Delhi High Court
Engineers India Limited, Through Its ... vs Kimiya Engineers Private Limited, ... on 18 April, 2022
Author: Vibhu Bakhru
Bench: Vibhu Bakhru
IN THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment delivered on:18.04.2022
+ O.M.P. (COMM) 458/2017
ENGINEERS INDIA LIMITED, THROUGH ITS
AUTHORIZED SIGNATORY ..... Petitioner
Versus
M/S KIMIYA ENGINEERS PRIVATE LIMITED,
THROUGH ITS DIRECTOR ..... Respondent
Advocates who appeared in this case:
For the Petitioner : Mr Abhinav Vasisht, Senior Advocate
with Ms Ila Kapoor, Ms Shruti Sabharwal
and Mr Rangon Choudhury, Advocates.
For the Respondent : Mr Aniruddha Deshmukh and Mr Nikhil
Goel, Advocates.
CORAM
HON'BLE MR JUSTICE VIBHU BAKHRU
JUDGMENT
VIBHU BAKHRU, J
1. Engineers India Limited (hereinafter 'EIL') has filed the present petition under Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter 'the A&C Act') impugning an Arbitral Award dated 01.09.2017 (hereinafter 'the impugned award') delivered by the Arbitral Tribunal comprising of a Sole Arbitrator (hereinafter 'the Arbitral Tribunal').
Signature Not Verified Digitally Signed By:Dushyant Rawal O.M.P. (COMM) 458/2017 Page 1 of 30 Signing Date:18.04.20222. The impugned award was delivered by the Arbitral Tribunal in respect of disputes that had arisen between the parties in relation with an agreement dated 04.09.2013 (hereinafter 'the Agreement').
Factual Context
3. EIL entered into a Lease Deed dated 23.05.2011 with City and Urban Development Corporation, Maharashtra (CIDCO) for the construction of a multi-storied building for housing offices at Plot No. 85, Sector 11, Khargar, Navi Mumbai (hereinafter the 'Project'), which was to be constructed within a period of four years.
4. EIL floated the first tender on 24.12.2012, which was later annulled. Thereafter, EIL issued a notice dated 22.05.2013, inviting bids for the construction of the aforementioned building. The respondent (hereinafter 'KEPL') emerged as the successful bidder and was awarded the Project.
5. On 16.08.2013, the Fax of Acceptance (FOA) was issued by EIL to KEPL. The FOA provided that the Project was to be completed within a period of eighteen months from the date of issuance of the FOA, that is, by 15.02.2015. Thereafter, the Letter of Acceptance (LOA) was issued on 02.09.2013; and on 04.09.2013, the Agreement was executed between the parties.
6. The Project site was handed over to KEPL on 26.08.2013. KEPL claims that it faced various issues such as delayed handing over of the site, unprecedented rain etc. that led to the delay in completion of the Signature Not Verified Digitally Signed By:Dushyant Rawal O.M.P. (COMM) 458/2017 Page 2 of 30 Signing Date:18.04.2022 Project. KEPL claims that the delay was attributable to EIL and thus, a provisional extension of time (EOT) was granted by EIL up to 30.10.2015. EIL, on the other hand, claims that the delay of the Project was attributable to KEPL.
7. In view of the disputes between the parties, KEPL issued a notice dated 22.03.2014, under Clause 35.2 of the General Conditions of Contract (hereinafter the 'GCC'), seeking resolution of the disputes.
8. Thereafter, KEPL issued a notice invoking arbitration on 24.11.2014 and on 16.12.2014, it filed an application under Section 11 of the A&C Act before the Bombay High Court, seeking appointment of an arbitrator.
9. By an order dated 23.02.2016, the Bombay High Court proceeded to appoint Mr. Sanjay Kothari as the sole arbitrator. However, Mr. Kothari expressed his inability to act as the arbitrator and excused himself from the proceedings. Thereafter, by an order dated 03.03.2016, Mr. Minoo Siodia was appointed as the Sole Arbitrator.
10. EIL claims that since the Project was completely abandoned by KEPL, on 26.02.2016, it invoked the Bank Guarantees furnished by KEPL (both the Performance Bank Guarantee and the Mobilization Advance Guarantee).
11. Further, on 03.03.2016, EIL issued a Termination Notice to KEPL and the Agreement was terminated with effect from 22.03.2016.
Arbitral Proceedings Signature Not Verified Digitally Signed By:Dushyant Rawal O.M.P. (COMM) 458/2017 Page 3 of 30 Signing Date:18.04.2022
12. KEPL, filed its Statement of Claims, before the Arbitral tribunal raising a total of twenty-four claims. The Arbitral Tribunal partly allowed Claim no.1, Claim no.2, Claim no.9, Claim no.10, Claim no.11, Claim no.12, Claim no. 14, Claim no.15, Claim no.23 and Claim no.24 of KEPL and rejected all the other claims. A tabular statement of the claims along with the amount awarded by the Arbitral Tribunal, is set out below:
Claim no. Particulars Claimed Awarded
amount amount
Claim no.1 Missing soil ₹17,68,688/- ₹14,51,743.65/-
excavation item in
Schedule of Rates
Claim no.2 Non-payment of AHR ₹3,57,882/- + ₹28,38,849/-
and Claim item nos. 1.1.3 and ₹28,38,849/-
no.9 (i) 1.2.2 and non-payment
of RA Bill 17
Claim Refund of Bank ₹1,93,87,461/- ₹1,40,09,510/-
no.10 Guarantees
Claim no.9 Non-payment of RA ₹14,24,094/- + ₹16,89,913.70/-
(ii), Claim Bill no.18, Unbilled ₹8,30,397/- +
no.11 and quantities of executed ₹5,80,191/-
Claim work and material at
no.15 site
Claim Service tax ₹30,24,441/- ₹24,42,253.39/-
no.12
Signature Not Verified
Digitally Signed
By:Dushyant Rawal O.M.P. (COMM) 458/2017 Page 4 of 30
Signing Date:18.04.2022
Claim Retention money ₹39,73,689/- ₹38,83,113/-
no.14
Claim Interest at the Awarded
no.23 rate of 24% per interest at the
Interest annum from rate of 10% per
07.05.2016 till annum from
the date of 07.05.2016 till
payment or the realization of
date of decree the claim
whichever was amount
earlier
Claim Costs of arbitration ₹7,35,000/-
no.24
13. EIL filed its Statement of Defence and raised a total of eight counter-claims. However, the Arbitral tribunal rejected all the counter- claims as the Termination Notice dated 22.03.2016 issued by EIL was held to be illegal.
