1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION ARBITRATION PETITION NO.341 OF 2007 The Municipal Corporation of Gr.Mumbai .. Petitioner Versus M/s.Joint Venture Angerlehner Michell Bau GMBh .. Respondents Mr.Ramesh Dhanuka for petitioner Mr.Zal Andhyarujina for respondents. CORAM : S.C.DHARMADHIKARI, J. Reserved on : 8th October 2009 Pronounced on : 5th March 2010 ORAL JUDGEMENT:- 1] By this Petition under section 34 of the Arbitration and Conciliation Act, 1996, the Municipal Corporation, Mumbai has challenged the award dated 3rd February 2007, a copy of which is annexed as Exh.FF to this petition. 2] The facts which are necessary to appreciate the challenge to this Award are briefly set out hereinbelow. It is the case of the Corporation that it invited tenders for rehabilitation of its sewers by liner coating 2 method. The respondents were one of the bidders. The bid of the respondents was found substantially responsive. Therefore, an agreement came to be executed on 31st July 2001. Petitioner’s awarded the said contract to respondents for Rs.10,16,16,202.10 and also Euro 70,22,543.34. 3] It is stated that the Contractor is required to visit the site and obtain all information that may be necessary for preparation of the bid. The respondents had visited the site and obtained all information required for preparing the bid. Before inviting tenders, the petitioners had carried out a detailed survey of the sewers required to be rehabilitated by the respondent contractor. They had also taken photographs of the deteriorated portion of the sewer which was required to be rehabilitated by awarding the contract. Such photographs were made available to the contractor before submitting the bid. 4] It is stated that M/s.TTI Consultanting Engineers were appointed as Project Management Consultants by Municipal Corporation. They were appointed as the Engineers’ representative as per clause 2.2 of the 3 General Conditions of the contract. The Chief Engineer of the petitioner has been designated as the Engineer for the project under the contract. By their letter dated 26th October 2001, the respondents informed the said consultants that they had made initial survey of the sewer dimensions at sections 3(a), 3(b) and 3(c) through Race-course. The respondents alleged that they actually found that average sewer size was contrary to the tender size and it was not possible to install contract size except for intermediate section 3(b). Therefore, they requested the Consultant Engineer to approve GRP Liner Dimensions for the entire section 3 at the earliest. 5] This correspondence has been referred and it is alleged that the differences during the execution of the works under the contract being of such a nature that the Dy.Municipal Commissioner was required to intervene. 6] The intervention of the Deputy Municipal Commissioner was sought because the allegations of the respondents are that they were required to carry out number of operations for the purpose of 4 rehabilitation of the seweres. There is a mandatory condition in the contract that the rehabilitation of the sewers was required to be carried out without reducing the cross-sectional area of the sewers after rehabilitation by more than 10%. It is alleged that the respondents got a evaluation bonus since it had proposed reduction less than 10% in the size of the existing sewers. It is alleged that the petitioner was well aware of the existence of technologies which enable rehabilitation of sewers with minimum or even nil cross section reduction, such as reaming or grinding as set out in clause 3.3.2. This was the technology which was proposed to be used by the respondents. The Statement of Claim of the respondents proceeds on the basis that several suggestions were made with regard to this aspect of the matter. It was stated that in furtherance of the proposals in the bid, the liner size was indicated. It is stated that the host-sewers (existing sewers) were more than 100 years old and it is of significant variation in size. In the tender document a minimal sewer size of Host Sewer was stipulated in each section. In some cases the minimal size of the Host Sewer was significantly varying on and within the actual job-site, for instance, sections 3(a), 3(b) and 3(c) at the Mahalaxmi Race Course. The consultants, therefore, by their letters 5 addressed in December 2001 and February 2002, instructed to instal uniform liner size of 2100 mm x 1400 mm in the above sections and also instructed to utilise feature of the reaming machine to make good the existing undulations and varying up and down gradients/ slopes in the Host Sewer. It is alleged that the work schedule contained in the programme submitted by the respondents and the time schedule contained in the letter addressed by the respondents to the