1. This is an application filed under Section 34 of the 1996 Act, for setting aside the award and the corrected award dated 30th September, 2004 passed by the Arbitral Tribunal.
2. Petitioners Case
2.1 The case of the petitioner is that the agreement between the parties contemplated widening of Panagarh Mourigram Road. The said work was divided into four sections and the works in respect of the said agreement related to the Rampurhat and Mourigram section and was numbered as S-11. Such works was to be completed within 42 months but in fact, was completed in 83 months after grant of five extensions. No claims were made during the subsistence of the agreement instead claims have been made after the works have been completed. The claims made are contrary to Clause 53 of the Conditions of Contract, which lays down the procedure for making claims. Under Clause 53.1, notice of claim for additional payment ought to have been made within 28 days from the event which gives rise to such claim. Notice should have been given to the engineer and employer. Similarly there has been non-compliance with Clause 53.4 of the conditions of contract which postulates verification of contemporary records. As no claim has been made within the specified time, the same is voidable under Section 55 of the Contract Act. The claim being contrary to the procedure laid down could not have been entertained and was liable to be rejected as has been held in --
i) AIR 2002 SC 1272 (paragraph 15),
ii) AIR 1990 Andhra Pradesh 294 (paragraphs 20,21),
iii) AIR 2003 SC 2629 (paragraph 14) = (2003) 5 SCC 705
iv) AIR 1988 SC 1166 (paragraphs 5,6 & 8) and
v) (2006) 11 SCC 181 para 87/88.
2.2 In paragraph 7.14 of the award the arbitrators have set out the claimants arguments in respect of Clause 53. The respondents argument is reflected in paragraph 8.5 of the award. As the claims have been made after completion of the work no dispute arose during execution of the work and the same should not have been entertained. Delay, if any, was due to the claimants inability to complete the work including deployment of equipments. The findings of the arbitrator and rejection of the counter claim are based on the finding that no liquidated damages were levied. Time was the essence of the contract and Section 55(iii) of the Contract Act, 1872 was inapplicable as no notice was given and liquidated damages were released to meet the financial crunch.
2.3 Clause 53 contemplated issuance of an auditors certificate and not statement of accounts. The rebate was granted only on the condition that all four contract packages be awarded to the respondent herein. No contemporaneous records under Clause 53.4 has been produced. The respondent-contractor was liable for the six months delay in view of the hold order issued. The award was amended on 16th October, 2004.
2.4 In respect of Claim No.1 amounts have been awarded towards additional claims for the extended period. Clause 53 lays down procedure for making claims. Clause 53.4 postulates verification from contemporary records. The arbitrators were entitled to verify such record. The arbitrators not having done so have acted contrary to Section 28(3) of the 1996 Act by not taking into account the usages of the trade applicable to the transaction as will appear from paragraph 6.2 of the award (pgs.286).
2.5 The failure in Clause 53.4 can only be related to Clause 53.2 and Clause 53.3. Notices given are only in respect of POL and labour costs and for no other heads of claim has any notice been given. According to the findings of the arbitrators no notice under Clause 53.1 need be given, but notices have been given. Therefore, this is a contrary finding which bars the petitioner from relying on Section 55 of the Contract Act, 1872 and is contrary to law and to public policy. For the said proposition reliance is placed on AIR 2002 SC 1272 and AIR 1990 Andhra Pradesh 294. Time was the essence of the contract as the agreement contemplated completion of works within a certain period of time. The findings of the arbitrator that time was not the essence of the contract between the parties is contrary to the Terms of the Agreement and for such reason the award is contrary to the public policy and liable to be set aside. For the said proposition reliance is placed on AIR 2003 SC 2629 (paragraph 14) and AIR 1998 SC 1166 (paragraphs 5, 6 & 8).
