1. This petition is filed under Section 34 of the Arbitration and Conciliation Act, 1996 (the Act) challenging the award dated 16th September, 2013 in an arbitration between the parties consequent upon agreements entered into by them for construction of 3 buildings in the Special Economic Zone (SEZ).
2. The parties initially entered into a turn key contract; the petitioner was to obtain materials and construct the buildings therefrom. The parties thereafter modified that contract so that the petitioner was granted a labour contract under which the respondent was to supply the material and the petitioner as contractor, was to construct the buildings from the materials supplied. The initial contract set out the permissible wastages of various items which would be allowed to the extent mentioned therein. This was because the petitioner was to obtain the material and carry out the construction. It was, therefore, accountable for any wastage, a part of which is contractually allowed. The later contract was a labour contract and the respondent was to supply the material which was to be used by the petitioner. The petitioner had to account for the material used. The other terms and conditions of the detailed and elaborate initial contract between the parties dated 27th May, 2006 including technical specifications therein remained unchanged though the initial turn key contract was shown to have been superseded by the later labour contract, except for what it expressly contained.
3. From amongst various claims made by the respondent / claimant three claims have been granted which grant has been challenged by the petitioner who was to construct the buildings for the respondent. The claims were made under the written agreements entered into by and between the parties and have been considered by the learned arbitrator under the terms of the contract. The claims which are granted are in respect of:
a. excess consumption of material used for construction;
b. defective work required to be rectified; and
c. refund of excess amount paid.
Clause No.1 : Re : Excess consumption of material
4. Since the claims are under the contract between the parties it would be material to see the relevant part of the contract with regard to the aforesaid aspects.
5. The initial contract is as per the tender documents notified by the respondent dated 27th May, 2006 and termed C.6.1. Under clause 1.3.39 of Chapter (I) of the Special Conditions of Contract dated 27th May, 2006 the contract rates inter-alia for cement were specified thus:
1.3.39 Contract rates will include prices for cement and steel at base rates given by the employer. Permissible wastages of cement 3%, Renf. Steel and Struct Steel 3% + Rolling Margin. Contractor shall submit the cement and steel consumption settlement with every bill / monthly.
6. Item 44 of the schedule of fiscal aspects annexed to the contract specified wastage of material inter-alia in respect of cement to be 3% and in respect of granite to be 10%. The description of the wastage of material runs thus:
44. Wastage of material : Allowable wastage on Cement 3% on Reinforcement â 3% + RM,
Granite Stone 10%. If wastages
goes beyond above specified limit,
owner will deduct 1.5 times base
rate on exceed qty.
The permissible wastage was, therefore not to go beyond the % age of the contract price for the material mentioned.
7. The technical specifications and the Bill of Quantities (BOQ) are annexed as annexure 2 thereto. The consumption constants for cement concrete run thus:
CEMENT CONSTANTS
| SR.NO.A | PARTICULARSCement Concrete | UNITS(Nominal Mix) | IN BAGS (50 Kgs) |
| Â | 1:4:8 | Cumtr. | 3.6 |
| Â | 1:3:6 | Cumtr. | 4.2 |
C. FLOORING
1. Mosaic / Marble / Blue tandoor / Kotah / Granite / Cuddappah on Bed of 20 mm thick CM 1:4 and cement slurry at 4.4 kg/sqm 0.24
The specifications thus stipulated the contractual claim of how much consumption would be required for the work inter-alia of cement concrete as also flooring. The footnotes of the cement constants inter-alia showed that they did not include wastages. Hence the wastages of 3% would be an additional allowance upto that extent with regard to use of cement in the construction.
The technical specifications, therefore, formed the part of contract and could not be divorced therefrom.
9. Part 1 of the BOQ relating to basic rates showed the total amount of the contract with regard to the entire material to be Rs.48.90 Crores which was also annexed to the contract.
10. Part II of the BOQ relating to supply free major material was shown to be Rs.28.27 Crores. Hence the construction price along with material was Rs.48.90 Crores and the construction price excluding material was Rs.28.27 Crores. The turn key contract was, therefore, for Rs.28.27 Crores out of which Rs.16 Crores was stated to be for labour.
11. The letter of the respondent materially following the initial contract which was dated 12th July, 2006 reiterated the award of the contract to the petitioner and stated the total cost of the contract as the basic contract to be Rs.41.82 Crores. It set out incentives for completion within 14 to 17 months, it set out no incentives for completion within 18 months which was the contractual period and provided for liquidated damage @ Rs.4 lacs per week subject to maximum of 5% of the contract value if the contract continued for more than 18 months.
12. In a further letter of the petitioner dated 14th November, 2006 also the basic rate of the major materials for the estimated contract value was to be Rs.41.82 Crores. The petitioner agreed to purchase all materials directly from the suppliers suggested by the respondent.
13. The parties restructured their contract on 16th November, 2006. That contract was termed labour contract. The respondent was shown as the developer and the petitioner as the contractor. The petitioner agreed to construct the same buildings as per the specifications in annexure A to the agreement. Under that contract the petitioner appointed one D.J. Pajniger, the engineer of the respondent, as the architect for the construction of the buildings and who had finalized the general conditions of the labour rate contract.
14. Under clause 1.1 of the contract the estimated consideration was Rs.16 Crores. The total labour amount of the BOQ under the labour contract is Rs.15.98 Crores rounded off to Rs.16 Crores. The labour item rate shown in annexure A was to remain constant and the total estimated cost would be arrived at by measurements / evaluations to be done jointly by both the parties on the completion of the work. The buildings were to be completed within 18 months commencing from 15th August, 2006 and to be completed on 14th February, 2008.
15. Under clause 5 of the contract the respondent as the developer was to purchase all the materials required for construction preferably from the suppliers suggested by the petitioner as the contractor and pay for the materials.