Consultants, the reaming as contemplated was to be done in 120 days for 1496 mtrs. i.e. at the rate of 12.47 meters/ day, the basis unit of measurement being running meter length. It is alleged that the reaming of 60 mm above the proposed inner liner was to be done in one stage. However, during the execution of contract due to the presence of wire-mesh, the respondents could ream only upto 20 to 25 mm above the proposed inner liner in the first stage as instructed by the Consultants vide its letter dated 12th November 2001. It is stated that this was a response to the respondents’ notification dated 8th November 2001 about the presence of wire mesh. The presence of wire- mesh was treated as an enforcing physical condition as per clause 12.2 of the General Conditions, since the sewer material was clearly indicated as ‘brick only” in the tender. Therefore, in the site inspection prior to 6 bidding or from available records, the presence of wire-mesh through out could not have been detected. Therefore, these problems were brought to the notice of consultants in letter after letters during the execution of the contract. 7] There were certain suggestions and view points which were expressed by the technical personnel on both sides. At one stage it was stated that reaming in two stages, as instructed by the Consultants was inevitable. It was pointed out that in the first as well as second stage, the reaming was to follow existing invert profile. However, with rising and lowering the cutting profile in the manholes as per the longitudinal sections submitted by the respondents on 27th November 2001 for section 3(b) showing maximum reaming depth of 125 mms resulted in variation in quantities from the bills of quantities (BOQ). The revised prices for all the BOQ items of sections 3(a), (b) and (c) in view of the additional work required to be done came to be communicated and justification for the same was set out in the correspondence exchanged from time to time. The revised rates were also mentioned. Ultimately, negotiations were held and pursuant to these negotiations and discussions, some rate was 7 suggested by the consultants. Thereafter, the rates were reduced and the respondents agreed to an amount of Rs.43,400/- per hour. It is stated that the respondents submitted all certified daily log sheets and Engineer/ Consultant verified the same and found that out of the total working hours spent for second stage reaming, respondent is entitled to a payment for 539 hours. The calculations have been referred to. The respondents further agreed to a lumpsum rebate for disposal of wire-mesh. The computation of the same, have been, according to respondents, approved by the Engineer/ Consultant in exercise of its powers under clause 52.2 of the General Conditions. 8] This proposal as sanctioned was placed for approval of the Deputy Municipal Commissioner. 9] It was alleged that pursuant to this step seeking sanction of Dy. Municipal Commissioner, at one point the Deputy Municipal Commissioner recommended final amount of Rs.15,400,708.00 towards the 2nd stage. The recommendations of the DMC have then been referred to. These recommendations have been made in the minutes of meeting 8 dated 20th April 2004 which are annexed as Exh.P to the statement of claim. The amount of Rs.15,400,708/- was not acceptable to respondents. They stated that the basic parameters taken by the DMC to calculate second stage reaming do not match with the technical specifications, certified quantity stipulated in the confirmed technical drawings, actual quantities executed and jointly measured before and after reaming and other principles certified by Engineer and his representative. 10] It appears that the matter was taken up to the level of the Municipal Commissioner. Even the Austrian Ambassador, German Ambassador and other officials working at senior level of both sides were present and it is the case of the respondents that the DMC gave his sanction to release undisputed amount of Rs.15,400,708.00. It was agreed that the respondents would accept this amount towards second stage reaming under protest. 11] It is alleged that it was agreed that the balance amount of Rs. 79,75,692 would be sanctioned after scrutiny by the DMC of the details submitted by the respondents. It is alleged that the claimants/ 9 respondents vide their letter dated 11th May 2004 addressed to the Assistant Municipal Commissioner placed these facts on record and requested him to sanction and release the payment without any further delay. 12] It was alleged that the respondents did not agree to accept the sum of Rs.15,400,708/-, without recording their protest as aforesaid and, therefore, the Dispute Review Expert (DRE) was approached and the matter was placed before him. The matter could not be resolved at his level. 