IN THE HIGH COURT OF HIMACHAL PRADESH SHIMLA. Arb. Case No. 41 of 2003 Reserved on : 26th October , 2009 Date of Decision : 20th November,2009 The Himachal Pradesh State Electricity Board …Petitioner/objector Versus: M/s. Ansal Properties and Industries Ltd. (APIL) …Respondent-claimant. Coram: The Hon’ble Mr.Justice Sanjay Karol, Judge. Whether approved for reporting?1 Yes. For the petitioner/objector: Mr. J. S. Bhogal, Sr. Advocate with Mr. Suneet Goel, Advocate. For the respondent/claimant: Mr. Chetan Sharma, Senior Advocate with M/s.Gaurav Puri, Ajay Kumar & Y. Paul, Advocates. SANJAY KAROL, J. In these proceedings, under Section 34 of the Arbitration & Conciliation Act, 1996 (hereinafter referred to as the Act), the Himachal Pradesh State Electricity Board (in short HPSEB) has assailed the impugned award dated 14.1.2003 passed by the Sole Arbitrator Shri S.C. Mahajan, Chief Engineer (P&M) (Retd.), awarding a sum of Rs.1,71,17,359/- along with interest @ 18% p.a. w.e.f. 13.11.1995 up to 14.1.2003 (date of award) and further @10% per annum up to the date of payment 1 Whether reporters of Local Papers may be allowed to see the judgment? 2 to the Contractor as against its claim of Rs.6,01,95,704/- along with pendente lite and future interest @ 24% per annum. For the construction of Civil Works of Baner Hydel Project in District Kangra, Himachal Pradesh comprising of “Intake Structure, Link Tunnel, Underground Desilting Tank, Head Race Tunnel, Surge Shaft, Penstock Profile, Anchor Blocks and Saddles, Power House (Civil Work) and Tail Race”, HPSEB had awarded contract to M/s. Satluj Construction Company, Chandigarh. The work could not be completed, hence the contract for completion of the unfinished work was further awarded to M/s. Ansal Properties and Industries Ltd. (APIL) (referred to as the contractor). The Contract Agreement No. 1 of 1991, dated 21.2.1991 was entered into between the HPSEB and the Contractor and the total estimated cost of the work for Rs.4,20,54,420/-, was to be completed within two years. With the Contractor abandoning the work on 31.7.1996, HPSEB got it completed from a third party on 8.4.1997. However, with respect to the works executed by the Contractor under the agreement, final bills dated 13.11.1995, 23.3.1996 & 31.10.1996 were submitted to HPSEB. In terms of letter dated 13.11.1995 the Contractor lodged claims for a sum of Rs.6,24,92,000/- which were rejected by HPSEB, hence certain disputes having arisen between the parties a petition was filed before this Court seeking appointment of the Arbitrator in terms of Clause 25 of the agreement which was allowed in terms of order dated 3 4.10.1996. Consequently vide office order dated 31.10.1996, HPSEB appointed Shri R. K. Sharma, the then Chief Engineer (Contracts), Nathpa Jhakri Power Corporation, Shimla as Sole Arbitrator. However, in terms of letter dated 27.6.1997, he was superseded and in his place Shri J.M.S. Jaswal, Chief Engineer (Design) HPSEB, upon appointment as Sole Arbitrator conducted certain proceedings. Before the conclusion of the arbitral proceedings even he was superseded by Shri S. R. Khitta, Chief Engineer (Investment & Planning) HPSEB, as sole Arbitrator, who also did not adjudicate the claims and eventually Shri S. C. Mahajan, Chief Engineer (P&M) HPSEB was appointed as Arbitrator in terms of office order dated 25.9.2001. This Arbitrator entered into reference on 16.10.2001 and after seven hearings and a visit to the site passed the impugned award. In the 2nd hearing held before him on 12.12.2001, the procedure for conduct of the proceedings was adopted in the presence of the parties. The record of the proceedings as reflected in the impugned award, reads as under:- “During the proceedings, it was decided that the Arbitrator will proceed in the matter from the stage at which these were left by the previous Arbitrator. The Arbitrator decided the procedure to be adopted in the matter as follows:- 1. Submission of claim by the Contractor, 2. Submission of reply by the Respondent, 3. Submission of rejoinder by the Claimant. 4 It was argued by the Respondent that they would like to file their reply to rejoinder of the claimant which was not agreed to by the claimant. It was decided by the Arbitrator that this is not required as it will delay the matter. 4. Framing of Issues. 5. Submission of written/oral argument by the Claimant. 6. Submission of written/oral arguments/ counter arguments by the respondent. The documents related to Item Nos. 1 to 3 of the procedure laid above had not been made available by Er. S. R. Khitta, previous Arbitrator to Er. S.C. Mahajan, the new Arbitrator. In order, therefore, to avoid further delay in settlement of the claims, the claimant has submitted spare copy of the following record which was given to the respondent for verification of its correctness at their end. 1. Statement of Claims of claimant. 