Bangalore District Court
/ : M/S.Senthil & Co vs Union Of India Owning Swr on 1 October, 2018
IN THE COURT OF THE VI ADDL. CITY CIVIL & SESSIONS JUDGE
AT BENGALURU CITY
(CCCH.11)
Dated this the 1st day of October, 2018
PRESENT: Sri.Rama Naik, B.Com., LL.B.,
VI Addl.City Civil & Sessions Judge,
Bengaluru City.
A.S.NO: 94/2013
C/W
A.S.NO:95/2013
PLAINTIFF / : M/s.Senthil & Co.,
CLAIMANT Periyeripatty (P.O)
[In AS.94/2013] Tholasampatty, (Via) Omalur Tk.,
Salem District - 636 503.
[By Pleader Sri.P.Harischandra Reddy]
/Vs/
DEFENDANTS/ : UNION OF INDIA OWNING SWR
RESPONDENTS REPRESENTED BY :
[In AS.94/2013]
1) The Chief Administrative Officer,
Construction, South Western Railway,
18 Millers Road, Bengaluru -560 046.
2) The Chief
Engineer/West/Construction,
South Western Railway,
Bengaluru -560 046.
3) The Depty Chief Engineer/
Construction,
South Western Railway,
Yadavagiri, Mysore-570 020.
2 AS.94/2013
C/w
AS.95/2013
4) Sri.R.S.Dubey & (Presiding
Arbitrator)
Chief Engineer/I, Construction,
South Western Railway,
Hubli - 580 023.
5) Smt.Padmini Radhakrishnan,
FA & CAO/CN/BNC (Co-Arbitrator)
Construction,
South Western Railway,
18 Millers Road, Bengaluru -560 046.
6) Sri.Shyamadhar Ram,
CMPE/Diesel (Co-Arbitrator)
South Western Railway,
Hubli - 580 023.
--
PLAINTIFF : The Union of India
[In AS.95/2013] Acting through its Chief Engineer
(Constructions)
South Western Railway,
No.18, Millers Road,
Bengaluru-560 046.
/Vs/
RESPONDENTS : 1) M/s.Senthil & Co.,
[In AS.95/2013] Periyeripatty (P.O)
Tholasampatty, (Via) Omalur Tk.,
Salem, Tamil Naidu PIN : 636 503.
Tamil Nadu.
/Vs/
2) Sri.R.S.Dubey
CE/CN/I/UBL
South Western Railway, Hubli.
3 AS.94/2013
C/w
AS.95/2013
3) Smt.Padmini Radhakrishnan,
FA & CAO/CN/BNC
South Western Railway,
18 Millers Road, Bengaluru -560 046.
4) Sri.Shyamadhar Ram,
CMPE/Diesel /SWR/UBL
South Western Railway,
Hubli.
---
COMMON JUDGMENT
The suit in AS.No.94/2013 is filed by the Plaintiff [1st
Defendant in AS.No.95/2013] praying for setting aside the
impugned award dated 01.08.2013 in respect of Claim Nos. 2, 4,
5, 6, 8 and 9 and suit in AS.No.95/2013 is filed by the Plaintiff i.e.
1st Defendant in AS.No.94/2013 praying for setting aside the
award passed by the Arbitral Tribunal, pronounced on 31.07.2013
and consequently praying for rejection of all claims of the 1st
Defendant in its entirety.
2) AS.NO.94/2013 and AS.NO.95/2013 are arising out of the
same award dated 01.08.2013, which was pronounced on
31.07.2013 by the Hon'ble Arbitral Tribunal. For the convenience
4 AS.94/2013
C/w
AS.95/2013
of the court, both the suits are taken together for passing
common judgment.
3) The brief facts of the Plaintiff's case in AS.No.94/2013 are
that, Plaintiff being a Partnership firm has executed several
contracts successfully. The Plaintiff accepted the tender of work
of "Ramanagaram-Mysore doubling of track (MYA-MYS Section) -
Collection and stacking of 50 mm size hard stone ballast along
side or on the formation of existing railway alignment from KM
128/0 to 138/25 between Naganahalli and Mysore (Including
Naganahalli and Mysore yard) in Ramanagaram-Mysore" vide
Letter of Acceptance dated 15.09.2008 and Contract Agreement
was entered into vide Agreement No.CAO/CN/BNC/72922/A/
430/XI/08 dated 07.11.2008. the Plaintiff states that soon after
receiving Letter of Acceptance, it requested the 1st Defendant to
mark out the location for collecting and stocking the ballast vide
letter dated 24.09.2008. The 1st Defendant demarcated the site
for collection of materials on 30.10.2008. The Plaintiff further
states that it collected ballast 100 cum on site between
01.11.2008 and 02.11.2008. The 3rd Defendant took test sample
5 AS.94/2013
C/w
AS.95/2013
on 04.11.2008 and sent it for test on 07.11.2008 and the same
was got approved. Thereafter, the Plaintiff collected 2000 cum
ballast and the same was sent for test by the 3rd Defendant on
17.11.2008. The same was got approved on 20.11.2008. Then,
the Plaintiff collected further 4000 cum ballast, it was sent to test
by 3rd Defendant on 18.12.2008. The 3rd Defendant did not send
the test report. Instead, 1st Defendant sent letter dated
22.12.2008, which was received by the Plaintiff on 31.12.2008
stating that quality of ballast is not good. The Plaintiff sent reply
dated 07.01.2009 stating that the quality of ballast is good and
requested for payment. It is the further case of the Plaintiff that,
the 1st Defendant in its reply stated that the measurement would
be taken. In addition, the Plaintiff also sent a letter dated
13.01.2009 to send the test report. The Plaintiff also states that
when matter stood thus, the 1st Defendant issued 7 days notice
for slow progress of work vide letter dated 23.01.2009. The
Plaintiff in its letter dated 27.01.2009 brought to the notice of the
1st Defendant that the ballast collected as per specifications and
sent the test result report to the 1st Defendant along with letter.