13] Since the respondents by their letter dated 11th June 2004 communicated its intention to petitioners to commence arbitration as stipulated in clause 67, yet, requested the DMC to settle the dispute amicably, that further correspondence referred to in the statement of claim took place. It is stated that there was a meeting held in the office of the Deputy Chief Engineer. It is stated that the first part of the outstanding payment in the sum of Rs.3,44,08,608.86 towards second stage reaming was confirmed and the respondents requested the 10 petitioners to pay the balance payment. The respondents addressed letters because the balance payment was not forthcoming. Therefore, the further letters of September and October 2004 were addressed. Thereafter, the notice to arbitration dated 17th December 2004 came to be sent. It appears that there were suggestions made with regard to the choice of Arbitrators and finally it was agreed that Dr.Herald Wagner and Mr.S.P.Upasani would be the Arbitrators and they chose Mr.B.G.Vasavda as the third and Presiding Arbitrator. 14] According to respondents, the issues were as under:- “(a) When the Consultant/ Engineer has already confirmed a discounted amount of Rs.23,376.400.00 for second stage reaming, is it open for the Respondent to question the correctness of the Consultant/ Engineer’s decision? If affirmative, following issues arise for consideration:- (b) Whether it was practicable for the Claimant to find out the 11 presence of wire mesh in Sections 3a, 3b and 3c prior to bidding in full service condition of the sewer and without damaging property not belonging to him? (c) Whether the presence of wire mesh can be deemed as not forceable physical obstruction or condition? (d)Whether reaming in two stages was necessary to achieve the required rehabilitated size of the sewer and the continuous down gradient as instructed by Engineer/ Consultant? (e) Whether the second stage reaming is extra work that was required to be carried out, in rehabilitation of sewer at Mahalaxmi Race Course so as to complete the work with proper engineering practice; (f) Whether the extra work is to be quantified in terms of additional working hours (men and machine) required to carry out the 2nd Stage reaming as recommended by the Engineer/ 12 Consultant; or (g) Whether the payment for the 2nd Stage reaming should be pro-rated on the basis of the depth to which the section was to be reamed? (h) Whether the Claimant is justified in agreeing to a reduced rate of 43,400/- per hour and a lump sum rebate of 16,200/- for the disposal of the pieces of removed wire mesh? (i) Whether the Claimant is entitled to interest @ 7.5725% for the foreign currency portion and 10% for the local currency portion for delay in payments as elaborated on page 121 of Vol.3 of 3 of COC and as prescribed in Clause 60.8 of the COPA and (j) Whether the Claimant is entitled to price adjustment as prescribed in Clause 70 of COPA?” 13 15] In support of the same, submissions were made and finally it was prayed that the petitioners are bound and liable to pay to the respondents a sum of Rs.1,39,72,495.61 comprising of Rs.7,975,692.07 towards principal and Rs.5,808,252.72 towards the interest at 7.5725% for delay in payments for foreign currency and interest @ 10% per annum for local currency computed till 17th June 2005 and Rs.188,550.81 towards price adjustment as per the particulars of claim. 16] Upon being served with the statement of claim and all annexures thereto, the petitioners filed their statement of defence. The petitioners raised their preliminary objections regarding jurisdiction and scope of reference together with general denials. As far as the objections are concerned all the relevant clauses are referred to and it is urged that the claim is barred by latches. They have also blamed the respondents for delaying the matter and it was prayed in this statement of defence filed on 13th September 2005 that the Tribunal should uphold the preliminary points raised as detailed in paras 5.2.2 to 5.2.5 of the statement of defence. 14 17] There was a rejoinder filed to this statement of defence. After the pleadings were complete the directions were issued. The points/ issues for determination have been framed by the Tribunal and they read thus:- “(1) Whether it was possible for the Claimant to discover the presence of the wire mesh during structural assessment as was required to be done as per clause 3.3.2 of section 6, Part 3 on page 45 of the Contract Volume II? (2) Whether removal of the wire mesh existing in the host sewer falls within clause 12.2 of the Conditions of Contract and can be classified as “not foreseeable physical obstruction.” (3) Whether 2nd stage reaming after removal of the wire mesh is an extra work not covered under the BOQ – Item 209 and can be classified as variations under clause 51 of the GCC? (4) Whether there was any variation order by the Engineer? 