((-1-)) IN THE HIGH COURT OF JUDICATURE AT BOMBAY IN THE HIGH COURT OF JUDICATURE AT BOMBAY IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION ORDINARY ORIGINAL CIVIL JURISDICTION ORDINARY ORIGINAL CIVIL JURISDICTION APPEAL NO.662 OF 1995 IN ARBITRATION PETITION NO.184 OF 1992 1. Municipal Corporation of Greater Bombay, Mahapalika Building, Mahapalika Marg, Mumbai. 2. Municipal Commissioner, MCGB, Mumbai. Appellants versus 1. Atlanta Infrastructure Ltd. Atlanta B-22/A, V.M.Road, Ville Parle (W), Mumbai 400 049. 2. M.C.Bhide, 8, Halima Building, 2nd Floor, 7, Nanabhai Lane, Mumbai 400 001. Respondents Mr.R.D.Dhanuka with Mr.Prakash Mahadik for appellants. Mr.M.M.Vashi with Mr.Manish Mistry i/by M/s.M.P.Vashi & Co. for respondents. ALONG WITH APPEAL NO.663 OF 1996 IN ARBITRATION PETITION NO.185 OF 1992 1. Municipal Corporation of Greater Bombay, Mahapalika Building, Mahapalika Marg, Mumbai. 2. Municipal Commissioner, MCGB, Mumbai. Appellants versus 1. Atlanta Infrastructure Ltd. Atlanta B-22/A, V.M.Road, Ville Parle (W), Mumbai 400 049. 2. M.C.Bhide, 8, Halima Building, 2nd Floor, 7, Nanabhai Lane, Mumbai 400 001. Respondents ((-2-)) Mr.R.D.Dhanuka with Mr.Prakash Mahadik for appellants. Mr.M.M.Vashi with Mr.Manish Mistry i/by M/s.M.P.Vashi & Co. for respondents. ALONGWITH APPEAL NO.664 OF 1996 IN ARBITRATION PETITION NO.186 OF 1992 1. Municipal Corporation of Greater Bombay, Mahapalika Building, Mahapalika Marg, Mumbai. 2. Municipal Commissioner, MCGB, Mumbai. Appellants versus 1. Atlanta Infrastructure Ltd. Atlanta B-22/A, V.M.Road, Ville Parle (W), Mumbai 400 049. 2. M.C.Bhide, 8, Halima Building, 2nd Floor, 7, Nanabhai Lane, Mumbai 400 001. Respondents Mr.R.D.Dhanuka with Mr.Prakash Mahadik for appellants. Mr.M.M.Vashi with Mr.Manish Mistry i/by M/s.M.P.Vashi & Co. for respondents. CORAM : DR.S.RADHAKRISHNAN AND S.C.DHARMADHIKARI, JJ. DATE OF RESERVING THE JUDGEMENT : 04/10/2005 DATE OF PRONOUNCING THE JUDGEMENT : 16/12/2005 JUDGEMENT (PER : S.C.DHARMADHIKARI, J.) :- JUDGEMENT (PER : S.C.DHARMADHIKARI, J.) :- JUDGEMENT (PER : S.C.DHARMADHIKARI, J.) :- 1. This appeal is directed against the judgement and order of a learned Single Judge dated 18th ((-3-)) January 1996 in Arbitration Petition No.184 of 1992. The Arbitration Petition invoked Section 30 of the Arbitration Act, 1940 to challenge an award dated 6th August 1992 made by the second respondent, who was appointed as Sole Arbitrator in disputes and differences arising out of a contract awarded by the Appellants in favour of first respondent herein. 2. By the order under appeal, the learned single Judge dismissed the petition filed by the Appellant to challenge the aforesaid award. Aggrieved by refusal to interfere in the award by the learned Single Judge, the Appellate Jurisdiction of this Court under Arbitration Act as well as Clause 15 of Letters Patent has been invoked by the Appellant Municipal Corporation of Greater Bombay. 3. The facts about which there is no dispute, may be now set out. First Respondent is a registered Contractor with the Appellant herein. The appellant proposed to carry out reconstruction of Barrister Nath Pai Marg in Cement Concrete. The work was divided into three sections i.e. Part-I, Part-II and Part-III. First respondent submitted it’s tender pursuant ((-4-)) to the offer of the appellant vide their letter dated 5th December 1985. After negotiations between the appellant and first respondent, a formal contract was duly executed for the aforesaid work. The contract was also approved by the Standing Committee vide Resolution No.1242, dated 11th February 1986. The work was valued at Rs.1,37,49,417/-. According to the terms and conditions of the contract, the work was to be completed within 12 months excluding Monsoon i.e. on or about 2nd June 1987. the work was commenced on 23rd February 1986. During execution, scope of the work was increased and a communication to this effect was addressed by the appellant to the first respondent. It appears that this step was taken pursuant to Standing Committee Resolution No. 815, dated 19th August 1987. As the scope of the work was increased, the appellant called upon the first respondent to furnish additional deposit of Rs.1,35,500/- either in cash or in the form of Bank Guarantee. First respondent has also furnished revised bills of quantities. In pursuance of the Standing Committee Resolution, original contract period of 12 months was revised and the date of completion was stipulated as 12th January 1989. The break up of the revised cost of the contract was ((-5-)) Rs.2,24,67,307/-. 