2.6 There is also no reason for non-application of Clause 53.1 in the award.
The claim in respect of overhead expense has been based on Rs.35 crores. In fact, the amount reflected in the bill dated 29th October, 1998 is Rs.22 crores and the same should have formed the basis for calculating the overhead expense. The only reason for basing the calculation at 15% is the auditors report and no other reason. The basis for levy at 15% of overhead is baseless. The survey of the auditor cannot be relied on for imposing a 15% levy as by placing reliance on the said survey the arbitrator has substituted the terms of contract and overlooked Clause 53. For all the said reasons the findings of the arbitrator in respect of the above-mentioned claim be set aside as the same is contrary to usage of trade and public policy.
2.7 Claim No.2 is on account of equipment charges incurred during the extended period of completion. The chart of equipment charges was placed before the arbitrators and the addition of depreciation renders the award bad as the said element of depreciation cannot be separated from the charges incurred.
Therefore the findings in respect of Claim No.2 is bad and liable to be set aside.
2.8 Claim No.3 is not disputed as notices have been given for the same.
2.9 Claim No.4 relates to interests given on the costs of overhead and profit. Grant of interest at 76.06% of the overhead charge is contrary to public policy. There is no evidence of bridging finance availed by the claimant from the export import bank and the findings of the arbitrator in respect thereto evidences private negotiation between the claimant and the arbitrators. For the said reason the claim is liable to be set aside.
2.10 In respect of Claim No.5 as delay is attributable to the claimant, the petitioner cannot be held responsible for the same and this disentitles the claimant to any sum on account of loss of profit. Regular pace was maintained in the extended period and levy of 15% for loss of profit is unjustified. The basis for such levy can be nothing but the auditors report. The delay, if any, was on account of the respondents inability to bring the equipments to site. Upon receipt of the first mobilization advance equipments needed for the last stage, were purchased. In fact, neither the notice inviting tender, nor the tender documents or the brochure of Ministry of Survey and Transport and Indian Roads Congress Standard Specification was considered. ISI Code relied on by the arbitrators was not contemplated and nowhere either by amendment or otherwise was the ISI Code incorporated. Therefore the findings in respect of Claim No.5 is bad and liable to be set aside.
3. Respondents/Claimants Case
3.1 The agreement between the parties contained an arbitration clause. Subsequently the clause was modified by Special Conditions of Contract and three arbitrators were appointed as per Clause 2.2. The constitution of such arbitral tribunal is approved by the decision reported in AIR 1997 SC 2316 (paragraphs 4 & 5). The main contention of the petitioner is with regard to not following the procedure for claims. The arguments of the parties have been recorded in paragraphs 6.2, 7.14 and 8.5 of the award.
3.2 The arguments of the petitioner have been quoted by the arbitrators from its notes. Clause 12.2 of the Conditions of Contract postulates adverse physical obstruction or condition. The findings of the arbitrator, in this regard, will appear from paragraphs 9 and 10 of the award. As held in AIR 1999 SC 217 (paragraph 17) and by Mustill & Boyd in the Chapter on Active Remedies arbitral awards made by commercial men must be given a benevolent interpretation. The grounds on which an award can be set aside are contained in Section 34 of the 1996 Act. The said Section has been dealt with in AIR 2003 SC 2629. Section 34(3)(d) contemplates setting aside of an award if it is held to be patently illegal or contrary to the laws of India. S-10 and S-11 were to be treated as a combined package and the approved set of machines would be used for both. Time was not the essence of the contract and therefore Sections 55(1) and 55(3) are not applicable and no notice postulated thereunder need be given. The cases relied on are distinguishable on facts. In fact, based on the decision reported in AIR 1989 SC 1034/1037 the arbitrators were entitled to grant escalation of 15%. There is no error of law or misconstruction of clauses of the contract or misinterpretation of Section 55 of the contract. In fact, the arbitral tribunal has given its reason and it is not the case of the petitioner that its contention was not considered. Therefore, the award ought to be upheld as it is an award by men who are technical experts in their field.