14. Aggrieved by the impugned award, EIL has filed the present petition.
Submissions
15. Mr. Vasisht, learned senior counsel appearing for EIL, assailed the impugned award on, essentially, five fronts. First, he submitted that the conclusion of the Arbitral Tribunal that EIL was responsible for the Signature Not Verified Digitally Signed By:Dushyant Rawal O.M.P. (COMM) 458/2017 Page 5 of 30 Signing Date:18.04.2022 delays was, ex facie, erroneous and vitiated the impugned award on the ground of patent illegality. He referred to the fourth paragraph of the impugned award and submitted that various reasons stated by the Arbitral Tribunal for delay in execution of the contract and breach on the part of EIL, were unsustainable. He contended that the decision of the Arbitral Tribunal that time was not the essence of the contract, was also erroneous.
16. Next, he submitted that the Arbitral Tribunal had erred in finding that the notice of termination was not in terms of the Agreement as KEPL had not been issued a thirty days cure notice as required. He stated that the Agreement was terminated as KEPL had abandoned the site. In such an eventuality, Clause 32.3 of the GCC did not require any prior notice, and the Agreement could be terminated without any notice. He further contended that in fact several cure notices had been issued to KEPL. In particular, he referred to the letters dated 17.07.2015 and 24.08.2015, in support of his contention.
17. Third, he contended that the award of a sum of ₹14,51,743.65/- on account of excavation of soil (Claim no.1) is. ex facie, contrary to the terms of the Agreement. He submitted that the impugned award was premised on the basis that no rates had been specified for excavation of soil and therefore, the soil excavated by KEPL was required to be paid in addition to payments for the items already mentioned. He stated that a reading of the Schedule of Rates (SoR) indicates that quantities and rates had been provided for sub-items of earthwork and it was clear that Signature Not Verified Digitally Signed By:Dushyant Rawal O.M.P. (COMM) 458/2017 Page 6 of 30 Signing Date:18.04.2022 rate for the work of excavation was implicitly covered by the agreed rates for sub-items.
18. Fourthly, he submitted that the Arbitral Tribunal had grossly erred in awarding KEPL's claim for service tax without KEPL furnishing any proof of payment.
19. Lastly, he contended that the decision of the Arbitral Tribunal to reject the counter-claims was also, ex facie, untenable, as it was premised on the conclusion that the termination of the Agreement was contrary to the terms of the Agreement.
20. Mr. Deshmukh, learned counsel for KEPL, contended that this Court did not have the jurisdiction to entertain this petition as the Arbitral Tribunal was constituted by an order passed by the Bombay High Court under Section 11 of the A&C Act. Thus, by virtue of Section 42 of the A&C Act, all further applications were required to be filed in that court. He also countered the aforesaid submissions made on behalf of EIL. He submitted that the impugned award was a reasoned award, and the view of the Arbitral Tribunal cannot be interfered with under Section 34 of the A&C Act.
Reasons and Conclusion
21. The contention that this Court does not have the jurisdiction to entertain this petition, is unmerited. The Agreement provides that the place of Arbitration is Delhi. The relevant part of the Arbitration Clause is set out below:
Signature Not Verified Digitally Signed By:Dushyant Rawal O.M.P. (COMM) 458/2017 Page 7 of 30 Signing Date:18.04.2022 "xxxx xxxx xxxx
35.2.3 The arbitration will be conducted as per the
Arbitration Act. The arbitral tribunal shall comprise of a sole arbitrator whom shall be appointed by EIL. The place of arbitration for any Disputes and Related Disputes shall be Delhi (save and except where otherwise specified under the Main Contract for the Related Dispute, in which event the place of arbitration shall be the place of arbitration for such Related Dispute). The language to be used in the arbitral proceedings shall be English. The arbitral award shall be final and binding upon both the Parties."
22. It is also well settled that filing a petition under Section 11 of A&C Act is not relevant for the purposes of Section 42 of the A&C Act. The Supreme Court in State of West Bengal & Ors. v Associated Contractors: (2015) 1 SCC 32, held as under: -
"25. Our conclusions therefore on Section 2(1)(e) and Section 42 of the Arbitration Act, 1996 are as follows:
(a) Section 2(1)(e) contains an exhaustive definition marking out only the Principal Civil Court of Original Jurisdiction in a district or a High Court having original civil jurisdiction in the State, and no other court as "court" for the purpose of Part I of the Arbitration Act, 1996.