4. During the course of execution of the work, according to the first respondent, the appellant deducted huge sums from their running account bills. It appears that there was some discussion with the authorities but the appellant took a stand that recoveries should be made from the further bills. This was pursuant to a decision reached to the effect that payment already made is not commensurate with the nature of work. 5. First respondent disputed the aforesaid stand and vide their letter dated 26th May 1988 contended that all items listed in the Corporation’s letter dated 20th May 1988 are executed as per Engineer’s instructions and as per bill of quantities, which form part of the agreement. It was contended that payments were made after taking measurements of the work executed. Therefore, stand of the appellant not to make payment of the items, was arbitrary and illegal. It was contended that if recovery, as proposed, is made, it would amount to violation of agreement. The first respondent requested that they may be allowed to proceed with the work according to the terms and conditions of the ((-6-)) agreement. Thereafter, a Legal Notice was addressed by first respondent on 3rd June 1988 because first respondent apprehended that the recoveries to the tune of Rs.10,68,713=10 Ps. would be made. 6. According to first respondent, despite aforesaid correspondence, the appellants persisted with their stand. Intervention of the Municipal Commissioner was sought in the matter by the first respondent. A communication to this effect is dated 13th June 1988. In pursuance of the aforesaid communication, a meeting was convened and representatives of first respondent were invited to the same. It was brought to the notice of the Municipal Commissioner as well as first respondent by the appellant, that recoveries have been made and as far as refund is concerned, the stand would be made clear subsequently. It appears that as far as this aspect is concerned, the appellant directed the first respondent to get in touch with the Director (Engineering, Services and Projects) of the appellant. First Respondent thereafter followed up the matter with him. There is detailed correspondence to this effect. ((-7-)) 7. Since the matter could not be resolved at his end, first respondent once again approached the Municipal commissioner. By letter dated 19th February 1990 addressed to the Municipal Commissioner, first respondent brought to his notice alleged breaches of the terms and conditions of the contract committed by the Corporation. It was their case that recoveries have been made from bills wrongfully and illegally. Similarly, subsequent payments were made at lesser rates. It was also their case that construction of Central Divider was wrongfully withdrawn from the scope of the contract. It is their case that on account of the aforesaid they suffered losses. Since the grievances were not redressed, the Municipal Commissioner’s intervention was sought and he was informed that said disputes and differences now ought to be resolved by Arbitration. Prior to this communication, it appears, that there was a letter addressed by the Corporation communicating three names which were acceptable as Arbitrators in the matter. Initially, it appears that one S.K.Dharap was to be appointed as Sole Arbitrator. It is in this background that claims came to be forwarded vide the aforesaid letter. ((-8-)) 8. It also appears from the record that attempts have been made by the first respondent to get the matters resolved through the intervention of the Municipal Commissioner. It appears that detailed representation was addressed to him. It appears that pursuant to the representation, a hearing was held and the then Municipal Commissioner was to communicate his response. However, the Municipal Commissioner changed and initially it was thought that the new incumbent would be requested to hold a fresh hearing. However, it was brought to the notice of the appellant by the first respondent that a decision was already taken to appoint an Arbitrator and, therefore, the matter should be referred to him. The Corporation took a stand that first respondent had forfeited it’s rights to get the matter resolved through Arbitration, as it sought intervention of the Municipal Commissioner. Therefore, if first respondent is desirous of having the dispute resolved through Arbitration, it would be necessary for it to make a fresh application. Reliance was placed on Clause 97 of the Terms and Conditions of the contract. 9. It is in pursuance of the aforesaid that the matter was eventually referred to the Sole ((-9-)) Arbitration of the second respondent. Accordingly, he entered upon reference. 10. In pursuance of the directions issued to file statement of claims and documents in support, first respondent presented their statement of claims before the learned Arbitrator on 6th February 1992. The record shows that in all six claims were made under separate and distinct heads. Claim no.1 pertains to refund of wrongful and illegal deductions made and/or amounts withheld wrongfully. Claim no.2 arises out of compensation for loss suffered on account of wrongful omission of an item of work. Claim no.3 is for compensation for loss suffered on account of over-heads and profits. Claim no.4 is again of compensation for loss suffered on account of extra expenditure incurred on labour, materials etc.. Claim no.5 is for interest and claim no.6 is for arbitration costs. 