6 AS.94/2013
C/w
AS.95/2013
The 1st Defendant did not accept the test report sent by the
Plaintiff and requested to attend the joint measurement of ballast
collected in its letter dated 02.02.2009. The Plaintiff also replied
to the 1st Defendant on 04.02.2009 stating that the test report
was given by Golden Valley Institute of Technology and collected
ballast at the same quarry from where other agencies were
collecting. The Plaintiff further states that the 1st Defendant
instead of arranging payments, issued 48 hours notice and the
same was countered by the Plaintiff on 05.02.2009 seeking co-
operation for measurement and completion of work. Instead, the
1st Defendant issued termination notice dated 06.02.2009
terminating the contract and asked to appear for final
measurement on 13.02.2009. The 1st Defendant also issued letter
on 14.03.2009 for removing unmeasured ballast stocks. The
Plaintiff in its reply dated 25.03.2009 stated that the termination is
illegal and it should be revoked. In the said letter, the Plaintiff
requested for allowing to collect the entire agreement quantities.
The 1st Defendant in its letter dated 22.04.2009 stating that final
measurement was recorded in the absence of the Plaintiff and
7 AS.94/2013
C/w
AS.95/2013
asked to come to office to sign the final rider. The Plaintiff replied
the same on 02.05.2009. When the Plaintiff visited the 1st
Defendant office on 18.5.2009 to sign the rider, the 1st Defendant
did not allow to sign and this fact was informed in letter dated
18.05.2009. The Plaintiff also states that the 1st Defendant
directed the Plaintiff to remove the stacks vide letter dated
20.05.2009. When there was no positive reply from the 1st
Defendant, the Plaintiff removed the ballast by informing the 1st
Defendant on 10.03.2010. The Plaintiff states that it removed
approximate quantity of 4300 cum of ballast which resulted in
huge loss to the Plaintiff.
The Plaintiff stated that it submitted a consolidated list of
claims to the 1st Defendant in its letter dated 17.04.2010 to settle
the claims within 120 days which were arisen to the Plaintiff due
to termination of contract. As the 1st Defendant did not settle the
claims, dispute arose and written letter dated 21.06.2010 to the
General Manager as per Clause 63 of GCC for decision. The 1st
Defendant rejected the same vide letter dated 16.07.2010. The
Plaintiff therefore referred the dispute to the General Manager for
8 AS.94/2013
C/w
AS.95/2013
appointment of Arbitrator as per Clause 64(3)(a)(ii) of GCC in its
letter dated 31.07.2010. The General Manager agreed to refer the
dispute and sent a list of Arbitrators for selection on 14.09.2010.
Accordingly, the Plaintiff selected two officers from the panel of
Arbitrators. The Plaintiff has challenged the award passed by the
Arbitral Tribunal on the following grounds.
(a) The decision of the Arbitral Tribunal is contrary
to its own decision in not allowing the other claims
claimed by the Plaintiff.
(b) The arbitral award may be set aside by this
court as party was under some incapacity as per
Section 34(2)(a)(i) of the Act.
(c) The arbitral award decides the matter not in
accordance with substantive law for the time being in
force in India and hence, liable to be set aside under
Section 34 read with Section 28(1)(a) of the Act.
(d) The award discloses apparent errors of law on
its face under Section 34(2)(a)(iv) and 34(2)(b)(i)(ii).
(e) The award discloses apparent errors of facts,
evidences and law of land in deciding the disputes
between the parties.
9 AS.94/2013
C/w
AS.95/2013
(f) The award contains decisions on matters
beyond and out side the scope of the submissions.
(g) The award is in conflict with the public policy of
India and substantive law.
The Plaintiff has also challenged the award on Claims No.2,
4, 5, 6, 8 and 9 on the grounds that the Arbitrators held the
termination of contract appears to be improper, hence, the
balance bill amount of Rs.7,79,819/- has to be refunded under
Claim No.2 and that the Tribunal has not awarded any amount
under Claim No.4, 5 and 6 even on production of relevant
documents and evidences and that even account was finalizing,
no order was made for return of balance amount of Rs.7,79,819/-
with interest at 24% from the date of due to the date of payment
under Claims No.8 and 9.
4) The Plaintiff in A.S.No.95/2013 states that tests of ballast
are basically representative in character for samples of quantity up
to 2000 cum. After passing of the lab tests, sieve analysis are
required to be carried out for all the stacks in order to confirm the
quality of ballast and to ensure adherence of Contract conditions
10 AS.94/2013
C/w
AS.95/2013
on para No.2.1 and 5.3.2. Accordingly, sieve tests were carried
out at the site and it was found that out of 13 stacks, Stack Nos.
SD-5, 6, 7 and 8 did not conform to the quality standards and
stack Nos.SD-12 and 13 had not been stacked properly to enable
proper measurement. These stacks were of the quantity of 2100
cum and the 1st Defendant was called upon to remove the stacks
which did not conform to the prescribed standards. In the
meanwhile, tests conducted for the quantity from 2000 to 4000
cum in the Railway Lab during the period 26.12.2008 to
31.12.2008 had failed and the same was intimated to the 1st
Defendant and the 1st Defendant responded by letter dated
07.01.2009 that the quantity conformed to the requisite quality
and they had been tested at the Golden Valley Institute of
Technology at KGF. This alleged test had not been conducted
with the consent or knowledge of the Railways. In view of the
failure of the test, the 1st Defendant was called upon to attend the
measurement in respect of quantity which had passed the test.