(b) The expression "with respect to an arbitration agreement" makes it clear that Section 42 will apply to all applications made whether before or during arbitral proceedings or after an award is pronounced under Part I of the 1996 Act.Signature Not Verified Digitally Signed By:Dushyant Rawal O.M.P. (COMM) 458/2017 Page 8 of 30 Signing Date:18.04.2022
(c) However, Section 42 only applies to applications made under Part I if they are made to a court as defined.
Since applications made under Section 8 are made to judicial authorities and since applications under Section 11 are made to the Chief Justice or his designate, the judicial authority and the Chief Justice or his designate not being court as defined, such applications would be outside Section 42...."
23. At the outset, it is relevant to note that Mr. Vasisht had not contested the impugned award insofar as the Arbitral Tribunal has awarded a sum of ₹28,38,849/- against KEPL's claim for non-payment for item nos. 1.1.3 and 1.2.2 and RA Bill 17 [Claim no.2 and Claim no.9(i)]. He also did not contest the award of a sum of ₹16,89,913.70/- against KEPL's claim for non-payment of RA Bill No.18; quantities remaining unbilled; and material at site [Claim No.9(ii), Claim No.11 and Claim No.15].
24. He, essentially, contested the award of ₹14,51,743.65/- in respect of excavation of soil; award of ₹24,42,253.39/- as service tax and rejection of the counter-claims. The Arbitral Tribunal had also awarded a sum of ₹1,40,09,510/- as refund against the Bank Guarantees that were encashed by EIL (Claim no.10). In this regard, Mr. Vasisht submitted that the decision in regard to this claim was dependent on the fate of EIL's counter-claims.
25. He readily conceded that EIL's counter-claims would not survive, if the Termination Notice was held to be illegal or contrary to the terms of the Agreement. Plainly, if EIL's challenge to the findings Signature Not Verified Digitally Signed By:Dushyant Rawal O.M.P. (COMM) 458/2017 Page 9 of 30 Signing Date:18.04.2022 of the Arbitral Tribunal to the aforesaid effect were rejected, EIL's challenge to the impugned award in respect of counter-claims would also fail.
26. The Arbitral Tribunal framed several issues including issues to the following effect: (i) whether KEPL was entitled to specific performance of the Agreement; (ii) whether the termination of the Agreement was unlawful; and, (iii) whether EIL or KEPL had committed breach of the Agreement.
27. The reason for delay in execution of the work was one of the contentious disputes before the Arbitral Tribunal. In this context, the Arbitral Tribunal had, in Paragraph no. 4 of the impugned award, noted down various reasons, which resulted in delay in execution of the works. The Arbitral Tribunal found that KEPL was not responsible for the delays and some of the reasons were attributable to EIL.
28. The Arbitral Tribunal had concluded that there was delay on the part of EIL in providing Form V for applying for a labour license. This was provided to KEPL on 22.02.2014, which was five months after the start of the work. After examination of the material available on record, the Arbitral Tribunal found that this delay was not attributable to KEPL.
29. The Arbitral Tribunal found that there was delay in obtaining the Plinth Completion Certificate. Such certificates were not provided to KEPL but directly to the Project Management Consultant - M/s Design Associates. The Arbitral Tribunal noted that the said Project Management Consultant's employee, Ms. Shraddha Vaidya, had made Signature Not Verified Digitally Signed By:Dushyant Rawal O.M.P. (COMM) 458/2017 Page 10 of 30 Signing Date:18.04.2022 an application to CIDCO for obtaining the Plinth Completion Certificate. Thus, the delays in obtaining the same could not be attributable to KEPL. There was a delay of ten days in handing over of the site. It was handed over on 26.08.2013, whereas it ought to have been handed over on 16.08.2013. In addition, there were delays on account of non-appointment of external agencies. The electrical contractor and HVAC contractor for internal electrical works and HVAC works were appointed after the month of July, 2015 and therefore, the delay on that count could not be attributable to KEPL. The Arbitral Tribunal also found that there was delay on account of approval of rates for use of GI Pipes. Clearly, the decision of the Arbitral Tribunal that KEPL was not responsible for the aforesaid delays cannot be impeached in these proceedings.
30. The Arbitral Tribunal's decision is based on evaluation of material and it accepted KEPL's contention that the execution of the work was delayed for the aforesaid reasons. The decisions of the Arbitral Tribunal on questions of fact, which are based on appreciation of material on record, cannot be interfered with unless the same are found to be, ex facie, erroneous and one that no person could possibly accept. In this case, this Court finds no such ground to interfere with the aforesaid conclusions.
31. In addition to the reasons as cited above, there were other reasons for delay that were accepted by the Arbitral Tribunal, which were seriously contested by EIL. The Arbitral Tribunal had found that KEPL had encountered extremely hard rock while excavating. Based on the Signature Not Verified Digitally Signed By:Dushyant Rawal O.M.P. (COMM) 458/2017 Page 11 of 30 Signing Date:18.04.2022 study by IIT, chemical cracking of rock was suggested. Additional excavators were required to be deployed for cracking of the hard rock. The Arbitral Tribunal had reasoned that this delay was not attributable to KEPL. The Arbitral Tribunal had also noted that KEPL had met the condition of minimum requirement of equipment and deployed additional equipment. The Arbitral Tribunal also observed that in normal circumstances, work could be completed within the stipulated period using the minimum required equipment as stipulated. The Arbitral Tribunal also found that the execution of the work was delayed due to unprecedented rains. It observed that there was delay in awarding of the contract to KEPL. The same had been awarded in the month of August, 2013 and at the material time, the monsoon season was active. Coupled with the same, EIL also stipulated a condition that excavation would be carried out in the dry. In view of the said stipulation, KEPL was required to keep the site dry. The same was not possible in the monsoon season.