11. Upon being served with the statement of claim, a reply was filed by the appellant wherein after dealing with the statement of claim certain counter claims were raised. The claimant’s compilation of documents is termed by the learned Arbitrator as "CD-I" and "CD-II". To the reply ((-10-)) furnished by the appellant, first respondent submitted their rejoinder and relied upon further documents which were taken on record under compilation CD-III. Appellants examined witnesses and made oral submissions through their counsel. The date of making of award was extended up to 30th September 1992. The learned Arbitrator made his award much prior to this date. The award which contains brief reasons, directs that the appellant shall pay to the first respondent a net sum of Rs.66,56,991=20 Ps. rounded up as Rs.66,56,991/- with interest @ 18% p.a. with effect from 7th August 1992 till the date of payment or Decree by the competent Court, whichever is earlier. The aforesaid sum was arrived at in the following manner :- ----------------------------------------- CLAIM NO. SUM AWARDED ----------------------------------------- CLAIM NO.1 :- Item No.1 5,15,000-00 Plus 1,84,814-02 Item No.2 43,596-68 Item No.3 3,40,496-52 Item No.4 4,37,897-97 Item No.5 72,873-00 CLAIM NO.2 4,56,000-00 CLAIM NO.3 21,20,000-00 CLAIM NO.4 5,99,500-00 ((-11-)) Interest past 13,84,377-00 Pendente lite 4,39,699-00 Future @ 18% p.a. on the award sum CLAIM NO.6 1,00,000-00 ------------ TOTAL :- Rs. 66,94,254-19 ------------ COUNTER CLAIM NO. SUM AWARDED 1. Nil 2. Nil 3. Nil 4. Nil 5. 37,262-90 6. Nil 7. Nil 8. Nil --------- TOTAL:- Rs. 37,262-90 ---------- ----------------------------------------- 12. The aforesaid award signed and published on 6th August 1992, is subject matter of challenge in Arbitration Petition No.184 of 1992. 13. The appellant vide the aforesaid petition presented to this Court on 20th November 1992 applied for quashing and setting aside of this award. In the submission of the appellant, the learned Arbitrator has misconducted himself and the award is otherwise vitiated by errors apparent on the face of it. It was contended that the award which grants the claims of the ((-12-)) first respondent and rejects the counter claim of the appellant in toto, is contrary to the General Conditions of the Contract and Special Conditions thereof. It was contended that save and except item no.5 of claim no.1, every claim was incapable of being entertained and considered by the learned Arbitrator. In other words, the same being opposed to the terms and conditions of the contract, could not have been awarded by the learned Arbitrator. It was contended that the claims made under different heads and sub- items were totally vague inasmuch as they were devoid of any particulars. No material has been produced by the first respondent before the learned Arbitrator to substantiate them. The award is based on surmises and conjectures. It is in the nature of guess work. It was contended that no reasons are assigned by the learned Arbitrator. He was bound to do so after the parties specifically requested him to give reasons. The question is of public monies and therefore, the Arbitrator could not have awarded the sums as claimed by the first respondent. It was contended that the interpretation of the terms and conditions of the contract is perverse and no prudent man can reach the conclusion as has been arrived at by the learned Arbitrator. ((-13-)) It was contended that the Court is not exercising appellate powers but it is not precluded from scrutinising the award and finding out whether it is vitiated by errors apparent on the face of it or by misconduct on the part of learned Arbitrator. Accordingly, the Court was requested to scrutinise the award claim-wise and ultimately hold that the same is null, void and of no legal effect. 14. The Arbitration Petition presented by the appellant was resisted and an affidavit was filed by the first respondent of it’s Director. It was contended therein that the jurisdiction exercised by the Court under section 30 of the Arbitration Act is and cannot be compared with Appellate Jurisdiction. It was contended that the award is not vitiated as alleged. The award is not contrary to the terms and conditions of the contract, as alleged. It was contended that the award contains reasons and cannot be said to be unreasoned at all. On the other hand, on a plain reading thereof, it will be clear that the claim has been proved. It was pointed out that evidence was laid before the Arbitrator and after considering the oral as well as documentary evidence, the award has been made. Considering ((-14-)) the fact that the Arbitrator has gone into each and every claim minutely and has not awarded the sums in full, shows that he has acted independently and in a unbiased manner. The Arbitrator has not allowed wastage of public money and funds but bearing in mind this aspect, has reduced the amounts awarded in favour of first respondent considerably. In the light of these facts, it was prayed in the affidavit in reply filed on 28th June 1993 that the Arbitration Petition be dismissed. 