4. Petitioner-in-Reply
4.1 In reply the petitioner submits that the notice postulated must be one under the agreement and in the instant case Clause 53. The claims made are additional and such claims are covered by Clause 53. Extensions have been given and therefore the case reported in (2006) 11 SCC 181 is applicable. It is admitted that no notice was given under Clause 53 and the meaning of non-obstante in Blacks Law Dictionary be considered. There is no question of passing an interim or final account in the award and for the said proposition reliance is placed on 2005 8 SCC 466 (Para 17) and therefore Section 55(iii) applies and all amounts awarded is for the period after 30th September, 1998. Therefore the arbitrators to decide as per Section 28(3) of the 1996 Act and as per Terms of Contract. AIR 1989 SC 1034 is distinguishable so also AIR 1987 SC 2316 and AIR 1999 Cal 339. In respect of Claim No.1 there is no reason for grant of 15% on overhead. The auditors certificate cannot replace interim account or final account and the said certificate cannot be relied on as the calculation was to be done by the arbitrators. Value of the work done till 30th September, 1998 was approximately Rs.22crores and the work done thereafter will be for a lesser amount, 15% should have been calculated on this lesser sum. There is no question of granting depreciation in respect of Claim No.2 as the same was not asked for and the additional financing cost is without any basis. It is not known whether reply was given to the query raised in the 42nd meeting. There is no evidence of borrowed capital and therefore the said amount should not have been awarded. There is also no reason for grant of 10% in respect of Claim No.5. The liquidated damages have been refunded by the State and for rejection of each of the counter claims there should have been reasons set out. The delay is attributable to the contractor and therefore the counter claim should have been allowed.
5. Counsel for the claimant-respondent submits that the calculation was replaced at the direction of the tribunal and attached to the Claimants Note. The cost of borrowed capital was considered in (2006) 11 SCC 181. The Written Notes of the State has been relied on by the arbitrators and on basis thereof the award passed. Therefore the case of the petitioner was considered and reasons given for passing the award. As the award is a speaking award the same be not set aside.
6. Conclusion
6.1 Having considered the submissions of the parties the scope for interference in an application filed under Section 34 of the 1996 Act is limited and as held in AIR 2003 SC 2629 = (2003) 5 SCC 705 is restricted to the following grounds viz.
a) fundamental policy of Indian Law; or
b) the interest of India; or
c) justice or morality; or
d) in addition, if it is patently illegal.
6.2 On a reading of the Award it appears that the parties agreed not to adduce oral evidence, therefore, the records were looked into.
6.3 Clause 8.5 of the Award records the petitioners contentions wherefrom it appears that much stress was placed on Clause 53.4 of the General Conditions of Contract. Therefore, substantiation of work from contemporaneous records would entitle the claimant to receive payment.
This has also been admitted by the petitioner in its Notes of Arguments as follows :-
That pertaining to the argument placed by the claimant relating to the procedure for claims, the claimant did not comply with the mandatory provisions i.e. clause 53.1 of the FIDIC. On the contrary, the claimant in his argument relied upon clause 53.4 of FIDIC.
If the contractor does not comply with the procedure laid down in the conditions, his entitlement to payment may be limited. It is considered that failure by the contractor to make a claim in accordance with the provisions of sub clause 53.1, 53.2 or 53.3 should not bar the Contractor from receiving remuneration for any work which the contractor can substantiate from contemporaneous records.
In view of the aforesaid position the claimant is only entitled to receive remuneration for any work which the Contractor can substantiate from contemporaneous records and as such it can be stated in this behalf considering the above, the claimant is not entitled to claim relating to additional payment pursuant to any clause of these conditions or otherwise. It is requested that the Ld. Tribunal will be pleased to judge the matter in view of the aforesaid argument as placed on behalf of the respondent.