32. Mr. Vasisht had earnestly contested that the decision of the Arbitral Tribunal to accept that the aforesaid reasons for delay were not attributable to KEPL is, ex facie, erroneous. He stated that KEPL had accepted the contract to execute the works and the fact that it had encountered hard rock or that the contract had been awarded in rainy season would present no justification for the delayed performance. He stated that the Arbitral Tribunal's assumption that the work could be completed by using the minimum equipment as stipulated was without any basis. The stipulation as to minimum requirement was to stipulate Signature Not Verified Digitally Signed By:Dushyant Rawal O.M.P. (COMM) 458/2017 Page 12 of 30 Signing Date:18.04.2022 the bare minimum equipment required to be deployed and did not, in any manner, absolve KEPL from deploying additional equipment where necessary.
33. The observations made by the Arbitral Tribunal must be construed in the context in which the same were made. There is no dispute that KEPL was required to keep the site dry. The technical specifications also stipulated that the excavation would be performed in the dry. Clause 2.4.12 of the Technical Specifications reads as under:
"2.4.12 All excavation shall be performed in the dry. The placing of blinding concrete, placing of reinforcement and casting of the permanent works in the excavation shall be carried out in the dry and the Contractor shall have sufficient equipment for this purpose. Adequate precautions shall be taken to prevent any corrosion due to undercutting from underneath the previously constructed adjoining foundations."
34. The Arbitral Tribunal had noted the above stipulation and accepted KEPL's contention that it was not feasible to carry out excavation during unprecedented rains. The Arbitral Tribunal's conclusion that the delay on account of unprecedented rains was justified, cannot be held to be a view that is not plausible.
35. The Arbitral Tribunal's observations regarding the minimum equipment are not dispositive of the issue whether the delay on account of encountering hard rock was justified. The Arbitral Tribunal accepted that KEPL had encountered extremely hard rock and even the efforts to chemically crack the rock had failed. It had, therefore, deployed a larger Signature Not Verified Digitally Signed By:Dushyant Rawal O.M.P. (COMM) 458/2017 Page 13 of 30 Signing Date:18.04.2022 number of excavators to complete the work. The Arbitral Tribunal also observed that extreme hard rock could not have been anticipated by KEPL. The finding of the Arbitral Tribunal that the delay on account of sub-soil condition was justified on this ground, cannot be faulted. The observations regarding the minimum requirement of equipment were made only for the purposes of highlighting that, in fact, KEPL had encountered hard rock. The fact that a larger number of excavators were deployed than the minimum stipulated, reasonably indicates that KEPL had encountered hard rock.
36. Apart from the above reasons for delay, the Arbitral Tribunal also found that there was delay on account of ambiguity as to whether sanitary and CP fittings were to be provided free of cost and on account of the controversy regarding safety of stone cladding in view of conflicting reports by the expert agency. This Court finds no ground to fault this decision of the Arbitral Tribunal.
37. The Arbitral Tribunal has elaborately considered the various reasons for delay in execution of the works as set out in Paragraph 4 of the impugned award and as briefly indicated above. This Court does not find merit in the contention that the conclusion of the Arbitral Tribunal in regard to any reason of delay, is perverse or vitiates the impugned award on the ground of patent illegality.
38. Although this Court has briefly examined each reason for the delay, the approach of EIL to invite this Court to re-examine the conclusion of the Arbitral Tribunal in respect of each ground of delay Signature Not Verified Digitally Signed By:Dushyant Rawal O.M.P. (COMM) 458/2017 Page 14 of 30 Signing Date:18.04.2022 is, plainly, erroneous. The impugned award must be read as a whole. In this case, there are numerous grounds on account of which the Project was delayed. The Arbitral Tribunal's decision that the delay was not attributable to KEPL does not require to be sub-divided and dissected to ascertain whether any of the conclusions are patently illegal. In Delhi Airport Metro Express Pvt. Ltd. v. Delhi Metro Rail Corporation Ltd.:
(2021) SCC OnLine SC 695, the Supreme Court had authoritatively explained that even an erroneous decision of the Arbitral Tribunal does not warrant interference on the ground of patent illegality. The relevant extract of the said decision is set out below:
"25. Patent illegality should be illegality which goes to the root of the matter. In other words, every error of law committed by the Arbitral Tribunal would not fall within the expression 'patent illegality'. Likewise, erroneous application of law cannot be categorised as patent illegality. In addition, contravention of law not linked to public policy or public interest is beyond the scope of the expression 'patent illegality'. What is prohibited is for courts to re-appreciate evidence to conclude that the award suffers from patent illegality appearing on the face of the award, as courts do not sit in appeal against the arbitral award. The permissible grounds for interference with a domestic award under Section 34(2-A) on the ground of patent illegality is when the arbitrator takes a view which is not even a possible one, or interprets a clause in the contract in such a manner which no fair minded or reasonable person would, or if the arbitrator commits an error of jurisdiction by wandering outside the contract and dealing with matters not allotted to them. An arbitral award stating no reasons for its findings would make itself susceptible to challenge on this account. The conclusions of the arbitrator which are based on no evidence or have been arrived at by ignoring vital evidence are perverse and Signature Not Verified Digitally Signed By:Dushyant Rawal O.M.P. (COMM) 458/2017 Page 15 of 30 Signing Date:18.04.2022 can be set aside on the ground of patent illegality. Also, consideration of documents which are not supplied to the other party is a facet of perversity falling within the expression 'patent illegality'."
