Calcutta High Court
Centex (India) Engineers Pvt. Ltd vs Union Of India on 13 January, 2017
Equivalent citations: AIR 2017 (NOC) 195 (CAL.)
Author: Soumen Sen
Bench: Soumen Sen
IN THE HIGH COURT AT CALCUTTA
ORDINARY ORIGINAL CIVIL JURISDICTION
ORIGINAL SIDE
BEFORE:
THE HON'BLE JUSTICE SOUMEN SEN
G.A. 4696 of 1997
AC No.70 of 1997
CENTEX (INDIA) ENGINEERS PVT. LTD.
VS.
UNION OF INDIA
For the Petitioner : Mr. Jayanta Kr. Mitra, Ld. A.G.,
Mr. Supriyo Bose, Sr. Adv.,
Ms. Kumkum Das (Dutt), Adv.,
Mr. Gautam Som, Adv.
For the Respondent : Ms. Aparna Banerjee, Adv.
Heard On : 10.11.2016, 16.11.2016,
17.11.2016, 01.12.2016,
15.12.2016, 22.12.2016,
05.01.2017, 12.01.2017.
Judgment On : 13th January, 2017
Soumen Sen, J.:- This is an application for setting aside of an award under Sections 30 and 33 of the Arbitration Act, 1940.
Centex (India) Engineers Pvt. Ltd., a partnership firm, was awarded a Contract dated 2nd January, 1992 by the respondent for construction of four Bridges Nos.109, 143, 155 and 171 in connection with the Sonnagar Garhwa Line Doubling Phase-II between Nabinagar and Satbahini Stations under an agreement being Agreement No. CE/CON/III/1324 dated 2nd January, 1992 (hereinafter referred to the said agreement).
The contract in question was principally for the construction of four bridges having different time schedules of completion which were as follows:-
Bridge No.109 ... One year (Completion date 30/05/1992) Bridge No.143 ... 15 Months (Completion date 30/08/1992) Bridge No.155 ... 15 Months (Completion date 30/08/1992) Bridge No.171 ... 6 Months (Completion date 30/11/1991) All the above periods of completion were to be from the date of issue of the letter of acceptance that is to say, from 31st May, 1991.
The claimant contended that though the above schedule is for completion of four different bridges but amongst the four bridges, bridge no.171 was to be executed first, thereafter bridge no.109, 143 and 155 respectively. This is particularly significant in view of the fact that bridge no.171 was larger than the other bridges and the letter of acceptance was issued on 31st May, 1991 which turned out to be 10 days before the onset of monsoon the area. Moreover, bridge no.171 was under
execution of some other contractor who had left after doing some work. Some of the work done by such other contractor was required to be dismantled.
As required under the Clause 19 of the General Conditions of Contract, as also from sound engineering and contracting practice the claimants had undertaken a very thorough preliminary investigation of the bridge site before quoting for the job. The claimants had upon such investigation arrived at the conclusion that bridge no.171 had rock at a fairly shallow depth and thus the piles on which this bridge would be founded would be for short length. The soil investigation per bore hole would also be much less time consuming than that in the case of any other bridge because the soil investigation would have to proceed only until rock was met with. This fact was of extreme importance in working in the monsoon inasmuch as in case of soil investigation it would become imperative to remove equipments at short notice upon receipt of any information regarding flood. Based on such knowledge, the claimants agreed to construct the bridge no.171 with very difficult short target of 6 months of which about 4 months would have been in monsoon.
Upon receipt of the letter of acceptance and in view of the imminent onset of the monsoon the claimants had to mobilize at the site and simultaneously to press the Railway for claimants received a letter no.202-WT/GSD from the Deputy Chief Engineer/Con/I/Dos intimating them that they would have to undertake soil investigation work in the following order:-
1. Bridge No.109 3. Bridge No.143
2. Bridge No.171 4. Bridge No.155 This interchange of Bridge No.109 and 171 created immense difficulties for them in view of the fact that the Bridge site for Bridge No.109 had no rock within readily reachable depths and as such the soil investigation had to be carried on to a much greater depth. This would have been a difficult operation under ordinary circumstances but with the onset of monsoon this had become almost impossible in view of the fact that the Rig would remain deployed at a given bore hole for a much longer length of time. During these periods the probability of floods washing away the boring Rigs would be much greater. Not only so, but following the soil investigation, the pile length also would be much more (eventually it turned out to be 15M for Bridge No.109 as against 7M in Bridge No.171) and the deployment of a piling rig for a given pile at the bridge site would also be much more. The rivers in this region of Bihar were having torrential flows during monsoon, and it is physically impossible to do any work on the river bed during most part of the monsoon. The claimants, therefore, were extremely disinclined to undertake such work in the monsoon in the bridge no.109 but because of constant insistence by the Deputy Chief Engineer (Con), they were forced to do so.