2. Reply filed by the respondent. It was decided that in case these documents are found to be as per the original submissions, these shall be submitted to the Arbitrator during the next hearing. In case there are some discrepancies in the documents, these will also be pointed out in the next hearing.” (Emphasis supplied) Record reveals that no discrepancy was pointed out. In the 4th hearing dated 6.5.2002, it was so recorded that “the respondent intimated that since they have not filed any 5 counter claim, as such, they are not proposing any issue for framing” and 15 issues were framed. In the 7th hearing dated 1.10.2002, the Arbitrator recorded as under:- “With the submission of above stated documents, it was informed by both the claimant as well as the respondent that they have no more documents to submit. With this the documentation in the instant Arbitration case is complete. It was also agreed by both the parties that they were given full opportunity to present their case and they were fully satisfied with the proceedings.” (Emphasis supplied) Having heard the parties and appreciated the material on record, the Arbitrator passed the impugned award by awarding a sum of Rs.1,71,17,359/- along with interest @ 18% w.e.f. 13.11.1995 upto 14.1.2003 (date of award) and thereafter @ 10% up to the date of payment to the contractor The Arbitrator structured the award claims/issues- wise and in all framed 15 issues which were further sub-divided into various sub-claims/issues. HPSEB has filed the instant objection petition pleading the following grounds:- a) no reasons have been assigned for arriving at the conclusion; b) determination of the quantities of the claims is without any evidence; 6 c) the written submissions placed on record by HPSEB were not considered; d) with respect to certain items quantities has been awarded in excess of what was claimed by the Contractor in its final bill submitted on 31.10.1996; e) Claims of damages under issues No.4 to 13 were decided without any evidence led by the parties and in the absence of any admission by HPSEB, the same could not have been awarded. The award is based on no evidence and purely on hypothetical considerations; f) the award made under claims E-1 to E-22 is contrary to the provisions of Clause 12 of the Agreement; g) the award of interest, pendente lite is in violation of the prohibitory clause contained in Clause 6.1 of the Agreement; h) while awarding claim under issue No.3 Clause 13 of the Contract has been ignored; i) while awarding claim of extra and deviated items, the analysis of rates submitted by the HPSEB have not been taken into account; j) the award has been improperly procured; k) the Arbitrator has awarded interest on interest; l) and has exceeded the scope of reference; The net effect is that the award is in conflict with the public policy of the India, suffers from non-application of 7 mind, is based on hypothetical considerations and not borne out from the material on record which, in any event, has been ignored and hence is liable to be set-aside. The Contractor filed reply, inter alia taking preliminary objection that the objections are based on mere generalities, inasmuch as no specific instances have been mentioned pointing out the allegations and errors apparent on record with respect to questions of fact and law. The award which is sufficiently reasoned is based on the material on record. With regard to the specific grounds, response is as under:- Ground (a) the reasoned award has been passed after due and proper application of mind; (b) disputes with regard to quantities mentioned in final bill resulted into the arbitral proceedings; (c) the ground taken is too general, vague and without any specific instance; (d) (e) bald allegations without any specific instances have been made; (f) the HPSEB accepted that items covered by Claims E-1 to E-7 and E-13 to E-23 are extra items and with regard to extra items covered under Claims E-8 to E-12, the Arbitrator had discussed the claims in the context of conditions of the contract; (g) keeping in view the ratio of law laid down by the Apex Court in Central Bank of India v. Ravindra {2002(1) SCC 367}, the expression “principal sum so adjudged would also include the amount of interest, therefore, it 8 could not be said that the Arbitrator awarded interest on interest; (h) Clause 12(1) deals with only plus deviation and Clause 13 needs to be harmonized in a manner which is consistent with the principles of natural justice, fundamental principles of justice, equity, good conscience and fair play; (i) the Arbitrator has considered the analysis of rates submitted by both the parties and most of the contractor’s