39. In view of the above, this Court finds no ground to interfere with the conclusion of the Arbitral Tribunal that KEPL was not responsible for the delays in execution of the Project.
40. The next question to be examined is whether the decision of the Arbitral Tribunal that the termination of the Agreement was illegal, is perverse or manifestly erroneous.
41. EIL had terminated the Agreement by a Termination Notice dated 22.03.2016. Prior to the said notice, EIL had issued a notice dated 03.03.2016. The said notice bears reference to prior letters (ten in number). In its notice, EIL had mentioned that certain works were incomplete and the minimum progress committed by KEPL, had not been achieved. In view of the above, EIL had indicated its intention to terminate the Agreement under Sub-clause (b) of Clause 32.2 of the GCC. It had also called upon to KEPL to respond to the said notice within a period of seven working days. The operative part of the same reads as under:
"In view of the foregoing and in terms of Clause 32.2 and 32.3 of General Conditions of the Contract, more particularly for default under sub clause (b) of clause 32.2, a notice of termination is hereby issued to you to explain as to why the contract awarded to you should not be terminated at your risk and cost. Your reply should reach the undersigned within 7(seven) working days of issuance Signature Not Verified Digitally Signed By:Dushyant Rawal O.M.P. (COMM) 458/2017 Page 16 of 30 Signing Date:18.04.2022 of this letter falling which it shall be presumed that you have nothing to submit against the termination notice and action accordingly shall be taken in terms of the contract."
42. Nineteen days later, that is, on 22.03.2016, EIL sent another letter terminating the Agreement and called upon KEPL to vacate the site by 06.04.2016. EIL had relied upon Paragraph nos. 9 and 10 of the Termination Notice, which are set out below:
"9. EIL had also issued notice dated 3rd March 2016 whereby EIL had pointed out the major incomplete works and had called upon KEPL to provide explanation as to why the Contract should not be terminated within a period of 7 (Seven) days. However, KEPL had Instead of providing explanations of non- termination of the Contract had vide its letter dated 4thMarch 2016 replied to EIL that the matter is sub- judice and any further attempt of EIL to correspond with KEPL would purportedly entitle KEPL to initiate contempt proceeding.
10.As KEPL has failed to provide any satisfactory response for non-termination of the Contract and has abandoned the project. Considering the failure of KEPL in fulfilling its obligations under the Contract and breach of various provisions of the Contract by KEPL, more particularly, under clause 32.2 of General Condition of Contract, EIL hereby terminates the Contract with immediate effect as per clause 32.3 of General Condition of Contract. It is pertinent to note, the termination of the Contract by EIL does not absolve KEPL from its liabilities under the Contract and for the extensive losses occasioned to EIL due to such non- performance. Further, under Clause 32.4.1(a) of General Condition of Contract, EIL is now entitled to appoint another contractor to complete the Project at Signature Not Verified Digitally Signed By:Dushyant Rawal O.M.P. (COMM) 458/2017 Page 17 of 30 Signing Date:18.04.2022 the sole risk as to cost and consequences of KEPL, which please note. EIL reserves its right to do so."
43. The Arbitral Tribunal found that the said termination was illegal as it was not in conformity with Clause 32.2 and 32.3 of the GCC. Clause 32.3 of the GCC provided for a cure period of thirty days. However, thirty days from 03.03.2016 had not expired. The relevant extract of the decision of the Arbitral Tribunal in this regard is set out below:
"The claimant filed an Arbitration Application no.109 of 2015, before the Hon'ble High Court. The respondent in their reply stated that Shri U.A. Rao was appointed as arbitrator and thereafter R.K. Sur was appointed as arbitrator. As the appointment of these people by the respondents were after the time prescribed under Section 11 of the Arbitration and Conciliation Act, the parties agreed before the Hon'ble Court for appointment of an arbitrator. The Hon'ble High Court vide order dated 23.3.2016 appointed Shri Sanjay Kothari as the arbitrator and sought his disclosure. The matter was posted to 26th February 2016. Shri Sanjay Kothari declined to act as arbitrator and accordingly I was appointed as Arbitrator. On 26th February 2016, the bank guarantees were invoked by the respondent, though on 23.02.2016 Shri.Sanjay Kothari was appointed as Arbitrator by the Hon'ble High Court and also despite the fact that meetings were held between the parties on 21st January 2016 and various issues were agreed upon. The claimant was also asked to list out the works which could be completed in absence of HVAC and external electrical. The claimant on 8th February 2016 has pointed out to the respondent which works could be executed and the respondents were to take a decision on the same. This also indicates that Claimant was ready and willing to execute the work. The respondents were also to issue Extension of Time (EOT). Despite that the Signature Not Verified Digitally Signed By:Dushyant Rawal O.M.P. (COMM) 458/2017 Page 18 of 30 Signing Date:18.04.2022 respondents invoked the bank guarantee after appointment of arbitrator. When all disputes were referred to arbitration the respondent issued a notice of termination to the claimant on 3rd March 2016. Preliminary arbitration meetings were held on 10th March 2016 and necessary directions were passed. On 22nd March 2016 the respondents terminated the agreement. The termination notice was issued under clause 32.3. The clause 32.3 provides for a cure period of 30 days. Computing 30 days from 3rd March 2016 to 22nd March 2016, it does not fulfil the cure period of 30 days. The termination notice mentions about a letter dated 3.12.2015. The same is not a notice which provides for cure period of 30 days but only reply to the claimant's letters. The procedure for termination as prescribed under the agreement is not followed. The termination was after the matter was referred to arbitration, when all disputes between the parties were to be adjudicated upon by the tribunal. Despite the meeting dated 21st January 2016 the respondents have not communicated on any aspect to the claimant though the 18th RA bill was submitted by the claimant to the respondents on 25th February 2016. This indicates that Claimant was executing the work at site. Hence, the termination notice is illegal as it is not given as per the provisions of contract and also the delays as mentioned hereinabove, cannot be attributed to the claimant. Hence this issue is answered in positive, the termination of the contract by the respondent was unlawful."