6.4 Much stress though placed on Clause 53.1 of the General Conditions of Contract at the hearing of the application filed under Section 34 of the 1996 Act, has been given a go-bye before the arbitrator in view of clause 53.4 of the General Conditions of Contract, as will be evident from above.
6.5 The contentions raised by the petitioner is in keeping with the intention of the parties as recorded in clause 53.4 which is set out below:-
If the Contractor fails to comply with any of the provisions of this Clause in respect of any claim which he seeks to make, his entitlement to payment in respect thereof shall not exceed such amount as the Engineer or any arbitrator or arbitrators appointed pursuant to sub clause 67.3 assessing the claim considers to be verified by contemporary records (whether or not such records were brought to the Engineers notice as required under Sub- Clauses 53.2 and 53.3).
6.6 Therefore, irrespective of whether Notice had been issued under clause 53.1 the arbitrators appointed under clause 67.3 were entitled to assess the claim on the basis of verified contemporary records, even if they were not placed before the Engineer under clause 53.2 and 53.3 and therefore, AIR 1990 AP 294 has no application to the facts of this case.
6.7 On a reading of the Award, it will appear as recorded therein by the arbitrators that the records were placed before them and the same was also considered. In fact, details from the records have been set out in the Award. The exhibits and evidence disclosed were also considered. The aforesaid will appear from the following excerpts taken from the Award
From the exhibits and arguments of both the parties .
Firstly, it is evident from records available with the Tribunal
.
In the light of the above discussions on the evidence before us
.
We have gone through the entire body of such evidence .
6.8 As regards the increase in the awarded sums, an application was filed by the claimant/respondent under Section 33(1) and 33(2) of the 1996 Act on 12th October, 2004 and a copy was also received by the petitioner. Nonreceipt of such application is not the petitioners case.
6.9 In spite of receipt of the application the petitioner did not seek to raise any objection before the arbitrators. In fact why the corrected calculation is incorrect has also not been canvassed in the instant application.
6.10 All that the arbitrators did was to correct the mathematical calculation which ex-facie was erroneous. As the basis of such calculation existed and no change was being effected therewith the correction cannot be faulted.
6.11 Although the non-applicability of Section 55 of the Contract Act has been espoused but the same cannot be accepted as the extension was granted without any objection raised. In fact sums retained on account of liquidated damages was returned to the respondent, therefore, not only is the respondents claim on account of liquidated damages rightly rejected but reliance on Section 55 of the Contract Act can also not be faulted, and AIR 2002 SC 1272 does not come to the aid of the petitioner although in principle the circumstances in which Section 55 of the Contract Act is applicable has been accepted though on facts the case is distinguishable.
6.12 It is on a consideration of the records that sums have been awarded and levy of 15% in respect of claim no.1 is neither unreasonable nor such to shock the conscience of the Courts. How a quantum is to be determined is well within the domain of the arbitrator as held in (2006) 11 SCC 181. From the records and documents placed before the arbitrators 15% levy was allowed. This is within their jurisdiction and calls for no interference.
6.13 The counter-claim made by the petitioner is more out of desperation to counter the respondents claim and is not a genuine claim. In fact the reason by the petitioner itself for making the claim is claim attracts counter-claim. This can be no reason for making a counter-claim.
6.14 The arbitrators being skilled persons with experience were appointed by the parties and therefore, the arbitrators were expected to know or likely to know the percentage to be levied.
6.15 AIR 1988 SC 1166 in view of the grounds set out in AIR 2003 SC 2629 can have no application, more so as clause 53.1 of the contract in view of clause 53.4 does not assume great importance.
6.16 In view of (2003) 5 SCC 705 scope to interfere with an Award by Court is limited and in view of (2007) 8 SCC 466 Courts are not to ordinarily substitute its views over that of the arbitrator.
6.17 For all the said reasons the Award dated 30th September, 2004 as corrected suffers from no illegality and therefore, cannot be interfered with.
Accordingly, no order is passed on this application and the same is dismissed.