Apart from the above mentioned difficulties, the switch in priorities by the Railway from bridge no.171 to bridge no.109 caused very considerable confusion with the claimants, workmen and required extensive redeployment of facilities which naturally cost the claimants considerable sums of money.
This act of first holding out of them that the bridge no.171 was to be done first and that too within a very short span of time and thereafter changing the position, the Railway made a positive assertion in a manner not warranted by the information available with the Railway of the priority of bridges and other wise committed a misrepresentation, albeit innocently. The claimants chose to perform the contract in spite of this misrepresentation and eventually completed, all the four bridges, thus completing the performance of the contract. However, the claimants were put to extra expenditure as a result of aforesaid misrepresentation for which they hereby claim compensation and other reliefs.
It was alleged that the Railway committed further acts of misrepresentation by giving totally incorrect figures of steel reinforcement against item no.7 in the Schedule A2 of Rates. When floating the tender this particular item had against it mentioned a quantity of 500 (Metric Tonnes) of reinforcement to be done under the contract. As a conscientious contractor of long standing the claimants did a rough calculation of the quantity of reinforcement and came to the conclusion that there must be something seriously wrong with this figure. Therefore, the claimants proposed that for the quantity of 500 M.T. the rates would be Rs.500/- per M.T. However, if this quantity came down to 50 M.T. or so (as the claimants apprehended it will) then rates would be Rs.2,000/- per M.T. On receipt of this letter, the Railway rechecked its calculation came to the conclusion that the quantity ought to be 180 M.T. instead of 500 M.T. but the Railway persuaded the claimants to agree to the rate of quantity of 180 Tonnes. The claimants agreed even to this unreasonable demand. Although the bargain was unconscionable the claimants are not claiming anything on this ground. However, upon completion of the work, the claimants discovered that the quantity of reinforcement operated came to only 96 M.T. (very close to the original estimated quantity of the claimants). Even for this drastically reduced quantity, Railway has paid only at the contractual rate. As a result of this misrepresentation, along with other factors, the value of work to be done under this contract has also drastically reduced from Rs.186 lakhs to Rs.138 lakhs. As a result of this diminution in quantities the claimants suffered a loss of profit.
The claimants submit that the aforesaid acts of misrepresentation caused a diminution in the claimants' profit. They also caused confusion and thereby in conjunction with other factors lengthened the claimants stay at site to a very considerable extent.
On the basis of the aforesaid, in its statement of claim, the claimant has made the following claims:-
CLAIMS
1. Idling of labour Rs.9,87,000/-
2. Idling of equipments Rs.11,22,000/-
3. Idling of on-site overhead Rs.14,76,500/-
4. Idling of off-site establishment Rs.13,64,000/-
5. Loss of Profit Rs.16,80,000/-
6. Escalation not paid for Rs.26,27,000/-
7. Final Bill Rs.8,68,227/-
8. Cost of piling not paid for Rs.2,50,000/-
9. Compensation for flood damage Rs.3,00,000/-
10.Compensation for pilferage etc. Rs.4,00,000/-
owing to law and order problems
11.Miscellaneous either infructuous expenditure 11.1) cost of remobilization of piling equipment of Bridge No.155 Rs.2,20,000/-
11.2) Transportation of other plant & equipment Rs.70,000/- 11.3) Other miscellaneous unidentifiable expenditure such as travelling, phone etc. Rs.1,00,000/-
12. Refund of all amounts wrongfully invoked Rs.3,87,529/-
And encashed by Senior A.O./Con against BG Bond Nos.41/91. Dt.3.6.91, 48/91 dt.
20.12.991, 51/92 dt. 13.3.93 issued by United Bank of India, Lake Road Br.
13. Damages for wrongful encashment of Rs.5,00,000/-
Bank Guarantee, Bonds and resulting loss
of faith on us of our Bankers. _______________
RS.1,23,52,256/-
14. Interest on the due amount @ 18% P.A. As accrued
simple from 31.8.92 past, pendente lite
& Post award as accrued.
15. A declaration that nothing is payable by --
Centex (India) to Railway.