44. According to EIL, the conclusion of the Arbitral Tribunal that EIL was required to give thirty days cure period is contrary to the terms of the Agreement as EIL was entitled to terminate the Agreement on the ground of abandonment of site without giving any further time. In addition, EIL contends that prior to 03.03.2016, it issued various letters, which were in the nature of cure notices.
Signature Not Verified Digitally Signed By:Dushyant Rawal O.M.P. (COMM) 458/2017 Page 19 of 30 Signing Date:18.04.202245. At this stage, it would be relevant to refer to Clauses 32.2 and 32.3 of the GCC, which are set out below:
"32.2 Termination Due to Contractor's Default The Contract may be terminated by EIL, at its sole and absolute discretion, upon the occurrence of any of the following events/acts committed by the Contractor (each a "Contractor's Event of Default") by issuing a notice to the Contractor, stating the intention of EIL to terminate the Contract:
(a) fails to complete Mobilisation within the Time for Mobilisation under Clause 9.3;
(b) commit a material breach of its obligations under the Contract;
(c) abandons or repudiates the Contractor suspends the execution of the Works during the subsistence of any Dispute under the Contract;
(d) fails to adhere to the Specifications and/or Variations in terms of the Contract;
(e) the Contract Price is reduced to the maximum extent specified in Clause 13.2, yet the delay in respect of which the reduction was made continues to subsist;
(f) a petition for the winding up of the Contractor has been admitted and a liquidator or provisional liquidator has been appointed or an order of bankruptcy or an order for the winding up or dissolution of the Contractor has been made by a Court of competent jurisdiction, except voluntary change in partnership/ constitution of Contractor's organisation (if a partnership/ Company) or liquidation for the purpose of Signature Not Verified Digitally Signed By:Dushyant Rawal O.M.P. (COMM) 458/2017 Page 20 of 30 Signing Date:18.04.2022 amalgamation or reconstruction subject to EIL's acceptance to continue the Contract with the re-
constituted firm/company.
(g) Contractor fails to replace or remedy Defective Work pursuant to Clause 9.1.18;
(h) Contractor's liability for compensation under Clause 20 reaches 10 % (ten percent) of the Contract Price and the Defect for which the compensation are/were charged continues to exist;
(i) gives any warranty or makes any representation under the Contract which is found to be false or misleading;
(j) fails to furnish or renew the Contract Performance Bank Guarantee;
(k) fails to obtain and maintain insurance in accordance with its obligations under the Contract; or
(l) commits any default under any Applicable Law. 32.3 If the Contractor fails to remedy or rectify the default stated in the notice issued by EIL under Clause 32.2 within 30 (thirty) days of receipt of such notice, EIL shall be entitled to terminate the Contract by issuing a termination notice and expel the Contractor from the Site (but without thereby releasing the Contractor from any of its obligations or liabilities under the Contract, or affecting the rights and powers conferred on EIL under the Contract up to the date of termination). However, in case of events specified in Clause 32.2 (c) and (f), EIL shall be entitled to immediately terminate the Contract without giving any notice to the Contractor."
Signature Not Verified Digitally Signed By:Dushyant Rawal O.M.P. (COMM) 458/2017 Page 21 of 30 Signing Date:18.04.202246. A plain reading of Clause 32.3 of the GCC indicates that it was necessary for EIL to issue a notice under Clause 32.2 of the GCC, calling upon KEPL to remedy or rectify the defaults within a period of thirty days from the issuance of such notice. KEPL was required to be put to notice that if it failed to remedy or rectify the defaults, EIL would terminate the Agreement. The last sentence of Clause 32.3 of the GCC indicates that in the events specified in Clause 32.2 (c) and (f) of the GCC, EIL would be entitled to terminate the Agreement immediately without giving any notice. Sub-clause (c) of Clause 32.2 of the GCC is applicable where a contractor has abandoned the site and repudiated the contract.
47. Admittedly, the notice dated 03.03.2016 did not refer to Sub- clause (c) of Clause 32.2 of the GCC. It specifically mentioned Sub- clause (b) of Clause 32.2 of the GCC. Concededly, the termination of the Agreement under Clause 32.2 (b) of the GCC requires a thirty days prior notice.
48. Undeniably, EIL could terminate the Agreement with immediate effect under Clause 32.2 (c) of the GCC; that is, in the event the contractor repudiated the contract or abandoned the site. There is no allegation that KEPL had repudiated the contract. On the contrary, it was seeking specific performance of the contract. The disputes in this regard had been referred to the Arbitral Tribunal and there is material to indicate that KEPL was ready and willing to complete the works. The key question was whether KEPL had abandoned the site.