As the 1st Defendant did not do any work from 22.12.2008 to
22.01.2009 and did not chose to respond to the instructions of the
11 AS.94/2013
C/w
AS.95/2013
Railways, a 7 days' notice was issued on 23.01.2009, to which,
the 1st Defendant replied by letter dated 27.01.2009 that the
ballast supplied by him was of proper quality and had passed the
test at Golden Institute. Once again, by a letter dated 02.02.2009,
the Railways called upon the 1st Defendant to attend the
measurements and for checking whether the ballast conformed to
the specifications, since there was no response, a 48 hours' notice
dated 03.02.2009 was issued and as there was no response to the
said notice, a termination notice dated 06.02.2009 was issued
informing the 1st Defendant that joint measurement was
scheduled on 13.02.2009. The 1st Defendant did not attend the
measurements. Out of 13 stacks, Stack No.SD-5, 6, 7 and 8 were
rejected on the basis of quality and Stack Nos.SD.12 and 13 were
rejected as they were not stacked properly and could not be
measured. The same was intimated to the 1st Defendant and was
asked to lift the Ballast; failing which, it would be liable for
payment of demurrage, etc., as per GCC. The 1st Defendant
ignored the requests of the Railways and hence, they prepared
and passed the final bill and returned Rs.2,94,701/- which is due
12 AS.94/2013
C/w
AS.95/2013
to the 1st Defendant. Thereafter, the 1st Defendant raised
disputes and referred the matter to Arbitration excluding the
excepted matters vide Terms of Reference dated 30.09.2010. The
1st Defendant filed a petition before the Hon'ble High Court of
Karnataka in CMP.No.81/2011 seeking for reference of all
disputes, wherein the High Court stated that it was for the Arbitral
Tribunal to decide whether the claims were excepted matters,
accordingly, a fresh Terms of reference dated 08.03.2012 was
issued asking the Tribunal to determine whether the claims were
arbitrable. The Tribunal entered into reference and basically
without deciding the arbitrability of the claims passed an award on
merits stating the termination was hasty and illegal and awarded a
sum of Rs.16,52,829/- and rejected the counter claim of the
Railways. Hence, the award of the Tribunal is illegal and
challenged it on the following grounds.
(1) It cannot be disputed that the determination of
the Contract is an excepted matter as stated in Clause
63 of GCC and thus the essential dispute raised by the
1st Defendant was clearly excluded from the purview of
the arbitration, hence, the award holding that the
termination of the Contract was incorrect and the
13 AS.94/2013
C/w
AS.95/2013
consequential direction to pay for the materials
supplied and for refund of SD etc., cannot be sustained
and is liable to be set aside.
(2) The Tribunal has not acted in accordance with
the terms of reference and has exceeded its brief.
(3) The Railways cannot be expected to accept the
materials which did not conform to the contractual
specifications and they can never be expected to
accept the Test report of a private lab, when the
alleged tests were conducted behind their back, hence,
the award is unsustainable.
(4) Since, the decision regarding the quality of
material had been taken by the Engineer and the same
was not challenged, the determination of the Contract
for lack of quality cannot be subjected to arbitration at
all, hence, the entire award is without jurisdiction.
(5) The Tribunal has misconducted itself in not
considering the arbitrability of the claims despite the
order of the Hon'ble High Court of Karnataka and
despite specific plea put forth by the Railways.
(6) The award of the Tribunal for refund of SD is
wholly illegal, as Clause 4 (c) of Special Conditions of
14 AS.94/2013
C/w
AS.95/2013
Contract stipulates that if the Contract was rescinded,
the Security Deposit would be forfeited and the
Performance Guarantee would be encashed and in fact,
any dispute regarding any of the Special Conditions of
Contract is an excepted matter.
For all these grounds, the Plaintiff prays for set aside the
award.
5) Heard. Perused the pleadings and records placed in the
respective suits.
6) The points that arise for my consideration are :-
(1) Whether the Plaintiff in AS.No.95/2013 proves
that determination of contract is an 'excepted
matter' as stated in Clause-63 of GCC?
(2) Whether the Plaintiff in AS.No.95/2013
proves that the Tribunal has erred in deciding
the dispute on merits before determining
arbitrability of the claims/disputes?
(3) Whether the Plaintiff in AS.No.94/2013 can
justify any of the grounds set out in his plaint
regarding Claim Nos.2, 4, 5, 6, 8 and 9?
(4) Whether the Plaintiff in AS.No.94/2013 has
made out any of the grounds as enumerated
in Section 34 of the Arbitration and
Conciliation Act, 1996 to set aside the award?
15 AS.94/2013
C/w
AS.95/2013
(5) Whether the Plaintiff in AS.No.95/2013 has
made any of the grounds as enumerated in
Section 34 of the Arbitration and Conciliation
Act, 1996 to set aside the award?
(6) What Order?
7) My answer to the above points are :-
Point No.1 - In the Negative;
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 - As per final order, for the following :
REASONS
8) For the sake of convenience, the Plaintiff in AS.No.94/2013
is herein after referred to as "Plaintiff" and the Plaintiff in
AS.No.95/2013 is herein after referred to as the "1st Defendant".
9) Point No.1 and 2 : These two points are inter related
to each other, hence, they are taken up together for discussion.
The 1st Defendant's contention is that, Clause-63 of GCC
clearly states that only those matters other than matters referred
16 AS.94/2013
C/w
AS.95/2013
therein can be referred to arbitration. Clause 22(5) of GCC also
states that in respect of any ambiguity as regards the quality of
any materials, the decision of the Engineer thereon is final and
subject an appeal to the Chief Engineer whose decision is final
and conclusive and a decision under Section 22(5) is deemed to
be an excepted matter. It is also the contention of the 1st
Defendant that, admittedly in the instant case, the decision
regarding quality of material had been taken by the Engineer and
this was not challenged, the determination of the contract for lack
of quality cannot be subjected to arbitration at all. Thus, the
entire award is without jurisdiction. The tribunal has misconducted
itself in not considering the arbitrability of the claims despite the
order of the Hon'ble High Court and despite specific plea put-forth
by the Railways.
10) At this stage, it is relevant to mention Clauses 63 and 22
(5) of GCC which reads as follows :
" 63. Matters finally determined by the
Railway - All disputes and differences of any kind
whatsoever arising out of or in connection with the
contract, whether during the progress of the work or
17 AS.94/2013
C/w
AS.95/2013
after its completion and whether before or after the
determination of the contract, shall be referred by the
contractor to the GM and the GM shall within 120 days
after receipt of the contractor's representation make
and notify decisions on all matters referred to by the
contractor in writing provided that matters for which
provision has been made in Clauses 8, 18, 22(5), 39,
43(2), 45(a), 55, 55-A(5), 57, 57A, 61(1), 61(2) and
62(1) to (xiii) (B) of General conditions of contract or
in any clause of the special conditions of the contract
shall be deemed as 'excepted matters' (matters not
arbitrable) and decisions of the Railway authority,
thereon shall be final and binding on the contractor;
provided further that 'excepted matters' shall stand
specifically excluded from the purview of the
arbitration clause."