15. This Arbitration Petition was placed before the learned Single Judge and by the impugned judgement and order the learned Judge held that the appellant could not establish that claims made were beyond the terms of contract. In other words, the appellants could not substantiate their pleas insofar as as jurisdiction of Arbitrator. Similarly, learned Judge held that the appellant could not establish that claims were inconsistent with each other and could not have been awarded. Consistent with this conclusion, the learned Judge held that the claims awarded are not in contravention or breach of the contractual stipulations. After holding so, the learned Judge concluded that there is no ((-15-)) merit in the challenge raised by the appellant to the award. He, therefore, dismissed the Arbitration Petition with costs. 16. It is pertinent to note that all parts of the contractual work were executed by first respondent herein. On account of the disputes and differences, they raised claims with regard to each of these parts. All such claims were referred to the Sole Arbitration of the same learned Arbitrator. For all such parts he awarded sums in favour of first respondent herein. The appellants were aggrieved by three awards and therefore, instituted three Arbitration petitions. The first Arbitration Petition is 184/1992 whereas other two Arbitration Petitions are 185/1992 and 186/1992. 17. Since the parties agreed before the learned Single Judge that the issues raised in all three petitions are common, the learned Judge heard all three petitions together and dismissed them by a common judgement. 18. Mr.Dhanuka and Mr.Vashi - learned counsel appearing for appellant and first respondent agree that our judgement and order in the first ((-16-)) appeal would govern the other two appeals as well. 19. Mr.Dhanuka - learned counsel appearing for the appellant contended that the judgement and order of the learned Single Judge is erroneous and deserves to be set aside. He submits that the learned Judge ought to have exercised the powers conferred by Section 30 of the Arbitration Act and quashed and set aside the awards in question. He submits that the learned Single Judge erroneously holds that the awards are not liable to be set aside as they are not vitiated by any apparent errors or by misconduct on the part of learned Arbitrator. Mr.Dhanuka was at pains to point that the learned Single Judge ought to have concluded that the claims were not arbitrable at all. Mr.Dhanuka invites our attention to Clauses 96 and 97 of the General Terms and Conditions of Contract and submits that the mandate of the clause is that every dispute with regard to quantity, quality and description of the items and the nature of work, should be first raised before the Municipal Commissioner. If the Municipal Commissioner either accepts or rejects such claims, then it is not open for the claimant to raise them before the Arbitrator. He ((-17-)) submits that in the present case, admittedly, Arbitration was invoked when the Municipal Commissioner was seized of the matter. In other words, the appellant had invoked Clause 96 of the General Terms and Conditions. Therefore, they could not have raised the claims and matters which were raised before the Municipal Commissioner in Arbitration. It is not as if the Municipal Commissioner has to specifically communicate to the first respondent that the claims have been accepted in full or in part. The fact that the communication is not responded to means that the claims have been rejected. Therefore, such claims cannot become arbitrable and thus subject matter of the arbitration proceedings. 20. Alternatively, Mr.Dhanuka submits that such of the claims which are not raised before the Municipal Commissioner by the claimants, cannot be raised before the Sole Arbitrator in arbitration proceedings. He invites our attention to a synopsis handed in to demonstrate that first respondents have raised claims before the Arbitrator although these sums have not been demanded during prolonged and detailed correspondence with the Municipal Commissioner. ((-18-)) There is a clear prohibition in raising them before the Sole Arbitrator. Once there is a clear prohibition in raising and considering them, then the Sole Arbitrator could not have awarded them. Further, assuming without admitting that such claims could be raised and considered, there is no explanation as to why first respondent enhances the sums before the Sole Arbitrator. Not only is the sum enhanced and claim inflated, but there is no evidence to substantiate the same. In these circumstances, the Arbitrator could not have awarded them. The award is, therefore, contrary to Clause-96 of the General Terms and Conditions and liable to be quashed and