Signature Not Verified Digitally Signed By:Dushyant Rawal O.M.P. (COMM) 458/2017 Page 22 of 30 Signing Date:18.04.202249. The Arbitral Tribunal had examined the aforesaid question and did not accept EIL's contention that KEPL had abandoned the site. KEPL continued to remain at site till it was handed over, pursuant to the order dated 01.07.2017.
50. Mr. Vasisht had earnestly contended that the expression "abandoned the site" must not be read physical abandonment, but a refusal to execute the works as required. In this context, it important to note that the Arbitral Tribunal found that (i) KEPL was willing to complete the Project; (ii) the same could not be completed without appointing HVAC, an external electrical contractor, and EIL had failed to appoint the contractors till the termination of the Agreement; (iii) the parties also had a discussion as to the works that could be completed in absence of the said external contractors; (iv) that KEPL continued to remain at site till the same was handed over to EIL, in terms of the order dated 01.07.2017, passed by the Arbitral Tribunal; (v) the delays in execution of the Project were justified and at any rate, KEPL was not responsible for the same.
51. In view of the above, this Court finds no infirmity with the decision of the Arbitral Tribunal in rejecting EIL's contention that KEPL had abandoned the Project.
52. EIL had not given sufficient notice for termination of the Agreement on grounds of non-completion of works; and the Arbitrator did not accept the contention that KEPL had abandoned the Project. Thus, this Court finds no flaw in the finding of the Arbitral Tribunal Signature Not Verified Digitally Signed By:Dushyant Rawal O.M.P. (COMM) 458/2017 Page 23 of 30 Signing Date:18.04.2022 that the termination of the Agreement was illegal and not in conformity with the terms of the Agreement. In any view of the matter, the said conclusion cannot be held to be perverse or patently illegal. The decision is an informed decision and warrants no interference by this Court in these proceedings.
53. In view of the above, the decision of the Arbitral Tribunal to reject EIL's counter-claims cannot be faulted.
54. The only question that remains to be addressed is whether the decision of the Arbitral Tribunal to award a sum of ₹14,51,743.65/- on account of excavation of earthwork and ₹24,42,253.39/- as service tax, are patently illegal.
55. The impugned award for excavation carried out by KEPL (Claim no.1) is premised on the basis that the Agreement between the parties did not provide any rate for the same. Thus, KEPL was entitled to be paid for the work in addition to the payments made for other sub-items of earthwork. EIL contends that the rate of earthwork is included in the rate for other sub-items of earthwork. The relevant extract of the SoR included as a part of the Agreement is re-produced below:
Item Item Descriptions Unit Total KIMIYA ENGINEERS PRIVATE No. Qty. LIMITED (I) - CIVIL, STRUCTURAL AND WATERPROOFING WORKS 1.0 EARTH WORK Signature Not Verified Digitally Signed By:Dushyant Rawal O.M.P. (COMM) 458/2017 Page 24 of 30 Signing Date:18.04.2022 1.1 Earthwork in excavation by mechanical means below ground level in al types of soil except rock including removal of vegetation, shrubs and debris, cutting and dressing of sides in slopes, levelling grading and ramming of bottom, keeping the surface dry for subsequent works including excavating last 300mm thick layer of earth manually in order to obtain true level for receiving PCC including providing temporary support to existing service lines like water pipes, sewage pipes, electric overhead and underground cables, shoring & strolling etc. all complete as per direct of engineer-in-Charge. Depth of 0 to 3.0 m (Ordinary Soil) 1.1.1 Stacking of 300 mm top soil Cum 500 300.00 Three Hundred 1,59,900.000 from the excavated area in the Only premises within in a lead of 15m at a location directed by Engineer-in-Charge.
Contractor shall stack this soil in layer of 300mm and maximum up to 900mm with the slope of 1:3 with the all the layers compacted properly.
Then the said soil shall be brought back to site and laid with proper compaction as per instruction of Engineer-in-
Charge. (item of work is limited to staking of top soil of 300 mm only as per requirements of GRIHA certification for Green Buildings. Back filling shall be paid in the relevant items separately).
Signature Not Verified Digitally Signed By:Dushyant Rawal O.M.P. (COMM) 458/2017 Page 25 of 30 Signing Date:18.04.2022 1.1.2 Stacking of excavated material Cum 500 300.00 Three Hundred 1,50,000.00 within a lead up to 150m within Only the site end neatly dressed as directed by Engineer-in- Charge. 1.1.3 Disposal of surplus excavated Cum 5438 200.00 Two Hundred 10,87,600.00 earth outside the site including Only 0 loading, including up to all leads
56. KEPL contended that there were no rates specified for excavation in the SoR. However, EIL claimed that it was subsumed in the sub-item of work, which related to stacking of soil and disposal of the surplus outside the site.
57. The contention that the work of excavation is included in the sub- item of stacking the soil, is substantial. It does appear that work relating to some items were sub-divided into sub-items. The same is apparent as rates for executing certain other items are clearly included in the sub- items. Illustratively, the rates for the earthwork by mechanical means are included in Sub-items 1.2.1 and 1.2.2. The SoR relating to the said item is set out below:
Item Item Descriptions Unit Total KIMIYA ENGINEERS PRIVATE no.1 Aty. LIMITED 1.2 Earthwork in excavation by mechanical means below ground level in rock including cutting and dressing of sides in slopes, levelling grading and ramming of bottom, keeping the surface dry for subsequent works including excavating last Signature Not Verified Digitally Signed By:Dushyant Rawal O.M.P. (COMM) 458/2017 Page 26 of 30 Signing Date:18.04.2022 300mm thick layer of earth manually in order to obtain true level for receiving PCC including providing temporary support to existing service lines like water pipes, sewage pipes, electric overhead and underground cables, shorting and strutting etc. all completes as per direction of Engineer-in-
Charge. Depth of 3.0 to 6.0m.