" 22(5). Meaning and intent of specification
and drawings :- If any ambiguity arises as to the
meaning and intent of any portion of the
Specifications and Drawings or as to execution or
quality of any work or material, or as to the
measurements of the works the decision of the
Engineer thereon shall be final subject to the appeal
(within 7 days of such decision being intimated to the
Contractor) to the Chief Engineer who shall have the
power to correct any errors, omissions, or
discrepancies in aforementioned items and whose
decision in the matter in dispute or doubt shall be final
and conclusive."
Clause 63 of GCC excludes certain matters, for which,
provision has been made and it says that those matters shall be
deemed as 'excepted matters'.
18 AS.94/2013
C/w
AS.95/2013
11) The 1st Defendant contends that determination of contract
for lack of quality cannot be subjected to arbitration under Clause
22(5) of the GCC.
The Plaintiff specifically states that, the 1st Defendant
collected ballast of 4000 cum samples for test on 18.12.2008, but
test result was not sent to the Plaintiff till 24.12.2008. However,
the 1st Defendant in its letter dated 22.12.2008 which was
acknowledged by the Plaintiff on 31.12.2008 stated that the
quality of ballast was not good, for which, the Plaintiff replied in
its letter dated 07.01.2009 stating that the quality was good and
requested for payment. The 1st Defendant replied that
measurement will be taken on any date acceptable to Assistant
Executive Engineer and asked to contact the Assistant Executive
Engineer. Even thereafter also, the Plaintiff requested to send the
test report vide letter dated 13.01.2009. In spite of giving test
report, the 1st Defendant sent 7 days' notice to the Plaintiff for
slow progress of work vide letter dated 23.01.2009. The
Plaintiff replied on 27.01.2009 stating that the ballast was
collected as per specification and result is also available with the
19 AS.94/2013
C/w
AS.95/2013
Plaintiff. The Plaintiff also sent test report given by the Golden
Valley Institute of Technology to the 1st Defendant. The 1st
Defendant replied to the letter dated 27.01.2009 stating that the
1st Defendant is not accepting the test result sent by the Plaintiff
and asked to attend the joint measurement of ballast collected, in
its letter dated 02.02.2009. To this letter, the Plaintiff brought to
the notice of the 1st Defendant that collections of ballast were
made as per approved quality as prescribed. But the 1st
Defendant issued 48 hours' notice to the Plaintiff vide letter dated
03.02.2009. In spite of request for measurement, the 1st
Defendant issued termination letter on 06.02.2009 terminating the
contract and asked to appear for final measurement. It is
contended by the Plaintiff that, the 1st Defendant in its letter
dated 22.04.2009 stated that the final measurement was recorded
in the absence of the Plaintiff. The 1st Defendant has contended
that tests were conducted for the quantity from 2000 to 4000 cum
in the Railway lab during the period from 26.12.2008 to
31.12.2008, in which, the samples failed to pass the test. The
Plaintiff was intimated of the failure. However, the Plaintiff
20 AS.94/2013
C/w
AS.95/2013
responded by a letter dated 07.01.2009 that the quantity
conformed to the requisite quality and they had been tested at the
Golden Valley Institute of Technology at KGF. The 1st Defendant
states that the alleged test had not been conducted with the
consent or knowledge of the Railways.
At this juncture, it is relevant to mention the findings of the
Hon'ble Arbitral Tribunal on Claim No.1, which reads as follows:
" The termination of Contract has been done
without giving sufficient opportunity to the M/s.Senthil
and Co., without testing ballast samples at other
approved laboratories and as per Law of land, appears
to be improper."
12) It can be said from the materials placed on record that,
after collecting 4000 cum ballast, in spite of repeated requests by
the Plaintiff, the 1st Defendant did not send the test report, but
sent a letter dated 22.12.2008 stating that quality was not good.
The said letter was not accompanied by any test report. In fact,
at the time of sending the letter dated 22.12.2008, no test was
conducted by the 1st Defendant. As stated by the 1st Defendant,
the test was conducted for quantity from 2000 to 4000 cum in the
21 AS.94/2013
C/w
AS.95/2013
Railway lab during the period from 26.12.2008 to 31.12.2008.
The 1st Defendant might have taken the test report after
31.12.2008. When matter stood thus, there could be no occasion
for the 1st Defendant to say that the quality of ballast was not
good. The Plaintiff also requested the 1st Defendant to send the
test report in its letter dated 13.01.2009. Even then also, the 1st
Defendant could have sent the test report. However, the 1st
Defendant sent 7 days' notice for slow progress of work in its
letter dated 27.01.2009. Moreover, the Plaintiff sent test report
to the 1st Defendant got approved by the Golden Valley Institute
of Technology at KGF along with its letter dated 27.01.2009. The
1st Defendant has admitted this fact in its pleadings that the
Plaintiff responded by a letter dated 07.01.2009 that quality
conformed to the requisite quality and they had been tested at the
Golden Valley Institute of Technology at KGF. The 1st Defendant
has contended that this alleged test had not been conducted with
the consent or knowledge of the 1st Defendant. It means, the
Plaintiff got tested the ballast at KGF Lab before 07.01.2009 and
the said report was sent to the 1st Defendant along with letter
22 AS.94/2013
C/w
AS.95/2013
dated 27.01.2009. The 1st Defendant did not show any interest to
send the test report conducted in the Railway lab during the
period 26.12.2008 to 31.12.2008 to the Plaintiff. The 1st
Defendant before conducting the test, sent a letter dated
22.12.2008 stating that the ballast was not of good quality and
even after conducting the test, it has not taken any strain to send
the test report to the Plaintiff, in spite of receipt of the test report
sent by the Plaintiff.
The Hon'ble Tribunal has observed that "Dy.CE/Planning
and Design Laboratory and Golden Valley Institute of Technology,
Kolar Gold Field Laboratory are part of Contract Agreement. The
Dy.CE must have tested the sample again at other laboratories.
Instead, the 1st Defendant took stringent step of terminating the
contract".
