it is sought to be recovered on the percentage basis has to be proved by proper evidence. Having settled the legal position in this manner, the High Court proceeded to reject the claim observing that the bare statement of the partner of the contractor's firm that they are entitled to damages in the nature of loss of profit @ 20% of the estimated cost is no evidence for the purpose of establishing the claim. The High Court further observed that the appellant has not proved by any primary documents the basis of its pricing for the purpose of quotation in reply to the tender and more so when it has quoted at 7 % less than the original estimated cost and in this view of the matter the claim for loss of profit is unsustainable.
10. Mr. Aneja, learned Counsel for the appellant urged that the appellant was placed at a comparative disadvantage on account of his two appeals arising from two identical contracts inter prates being heard on two different occasions by two different Benches even though one learned Judge was common to both the Benches. Mr. Aneja pointed out that in the appeal from which the cognate Civil Appeal No. 1998/72 arises, the same High Court in terms held that the claim by way of damages for loss of profit on the remaining work at 15% of the price of the work as awarded by the trial court was not unreasonable. The High Court had observed in the cognate appeal that 'the basis adopted by the learned civil Judge in computing the loss of profit at 15% on the value of the remaining work contract cannot be said to be unreasonable'. In fact, the High Court had noticed that this computation was not seriously challenged by the State, yet in the judgment under appeal the High Court observed that actual loss of profit had to be proved and a mere percentage as deposed to by the partner of the appellant would not furnish adequate evidence to sustain the claim. In this connection the High Court referred to another judgment of the same High Court in First Appeal No. 89 of 1965 but did not refer to its own earlier judgment rendered by one of the Judges composing the Bench in First Appeal No. ::: Downloaded on - 15/04/2017 20:11:00 :::HCHP 8 384 of 1962 rendered on 3/6 July, 1970 between the same parties. When this was pointed out to Mr. Mehta, his only response was that the court cannot look into the record of the cognate appeal. We find the response too technical and does not merit acceptance. We are not disposed to .
accept the contention of Mr. Mehta for two reasons: (1) that in an identical contract with regard to another portion of the same Rajkot-
Jamnagar road and for the same type of work, the High Court accepted that loss of profit at 15% of the price of the balance of works contract would provide a reasonable measure of damages if the State is guilty of breach of contract. The present appeal is concerned with the same type of work for a nearby portion of the same road which would permit an inference that the work was entirely identical. And the second reason to reject the contention is that ordinarily a contractor while submitting his tender in response to an invitation to tender for a works contract of reasonably expects to make profits. What would be the measure of profit would depend upon facts and circumstances of each case. But that there shall be a reasonable expectation of profit is implicit in a works contract and its loss has to be compensated by way of damages if the other party to the contract is guilty of breach of contract cannot be gainsaid. In this rt case we have the additional reason for rejecting the contention that for the same type of work, the work site being in the vicinity of each other and for identical type of work between the same parties, a Division Bench of the same High Court has accepted 15% of the value of the balance of the works contract would not be an unreasonable measure of damages for loss of profit. We are therefore, of the opinion that the High Court was in error in wholly rejecting the claim under this head.
12. Mr Aneja then attempted to take us through the maze of evident and requested us that the claim under this head in the amount of Rs. 4,30,314/- is reasonable, fair and just. The value of the works contract was Rs. 16,59,900/- and the appellant had offered the rate at 7 % less of the estimate made by the State. The appellant had executed some part of the contract. How much work he had completed and what was the balance of the work contract was attempted to be spelt out by a reference to Ext. 77/1 (Line Plan of Road) read with Ext. 77/2 and 77/3 showing the widening of the side strips near Kankawati Bridge as well as Longitudinal Sections of the Roads. In our opinion, while estimating the loss of profit that can be claimed for the breach of contract by the other side, it would be unnecessary to go into the minutest details of the work executed in relation to the value of the works contract. A broad evaluation would be sufficient. We in this connection, invited both Mr. Aneja, learned Counsel for the appellant and Mr. T.U. Mehta, learned Counsel for the respondent to give broad features of the work as well as the portion of the work executed by the appellant. Having heard them, we are satisfied that the appellant should be awarded Rs. 2 lakhs under the head 'loss of estimated profit' for breach of contract by the respondent."
11. Their lordships of the Hon'ble Supreme Court in the case of Dwarka Das vs. State of M.P. and another, reported in (1999) 3 SCC 500, ::: Downloaded on - 15/04/2017 20:11:00 :::HCHP 9 relying upon the earlier decision have held that whereby the claim of Rs.