15 (5) Whether the Engineer had the power to fix rates and whether the Statement of Excess signed by the Engineer on 3rd December 2002 was within the authority of the Engineer under clause 52.1 and 52.2 of the Contract? (6) Whether there is a legally binding agreement between the claimant and the respondent to pay the claim as claimed by the claimant? (7) Whether the claims put up by the Claimants are proved and admissible; (8) Whether the matter relating to the Public Policy of India applies to the contract and the claims made by the claimant? (9) Whether the Tribunal has power to award interest and what is a reasonable rate of interest? 16 (10) What is the final award?” 18] It appears that number of documents were filed so also the written submissions. The parties did not lead any oral evidence. 19] It is contended in the present arbitration petition that the petitioners filed counter claim together with the statement of defence praying for award of Rs.344,08,608.76 and if not as counter claim atleast as set off. 20] However, by the award dated 3rd February 2007, the Arbitrators directed petitioners to pay the sum as per the Award which reads as under:- The Tribunal awards a payment of Rs.2,33,92,600 (-) Rs.16,200 (Rebate towards disposal of wire mesh) = Rs. 2,33,76,400/-. An amount of Rs.1,54,00,708 has already been paid by the respondents to the claimants. The Tribunal, therefore, directs the respondents to pay Rs.79,75,692.00. 17 The Claimants in the Statement of Claim have claimed Rs.1,88,550.81 towards price adjustment. This claim was not pressed by the Claimant during the hearing and there were no arguments made in this regard with supportive documentation and evidences. The tribunal has therefore considered the pleadings in the claim statement and concluded that the claims are not substantiated and, therefore, stand rejected. (a) Interest to be paid on Rs.79,75,692.00 at 10% from 23/6/2004 to 3/2/2007 (up to the date of this award) i.e. Rs.20,60,387.00 (b) Further interest to be paid on Rs.79,75,692.00 @ 10% from the date of award i.e. 3/2/2007 to the date of actual payment; (c) The Tribunal also orders that the money awarded by this Tribunal on this 3/2/2007 shall be paid within a period 18 of 60 days from the date of award.” 21] It is this award which is impugned in this petition. 22] Mr.Dhanuka, learned Counsel for petitioners submits that the Award insofar as Issue No.9 is concerned (interest), is contrary to the terms of the contract. He invites my attention to clause 60.8, Section 5 of the terms and submits that the same stipulates 10% interest for payment in local currency. In the present case, future interest is contrary to the terms of the contract. Inviting my attention to grounds (a) and (b) of the present petition, Mr.Dhanuka submits that the respondents themselves had claimed interest at 7.5725 % for the alleged delay in payment of foreign currency and 10% for the alleged delay in payment of local currency. However, the Arbitrators have allowed interest at 10% on the entire amount. This is contrary not only to the contract but even beyond what was claimed by the respondents. Thus, the learned Arbitrators have exceeded their jurisdiction in awarding interest higher than the contract rate and in any event, more than what was claimed by the respondents. 19 23] Mr.Dhanuka submits that the award on the face of it is in conflict with public policy and liable to be set aside. Mr.Dhanuka submits that the award to the extent it grants interest is not severable. This Court has no power to set aside the award in part. Therefore, the entire award must be set aside. 24] Alternatively and without prejudice Mr.Dhanuka submits that the award directs payment of Rs.75,79,692/-. He submits that there is no bifurcation of Foreign and Indian currency. He submits that 10% interest is to be paid on what sum, cannot be made out from the Award. In other words, the interest at 10% is awarded on which sum claimed by the respondents is not clear from the award. There is no identification of the currency. Therefore, when the rate is not clear and the currency is not identified, then, such an award cannot be sustained and, therefore, it should be set aside. Mr.Dhanuka submits that the Arbitrators have awarded interest for the entire period from 23rd June 2004 to 3rd February 2007 and till payment for no fault of petitioners. There was gross delay on the part of the respondents in invoking the arbitration, filing pleadings 20 and in the conduct of the arbitration proceedings. The proceedings were pending for more than a year before the Arbitrators. The petitioners are not responsible for the same. The arbitrators therefore could not have awarded interest for the entire period and for all three periods i.e. Pre- reference, pendent lite and future interest. 