claims were dismissed; and (j) bald allegations with regard to the award being improperly procured are vague and are un substantiated. In effect, it is pleaded that full opportunity was afforded to the parties to tender evidence, raise contentions and argue the issues framed by the Arbitrator in consultation and the arbitral proceedings were concluded by passing a speaking award, consistent with the principles of natural justice, fundamental principles of justice, equity, good conscience and fair play. The contractor’s claims No. 7, 8, 9, 10 & 11 were rejected in toto by the Arbitrator. The final bill dated 31.10.1996 was up dated in terms of bill dated 16.3.1998. The quantities in the final bill were subsequently revised vide bill dated 16.3.1998 which was paid by HPSEB but, however, was received under protest as the same was under paid. Variation is only where the final awarded quantity by HPSEB is less than what was claimed by the Contractor. 9 This Court on 17.12.2003, framed the following issues:- 1. Whether the award is not reasoned and thus contrary to the provisions of Section 31 of the Arbitration Act and clause (25) of the agreement between the parties? OPO 2. Whether the award is not in conformity with the policy of India, as alleged? ……..OPO 3. Whether the objection petition and the accompanying affidavit are not verified/filed by the authorized person? ……OPR Mr. Bhogal, learned senior counsel for HPSEB has made the following general submissions:- a) the award is unreasoned; b) it is based on no evidence; c) not only relevant material has been ignored but it is also contrary to the provisions of the agreement; d) it is an excess of the claims; e) it is beyond the terms of the agreement and in any event certain claims awarded are outside the scope of the Arbitrator; f) the claims have been duplicated and awarded as such. Per contra, Mr. Sharma, learned senior counsel for the Contractor has defended the award by making the following submissions:- i) It is within the legal frame work; 10 ii) The objections are vague and do not pontificate to any specific issue calling for interdiction by this Court; iii) The objections do not fall within any of the grounds laid down under Section 34 of the Act iv) In what manner the award is contrary to public policy has not been spelt out either in the objection petition or during the course of the hearing; v) The procedure adopted by the Arbitrator with the consent of the parties was just, fair, reasonable and therefore it could not be contended that adequate opportunity was not afforded to the parties; vi) Clauses 9, 12 & 13 of the general conditions of the contract are; a) Neither prohibitory; b) Nor applicable and thus its rigors not attracted; Issues No. 1 and 2 as framed by the Court: I propose to answer these issues together and while doing so refer to and deal with each of the issues decided by the Arbitrator while adjudicating the claims. The relevant clauses of the contract are reproduced as under:- Clause 6.10: PROPORATIONING OF CONCRETE The exact proportions in which the different ingradients are to be used for different parts of the work shall be determined by the Engineer-in-Charge from time to time, during the progress of the work and as analysis and tests are made of the samples of the aggregates and 11 the resulting concrete. It shall be the responsibility of the contractor to obtain on the works, concrete of specified quality, density & strength corresponding to the laboratory test as directed by the Engineer-in-Charge. No extra payment or deductions shall made in the unit rates for variations in the several ingradients except for change in cement content. Clause-12 ALTERATIONS IN SPECIFICATIONS AND DESIGNS AND QUANTITIES The Engineer-in-Charge shall have power of make any alterations in omissions from, additions to or substitutions for, the original specifications, drawings, design & instructions, that may appear to him to be necessary during the progress of the work, and the contractor shall carry out the work in accordance with any instructions which may be given to him in writing signed by the Engineer-in-Charge, and such alterations, omissions, additions or substitutions shall not invalidate the contract and any altered, additional or substituted work which the contractor may be directed to do in the manner specified above as part of the work shall be carried out by the contractor on the same conditions in all respects on which he agreed to do the main work. The time for the completion of the work shall be extended in the proportion that the altered, additional or substituted work bears to the original contract works on the basis of CPM/PERT programme and the decision of the Engineer-in- Charge shall be conclusive as to such extension of time. The rates for such