16. Under clause 5.2 respondent was to store the material but under the supervision and control of the petitioner.
17. Under clause 5.3 the respondent was to remain the sole and absolute owner of the materials.
18. Under clause 5.4 the respondent was to advise the petitioner on the material policies and the petitioner was to produce the consolidated statement showing the total quantity of the material received, consumed and in store. The petitioner had to provide inspection of the stock when called upon. If any discrepancy was noted in the quantity and the values of the material received, consumed and stocked, the respondent would have the right to recover the value of the material not consumed and not accounted for. The relevant part of this material clause runs thus:
5.4 The Developer shall advise the contractor on material accounting policies and the Contractor shall produce a consolidated statement showing the total quantity of material received, quantity of material consumed and the stock of material in store along with quantity and values in the table form and manner as provided by the Developer.
â¦.
The Developer on receipt of the said statement may call upon the contractor to provide physical inspection of the stock of the material in its custody and possession. On inspection if there is any discrepancy in the quantity and values of the material received consumed and stocked than in such event the Developer shall have the right to recover the value of the material not consumed and not accounted for.
â¦.
19. It is, therefore, contended that the contract was to be on actuals of the materials.
20. Under clause 5.5 of the contract on completion of the construction or termination of the agreement the petitioner was to handover the unused materials to the respondent certifying the purchase and utilisation of the materials used and the balance materials unused. The petitioner would make good the shortfall after providing for the allowance for wastage not exceeding 10% for granite and 3% cement and other materials.
Clause 5.5. runs thus:
5.5. On completion of the construction / determination of the agreement, the contractor shall handover possession and control of the unused Materials to the Developer along with the Certificate of records of purchase, untilization and balance materials lying unused. The shortfall if any, in the materials, shall be made good by the Contractor, provided however in calculating shortfall an allowance for wastage not exceeding more than 10% in case of granite stone and 3% in all other cases, shall be considered. Hence once the material is consumed and accounted for there would be no further liability upon the petitioner. If the material is not consumed it would have to be accounted for. Whilst accounting for it the petitioner would have to show the used materials and the unused materials. The petitioner would get some allowance as in the earlier contract for wastage. It is contended on behalf of the petitioner that no abstract norms as in the previous contract were required to be complied. The contract was based upon the concept of non-utilisation and consumption in excess of the optimum consumption was not allowed. However, it is argued on behalf of the respondent that the allowance for wastage as also % age of the wastage was the same as in the first contract. Those were the various constants in the technical specifications annexed to the contract dated 27th May, 2006. The %age of the wastage was, therefore, linked to the theoretical consumption as per those constants. Hence petitioner would have to account for the material consumed and for what material was not consumed.
21. Under clause 15 of the contract except as mentioned thereunder the new contract superseded the earlier contract. The relevant part of clause 15 runs thus:
15. ENTIRE AGREEMENT
Except as expressly set forth herein, all express or implied agreements, representations and understandings, either oral or written, made prior to this Agreement are hereby expressly superseded by this Agreement.
22. It is argued on behalf of the petitioner that the two contracts are wholly different and bear no relationship with one another.
The supersession is only for what has been not expressly set out in the contract. What has been expressly set out is inter-alia with regard to the allowance for wastage to the extent of 10% for granite and 3% for cement amongst other material which is the same as the allowances in the earlier contract based upon the constants. It is argued on behalf of the respondent that to the extent of the allowance for wastage the specification in the contract were linked to the theoretical consumption as per constants in the technical specifications annexed to the earlier contract. It is contended on behalf of the respondent that the petitioner has also made the calculations of the construction material based upon the same theory as set out in the earlier contract which were expressly set out in clauses 5.4 and 5.5 of the later contract. Hence it is contended that the petitioner never assumed that 3% and 10% as the allowable wastage of cement and granite was not on the basis of the earlier contract.
23. The annexure to the contract showing the BOQ set out the labour charges in respect of various items. Whereas the petitioner would contend that the BOQ was very different from the first contract because the nature of the contract was different, the respondent has pointed out that all the various charges in the BOQ are shown âas specifiedâ in each of the items. Hence the technical specifications of the original contract were continued as specified therein and were not substituted by any other technical specifications. The BOQ annexed in the earlier contract would not show the term âas specifiedâ.
24. Consequently though the original turn key contract was superseded by the labour contract, since the specifications with regard to the allowance of wastage were expressly set out in clause 5.5 of the contract, the technical specifications continued and remained unchanged.
25. Hence all the technical conditions were unchanged though commercial conditions were new to meet with the specific requirement of SEZ. This would stand to reason. The respondent had to construct 3 buildings. The petitioner was to construct 3 buildings for the respondent. It would matter little to the parties whether the material was to be obtained by the petitioner or the respondent. Depending upon the requirement, the contract would be labelled. If the respondent was to obtain the material, the petitioner would have to use the material, account for it and return the excess material if any. For such accounting an allowance was to be made as per the technical specifications set out in the contract. Even if the petitioner was to obtain the material itself, it would have to account for the material to the respondent as the respondent would ultimately pay for it. Consequently the allowance of wastage allowed to the petitioner was to be within specified limits. Those limits need not be changed merely because the style of the contract has changed in compliance of the requirements of SEZ.
26. It was argued that the agreed norm of liability under the turn key contract was 1.5 times the base rate on excess quantity under item 44 of the schedule of fiscal aspects. The rate of deduction was not the same in the labour contract in which the petitioner would only account for the material used and unused. Since the petitioner was to provide material and labour there was final provision to avoid wastage for the deduction of 1.5 times the base rate by the respondent. Under the labour contract the petitioner was to account for the material or make good the cost. That would be the actuals. Hence the actuals would be on the basis of 1. There was no abstract norm of consumption in the new contract.