set aside on this ground alone. Mr.Dhanuka invites our attention to the statement of claim as also the discussion on this aspect of the matter in the award. He submits that the learned Arbitrator had seriously erred in rejecting the preliminary objection raised on behalf of appellant on the basis of Clause-96 of the General Terms and Conditions. He also invites our attention to the reasoning of the learned Single Judge on this aspect of the matter. He submits that the learned Single Judge has clearly missed the point. The argument could not have been considered by referring to ((-19-)) Clause-97 of the General Terms and Conditions. Further, the learned Single Judge has, without assigning any reasons, proceeded to uphold the finding of the learned Arbitrator on the preliminary objection. He submits that the correspondence could not be relied upon to reject this contention. 21. The order of learned Single Judge, according to Mr.Dhanuka, over looks the mandatory nature of Clause-96 and therefore, the judgement under appeal is liable to be set aside as being travelling beyond the terms of contract. Mr.Dhanuka invites our attention in support of this submission to the letters dated 17th September 1990 and 24th September 1991 which would demonstrate that additional claims have been raised. Mr.Dhanuka also takes us through the statement of claim, reply thereto and the discussion in the impugned award. 22. Mr.Dhanuka then proceeds to challenge the judgement of learned Single Judge with regard to the conclusions reached claim-wise. He submits that insofar as claim no.2 is concerned, the same is contrary to clause 14 of the General Terms and Conditions. He submits that claim for ((-20-)) compensation for losses suffered on account of wrongful omission of an item of work, could not have been considered by the learned Arbitrator. He submits that clause 14 empowers the Engineer to omit part of the work. Once such power is exercised, then any expenditure occasioned by such omissions/deletion, could be claimed only on actual basis. In other words, only the actual expenditure is capable of being reimbursed once part of the work is omitted or deleted. Nothing more can be awarded. There is, therefore, no question of considering any claim of loss of profit and productivity. The Sole Arbitrator as well as the learned Single Judge have ignored the mandate of Clause 14 of the General Terms and Conditions as also clause 94 thereof. He submits that the amount of Rs.4,56,000/- awarded under this claim includes loss of profit, productivity and expenses on machinery and equipment. He submits that grave misconduct had been committed while considering and awarding this sum. He submits that once the contract terms and conditions are taken into account, then there is no question of any speculation or guess work. Since the amount of Rs.4,56,000/- does not make any distinction between the actual expenses incurred and losses suffered on account of ((-21-)) wrongful omission, then there is no question of severing or separating the heads of the claims and the sums thereunder. Consequently, the entire award must be set aside on this ground alone. 23. The next contention of Mr.Dhanuka is that insofar as claim nos.3 and 4 for compensation on account of overheads and profit as well as extra expenditure, assuming that a claim could be made under these heads, still, without considering the pleas on delays, extension and affixing responsibility thereof, the Arbitrator could not have granted any sums in favour of first respondent. Elaborating further, he contends that the quantum of work done includes overheads etc.. All items are included in the running bill. It is not in dispute that the payment of running bill has been made. Therefore, element of overhead and profit cannot be included once again and made subject matter of a claim before the learned Arbitrator. That apart, he contends that loss of profits on account of overheads during the contractual period cannot be claimed. He submits that as far as contractual period is concerned, the contractor is obliged to make available at site labour and materials. He ((-22-)) cannot claim any compensation for loss of profit during this period. In any event, the amount demanded in the running bill included the element of profit during the contractual period. That amount is already paid. For the extended period there is no question of including the very same components, namely, losses suffered on account of overheads and profit. He invites our attention to para 11.3 of the statement of claims in support of this contention and submits that at the most claim for overheads on account of delay could have been considered. However, for awarding any sum under this head, the Arbitrator must necessarily apportion the blame on the party namely appellant in this case and then proceed to award any sums. 24. Mr.Dhanuka submits that similar is the case as far as loss of profit is concerned. He submits that the total profits,