Mithalal B. Gurjar Vs. Union of India acting through Deputy Chief Engineers (C) and Others - Court Judgment

1. By this petition filed under Section 34 of the Arbitration and Conciliation Act, 1996 (for short “the said Arbitration Act), the petitioner has impugned the arbitral award dated 26th February 2007 by which the learned arbitrator has rejected 10 claims out of 11 claims made by the petitioner and allowed 2 counter claims out of 4 counter claims made by the respondent no.1. Some of the relevant facts for the purpose of deciding this petition are as under:

2. The petitioner herein was the original claimant whereas the respondent no.1 was the original respondent in the arbitral proceedings.

3. On 3rd October 2002, the petitioner was awarded the contract of Earth work for Electrical Sub-station building, construction of sub station building, Earth work in Karjat yard between Ch.27120M to 28000M and construction of approach road at Karjat vide letter of acceptance dated 3rd October 2002. The total cost of the work was Rs.62,15,000/-. The original stipulated date of completion was 3rd July 2003. It is not in dispute that out of four parts of the said contract, the petitioner had already completed three parts excluding the work of construction of approach road at Karjat.

4. It is the case of the petitioner that the petitioner had mobilized the necessary resources for completion of the contract work within the stipulated period of completion. The respondent no.1, however, could not acquire the land on which the petitioner was to construct approach road. Vide letter dated 11th August 2003 addressed to the respondent no.1, the petitioner had placed on record that the respondent no.1 did not hand over the land which was required for approaches from Karjat end and thus the petitioner was not able to keep his machineries and manpower at the site. The petitioner requested the respondent no.1 to finalize measurements for the entire work up to date and release respective payments as early as possible.

5. The respondent no.1 replied to the said letter vide their letter dated 4th September 2003. In the said letter, the respondent no.1 denied that the machineries, Engineers, Supervisors and Labourers were under utilized and/or had been idle. However, the respondent no.1 informed that the request of the petitioner for closure of the contract on 'as is where is basis' was under sympathetic consideration. By a letter dated 30^th September 2003 addressed to the respondent no.1, the petitioner once again placed on record that the respondent no.1 till date had not acquired the land for execution of work. The local villagers were still continuously obstructing the work. The sample of murum was approved by the field Engineers only on 22nd December 2002. The petitioner conveyed that the petitioner was ready and willing to accept the foreclosure of the contract on 'as is where is basis' without any financial losses on account of risk and cost etc. and called upon the respondent no.1 to keep an amount of security deposit based on the actual amount of work done up to date and to refund the balance amount to the petitioner.

6. Vide letter dated 10th July 2004, the respondent no.1 granted extension to the completion date upto 31st December 2004. It is curious to note that after six days from the date of grant of extension, the respondent no.1 issued a 7 days' notice to the petitioner. The said notice of 16th July 2004 was followed by another 48 hours notice issued on 29^th July 2004. According to the respondent no.1, the contract thus stood terminated with effect from 2nd August 2004.

7. After termination of the contract, the respondent no.1 invited tender for awarding the work to another contractor. The petitioner invoked arbitration agreement and applied for appointment of an arbitrator. The petitioner made various claims. Those claims were resisted by the respondent no.1 by filing written statement and also made counter claims before the learned arbitrator.

8. By an impugned award, the learned arbitrator has rejected all the claims of the petitioner except one claim and has allowed two counter claims of the respondent no.1. Learned counsel for the petitioner invited my attention to some of the correspondence out of several letters on record before the learned arbitrator to canvass that though the petitioner had repeatedly called upon the respondent no.1 to hand over possession of the land in question to enable the petitioner to construct approach road thereon, the respondent no.1 was not in a position to acquire the land and hand it over to the petitioner.

9. My attention is also invited to a letter dated 21st May 2004 informing the petitioner that the Collector, Raigad had already published intention of the Government to take over the land. He submits that it is, thus, clear that the step to acquire the said plot of land on which the petitioner was to construct approach road was taken few days prior to the date of termination. He submits that the termination was ex facie illegal. Learned counsel placed reliance on Section 39 of the Contract Act and would submit that there was no question of any repudiation of the contract as the petitioner was not in a position to carry out any work unless the plot of land was acquired by the respondent no.1 and was handed over to the petitioner.

10. Learned counsel invited my attention to the impugned award and submits that though the petitioner had referred to and relied upon the large number of documents which were forming part of the record of the arbitral proceedings, the learned arbitrator has rejected the claim made by the petitioner on the ground that there was no response from the petitioner to the correspondence addressed by the respondent no.1. He submits that the finding rendered by the learned arbitrator is totally contrary to and overlooking the documents produced by the petitioner and thus such finding of fact is perverse which can be set aside under Section 34 of the Arbitration Act.