1.2.1 Depth if 3 to 6 m (hard Cum 3767 1000.00 One 3,76,700.00
Rock, Blasting thousand
prohibited) only
1.2.2 Disposal of surplus Cum 3767 200 Two 7,53,400.00
excavated earth Hundred
(including hard rock) Only
outside the site including
loading unloading up to
all leads.
58. However, the learned counsel for KEPL had submitted that there was, at the material time, no excavation contemplated since there was an existing basement and that is perhaps the reason why no rates had been prescribed. However, it does not appear that there were pleadings to the aforesaid effect before the Arbitral Tribunal.
59. Although, this Court is inclined to accept the contentions advanced on behalf of EIL. However, it is apparent that the question whether the rates for carrying out the work for excavation was included in the rate for stacking the excavated soil, is not free from ambiguity.Signature Not Verified Digitally Signed By:Dushyant Rawal O.M.P. (COMM) 458/2017 Page 27 of 30 Signing Date:18.04.2022
60. The Arbitral Tribunal examined the said question and allowed the said claim. The Arbitral Tribunal's conclusion in this regard is set out below:
"(iv) On perusal of the documents, evidence and the arguments of both the parties it is clear that, if the item of execution of soil is to be compared with the item of excavation of rock, the item of excavation of rock provides for the activity of excavation but item of soil only provides for stacking of top earth, stacking of other surplus excavated earth and disposal. The item no.1.1 is the description of item and there is no unit and quantity mentioned, so the claimant cannot quote for such item.
While in items stacking of top soil, stacking of excavated material and disposal of soil, the unit and quantities are mentioned, enabling the claimant to quote for the same. While in the item 1.2 i.e. excavation of rock which is also the description, item 1.2.1 provides for excavation of rock and also provides for unit and quantity which enables the claimant to quote for the same. Hence, it is clear that the item for excavation of soil is missing in SOR. This is why it took more than 1 ½ years to the respondent to take a decision on the same when the same was raised by the claimant on 30th September 2013 and decision was taken by the respondent only on 2.12.2014. Further the tender being a zero deviation contract the claimant was not in a position to quote for item for excavation of soil separately. The bid clarification issue would had only arisen had it been a composite contract. It being an item rate contract, if any item not provided in SOR needs to be paid. The clauses of contract provides for extra items and variations. Hence, the claimant is entitled for this claim as the quantity, amount and rates under this claim to the extent of Rs.14,51,743.65 is not disputed by the respondents. I, therefore Award a sum of Rs.14,51,743.65 to the claimant under this claim."
Signature Not Verified Digitally Signed By:Dushyant Rawal O.M.P. (COMM) 458/2017 Page 28 of 30 Signing Date:18.04.202261. Considering that there is scope for ambiguity whether the SoR includes rates for excavation, the view of the Arbitral Tribunal must prevail. This Court cannot examine the impugned award as a first appellate court and supplant its view over that of the Arbitral Tribunal. Clearly, the view of the Arbitral Tribunal is not one which is, ex-facie, contrary to the terms of the Agreement. The Arbitral Tribunal has interpreted the SoR and it is well settled that the question of interpretation of the contract is within the jurisdiction of the Arbitral Tribunal (See: McDermott International Inc. v Burn Standard Co. Ltd and Ors: 2006 (11) SCC 181). Thus, it would not be apposite for this Court to interfere with this decision.
62. The contention that the Arbitral Tribunal has erred in awarding service tax, is unmerited. Undisputedly, KEPL had issued tax invoices clearly indicating the element of service tax. There is no dispute that EIL was liable to bear the service tax. In this regard, Clause 6.5 of the Special Conditions of Contract (SCC) is relevant and set out below:-
"Clause 6.5 Special Conditions 6.5 After award of work, Service Tax shall be paid by OWNER to the CONTRACTOR @ 12.36%, as per Form SP-2, against invoices issued in accordance with the provisions of the Service Tax Rules which state that the each invoice shall be serially numbered and shall contain the following details-
(i) the name, address and service tax registration Signature Not Verified Digitally Signed By:Dushyant Rawal O.M.P. (COMM) 458/2017 Page 29 of 30 Signing Date:18.04.2022 of the person;
(ii) the name, address of the person receiving the taxable service;
(iii) the description, classification and value of taxable service provided or to be provided;
(iv) the service tax payable there on."
63. KEPL had claimed that it had paid the service tax. Its witness was also examined and had affirmed that KEPL had, in fact, paid the service tax. It is also important to note that it is not open for KEPL to retain any amount that is collected as service tax; and, doing so is a punishable offence.
64. In view of the above, this Court finds no infirmity with the decision of the Arbitral Tribunal to allow KEPL's claim for the service tax in respect of the bills raised.
65. The petition is unmerited and, accordingly, dismissed.
VIBHU BAKHRU, J APRIL 18, 2022 RK Signature Not Verified Digitally Signed By:Dushyant Rawal O.M.P. (COMM) 458/2017 Page 30 of 30 Signing Date:18.04.2022