27. It would have to be seen how the parties themselves acted upon the contract. The respondent has sought to show that the parties acted upon the technical specifications in the earlier contract, the execution of the later contract notwithstanding. The specifications reiterated and mentioned in the new contract would show this fact. The express terms contained in clause 5.5 set out the allowance for wastage takes that aspect of the contract outside the supersession in clause 15 thereof. Mr. Kadam would argue that the petitioner also did all its calculations on the same theory â abstract though it be â set out in the technical specifications in the initial contract and never assumed that % age of wastage allowed was not the basis of calculations.
28. How that is done would be important to see. The cement constants for cement concrete is shown to be 3.6 and 4.2 in bags of 60 Kgs. These constants were the contractual claims of how much cement would be required for the work in the turn key contract. The respondent has shown that in the various RA bills submitted by the petitioner the same constant has been specified. In and from RA bill No. 2 which was for work done up to 31st December, 2006 for the period prior to and after the 2nd labour contract the consumption coefficient / constant was shown as 3.6 and 4.2 for the concrete work.
29. Even the description of the work in the bill showed the grand total of theoretical consumption which applied to constants. It made allowance for wastage of 3% of the theoretical consumption â not the actual. The difference between the theoretical and actual consumption is shown after making allowance of 3%. The cement coefficient / constants are repeated in the RA bills for the period up to 31st January, 2007, 10th March, 2007, 21st September, 2007, 18th March, 2008 etc. Each cement reconciliation statement annexed to the bill shows the theoretical consumption, the allowable usage and the actual consumption and the excess consumption which is the difference between the theoretical and actual consumption. The parties, therefore, not only accepted but acted upon the technical specifications annexed to the initial contract even after they entered into the later labour contract which was cosmetically different.
30. The respondent has also relied upon and shown the material reconciliation statement dated 31st March, 2009 after the various RA bills were submitted showing item 2 relating to concrete having the consumption constants 3.6 and 4.2. Similar constants for other material are also shown.
31. The respondent has further pointed out that in the evidence the witness on behalf of the petitioner has accepted this fact. Though this Court need not go into entire evidence, it would be enough to note that the petitioner's witness agreed in answer 105 that the BOQ in the earlier contract showing a technical specifications remained unchanged in the later contract. Similarly a reference was made to the cement constants with regard to the BOQ in the first contract in answer 136.
32. Mr. Kadam stated that the argument put forth by the petitioner in this petition that the contracts were completely different and the abstract made for computation in the first contract was not adopted in the second contract was not argued as the case of the petitioner before learned arbitrator. It is seen that the petitioner accepted that the second contract did not supersede the first contract with regard to express provision contained in clause 5.5. That is undoubtedly of the contract itself. It is, therefore, erroneous to contend only that the contract was superseded. It may be after superseding the earlier contract with regard to other aspects but not the abstracts under clause 5.5.
33. Mr. Kadam pointed out that the claim of the respondent before the learned arbitrator was in respect of excess consumption of materials in breach of the agreement being item No.19 in the statement of claim. This was based upon the excess consumption by wastage of material set out in the item 44 of the annexure to the initial contract. This was though the second contract was for accounted material after the consumption allowance of 3%. No claim for unaccounted material was made. The claim 19.1 was that the claimants / respondent had agreed to supply specified materials to the petitioner herein. The parties agreed to the basis for working out the quantities. The claimant noticed material used in excess of the bonafide requirement which was pointed out. Under clause 19.2 it was stated that after the completion of work and taking over all the buildings the cost of materials supplied by the claimants and the cost as per the quantum of materials which went into work were worked out. To show the excess consumption inter-alia of cement reconciliation statements were done. The claimants claimed to be entitled to 1.5 times the cost of procurement of excess materials consumed in terms of item 44 of the schedule to the initial contract.
34. Consequently in claim No.25.3 the claimant claimed reimbursement of cost of excess material ordered and received. This was arrived at after taking joint measurements of the work done for settling the final bill and accounts. The claimant claimed that they calculated the bonafide requirement of the materials that should have gone in the construction in accordance with the agreed norms, standards and the extent of permissible wastage. The norms and standards were constant in the technical specifications of the initial contract. The extent of permissible wastage was 3% for cement and 10% for granite under item 44 of the annexure to the contract. The claimant claimed that the quantum of materials actually purchased and supplied by it was worked out. Comparative statement of the materials purchased and used showed the wastage in excess of bonafide requirement. Hence claimant claimed the excess consumption of materials at the rate of 1.5 times of fixed rate at which the materials were agreed to be supplied.
35. It is argued on behalf of the petitioner in this petition that the claim was made of a wrong premise. It was not made for unaccounted consumption though the petitioner had to show the materials used and unused.
36. However, in the petitioner's written statement in the arbitral proceedings the petitioner only denied the fact that there was unreasonable excess consumption / wastage of cement and other material. In fact the petitioner relied upon the final reconciliation statement and claimed that the wastage was 2.69% instead of permissible limit of 3%. The material reconciliation statement relied upon by the petitioner herein dated 13th March, 2009 after the work was completed is itself as per the initial contract setting out in item 2 of the constant of 3.6 and 4.2. Hence though the petitioner denied the factum of wastage, the petitioner did not challenge the claims set out in the earlier contract.
37. Mr. Kadam pointed out that even paragraph 85 the evidence of the petitioner's first witness Mr. Pathan shows that the petitioner herein informed the respondent of the materials required. The respondent would acquire the same and hand over to the petitioner herein and the petitioner prepared an account of the material supplied to it. The petitioner claimed that the wastage of the material was within the permissible limits and relied upon reconciliation statements showing the cement constants as aforesaid. In paragraph 86 the petitioner again denied not the norm of computation, but the fact that the cement used exceeded the permissible limit.
38. In fact Mr. Kadam also pointed out the specifications with regard to the consumption of flooring in the technical specifications being set out with regard to the granite having to be used containing cement bed of the exact specifications in paragraph 53 of the evidence of the witness. In the cross examination the witness has affirmed that the BOQ related to technical specifications (which were only in the initial contract) as regard consumption constants in answer 136.