13) When two different test reports are available, one is got
by the Plaintiff and the other by the 1st Defendant from different
labs, it necessitated for the 1st Defendant to obtain third report
from the independent lab before taking the task of termination of
23 AS.94/2013
C/w
AS.95/2013
contract. But, the 1st Defendant did not do so, not furnished its
test report to the Plaintiff and not accepted test report sent by
the Plaintiff. Moreover, before conducting the test, it came to the
conclusion that the ballast was not good and the same was
intimated to the Plaintiff in its letter dated 22.12.2008. Hence,
the decision of the Arbitral Tribunal that the termination of
contract has been done without giving sufficient opportunity to
the Plaintiff without testing ballast samples at other approved
laboratories and as per Law of land, the termination appears to be
improper is based on sound reasoning and it does not call for
interference. Before having the test report by the 1st Defendant,
the 1st Defendant could not say that the ballast was not good.
When the termination of contract appears to be improper, the 1st
Defendant cannot be harping upon either Clause 63 or Clause
22(5) of GCC saying that the termination of contract is an
excepted matter and the same could not be arbitrated by the
Tribunal.
14) The 1st Defendant has taken a contention that, the
Tribunal has misconducted itself in not considering the arbitrability
24 AS.94/2013
C/w
AS.95/2013
of the claims despite the order of the Hon'ble High Court of
Karnataka and a specific plea put-forth by the Railways.
The 1st Defendant states that the Plaintiff raised disputes
and the matter was referred to arbitration excluding the 'excepted
matters' vide Terms of Reference dated 30.09.2010. However,
the Plaintiff filed a petition before the Hon'ble High Court of
Karnataka in CMP.No.81/2011 seeking reference of all disputes
and the Hon'ble High Court of Karnataka stated that it was for the
Tribunal to decide whether the claims were excepted matters.
Accordingly, fresh Terms of Reference dated 03.03.2012 was
issued including all the claims and asking the Tribunal to
determine whether the claims were arbitrable. At this stage, it is
relevant to mention the order passed by the Hon'ble High Court of
Karnataka in CMP.No.81/2011.
" The petitioner is at liberty to raise all the
claims which were initially raised. It is then for
the Arbitrators to consider whether any of the
claims are excepted matters, as contemplated
under the agreement."
25 AS.94/2013
C/w
AS.95/2013
15) On perusal of the order passed by the Hon'ble High Court
of Karnataka, wherein, it is specifically stated that 'it stands to
reason that the Petitioner cannot be forestalled from raising any
claims. It is for the Arbitrators to state whether any of the claims
arising out of the agreement are excepted matters.' The Hon'ble
High Court of Karnataka in the above said order stated that the
arbitrability of the disputes left with the discretion of the
Arbitrators.
The Arbitral Tribunal in its award at Page-6 has specifically
stated as follows :
" 3 - Terms of Reference
The Terms of reference issued by
DGM/G/UBL vide his letter No.G/29-
Arb/2010/loose - 32 dated 30.09.2010 was in
confirming with the dispute and claim raised by
the claimant and also counter claim made by
respondent. All the disputes and claims
including the Counter claim has been
within the Jurisdiction of Arbitral Tribunal
and award published."
The Arbitral Tribunal came to the conclusion that all the
disputes and claims including the counter claim has been within
26 AS.94/2013
C/w
AS.95/2013
the jurisdiction of the Arbitral Tribunal. Moreover, the parties
were participating in the proceedings throughout and thereby
allowed to pass the award by the Arbitral Tribunal. Under such
circumstances, there is no basis in the contention of the 1st
Defendant that the Arbitral Tribunal has not considered the
arbitrability of the claim. In fact, the Tribunal, before taking the
claims for consideration, has decided that all the claims including
counter claim has been within the jurisdiction of Arbitral Tribunal.
16) The 1st Defendant relies upon the following decisions :
(1) (2002) 4 SCC 45
[General Manager, Northern Railway and another Vs.
Sarvesh Chopra]
"Arbitration Act, 1940 - S.20 - Reference to
arbitration - Held, , must be the result of a judicial
determination by the court that dispute sought to be
referred is covered by the arbitration Agreement -
Therefore, if any claim comes within a excepted
matter clause then such claim cannot be referred to
arbitration".
" Para 19. ..... We cannot subscribe to
the view that interpretation of arbitration
clause itself can be or should be left to be
determined by the Arbitrator and such
determination cannot be done by the court
at any stage."
27 AS.94/2013
C/w
AS.95/2013
(2) (2014) 9 SCC 246
[Harsha Constructions Vs. Union of India & Others]
" - Held, even if a non-arbitrable dispute
is referred to Arbitrator or even if an issue
is framed by Arbitrator as to such dispute,
it is not open for an Arbitrator to arbitrate
since it is beyond his jurisdiction - Mere
reference of non-arbitrable dispute to
arbitration or Arbitrator framing an issue as
to an excepted dispute, does not amount to
agreement by parties to refer said dispute
for arbitration - When law specifically
makes a provision with regard to formation
of a contract in a particular manner, no
presumption can be made with regard to a
contract if the contract is not entered into
by the prescribed mode."
(3) (2012) 12 SCC 581
[State of Goa Vs. Praveen Enterprises]
" 11. Reference to arbitration can be in
respect of all disputes between the parties or
all disputes regarding a contract or in respect
of specific enumerated disputes. Where "all
disputes" are referred, the Arbitrator has the
jurisdiction to decide all disputes raised in the
pleadings (both claims and counterclaims)
subject to any limitations placed by the
arbitration agreement. Where the arbitration
agreement provides that all disputes shall be
settled by arbitration but excludes certain
matters from arbitration, then, the Arbitrator
will exclude the excepted matter and decide
only those disputes which are arbitrable. But
where the reference to the Arbitrator is to
decide specific disputes enumerated by the
parties/court/appointing authority, the
Arbitrator's jurisdiction is circumscribed by
28 AS.94/2013
C/w
AS.95/2013
the specific reference and the Arbitrator can
decide only those specific disputes."
17) In all these decisions it is emphatically stated that, if the
matters are excluded from arbitration, the Arbitral Tribunal's
jurisdiction is circumscribed by the specific reference. Here, in
this case, the Hon'ble High Court of Karnataka in its order was
pleased to leave it to the discretion of the Arbitrators to decide the
claims raised by the Plaintiff are 'excepted matters' or not and
accordingly the disputes on all the claims were referred to
Arbitrators and the Arbitrators decided that all the claims including
the counter claims are within the jurisdiction of the Arbitral
Tribunal. Hence, it cannot be said that the Arbitrators passed
award on excepted matters. Hence, I am of the opinion that as
observed by the Arbitral Tribunal and having regard to the
foregoing discussions, the termination of the contract appears to
be improper. Hence, the determination of contract being held as
improper, cannot be considered as 'excepted matters' under
Clause 63 of GCC. Accordingly, I answer Point No.1 and 2 in the
negative.