16. Return of Bank Guarantee Bond Rs.2,25,000/-
17. Cost in the proceeding --
The arbitrator on consideration of the materials-on-record and on the basis of the evidence both oral and documentary passed the following award:-
Claim No. Description of Claim Amount claimed Award
1. Idling of labour Rs.9,87,000/- Rs.1,23,730
2. Idling of equipments Rs.11,22,000/- NIL
3. Idling of on-site overhead Rs.14,76,500/- NIL
4. Idling of off-site establishment Rs.13,64,000/- NIL
5. Loss of Profit Rs.16,80,000/- NIL
6. Escalation not paid for Rs.26,27,000/- Rs.6,87,304
7. Final Bill Rs.8,68,227/- Rs.3,74,574
8. Cost of piling not paid for Rs.2,50,000/- Rs.15,200
9. Compensation for flood damageRs.3,00,000/- NIL
10. Compensation for pilferage etc.Rs.4,00,000/- NIL owing to law and order problems
11. Miscellaneous either infructuous expenditure 11.1) cost of remobilization of piling equipment of Bridge No.155 Rs.2,20,000/-
11.2) Transportation of other plant & equipment Rs.70,000/-
11.3) Other miscellaneous unidentifiable
expenditure such as travelling,
telephone etc. Rs.1,00,000/- Rs.3,90,000 NIL
12. Refund of all amounts wrongfully Rs.3,87,529 Rs.3,87,529
invoked and encashed by Senior
A.O. /Con against BG Bond
Nos.41/91. Dt.3.6.91, 48/91 dt.
20.12.991, 51/92 dt. 13.3.93 issued by
United Bank of India, Lake Road Br.
13. Damages for wrongful encashment Rs.5,00,000/- NIL
of Bank Guarantee Bonds and resulting loss
of faith on us of our Bankers.
Interest on the due amount As Accrued NIL
@18% P.A. simple from 31.8.92
Past, pendente lite & post award as accrued
_________________ _________
RS.1,23,52,256/- 15,88,337
The arbitrator did not allow claim of idling of equipment, idling of on-site overhead, idling of off-side establishment, loss of profit, compensation for flood damage, compensation for pilferage etc. owing to law and order problem and miscellaneous and infructuous expenditure, damages for wrongful encashment and bank guarantee bonds and interest on the aforesaid sum from 31st August, 1992.
The learned Counsel appearing on behalf petitioner submits that although the Joint Arbitrators agreed that escalation had, in fact, taken place in labour and materials, and they could not find any flaw in the said claim of the said firm, except the claim for unlimited escalation rejected the said claim altogether. It is submitted that the Joint Arbitrators have completely misdirected its mind in referring to the Ministry of Railways' latest formula which specifies that for contracts having duration for more than two years maximum escalation allowed should be 20% with no escalation for first 5%, although the General Conditions of the present Contract provides price, mode, manner and method of calculation of adjustments and the circular dated January 20, 1987 would be applicable. It is submitted that the reduction of amount is on extraneous consideration and beyond jurisdiction. It is submitted that in rejecting the said claim, the Joint Arbitrators travelled outside the bounds of the contract and/or imported something on which the parties had never agreed.
It is further submitted that the Joint Arbitrators have relied upon the said circular of Railway Authorities without disclosure of the circular dated April 4, 1996, in the said proceeding and inviting any submission of the parties with regard to the applicability of the said circular in the present case and thereby the said proceeding is vitiated by the violation of principles of natural justice. It is submitted that the learned Arbitrators in pronouncing the award with regard to the Claim Nos.8, 9 and 10 did not state any reasons worth mentioning and thereby has failed to disclose its minds which completely vitiates the said award. It is submitted that once the arbitrator had come to a conclusion that the encashment of the bank guarantee is illegal, it is the obligation of the Joint Arbitrators to award interest for loss and damage suffered due to such wrongful encashment of the bank guarantee as compensation and the Arbitrators have completely failed in their duty to act fairly in refusing to grant interest as claimed in the award for such wrongful encashment of the bank guarantee.
The learned Counsel appearing on behalf of the respondent authorities has produced before this Court three circulars, namely, the circulars dated 25th April, 1980, 20th January, 1987 and 4th April, 1996 and submits that while circulars dated 25th April, 1980 and 4th April, 1996 are in pari materia and the basis of calculation for escalation are same in both the circulars, the manner and mode of calculation for escalation is, however, different in the circular dated 20th January, 1987. The learned Counsel was unable to produce any document to show that the contract would be governed by the 1980 circular or any other circular, save and except, the circular dated 20th January, 1987. The learned Counsel was also unable to support the basis of calculation for escalation made by the joint-arbitrators relying on a subsequent circular dated 4th April, 1996.
In respect of the claim on account of interest on sums representing the bank guarantee, the learned Counsel has relied upon Clause 16(2) of the General Conditions of Contract and submits that in terms of such Clause, no interest is payable upon the earnest money or the security deposit or amount payable to the contractor under the contract.