39. The learned arbitrator has considered this aspect further. Paragraph 130 of the award shows the cost of excess material claimed by the respondent herein not at the actual rate of the material procured by it, but at the fixed rates given in the contract. This was the part of the initial contract expressly not superseded. The learned arbitrator considered that the rates in the contract were only for the purpose of supplying material. He further considered that the material was supplied at the rate mentioned in the contract and if there was wastage it would have to be computed at the rate at which material was supplied. This was also the rate as specified in the initial contract. Mr. Kadam rightly pointed out that the award shows there was no argument on behalf of the petitioner herein that the constants could not be supplied. The learned arbitrator further considered what item could not have been included in computing the cost of excess material and has not granted them. The learned arbitrator has accordingly entered a finding of fact in paragraph 133 that the petitioner herein accepted the total purchase quantity and computed the excess of materials consumed, the materials returned and the difference therein. The learned arbitrator further considered item 44 of the wastage of material which was relied upon by both the parties as also clause 5.1 of the new contract relied upon by both the parties.
40. The basis of computation made by the respondent herein in the claim was accepted by the petitioner herein and has been considered by the learned arbitrator and the court cannot interfere with the calculations arrived at on that basis.
41. Mr. Kadam drew my attention to the judgments in the cases of Mohd. Akram Ansari Vs. Chief Election Officer and Ors. (2008) 2 Supreme Court Cases 95 and MSK Projects India (JV) Ltd. Vs. State of Rajasthan and anr., (2011) 10 Supreme Court Cases 573 that points not taken in the lower court or in arbitration could not be allowed to be urged in the higher court or in a petition challenging the award.
42. It was also argued on behalf of the petitioner that the respondents witness had no personal knowledge of the computation of the figures of the wastage. The first witness of the respondent herein Shrimant Hulsure was Senior Manager Accounts and Auditor of the respondent. He was in-charge of keeping accounts and maintaining and preparing books of accounts and checking the rates of various items. He, however, was not the technical person. His cross examination would show that Mr. D. Pajniger was the architect, technical Civil department and was responsible for giving him the quantities of the materials consumed. The evidence of Mr. Pajniger would show that he had personally verified the contents of the annexures showing the wastage material in reply to question 30 in his further affidavit of evidence. Answer 145 in his cross examination showed that he had deputed one Mr. Shinde to work with the accounts person to compute the figures. The second witness of the respondent herein Mr. Pajniger was the architect and the technical person. He has accepted that the quantities were worked out including allowable wastage as per the standard constants. Hence it is seen that the technical team as also the accounts team contributed to the making of the statement and the witnesses from both the departments have deposed. The question of degree and the sufficiency of proof of evidence cannot be gone into by this Court. The essential aspect to consider is that in clause 1.3.39 of the initial contract dated 27th May, 2006 the permissible wastage of cement was 3%. Under item 44 of the schedule of fiscal aspects showing the special conditions of contract also the allowable wastage for cement was 3%. However in addition thereto under item No.44 there was specification that if the wastages go beyond the 3% limit the claimant (the owner) will be paid at 1.5 times base rate on the existing quantity, in the labour contract was on the basis of actuals. Yet the 3% allowance for wastage was subsequently imported in the labour contract and was expressly stated in clause 5.5. Yet the norms for ascertaining the wastage were as per the technical specifications of the constants.
43. Mr. Chinoy would argue that the wastage under clause 5.5 is the same. The respondent has drawn out RA bills also referring to constants forming a part of the technical specification of the initial turn key contract but the claim of the respondent cannot be based on the abstract norms and must be based on the actuals. Even if the abstract would form a part of the consumption, he argued that the learned arbitrator awarded this claim on the basis of the original superseded contract ignoring labour contract altogether under which the claim would not be entertainable. He further contended that whilst granting compensation the learned arbitrator did not apply 1.5 times the base rate of the existing quantity but granted only one time such rate the reason for which is inexplicable. He contended that under the labour contract the claim for excess consumption does not at all lie because it would only be for materials not consumed and not for excess consumption. The claim for excess consumption was, therefore, under the initial contract. The grant of such a claim was, therefore, without jurisdiction.
44. A reading of the contract alongside the award would show intrinsic appreciation of the relevant terms of the both the contracts by the learned arbitrator and their applicability in the most just way. The learned arbitrator has referred to clause 1.3.39 as also item 44 and cement constants in the technical specifications. The learned arbitrator has also referred to clause 5.1 to 5.5 of the labour contract. What is present to his mind is the extent of supersession of the initial turn key contract thereunder, it being only to the extent not expressly set-forth in the labour contract. The %age of the wastages have been set-forth and shortfall of allowances of the wastage has to be granted under clause 5.5. The claim of excess consumption, therefore, would lie; it would be 3% of the base rate if excess cement is used. The extent of deduction of 1.5 times of the base rate on the existing quantity has not been expressly set-forth in the later labour agreement. Hence the extent of 1.5 times of the grant contracted for earlier is indeed superseded. Consequently, though the claim is allowed to the extent of 3%, which is expressly stated in the labour contract, it does not allow to the extent of 1.5 times of the base rate which is superseded. Hence Mr. Chinoy's query would stand explained from the correct application of the relevant clauses and ignoring the clauses in the contract which are no longer material. This would be the precise parameters on which the reasoning of the learned arbitrator in the award is to be seen. It may at once be pointed out that since the calculation in the later labour contract has to be on the basis of actuals, it has to be on the base rate of 1 (and not 1.5). The award is, therefore, not against the terms of the contract as contended by Mr. Chinoy and consequently neither is it against public policy nor in excess of the jurisdiction of the learned arbitrator.