29 AS.94/2013
C/w
AS.95/2013
18) Point No.3 : Regarding Claim Nos. 2, 4, 5, 6, 8 and 9 :
The Plaintiff has contended that the Arbitral Tribunal
awarded part amount for the work done under claim Nos. 2 and 8,
the balance bill amount of Rs.7,79,819/- has to be refunded to the
Plaintiff under claim Nos. 2 and 8 and this has been admitted by
Defendants No.1 to 3 and the Hon'ble Arbitrators in the award. It
is true that the 1st Defendant stated before the Arbitrators that the
first and final bill dated 05.04.2009 was passed for Rs.12,23,734/-
for 1714.63 cum ballast. Out of the said bill, what were the
recoveries done by the 1st Defendant which is mentioned in Page-
9 of the award reads as follows :
" Claim No.2 --- Payment of executed
quantities (claim amount - Rs.12,49,237.00).
The claimant's version :--
The claimant stated the Respondent recorded
only 1713 cum at the rate of 7290 for 10 cum
and not paid.
Respondent's version --- The Respondent
stated that out of 2100 cum of ballast, only
1714.63 cum was found of appropriate quality,
passed in the field tests. The First and final
bill dated 05.04.2009 was passed for
Rs.12,23,734.00 for 1714.63 cum ballast
30 AS.94/2013
C/w
AS.95/2013
duly recovering the statutory
recoveries/penalties.
The Respondent has done following recoveries (F-
256/6-8).
(a) Security Deposit : Rs.6,05,375.00
(b) LT. @ 2% : 24,475.00
(c) SC on I T @ 17% : 4,161.00
(d) VAT @ 4% : 48,949.00
(e) Postal charges : 25.00
(f) Recovery towards Non-
Deployment of graduate Engineer --- : Rs. 715.00
(g) Penalty towards non-submission
of Programme of work--------- : 50,000.00
(h) Ground rent------------------------- : 70,339.00
(i) Charges towards shifting of ballast-- : 28,875.00
Cheque -----:3,20,035.00
------------------------
Total : 12,23,734.00
-------------------------
19) It is an undisputed fact that, out of the said bill, a sum of
Rs.2,94,701/- was paid to the Plaintiff by cheque on 04.08.2010.
The Hon'ble Arbitral Tribunal has awarded to the Plaintiff under
Claim No.2 a sum of Rs.1,49,214/- towards non-submission of
programme work, ground rent and charges towards shifting of
31 AS.94/2013
C/w
AS.95/2013
ballast, which were deducted by the 1st Defendant from the final
bill.
20) The Hon'ble Tribunal under Claim No.7 has awarded
refund of security deposit of Rs.8,41,995/- and EMD of
Rs.2,36,620, in all, Rs.10,78,615/-. In fact, the 1st Defendant
deducted a sum of Rs.6,05,375/- from the final bill towards the
security deposit. However, the Tribunal awarded a sum of
Rs.8,41,995/-. This part of the award requires clarification.
At this stage, it is relevant to mention Clause-III of the
Agreement dated 07.11.2008 entered into between the Plaintiff
and the 1st Defendant which reads as follows :
" III. The total Security Deposit amount is 5%
of the contract value i.e. Rs.8,41,995/-
(RUPEES EIGHT LAKHS FORTY ONE
THOUSAND NINE HUNDRED AND NINETY FIVE
ONLY) The Earnest Money Deposit amount of
Rs.2,36,620/- remitted by you along with the
offer vide GR No.566389 dated 20/-06/2008
issued by SR.DIVISIONAL CASHIER PAY,
CONSTRUCTION, S.W RAILWAY, BANGALORE
CANTONMENT is adjusted towards part of
Security Deposit. The balance Security
Deposit of Rs.6,05,375/- will be recovered
from the running bills of the contract at the rate
32 AS.94/2013
C/w
AS.95/2013
of 10% of the bill amount till the full Security
Deposit is recovered.
It is specifically mentioned in the Agreement that, the total
Security Deposit was Rs.8,41,995/-, in which, Earnest Money
Deposit (EMD) of Rs.2,36,620/- which was remitted by the Plaintiff
along with offer. It is also mentioned that EMD amount is
adjusted towards part of Security Deposit. Further, it is
mentioned that the balance Security Deposit of Rs.6,05,375/- will
be recovered from the running bills of the contractor at the rate of
10% of the bill amount. As admitted by the 1st Defendant, the
balance security amount of Rs.6,05,375/- was deducted by the 1st
Defendant from the final bill as mentioned in the award under
Claim No.2.
21) The Tribunal while deciding Claim No.7 ought to have
awarded for refund of Security Deposit amount of Rs.6,05,375/-
which was deducted from the final bill by the 1st Defendant,
however, it has awarded a sum of Rs.8,41,995/-. When the
Tribunal awarded EMD of Rs.2,36,620/- separately, it ought not to
33 AS.94/2013
C/w
AS.95/2013
have awarded Security Deposit of Rs.8,41,995/-, in which, EMD
amount is included, which would be incentive to the Plaintiff.
Hence, this part of the award so far as Security Deposit under
Claim No.7, is erroneous and the same is required to be modified.
Hence, having regard to the findings of the Arbitral
Tribunal for return of Security Deposit and EMD, the
award so far as the Security Deposit under Claim No.2 is
modified to the extent of Rs.6,05,375/-. When matter
stood thus, the Plaintiff's claim of balance bill amount of
Rs.7,79,819/- is nothing but unjust and wrongful claim.