additional, altered or substituted items of work under this clause shall be worked out in accordance with the following provisions in their respective order; 12 i) If the rates for the additional, altered or substituted work are specified in the contract for the work, the contractor is bound to carry out the additional, altered or substituted work at the same rates as are specified in the contract for the work. ii) If the rates for the additional, altered or substituted work are not specifically provided in the contract for the work, the rates will be derived from the rates for a similar class of work as are specified in the contract for the work. Provided always that if the rate for a particular part or parts of these items cannot be derived from the rates for a similar class of work as specified in contract, the rate for such part or parts will be determined by the Engineer-in- Charge on the basis of prevailing market rates, whose decision will be binding on the contractor. iii) If the rates for the altered, additional or substituted work cannot be determined in the manner specified in sub-clauses (i) & (ii) above then the contractor shall, within 7 days of the date of receipt of order to carry out the work, inform the Engineer-in-Charge of the rate which he intends to charge for such class of work, supported by analysis of the rate or rates claim and the Engineer-in-Charge shall determine the rate or rates on the basis of prevailing market rates and pay the contractor accordingly. However, the Engineer-in-Charge by notice in writing, will be at liberty to cancel his order to carry such class of work and arrange to carry it out in such manner as he may consider advise. But under no circumstances the contractor shall suspend the work on the plea of non settlement of rates of items falling under the clauses. 13 Clause-12(A): RATES FOR ITEMS EXCEEDING DEVIATION LIMIT: (i) In the case of any contracted or substituted item(s) which individually exceeds the quantity stipulated in the contract by more than twenty percent, the contractor shall within seven days from the receipt of order, claim revision of rate, supported by proper analysis in respect of such item(s). For quantity in excess of the said 20 percent limit, notwithstanding the fact that the rate for such item(s) exists in the tender for the main work or can be derived in accordance with the provisions of sub-clause (ii) of clause -12 and the Engineer-in-Charge may revise its rate, having regard to the prevailing market rate and the contractor shall be paid in accordance with the rate, so fixed. The Engineer-in-Charge shall, however, be at liberty to cancel his order to carryout such increased quantity of work by giving notice in writing to the contractor and arrange to carry it out in such a matter as he may consider admissible. But under no circumstances the contractor shall suspend the work on the plea of non-settlement of rates of item(s) falling under this clause. (ii) All the provision of the preceding paragraph shall equally apply to the decrease in the rates of items for quantities in excess of the deviation limit, notwithstanding the fact that the rates for such items exist in the tender for the main work or can be derived in accordance with the provisions of sub- clause (ii) of the preceding clause-12, and the Engineer-in-Charge may revise such rates having regard to the prevailing market rates. (iii) The executed quantities of a substituted item shall be clubbed with executed quantities for an original 14 item for the purpose of determining whether the quantities of the item have exceeded the deviation limit or not. (iv) The total value of all the additional items (item other than contract or substituted items), taken together, rates for which are derived in accordance with the provisions of sub-clause (i) & (ii) of clause -12, shall be limited to ten percent of the value of the contract as a whole at the time of signing the agreement. For any work relating to the additional items in excess of the limit of ten percent referred to above, the contractor within seven days of exceeding the said limit or in case of additional items whose rates cannot be determined in accordance with the provisions under sub-clause (i) & (ii) of Clause-12, claim revision determination of rate(s) duly supported by a proper analysis for consideration and approval of Engineer-in-Charge who may revise/ determine the rates, as the case may be having regard to the prevailing market rates and the contractor shall be paid in accordance with the rate(s), so fixed. The Engineer-in-Charge shall, however, be at liberty to cancel his order to carry out the additional quantities of work by giving notice in writing to the contractor and arrange to carry it out in such a manner as he may consider