45. It is important to note that the contention with regard to the specific applicability of clauses 5.4 and 5.5 has not been taken by petitioner herein either before learned arbitrator or in this petition. It is, of course, argued by Mr. Chinoy. Hence Mr. Chinoy would argue that accounting has to be on 3 basis in the labour contract; the material received, used and in store. The respondent's right is to recover, the material not consumed and not accounted for after accounting for the wastage under clause 5.5 and to pay for the shortfall, if any. Mr. Chinoy would argue that, therefore, the calculation would depend upon the material consumed and not upon what ought to have been consumed. He argued that the only operative contract for recovery of materials was the labour contract.
46. Mr. Kadam would argue that in fact the detailed technical specifications were not also provided in the labour contract. They were yet acted upon by both the parties. The technical specifications and the BOQ included the constants. Hence Mr. Kadam would argue that the parties did not obtain the turn key contract after execution of the labour agreement. The labour agreement only superseded the turn key contract to the extent of the inconsistency. The technical specifications would, therefore, apply. Mr. Kadam explained that under the turn key contract the petitioner was to supply material for carrying out construction and therefore in respect of the excess consumption of material the respondent herein would have to deduct wastage from the amount payable to the petitioner. In the labour agreement the respondent herein was to supply the material and therefore, for properly accounting for the material supplied, used and returned clause 5 was added in the labour agreement for providing fixed wastage claims. The petitioner's contention that allowable claims of wastage had to be calculated on actual consumption is correct to the extent that actuals would indeed be on the basis of 1 and the learned arbitrator has granted the claim of only the actual wastage calculated on the basis of the technical specifications but to the extent of 1 and not 1.5 times.
47. Mr. Kadam would further argue that the agreed norms referred in the statement of claim have not been challenged in the WS as not having been provided in the labour agreement. Consequently no issue was raised in that behalf and only the extent of the liability for excess consumption of materials based on the agreed norms / constants was referred to in the arbitration. In fact it is argued that there was no issue that the labour agreement superseded the turn key contract because such contention was not taken up. Mr. Kadam would, therefore, contend that the case of material constants not applying after the labour agreement was executed because they stood superseded not having been pressed before arbitrator cannot be considered by this Court as held in the case of MSK Projects (Supra) and Mohd. Akram (Supra). In paragraph 23 the Supreme Court frowned upon consideration of an issue by the High Court which was not taken up by the party during the arbitration proceedings. In the case of Mohd (Supra) the Supreme Court in fact held that there was the presumption in law that the Judge dealt with all the points which was pressed before him and hence the judgment would reflect what was argued. If some of the points were not pressed with which the party had grievance they had to be got corrected.
Similarly in the case of Shipping Corporation of India Vs. Nissar Export Corporation, AIR 1981 Supreme Court 1212 when the party had not contended a specific aspect in the trial court, the Supreme Court did not permit the plaintiff to raise that contention for the first time in appeal.
In the case of Municipal Corporation of Delhi Vs. M/s. Jagan Nath Ashok Kumar and Anr., AIR 1987 Supreme Court 2316, it was held and that when the germane and relevant reasons with a rational nexus to the claim were given to hold what the arbitrators held, the award could not be challenged as unreasonable.
48. It can be seen, therefore, that this point having not been pressed need not be considered by this Court but even if considered it does not take the case of the petitioner further.
49. Mr. Kadam drew my attention to the fact that the bid of the petitioner herein for material and labour was of Rs.48.90 Crores. The bid for only labour was Rs.28.27 Crores. The contract came to be awarded thereafter for Rs.41.82 crores as per the award dated 12th July, 2006. The breakup of these amounts for labour and for material shown in the statement for the proposed construction of the relevant buildings is Rs.15.98 Crores for labour and Rs.25.83 Crores for the material. Even these specifications have been similarly imported into the charges in the statement annexed to the labour agreement. This would indeed show that the essence of the contract between the parties was the same. Only the mode of working changed for whatever reason the parties deem fit and with which neither the arbitration nor this petition is concerned. Consequently instead of obtaining materials and putting in the labour the petitioner had to only put in its labour upon the materials obtained by the respondent. The accounting for those materials was, therefore, the same. That mode was only partially superseded as shown above, the remainder of the mode was not only expressly mentioned and, therefore, not superseded but actually acted upon, considered and accounted for.
50. The learned arbitrator has granted Rs.3.7 crores in respect of claim with regard to wastage. The computation cannot be gone into by this Court and needs no interference.
Claim No.2 Re.: Defective work
51. The other award is in respect of five sub-claims relating to compensation for defective work / items under .25.2 of claim No.2. The claim for such items has been made separately but aside from the first claim with regard to Tremix flooring, the other claims have been similarly made, similarly sought to be established, similarly defended and similarly considered by the learned arbitrator. These claims are for defective work of spiral steel staircase, plumbing work, granite flooring, basement gutter and lintel rectification and water proofing work. They shall be referred together.
(i) It is the claim of the respondent herein that the thickness of Tremix was not uniform and not as per the contract specifications. This was brought to the notice of petitioner herein at the time of casting itself. The Tremix was indeed to be broken and recast. When the respondent realized that the petitioner had no intention to remove the defective work, it invited offers from agencies for defects rectification. It incurred expenses of Rs.73.98 lacs. In 18.3 of the claim the respondent has referred to several reports of experts. They were marked Exh.90, 91 and 92. They have not been proved and not been considered by the learned arbitrator.
52. In paragraphs 60 to 72 of the written statement the petitioner has set out how the Tremix flooring was made for fabricating a mezzanine floor between January and November, 2008. The petitioner has claimed that it noticed on 29th January, 2009 that the flooring was being cut at the site. The petitioner called for an urgent meeting on 31st January, 2009 and entered into certain correspondence which this Court need not go into. The petitioner claims that the respondent carried out the work of cutting and removing of the Tremix flooring without reference to the petitioner, without calling the petitioner for any inspection and without calling the petitioner to remedy the defect and only wrote a letter thereafter that the flooring had to be removed because it had cracked. The petitioner complained that the joint inspection fixed even in June, 2009 was not conducted. The petitioner disclaimed liability.