The challenge to the award is three-fold. Firstly, the joint arbitrators have relied upon a Railway Board Circular which materially alters the basis of calculation for escalation without giving an opportunity to the petitioner to make any submission on the said circular. Secondly, once the joint arbitrators held that the encashment of bank guarantee was wrongful, some compensation ought to have been awarded. Thirdly, the counter-claim made by the respondent is not arbitrable.
It is an admitted position that the contract contains a formula on the basis of which escalation needs to be determined. The Railway Board Circular which was relied upon by the joint arbitrators was not in existence at the relevant point of time and, accordingly, the joint arbitrators could not have relied upon the said circular unless the contract permits that subsequent circulars would be taken into consideration for the purpose of calculating escalation. The terms of the contract cannot be varied unilaterally unless the contract permits a party to do so. The respondent is unable to show before this Court that the said document was disclosed in the proceedings by the respondent and an opportunity was given to the petitioner to make submission on the said circular. The joint arbitrators could not have varied the terms of contract and import their personal knowledge in the adjudication proceeding without giving an opportunity to the petitioner. Moreover, the respondent is unable to show that there has been any alteration and/or variation of the escalation formula or the contract permits the said respondent to alter and/or modify the said formula on the basis of the latest Railway Board Circular. The circular dated 20th January, 1987 is the relevant circular applicable in the instant case. This circulation was prevailing and in existence when the contract was entered into on January 2, 1992.
In view thereof, the claim on account of escalation requires fresh consideration and to be calculated on the basis of the circular dated 20th January, 1987. The claimant has made a claim for a sum of Rs.26,27,000/- towards escalation. This claim has to be decided on the basis of the circular prevailing at the relevant point of time, namely, 20th January, 1987.
In respect of the compensation for wrongful encashment of the bank guarantee, the learned arbitrator directed refund of the amounts wrongfully invoked and encashed against the bank guarantee representing a sum of Rs.3,87,529 without any interest. Although no reason is given in the award denying interest but it appears from Clause 16(2) of the General Conditions of Contract that the petitioner is not entitled to any interest on such sum.
The learned Senior Counsel appearing on behalf of the petitioner has referred to Paragraph 31 of the Counter-statement in which the respondent contended that the encashment of bank guarantee bond worth Rs.2,37,529/- was against the mobilization advance and interest thereon and other two worth Rs.1,50,000/- in aggregate against not fulfilling the contractual obligations.
The said clause 16(2) of the General Conditions of Contract reads:-
"16(2). Interest on amounts. - No interest will be payable upon the earnest money or the security deposit or amounts payable to the Contractor under the contract."
There cannot any doubt that the said two sums represent security deposit within the meaning of Clause 16(2) of the General Conditions of Contract.
In view of such an express bar, in my view, the joint-arbitrators were justified in refusing to grant any interest on the aforesaid sum.
The argument that the joint-arbitrators could not have considered the counter-claim is fallacious as in deciding the dispute, all claims and counter-claims are to be taken into consideration and the respondent can always set up a counter-claim or set off. The defence of the respondent is in the nature of set off. If the argument of the petitioner is to be accepted then the defendant would be precluded from making any claim for adjustment by way of set off or otherwise and thereby allowing the plaintiff to have an award for a sum disregarding such adjustments. The respondent would be completely without any defence. The process of adjudication contemplates the consideration of the claims and counter- claims and any finding without considering the counter-claim or set off would render the award invalid and such award is liable to be set aside.
Under such circumstances, the award is remitted for re- consideration of Claim No.6. The appointing authority shall make an appointment of an arbitrator in terms of Clause 63(3) of the General Conditions of Contract within a period of 30 days from date. However, it is desirable that a sole arbitrator may be appointed as the petitioner has consented to appointment of a sole arbitrator and the learned Counsel representing the respondent due to lack of instruction is unable to give consent in which case this Court could have appointed a sole arbitrator by recording consent. The appointment of a sole arbitrator would also minimize costs and time. The appointing authority shall take into consideration the aforesaid factor while making the appointment and in the event a sole arbitrator is appointed by the appointing authority in terms of this order, none of the parties would be permitted to challenge such appointment on the ground that the procedure prescribed in Clause 63(3) of the General Conditions of Contract was not followed.
G.A. No.4696 of 1997 is allowed in part. There shall be a decree for the rest of the claims allowed by the arbitrators. The decretal sum shall carry interest @12% per annum from the date of the decree till realization. The department shall draw up the decree as expeditiously as possible. AC No.70 of 1997 stands disposed of.
However, there shall be no order as to costs.
Urgent Photostat certified copy of this judgment, if applied for, be given to the parties on an usual undertaking.
(Soumen Sen, J.)