20,000/- on account of damages as expected profit out of the contract was .
found to have been illegally rescinded was justified. It has been held as follows:
"6. Section 152 C.P.C. provides for correction of clerical arithmetical mistakes in judgments, decrees or orders or errors arising therein from any accidental slip or omission. The exercise of this power contemplates the correction of mistakes by the Court of its ministerial actions and does of not contemplate of passing effective judicial orders after the judgment, decree or order. The settled position of law is that after the passing of the judgment, decree or order, court or the tribunal becomes functus officio and thus being not entitled to vary the terms of the judgments, decrees and orders earlier passed. The correction contemplated are of correcting rt only accidental omission or mistakes and not all omissions and mistakes which might have been committed by the Court while passing the judgment, decree or order. The omission sought to be corrected which goes to the merits of the case is beyond the scope of Section 152 for which the proper remedy for the aggrieved party is to file appeal or review application. It implies that the Section cannot be pressed into service to correct an omission which is intentional, how erroneous that may be. It has been noticed that the courts below have been liberally construing and applying the province of Sections 151 and 152 of the CPC even after passing of effective order in the Us pending before them. No Court can under the cover of the aforesaid sections modify, alter or add to the terms of its original judgment, decree or order. In the instant case, the trial court had specifically held the respondents-State liable to pay future interest only despite the prayer of the appellant for grant of interest with effect from the date of alleged breach which impliedly meant that the court had rejected the claim of the appellant in so far as pendente lite interest was concerned. The omission in not granting the pendente lite interest could not be held to be accidental omission or mistake as was wrongly done by the trial court vide order dated 30th November, 1973. The High Court was, therefore, justified in setting aside the aforesaid order by accepting the revision petition filed by the State.
7. The reliance of the learned counsel for the appellant on Jainab Bai case (supra) is misplaced inasmuch as in that case the aggrieved party had sought for award of interest after the decree, by filing the application under Section 152 C.P.C. and under Order 47 Rule (1) of the C.P.C. The Division Bench relied upon the decision of Madras High Court in Thirugnanavali Amal v. P. Venugopala, AIR (1940) Madras p. 29 wherein it was held that where a mistake had occurred in the decree inspite of mention of the future interest in the judgment, the Court had the power to rectify the mistake and if it occurred in the decree because of omission of it in the judgment, the mistake could not be corrected. We agree with the view taken by Madras High Court but cannot subscribe to ::: Downloaded on - 15/04/2017 20:11:00 :::HCHP 10 the general observations made by the Madhya Bharat High Court in Jainab Bai's case. In Maharaja Puttu Lal v. Sripal Singh and Ors., AIR 1937 Oudh 191, the court had awarded the mesne profits to the decree holder by correction upon satisfaction that the plaintiff had specifically .
claimed such profits and its pleader was admitted to have made an oral statement requesting the court to determine the amount of mesne profits in the execution department which was accepted but not mentioned in the decree sheet. Under the facts and circumstances of that case the court held that such being an accidental omission the same could be corrected in exercise of the powers vested in the court under Section 152 of the C.P.C."
12. In the instant case, the respondent has placed on record copies of of agreement dated 3.2.2009 and 16.5.2009 entered into between the parties for hiring the machinery such as JCB, compressor etc.. He has also placed to them.
rt on record copies of attendance register of the labour showing payments made Mr. Bhardwaj, Executive Engineer has filed his own affidavit in support of counter claims.
13. Their lordships of the Hon'ble Supreme Court in the case of Navodaya Mass Entertainment Limited vs. J.M. Combines, reported in (2015) 5 SCC 698, have held that once the Arbitrator has applied his mind to matter before him, Court cannot reappraise said matter as if it were an appeal. Even if two views are possible, view taken by Arbitrator would prevail. It has been held as follows:
" 8. In our opinion, the scope of interference of the Court is very limited. Court would not be justified in reappraising the material on record and substituting its own view in place of the Arbitrator's view. Where there is an error apparent on the face of the record or the Arbitrator has not followed the statutory legal position, then and then only it would be justified in interfering with the award published by the Arbitrator. Once the Arbitrator has applied his mind to the matter before him, the Court cannot reappraise the matter as if it were an appeal and even if two views are possible, the view taken by the Arbitrator would prevail. (See: Bharat Coking Coal Ltd. Vs. L.K. Ahuja, (2004) 5 SCC 109; Ravindra & Associates Vs. Union of India, (2010) 1 SCC 80; Madnani Construction Corporation Private Limited Vs. Union of India & Ors., (2010) 1 SCC 549; Associated Construction Vs. Pawanhans Helicopters Limited, (2008) 16 SCC 128; and Satna Stone & Lime Company Ltd. Vs. Union of India & Anr., (2008) 14 SCC 785.) ::: Downloaded on - 15/04/2017 20:11:00 :::HCHP 11
9. We have also perused the clauses of the said Agreement, in particular clauses 3 & 5 of the Agreement. We find that the reasoning given by the Division Bench of the High Court cannot be said to be perverse. Furthermore, the appellant never terminated the Agreement or requested the first respondent to .
take back the machinery. Now, at this stage it would not be proper for us to express further opinion in the matter when the matter/dispute has already been concluded by the Arbitrator and the award has been affirmed by the High Court."