53. The learned arbitrator has considered the aspect of Tremix flooring in paragraph 101 to 116 of the award. He has set out the experts' reports but rejected them as they were not proved. Consequently the contents of the reports need not be gone into. 54. The learned arbitrator has considered that the total Tremix work was about 23,000 Sq.mtrs out of which 7500 Sq.mtrs. of flooring was broken. The learned arbitrator has seen that some part of the flooring was left unaccounted and no claim was made in respect thereof. Only a part of the flooring for which a claim was made has been considered for payment as having been defective. The learned arbitrator has observed that the real dispute between the parties with regard to the flooring being defective and requiring rectification commenced after completion of the Tremix work in January, 2009. The learned arbitrator has considered that the claimants rejected the work of the petitioner herein with regard to the flooring when the final bill was prepared and sent in January and April, 2009 and thereafter the petitioner herein by letter dated 16th June, 2009 sought fresh joint inspection. After the claimants accepted the offer of joint inspection there was âtotal silence and inaction on the part of the petitioner hereinâ. The learned arbitrator has further relied upon fact that the after asking for joint inspection the petitioner herein did not turn up which would show the defective work done by the petitioner.
55. It is argued on behalf of the petitioner that the joint inspection was of no avail. The flooring was already broken up without notice to the petitioner and nothing could be done thereafter. Nevertheless the letters requesting joint inspection were given after the flooring was stated to have been cut and broken. The acceptance of that offer was given by the claimant upon the offer made by the petitioner which has been considered by the learned arbitrator. The conduct of the parties is, therefore material. The offer of joint inspection if in vain should show lack of bonafides. Whatever that be, that offer was accepted by the claimant and considered by the learned arbitrator. Consequently though what was the real state of the flooring could not be seen, the fact that it was indeed defective (though a claim was made in the final bill for the work done on the flooring) is implicit in the conduct of the petitioner which the learned arbitrator has considered. The learned arbitrator has set out the 8 point summing up of the claim by the claimants which need not be gone into except to state that respective cases of the parties have been considered. The learned arbitrator has considered the letters about defective Tremix work and the fact of replacing such work for the part for which there was no evidence. The claim to that extent is either not made or has not been granted. It is only granted for the part of the flooring for which certain bills / invoices have produced to show the replacing of the defective Tremix flooring.
56. Mr. Chinoy would argue that the invoices relied upon by the claimants have simplicitor been accepted to grant Rs.64 lacs for the flooring work. He claimed that the invoices are not proved. He fairly conceded that the invoices do not have to be proved by the authors of invoices which were various third party firms. However, he claimed that the proof of payment is not shown and hence the claim could not have been granted. He showed the Court the evidence led in that behalf. Though it is not for the Court to go into the depth of the evidence, it may be stated that the claimant led evidence of two witnesses; the Senior Manager, Accounts and Audit and Senior Engineering Director / Architect of the claimant. Whereas the accounts manager stated that the original bills were submitted to him and were inspected by the petitioner herein in the claimant's office and are reflected in the books of accounts, the engineering Director / Architect of the claimant sought to produce the invoices en masse as minutes of the meetings and letters dispatched by the claimants office in his evidence. Mr. Chinoy would claim that proof of invoices in this fashion was absurd. It was mis-described and misstated. The bills could not have been 'dispatched' by the claimant's office.
57. The argument of Mr. Chinoy would deserve acceptance to the extent that reliance upon books of accounts under oral evidence of a witness stating that the books of accounts were kept reflecting invoices is certainly not sufficient even in arbitration. No books of accounts were produced. Books of accounts kept in the normal course of the business of a firm, if produced, may carry a presumption of their correctness and if reference to payment is made in the books of account it may have sufficed. Yet to place reliance upon books of accounts by the witness without the oral evidence of the contents of the books of accounts would not be acceptable.
58. The simple way of proving a payment was by showing bank entries debiting the claimant's account which has not been done.
59. Mr. Kadam relied upon the judgment in the case of Ramrati Kuer Vs. Dwarka Prasad Singh and Ors. AIR 1967 Supreme Court 1134 (V 54 C 236) to contend that no adverse inference could be drawn because books of accounts are not produced as has been held in the paragraph 9 of the judgment. The reliance upon the judgment is entirely misconceived. The case deals with the maintenance of Hindu widows of a HUF. It was contended that the widows were maintained and that accounts in that regard can be produced. Yet these accounts were not produced. It was contended by the other side that adverse inference should have been drawn. It was in that context that the Supreme Court observed that only if the party relying upon books of accounts was called upon to produce the books of accounts and did not produce them can an adverse inference be drawn. The Supreme Court observed that the oral evidence of books of accounts may be rejected as not acceptable but no adverse inference can be drawn. I do not see how the observation in that judgment could apply to a case of corporation in commercial contract which is statutorily enjoined to keep the books of accounts. Further the Senior Accounts Manager would be expected to understand the purport and importance of the books of accounts to prove entries not only whilst auditing but also whilst proving the payments before an adjudicating authority.
60. However, Mr. Kadam would argue that the documents have been accepted and consequently marked in evidence. The petitioner herein has not taken exception to the documents being accepted in evidence. Such evidence would suffice in an arbitration when considered by the learned arbitrator. Once that is done it is not for the Court to go into such evidence. Besides the question of proof of payment was not argued.
61. It can be seen, therefore, that the work was defective. It was quietly accepted by the petitioner herein. No effort was made to remedy it. The final bill was sent. The payment was rejected by the claimant. The claimant would certainly require to have the work cut / broken / repaired or reinstated. It is not for this Court to go into what kind of work was done. The invoices for the work which were produced would suffice.