admissible but under so circumstances, the contractor shall suspend the work on the plea of non-settlement of rate(s). CLAUSE-13 :NO COMPENSATION If at any time after the commencement of the work, the Engineer-in-Charge shall, for any reasons whatsoever, not require the whole work or part thereof as specified in the tender to be carried out, the Engineer-in-Charge shall give, notice in writing of 15 the fact to the contractor who shall have no claim to any payment of compensation whatsoever on account of any profit or advantage which he might have derived from the execution of the work in full, but which he did not derive in consequence of the full amount of the work not having been carried out, neither/shall he have any claim for compensation by reasons of any alterations having been made in the original specifications, drawings designs and instructions which shall involve any curtailment of the work as originally contemplated. Provided that the contractor shall be paid the charges for the cartage only of materials actually and bonafide brought to the site of the work by the contractor, and rendered surplus as a result of the abandonment or curtailment of the work or any portion thereof and then taken back from the contractor, provided however, that the Engineer-in- Charge shall have in all such cases the option of taking over all or any such materials at their purchase price or at market rates whichever may be less. In the case of such stores having been issued from Board stores, supervision charges and storage charges shall be refunded in addition to the issue rate of materials. CLAUSE-16: NOTICE TO BE GIVEN BEFORE WORK IS COVERED UP (i) The contractor shall give not less than seven days notice in writing to the Engineer-in-Charge or his subordinate in charge of the work before covering up or otherwise placing beyond the reach of measurement any work in order that the same may be measured, and correct dimensions thereof be taken before the same is so covered up or placed 16 beyond the reach of measurement and shall not cover up and place beyond the reach of measurement, any work without the consent in writing of the Engineer-in-Charge or his subordinate in charge of the work who shall within the aforesaid period of seven day inspect the work, and if any work shall be covered up or placed beyond the reach of measurement without such notice having been given or the Engineer-in-Charge’s consent being obtained, the same shall be uncovered at the contractors expense, or in default thereof no payment or allowance shall be made for such work or the materials with which the same was executed. (ii) In case of works like concreting, rockbolting, grouting, shot-creting, etc. it will be binding on the contractor that no such work will be executed by him until and unless an authorised representative of Engineer-in-Charge is present at the site of work or in default thereof, no payment or allowance shall be made for such work or the materials with which the same was executed. (iii) Should the Engineer-in-Charge consider it necessary in order to satisfy himself as to the quality of the work, the contractor shall at any time during the execution of the work, pull down or cut into any part of the work and make such openings into and to such an extent through the same as the Engineer-in- Charge may direct and the contractor shall make good the whole to the satisfaction of the Engineer-in- Charge. Should the work prove to be faulty or in any respect not in accordance with the terms of the contract documents, the Engineer-in-Charge will be at liberty to order such further removal and cost of remaking shall be borne by the contractor. 17 “BOQ. 2.2.2.1 Providing and laying reinforced cement concrete or plain cement concrete M-15 grade (250 kg. of cement per cum) with 20 mm or 40 mm maximum size graded crushed aggregate including preparing surfaces, centering and shuttering, fixing embedding joints, sealing compounds, primary embedded parts, gates stop- logs etc. laying cement slurry before pouring concrete, mixing, placing, vibrating, curing and finishing for all leads and lifts etc. and contract grouting as necessary complete in all respects but excluding the cost of providing and fixing reinforcement as per specifications and drawings or as directed i) Tunnel, desilting tank, flushing galleries etc. Cum 325 2.2.2.2 Providing and laying reinforced cement concrete or plain cement concrete M-20 grade (325 Kg. of cement per cum) with 20mm or 40mm maximum size graded crushed aggregate including preparing surfaces, centering and shuttering. Fixing embedding joints, sealing compounds, primary embedded parts and trash rack, gates, stop logs etc. laying cement slurry before pouring concrete, mixing, placing, vibrating, curing and finishing for all