11. He submits that all the claims except one claim which are rejected by the learned arbitrator were on the premise that the contract was rightly terminated by the respondent no.1. He submits that since the finding of the learned arbitrator that the contract was rightly terminated is illegal, the learned arbitrator ought to have allowed the claim for compensation and other claims made by the petitioner.

12. In so far as the counter claims of the respondent no.1 allowed by the learned arbitrator are concerned, the learned counsel submits that since the finding of the learned arbitrator that the contract was rightly terminated is perverse and shows patent illegality on the face of the award, the learned arbitrator ought not to have allowed the counter claims made by the respondent no.1. He submits that in any event, the respondent no.1 had not proved any loss alleged to have been suffered because of the alleged breached committed by the petitioner. He submits that admittedly the work awarded to a new contractor pursuant to the said tender invited by the respondent no.1 was carried out much later. He submits that the learned arbitrator has not given any finding as to whether the terms and conditions of both the contracts were identical. Though the petitioner has raised several issues in the arbitration petition, since this petition can be disposed off on the limited issue, I have not heard the learned counsel for the petitioner on other issues.

13. Learned counsel for the respondent no.1 made an attempt to justify the findings rendered by the learned arbitrator and would submit that the findings are based on the records available before the learned arbitrator. He submits that notices were issued by the respondent no.1 to the petitioner in compliance with clause 62 of the General Conditions of the Contract. Since the petitioner did not show any progress, the contract was rightly terminated.

14. A perusal of the record indicates that the petitioner had addressed large number of the letters to the respondent no.1 placing on record that unless the plot was acquired and handed over to the petitioner, the petitioner would not be able to carry out the construction of approach road thereon.

15. Mr.Suresh Kumar, learned counsel for the respondent no.1 could not dispute that the Collector had published intention of the Government to take over the land few days prior to the date of termination of the contract. In my view, Mr.Toor, learned counsel appearing for the petitioner is right in his submission that condition of clause 39 of the General Conditions of the Contract was not satisfied in this case. The petitioner was not in a position to carry out any construction of approach road in view of the respondent no.1 not having handed over possession of the land.

16. A perusal of the record indicates that though the petitioner had relied upon several letters which were forming part of the record of the learned arbitrator, the learned arbitrator has ignored those crucial and important part of the record and has rendered a perverse finding that there was no response to the correspondence addressed by the respondent no.1. In my view, since finding rendered by the learned arbitrator is perverse and shows patent illegality and is rendered overlooking the crucial evidence on record, this Court has ample power to set aside the award under Section 34 of the Arbitration Act.

17. In my view, since by letter dated 10th July 2004 the respondent no.1 had granted extension of time till 31st December 2004, the respondent no.1 could not have terminated the contract vide notice dated 29th July 2004 in absence of any breach committed by the petitioner during the said period. In my view, since the finding of the learned arbitrator that the contract is properly terminated is rendered without considering the evidence produced by the petitioner, the said finding deserves to be set aside.

18. In so far as the counter claims made by the respondent no.1 are concerned, the learned arbitrator has allowed two of the counter claims on the premise that the contract was rightfully terminated by the respondent no.1. In my view, since the finding rendered by the learned arbitrator that the contract was rightly terminated is perverse and overlooking the evidence produced on record, the learned arbitrator could not have granted such claims for damages in favour of the respondent no.1. In my view, since admittedly the respondent no.1 had not acquired the land and had not handed over possession thereof to the petitioner, the petitioner could not have constructed any approach road thereon.

19. Be that as it may, a perusal of the record indicates that the learned arbitrator has allowed such counter claims merely on the basis of the amount mentioned in the tender invited by the respondent no.1. There was no actual payment made by the respondent no.1 to the new contractor under the said contract when the claim was made. The said work was started much later. In my view, even if the finding of the learned arbitrator that the contract was rightly terminated by the respondent no.1, the learned arbitrator could not have awarded the claims for compensation merely on the basis of invitation of the tender. The respondent no.1 was liable to prove the actual loss suffered by the respondent no.1. The respondent no.1 was required to prove that the terms and conditions of both the contracts were identical since the respondent no.1 had claimed compensation for the work awarded to other contractor at the risk and cost of the petitioner. In my view, the learned arbitrator has ignored this crucial issue in the impugned award and has rendered findings without considering the evidence produced by the petitioner.

20. I am, therefore, of the view that the petitioner has made out a case for setting aside the impugned award. The said findings and the conclusions rendered by the learned arbitrator in the impugned award are perverse and show patent illegality on the face of the award.

I, therefore, pass the following order:

a) The impugned award dated 26th February 2007 is set aside.

b) Petition is disposed of in aforesaid terms.

c) There shall be no order as to costs.