62. Mr. Chinoy relied upon the judgment in the case of M/s. Bareilly Electricity Supply Co. Ltd. Vs. The Workmen and Ors., AIR 1972 Supreme Court 330 which was a case before the labour tribunal and in which it was held that evidence had to be strictly proved when issues are seriously contested. It is observed that applications of principles of natural justice would not imply that what was not in evidence could be acted upon whilst considering the evidence contained in the Balance Sheet and Profit and Loss Account of the company. It was held that mere production cannot amount to the proof of the truth of the entries contained therein and the tribunal cannot pass an award on the copies of documents when originals were not proved either by affidavit or by direct evidence. Mr. Chinoy would argue that this was shown to be standard of proof even in industrial courts where direct proof of evidence was not required.
63. Mr. Kadam on the other hand correctly drew my attention to the same principle imported into arbitration as held by the Division Bench of this Court in the case of Rashtriya Chemicals and Fertilizers Ltd. Vs. M/s. Mohinder Singh and Co., 1984, The Bombay Law Reporter (LXXXVI). The Division Bench frowned upon the analogy in the case of Bareilly Electricity (supra) sought to be applied to arbitrations under the old Arbitration Act of 1940, the principles of which have been further streamlined and smoothened in the new Arbitration Act of 1996 giving the arbitrators the greater ambit to follow the procedure not set out in the Indian Evidence Act.
64. The observations of the Division Bench would require a note. In that case which was upon arbitral award they observed that the arbitrator took on record documents which were not âstrictly provedâ. They observed that the documents were called upon by the arbitrator, inspected and relied upon by the parties. They were taken on record âwithout demurâ from either side (much as in this case in the evidence of Mr. Pajniger, the technical witness of the claimant). It was observed that the parties based their arguments and submissions on those documents, and there was no further cross examination or the request for calling upon strict proof of the document (much as in this case). The Division Bench observed that genuineness of the documents was not challenged and only strict proof was called for in the arbitration case before it (exactly as in this case).
The learned Division Bench, therefore, held that A party cannot sit back on an objection during the hearing before the arbitration and raise it later after finding himself faced with an adverse award; such conduct would amount to acquiescence;
â¦.
In these circumstances, pray where arises the question of the documents necessitating strict proof as required in a Court of law where the Evidence Act holds the field. In any event, in these circumstances, it was open to the arbitrator to dispense with strict proof.
â¦.
The learned Division Bench further drew a parallel for proof of documents such as books of accounts in a labour matter by a company against its workers and in an arbitration where parties appeared on an equal footing. It observed that when the issues were seriously contested between company and its workers, the principles for natural justice would require the proof of books of accounts which could not be dispensed with though not applicable to industrial tribunals. The learned Division Bench thereafter observed thus:
Labour matters and decisions of tribunals cannot be equated with arbitration proceedings and arbitrators awards. In the former where depend issues like the correctness of a balance sheet prepared by the employer from materials to which the workers would have no access and on which their fate is in balance, it is but right that the strict requirements of proof should not and cannot be dispensed with. To do otherwise would be contrary to the principles of natural justice. Unlike arbitrators, industrial tribunals have statutory rules as to how evidence is to be taken. No parallel can conceivably be drawn between mode of proof before tribunals and arbitrators.
The reliance upon the judgment in the case of Bareilly Electricity (Supra), therefore, is misconceived and the extent of the reliance upon the Evidence Act in that judgment cannot be made applicable to arbitral proceedings in commercial contracts where the contract and correspondence following thereafter would alone be material along with the proof of expenses incurred.
65. Mr. Chinoy also drew the attention of this Court to the case of National Housing Bank Vs. ANZ Grindlays Bank PLC, 1998 (2) LJ 153 of this Court holding that award cannot be sustained on the ground not considered by the learned arbitrator and on which the award is not based because the Court cannot rewrite the award. That position is undoubted.
However in this case, though the books of accounts have not been considered, the invoices for the work done alone are seen to be sufficient to consider.
66. The claim for the staircases was that the staircases put by the petitioner herein was without alignment and unacceptable and thus the necessary rectification was required. The petitioner failed to rectify. The respondent carried out the work, incurred expenses and claimed the same. The respondent has relied upon the invoices much as in the claim of Tremix flooring. Similar rectification work were carried for other works and the invoices were submitted. These were invoices exhibits C-119 to Exh. C.123.
67. The defence of the petitioner herein was that the staircases do not form a part of the original scope of the work. It was allowed to be fabricated and made of structural steel instead of RCC. The defective work has not been denied in respect of staircases. The claimants, having had to rectify the work of the staircases has not been questioned in the Written Statement. The bad workmenship of water proofing, plumbing work has been denied. It is claimed to have been damaged subsequently by other contractors appointed by the claimants. The defence with regard to the other claims is not specifically set out and has been simplicitor denied.
68. The learned arbitrator has considered these aspects in paragraphs 85 to 117 of the award, more specially letters dated 17th February, 2009 and 13th March, 2009 with regard to the spiral staircases. The learned arbitrator has also considered that despite request the petitioner herein failed to carry out the rectification work. The claimant / respondent herein produced the invoices for fixing a new staircase and for small quantity of some rectification work which was done to the old staircase. The learned arbitrator accepted the invoices upon an statement of the claimant's witness that the amounts were paid. The learned arbitrator has also considered that the statements made by the witness of the claimant may not have been proved but the invoices tendered would prove the claim. This is based upon the fact that the petitioner herein had not denied that the work was defective at the relevant time when it was pointed out. That is the reason for coming to the conclusion by the learned arbitrator upon the evidence produced by the parties with regard to the staircases.
(ii) The learned arbitrator has considered the claimant's case that the granite was to be used in the construction as per the specification mentioned in the contract instead of cement mortar but the contract was breached by the petitioner herein. The learned arbitrator has considered the letter dated 14th February, 2009 showing the defective work done which was not as per the contract specifications which was not denied. The learned arbitrator considered the cost of putting up such floor. A small part of the claim was denied by the petitioner herein for one building (Bldg.7) which has been excluded showing the other bills implicitly accepted by the petitioner herein. The invoices in that regard have been accepted upon the footing of non-denial of the defective work stated in the claimant's letter.