22) Regarding Claim No.4, the Plaintiff in his plaint simply
states that the Arbitrators have not awarded any amount under
Claim No. 4 when the termination is illegal under Claim No.1, even
the Plaintiff had produced relevant material documents in support
of its claim. To substantiate his claim, the Plaintiff has not placed
any documents which he alleged to be relied upon before the
Arbitrators. The 1st Defendant in its statement of objection filed
34 AS.94/2013
C/w
AS.95/2013
before the Arbitral Tribunal stated that as per Clause 51(A) of
GCC, the Contractor should have submitted books of accounts,
vouchers, receipts, etc., as proof of engagement of men and
machinery, but the Claimant has failed to submit any of the
documents. The Hon'ble Tribunal after considering the rival
contentions of the parties was pleased to hold that :
" The Arbitral Tribunal after hearing the
arguments and counter arguments and perusal
of Documents (Photo copies of receipts - F-
340/6-146). concludes that the claimant has
not submitted any authentic documents for
men, Machinery and Equipment idling at site.
The respondent has asked for vouchers, book
of accounts, proof of engagement of men and
Machinery. The claimant's claim of idling of
men, Machinery and equipment is not verifiable
& is not justified. The respondent has
intimated them regarding quality of ballast vide
telegram dated 22.01.2009 (F-85, R-8). It is
seen that after this date Claimant has taken
action of the material for disposal. The Arbitral
Tribunal gives a NIL award.
Amount of award - NIL."
In view of the failure of the Plaintiff to produce the
documents as mentioned in Clause 51(A) of GCC, the Hon'ble
Arbitral Tribunal was pleased to pass 'NIL' award on Claim No.4,
35 AS.94/2013
C/w
AS.95/2013
hence, this finding of the Arbitral Tribunal does not call for any
interference.
23) Claims No.5 and 6 regarding monthly over head charges
incurred during the execution of the work and loss of profit, a
similar contention has been taken by the Plaintiff in his plaint that,
when termination is illegal under Claim No.1, the Tribunal should
have allowed Claim No.5 and 6 in view of the material documents
placed before the Arbitrators. The 1st Defendant in his statement
of objection filed before the Arbitral Tribunal stated that over head
charges incurred by the Plaintiff during the period when the
railway has not accepted the ballast is his responsibility and the
termination of contract is as per Clause 62 of GCC and is in order.
The Tribunal after taking into consideration of the contention of
the parties, was pleased to reject Claim No.5 and 6 holding that :
" Claim No.5 : The Arbitral Tribunal heard
the submission and arguments of both the
parties and also gone through the records
submitted before Arbitral Tribunal. The Arbitral
Tribunal is of the opinion that the quality of
ballast supplied was in question. It is the
responsibility of the agency to minimize the
cost. The Arbitral Tribunal gives a NIL award.
36 AS.94/2013
C/w
AS.95/2013
Amount of Award - N IL.
Claim No.6 : Arbitral Tribunal after
careful examination of argument and counter
arguments. The Arbitral Tribunal finds this
claim partially affirmative. However Tribunal
feels that whatever losses sustained by
claimant are made good vide other claims in
the award.
Award of this claim - NIL."
24) Moreover, the Tribunal has never come to the conclusion
that the termination of contract is illegal as stated by the Plaintiff.
The Tribunal specifically holds that the termination is improper
which was done without giving opportunity to the Plaintiff. Under
such circumstances, in the absence of material documents, the
tribunal did not allow Claim No.5 and mere declaring the
termination as improper by the Tribunal does not give any right to
the Plaintiff to claim any loss of profit under Claim No.6. Hence,
the findings arrived at by the Tribunal regarding Claim Nos.5 and
6 is based on reasoning and this court has no reason to interfere
with the same.
37 AS.94/2013
C/w
AS.95/2013
25) Regarding Claim No.9, the Plaintiff has taken a contention
that the Arbitral Tribunal has not awarded any interest from the
date of due to the date of payment. The law on this point is very
clear. Section 31(7)(a) of the Arbitration and Conciliation Act,
1996 specifically states that :
" Unless otherwise agreed by the
parties, where and in so far as an arbitral
award is for the payment of money, the arbitral
tribunal may include in the sum for which the
award is made interest, at such rate as it
deems reasonable, on the whole or any part of
the money, for the whole or any part of the
period between the date on which the cause of
action arose and the date on which the award
is made."
26) In view of the statutory bar as well as contractual bar, the
Plaintiff has no right to claim interest from the date of due till the
date of award. At the same time, it can be noted that the
Tribunal has awarded interest at the rate of 12% from the date of
award till realization, which is most reasonable. Under such
circumstances, there is no reason for the Plaintiff to claim interest
at the rate of 24%. Hence, this court does not find any fault in
the award under Claim No.9. For the aforesaid reasons, I am of
the opinion that the findings of the Arbitral Tribunal on Claim No.1
38 AS.94/2013
C/w
AS.95/2013
to 9 are based on well reason, accordingly, I answer Point No.3 in
the negative.
27) Point No.4 and 5: The Plaintiff in AS.No.94/13 has
taken specific grounds that, the party was under some incapacity,
the award passed is not in accordance with substantive law under
Section 34 R/w Section 28(1)(a), the award suffers from errors of
law, which is falling under Section 34(2)(a)(iv) and 34(2)(b)(i)(ii),
it also suffers from errors of facts, evidences and law of lands and
it comes to the decision on matters beyond the scope of
submissions and the same is in conflict with the Public Policy of
India. For all these grounds, the Plaintiff prays for setting aside
the award. The 1st Defendant submits no specific ground, but he
urged to set aside the award as unjust. The Plaintiff as well as
the 1st Defendant have not placed any documentary evidence or
circumstances for which the award is required to be set aside,
except their pleadings. The Plaintiff never stated in its pleadings
that what type of incapacity which it was suffering so as to
proceed with the arbitration case.
39 AS.94/2013
C/w
AS.95/2013
28) On perusal of the arbitral award, it is crystal clear that the
Plaintiff as well as the 1st Defendant had consciously prosecuted
and defended the disputes before the Arbitrators and led their
case and the Arbitrators after due enquiry passed the award in
question. Under such circumstances, setting aside the arbitral
award on the ground that the party was under some incapacity is
nothing but silly.