14. In the same volume, their lordships of the Hon'ble Supreme Court in the case of Bharat Heavy Electricals Ltd. vs. Globe Hi-Fabs Ltd., of reported in (2015) 5 SCC 718, have held that where Arbitrator has awarded interest at the statutory rate of interest, reduction of interest by court is rt impermissible. Lesser rate of interest cannot be awarded as it would amount to amending the law, which is not within the powers of judiciary. Their lordships have held as follows:
"17. On the facts of the case we agree with the submission of Mr. Gourab Banerji that interest is only payable from the date of the award. However, we do not agree with him that the interest should be reduced because of Section 31(7)(b) of the Arbitration and Conciliation Act, 1996 which clearly states that rate of interest will be 18% p.a. Shri Gourab Banerji submitted that in some decisions, a lesser interest has been awarded. We cannot see how a lesser interest can be awarded when the statute specifically provides that the rate of interest will be 18% p.a. and the arbitrator has accepted and awarded this rate of interest. Judges cannot legislate or amend the law by judicial decisions. They have to maintain judicial discipline and give their decisions in accordance with law. Hence the lesser rate of interest cannot be awarded because that would be amending the law which is not within the powers of the judiciary."
15. In the instant case, the award is strictly in conformity with the terms of the agreement entered into between the parties.
16. Their lordships of the Hon'ble Supreme Court in the case of Swan Gold Mining Limited vs. Hindustan Copper Limited, reported in (2015) 5 SCC 739, have held that it is well settled proposition that the court ::: Downloaded on - 15/04/2017 20:11:00 :::HCHP 12 shall not ordinarily substitute its interpretation for that of the arbitrator.
Similarly, when the parties have arrived at a concluded contract and acted on .
the basis of those terms and conditions of the contract then substituting new terms in the contract by the arbitrator or by the court would be erroneous or illegal. The arbitrator appointed by the parties is the final Judge of the facts.
The award made was not contrary to the fundamental policy of Indian law or against the interest of India or on the ground of patent illegality. Their of lordships have further held that the words "public policy" or "opposed to public policy" find reference in Section 23 of the contract Act and also Section rt 34(2)(b)(ii) of the Arbitration and Conciliation Act, 1996. The interpretation of the contract is matter of the arbitrator, who is a Judge chosen by the parties to determine and decide the dispute. The Court is precluded from re-
appreciating the evidence and to arrive at different conclusion by holding that the arbitral award is against the public policy. It has been held as follows:
"11. Section 34 of the Arbitration and Conciliation Act, 1996 corresponds to Section 30 of the Arbitration Act, 1940 making a provision for setting aside the arbitral award. In terms of sub-section (2) of Section 34 of the Act, an arbitral award may be set aside only if one of the conditions specified therein is satisfied. The Arbitrator's decision is generally considered binding between the parties and therefore, the power of the Court to set aside the award would be exercised only in cases where the Court finds that the arbitral award is on the fact of it erroneous or patently illegal or in contravention of the provisions of the Act. It is a well settled proposition that the Court shall not ordinarily substitute its interpretation for that of the Arbitrator. Similarly, when the parties have arrived at a concluded contract and acted on the basis of those terms and conditions of the contract then substituting new terms in the contract by the Arbitrator or by the Court would be erroneous or illegal.
12. It is equally well settled that the Arbitrator appointed by the parties is the final judge of the facts. The finding of facts recorded by him cannot be interfered with on the ground that the terms of the contract were not correctly interpreted by him.::: Downloaded on - 15/04/2017 20:11:00 :::HCHP 13
19. The words "public policy" or "opposed to public policy", find reference in Section 23 of the Contract Act and also Section 34 (2)(b)(ii) of the Arbitration and Conciliation Act, 1996. As stated above, the interpretation of the contract is matter of the Arbitrator, who is a Judge, .
chosen by the parties to determine and decide the dispute. The Court is precluded from re-appreciating the evidence and to arrive at different conclusion by holding that the arbitral award is against the public policy."
17. Accordingly, the objections are dismissed. The award made by the learned Arbitrator dated 5.5.2012 is upheld. Pending application(s), if of any, shall also stand disposed of. No costs.
April 26, 2016, ( Rajiv Sharma ),
(karan) rt Judge.
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