(iii) With regard to the defective plumbing work and leakages also the learned arbitrator has considered various letters of the claimant backed by similar invoices upon the fact that there was no denial by the respondent of the defective work shown at the relevant time and upon acceptance of such defective work. The learned arbitrator has accepted the invoices of the claimant despite the contention of the petitioner herein that there was no proof of payment by such invoices.
(iv) With regard to the water proofing work similar letters sent by the claimant have been considered to which there was no reply and response of the petitioner herein. The contention that rectification work was done by certain chemicals but not cement and hence could not be paid for was repelled upon the reasoning that once the water proofing work was found defective, rectification as advised by experts and which may be the simplest and the least expensive mode may be undertaken by the claimant without the permission of the respondent.
(v) The claim of basement, gutter and lintel rectification is similarly made and similarly considered. Mr. Chinoy would argue that it was incumbent upon arbitrator to consider it separately which cannot be accepted as correct in view of the fact that the entire case and the evidence of both parties was similar with regard to each of the aforesaid defects.
69. Mr. Chinoy would lay stress upon the fact that the engineering Director / Architect of the claimant himself stated in his affidavit of evidence that the documents sought to be relied upon by the claimant was denied by the petitioner herein and hence had to be strictly proved. This argument misses the point that they were allowed to be taken into evidence. They have been considered alongside the other evidence contained in the correspondence between the parties as aforesaid. This is the procedure which the learned arbitrator chose to follow. In fact the claimant has led evidence of the officer in the accounting team as also engineering team who would complement one another and the claims made by the claimant with regard to the accounting and engineering aspects as also accounts procedure have been deposed about. Such evidence would be sufficient if considered by the learned arbitrator.
70. It may, therefore, be seen that for each of the claims the claimant showed the correspondence between the parties pointing out the defects which were neither remedied or not replied. The claimant was, therefore, itself required to do alternative work and hence the claimant would produce bills in that regard. The arbitrator can follow any procedure in arbitration. The procedure followed by the learned arbitrator to accept proof of claims is that he has considered the correspondence and the lack of reply and consequently accepted the invoices on the footing that at the relevant time (the time of the correspondence) there was no denial of the defective work by the petitioner herein. The work which the claimant was constrained to do had to be paid for. Besides the invoices were allowed to be taken on record without demour as contended by Mr. Kadam (however absurdly they may have been sought to be tendered as contended by Mr. Chinoy). Mr. Kadam would argue that there has been no further cross examination also with regard to the invoices and so reliance upon strict proof of evidence in arbitration is not warranted. Mr. Kadam rightly contended that this is not a case of no evidence and the sufficiency of evidence cannot be gone into by this Court.
71. The learned arbitrator has considered the relevant evidence and given reasons for his conclusion. Such reasoned award cannot be interfered with as the strict procedure of proof of documents as envisaged in civil trials may not be followed in arbitration. The contention of Mr. Chinoy that the award is based upon no evidence and is accordingly perverse is erroneous and cannot be accepted.
Claim No.3 : Re.: Recovery of excess payment
72. The recovery of excess payment made by the claimant to the petitioner herein from the amounts paid from time to time for the cost of work done against RA bills and adhoc advances is sought. The claimant has given a tabular statement showing the cost of work, the cost of admitted incomplete work required to be done by the claimant, the net amount payable against the labour cost incurred by the petitioner and showed the payments made for the cost of materials and the labour cost. This showed an excess payment of Rs. 81.14 lacs. In paragraph 4 of the statement of claim for claim No.5 relating to recovery of excess payment, the claimant claimed that joint measurements were taken after taking over buildings and the final bill was prepared when the excess payments were revealed.
73. The petitioner herein claimed in its WS that payments were released upon certification of quantities claimed in the running bills of the petitioner herein. They disputed the figures of the cost of work done and sought to add certain left out measurements and disputed items thereto. They denied that no work was left incomplete towards any of the aspects mentioned in the claim. They, therefore, challenged the basis on which the figure of excess payments was derived.
74. This was essentially an arithmetical calculation. The learned arbitrator has considered this aspect in paragraphs 147 to 150, 167 and 168 of the award. The learned arbitrator has considered the figures not only given by the claimant showing the excess payment made but also the figures given by the petitioner herein for the additional left out measurements as also other amounts of disputed items. The learned arbitrator has considered that those items were included in the counter claim and the entire counter claim of the petitioner herein was considered and granted to the extent of Rs.45.93 lacs. Hence learned arbitrator has accounted for even that amount granted. The claimant's (the respondent herein) balance claim is of only Rs.35.58 lacs. The claim of excess payment is, therefore, fully considered and cannot be interfered with.
75. The other claims of respondent herein have been rejected and the counter claim of the petitioner herein has been disposed as above which in terms has been actually made good.
76. Mr. Chinoy relied upon the usual judgments in the case of Continental Construction Co. Ltd. Vs. State of Madhya Pradesh, (1988) 3 Supreme Court Cases 82, Associated Engineering Co. Vs. Government of Andhra Pradesh and Anr. (1991) 4 Supreme Court Cases 93, Steel Authority of India Ltd., Vs. J C Budharaja, Government and Mining Contractor, (1999) 8 Supreme Court Cases 122, Rajasthan State Mines and Minerals Ltd. Vs. Eastern Engineering Enterprises and Anr., (1999) 9 Supreme Court Cases 283 and Bharat Coking Coal Ltd. Vs. Annapurna Construction, (2003) 8 Supreme Court Cases 154, the principles of which are never in doubt but are not applicable to this case to set aside the impugned award.
77. For the reasons given above, the reasoned impugned award cannot be interfered with.
78. Hence the Arbitration Petition is dismissed.