25] The second submission of Mr.Dhanuka is that the award completely omits to consider the counter claim of the Municipal Corporation. Inviting my attention to grounds (c) and (d) of the petition, Mr.Dhanuka submits that the arbitrators have not dealt with or discussed the counter claim in the entire award at all. They were bound to consider and deal with the same. Since the entire counter claim is omitted from consideration by the Arbitral Tribunal, the Award deserves to be set aside on this ground alone. 26] Mr.Dhanuka then submits that as far as Issue No.4 is concerned, that is pertaining to variation order by the Engineer. He submits that the question was whether a variation order was issued by the Engineer or not. He submits that the clause contemplates a specific order of variation by 21 the Engineer. The variation order cannot be inferred from the correspondence between the parties. The correspondence cannot be construed to mean a direction. The correspondence also cannot amount to an instruction. Mr.Dhanuka submits that the Arbitral Tribunal has construed the correspondence to mean a direction within the meaning of the clause in question. That is a complete mis-reading and mis- construction of the clause in question. In such circumstances, the award cannot be sustained even as far as this issue is concerned. On Issue No.5, the Arbitrators have erroneously arrived at a conclusion that the clause permit fixation of rates by the Engineer. He submits that clause 52.1 and 52.2 have been completely mis-read and mis-interpreted by the Arbitrators. Therefore, the Award on this issue also is unsustainable and must be set aside. 27] On Issue No.6, Mr.Dhanuka submits that the Arbitrators have erred in holding that there is an agreement to pay the amount to the parties. 28] Mr.Dhanuka has invited my attention to the letters dated 20th February 2003, 3rd January 2004, 28th April 2004 and 11th May 2004 and 22 contended that there is no question of accepting the payment under protest, if at all it was agreed to be made. Apart from the fact that these are mere proposals and were treated as such, then, it should not have been treated as a concluded contract by the Arbitral Tribunal. 29] Mr.Dhanuka submits that if the respondents admit that the payment is provisional, interim and accepted under protest, then, as to how the Arbitrators hold that there is concluded contract is not clear at all. Therefore, contradictory and conflicting reasonings make the award vulnerable and unsustainable and the same should be set aside. 30] As far as Issue No.7 is concerned, the Tribunal erroneously hold that the claims are proved and stand supported by the Engineer’s signature dated 3rd December 2002. Mr.Dhanuka submits that there is no approval of the employer within the meaning of the contractual term. Therefore, how Engineer’s certificate can be said to be conclusive evidence and on that basis the claims can be held to be proved is not clear at all. The Arbitrators have proceeded on a completely erroneous basis and their findings and conclusions are perverse. They should be, 23 therefore, set aside. Mr.Dhanuka submits that there is no question of any presumption in such matters. The law postulates that there has to be evidence and proof. Once the contractual stipulations are clear, then, by no other mode can it be said that the claims have been substantiated and proved. In this case, no record is produced and that is what is clearly contemplated by clauses 53.1 and 53.2 of the Contract. Mr.Dhanuka submits that whether BOQ rates include incidental expenses required for completion of the work or not has not been addressed by the Arbitral Tribunal. In fact, the BOQ rates have been held to be all inclusive and, therefore, no claim could have been made for extra and/or incidental item. The preparatory steps and work cannot be quantified separately and a claim made on that basis. Mr.Dhanuka has invited my attention to section 8 of the Contract dealing with bills of quantities and more particularly items 1(v) and 3 thereof. Mr.Dhanuka submits that the Arbitral Tribubunal has ignored these provisions in the contract and, therefore, the Award be set aside. 31] Thus, Mr.Dhanuka submits that the entire award is liable to be set aside in this Court’s jurisdiction under section 34 of the Arbitration and 24 Conciliation Act, 1996. 32] On the other hand, Mr.Andhyarujina appearing for the respondents submits that the Arbitral Tribunal in this case has rendered a reasoned Award. When a reasoned award is rendered, it is not permissible for this Court to set aside the same only on the ground that the reasons assigned are insufficient or inadequate. Merely because