29) The award is not in accordance with substantive law is
another ground raised by the Plaintiff. The Plaintiff never stated
nor convinced the court that what would be the substantive law
which the Arbitrators should be followed at the time of arbitral
proceedings and how the Plaintiff was affected by it. The Plaintiff
said nothing and took such contention without justification. The
Plaintiff shows nothing that the arbitral award dealt with the
dispute not contemplated or subject matter of dispute is not
capable of settlement or award is in conflict with Public Policy of
India. It was the Plaintiff who approached the Hon'ble High
Court of Karnataka challenging the decision of the Railway Board,
40 AS.94/2013
C/w
AS.95/2013
when the Railway Board decided to treat the Claim Nos.1, 7 and 9
were excepted matters. The Tribunal considered that those
claims were arbitrable and gave its findings thereon. When
matter stood thus, it remains enigma why the Plaintiff has taken
the contention against its interest that the Tribunal has come to
the decision on matter beyond the scope of submissions.
30) The Plaintiff relies upon the following decisions :
(i) 2003(2) ARb.LR 5(SC)
[ Oil & Natural Gas Corporation Ltd., Vs. SAW
Pipes Ltd.]
" (i) Arbitration and Conciliation Act (26 of
1996), Section 34 - Court's jurisdiction
under - Jurisdiction or power of arbitral
tribunal prescribed under Act - If award is
de hors the provisions of Act it would be
on the face of it illegal - Decision of
tribunal must be within bounds of its
jurisdiction conferred under Act or
contract - Tribunal not following
mandatory procedure prescribed under
Act - Acted beyond its jurisdiction -
award patently illegal - Liable to be set
aside under Section 34."
(ii) 2006(2) ARB.LR 498 (SC)
[ Mcdermott International Inc. Vs Burn Standard
Co.Ltd and Ors]
41 AS.94/2013
C/w
AS.95/2013
" Challenge to award - Scope -
Intervention of court is envisaged in few
circumstances only like in case of fraud or
bias by Arbitrators, violation of natural
justice, etc. - Where Arbitrator has gone
contrary to or beyond expressed law of
contract or granted relief in matter not in
dispute would come within purview of
Section 34 - Arbitrator quantified claim by
taking recourse to Emden formula which
is widely accepted one - Cannot be said to
have committed an error warranting
interference by court - There being no
breach of Section 55 or Section 73 of
Contract Act, 1872 - Arbitrator in his
award noticed that parties impliedly
accepted validity of AISC method of
calculation for calculating final fabricated
weight - By adopting AISC Code
Arbitrator has not acted contrary to terms
of contract - Findings arrived at by
Arbitrator cannot be said to be perverse -
Rate of interest modified."
(iii) 2010 (Suppl. 2) Arb.LR 33 (Karnataka)
(DB)
[ The Chief Engineer Karnataka Health Systems
Development project, Bangalore and Anor. Vs.
J.Chengama Naidu and Anr.]
" (1) The scope of an application under
Section 34 of the Arbitration and
Conciliation Act, 1996 is only to set aside
the award or to leave the award as it is,
without being disturbed, and the Act does
not provide for any via media, more so, an
application under Section 34 of the Act
not being in the nature of either an appeal
or a revision or a review of the award
passed by the Arbitrator, but the award
42 AS.94/2013
C/w
AS.95/2013
getting vitiated due to illegalities such as
being against either statutory provisions
or the settled legal principles accepted in
our legal system and enforced in courts.
(2) It is the duty of the court to apply the
law as it is made and not to either avoid
or evade in applying the relevant law."
(iv) 2014(4)ARb.LR. 102(SC)
[ Oil & Natural Gas Corporation Ltd Vs. Western
GECO International Ltd.]
" (5) If on facts proved before them the
Arbitrators fail to draw an inference which
ought to have been drawn or if they have
drawn an inference which is, on the face of it,
untenable resulting in miscarriage of justice, the
adjudication even when made by an arbitral
tribunal that enjoys considerable latitude and
play at the joints in making awards will be open
to challenge and may be cast away or modified
depending upon whether the offending part is
or is not severable from the rest."
(v) 2011 (2) Arb. LR 84 (SC)
[ J.G.Engineers Pvt. Ltd Vs. Union of India & Anr]
".... Arbitrator would have jurisdiction to
try and decide all claims of contractor as
also claims of respondents. Award on
Item Nos. 1, 3 and 11 upheld - Conclusion
of High Court that award in respect of
those claims had to be set aside cannot be
sustained....."
43 AS.94/2013
C/w
AS.95/2013
Having regard to the facts and circumstances of the case,
the above decisions do not come to the aid of the Plaintiff so as to
discard the award.
31) Under the facts and circumstances of the case, I am of the
opinion that absolutely no grounds are made out by the Plaintiff
as well as the 1st Defendant to establish any of the grounds
mentioned in the plaint or any of the grounds available under
Section 34(2) of the Arbitration and Conciliation Act. Here in the
case, the Tribunal has dealt the matter within the purview of four
corners of the matter allotted to it. No act is done by the Arbitral
Tribunal which could be termed the award as perverse or unfair
and unreasonable. The Plaintiff as well as the 1st Defendant have
utterly failed to establish that the Arbitral Tribunal has gone
contrary to law or beyond the expressed contract. Under these
circumstances, I hold that the Plaintiff as well as the 1st Defendant
have utterly failed in establishing that the award passed by the
Arbitral Tribunal falls within any of the Clauses of Section 34(2) of
the Act, much less, any of the grounds mentioned in the plaints is
44 AS.94/2013
C/w
AS.95/2013
established. Accordingly, I answer the Points No.4 and 5 in the
negative.
32) Point No.6 : For the foregoing discussions and answer
to Points No.1 to 5, I proceed to pass the following :
ORDER
(1) The suit in AS.No.94/2013 filed by the Plaintiff and the suit in AS.No.95/2013 filed by the 1st Defendant under Section 34 of the Arbitration and Conciliation Act, 1996 to set aside the award dated 31.07.2013 passed by the learned Arbitral Tribunal are hereby dismissed.
(2) However, the award so far as the Security Deposit under Claim No.2, is hereby modified to the extent of Rs.6,05,375/-.
(3) No order as to costs.
(4) Keep the original of this judgment in AS.No.94/2013 and copy in AS.No.95/2013.
(Dictated to the Judgment Writer, transcribed and computerized by her, transcript thereof corrected and then pronounced by me in open court, dated this the 1st day of October, 2018.) (RAMA NAIK) VI Addl.City Civil & Sessions Judge, Bengaluru City.
45 AS.94/2013C/w AS.95/2013