1 In the High Court of Judicature at Madras Dated: 16.02.2010 Coram The Honourable Mrs.JUSTICE CHITRA VENKATARAMAN Original Petition No.92 of 2010 1. The Chief Engineer, Public Works Department, Water Resources Organisation, Tallakulam, Madurai – 625 002. 2. The Superintending Engineer, Public Works Department, Water Resources Organisation, Periyar Vaigai Basin Circle, No.43, North Chithrai Street, Madurai – 625 001. .... Petitioners Vs. 1. D.Prakash Reddy 2. The Hon'ble Mr.Justice P.R.Gokulakrishnan Sole Arbitrator, Chennai. .... Respondents PETITION under Section 34 of the Arbitration and Conciliation Act, 1996 to set aside the award dated 12.1.2009 passed by the second respondent. For Petitioners : Mrs.V.Bhavani Subbarayan, Spl.G.P.(CS) assisted by Mr.R.Muthiah, G.P. For Respondents: Mr.P.Sukumar - R1------ O R D E R This Original Petition is at the instance of the Public Works Department represented by the Chief Engineer https://hcservices.ecourts.gov.in/hcservices/ 2 and the Superintending Engineer challenging the award of the learned Arbitrator granting award in favour of the first respondent to a sum of Rs.86,07,100/- with interest at 9% per annum from 1.4.2003 till the date of payment. 2. The petitioners herein were the respondents before the arbitral proceedings. The facts in brief leading to the invocation of arbitration clause are as follows: The first respondent was the successful bidder in the tender called for by the petitioners in February, 1999 for construction of Branch Canals I and II of Link Canal in Periakulam of Nilakottai Taluk of Theni and Dindigul Districts. An agreement was entered into between the petitioners and the first respondent on 20.6.1999 and the work order was issued on 22.6.1999. The value of the project as per the agreement was Rs.4,71,64,119/-. The contract period was for 24 months from the date of commencement of the work. As per the agreement, the work should have commenced on 06.07.1999 and completed by 05.07.2001. It is stated that Branch Canal I was to be excavated for a length of 19,120 metres and Branch Canal II was to be excavated for a length of 2,925 meters. According to the first respondent even though men and materials were ready to commence the work, since the land acquisition proceedings were not completed, the petitioners did not hand over the site, thus resulted in delay https://hcservices.ecourts.gov.in/hcservices/ 3 necessitating extension of time. The first extension was granted upto 31.3.2002. Even by the end of first extension period, as the site was not handed over for a length of 2.5 Kilometres for Branch Canal I and the entire length in Branch Canal II, second extension was granted upto 30.9.2002. Even thereafter, the petitioners had not acquired lands for a length of 1,242 metres for Branch Canal I and the entire length of Branch Canal II. Hence, the contract period was again extended upto 31.12.2002. In Branch Canal I, as the petitioners had not acquired lands from 0 metre to 753 metres and 6,322 metres to 6,442 metres in Branch Canal I. Hence, the contract period was finally extended upto 31.3.2003. Even thereafter, the petitioners did not acquire the lands to hand over the lands from 0 metre to 753 metres and 6322 metres to 6422 metres in Branch Canal I region. Hence, the petitioners removed this extent from the scope of agreement and foreclosed the agreement. 3. The first respondent completed the work and raised final bill, which was also settled. Since the execution was delayed, the first respondent claimed additional expenditure and financial loss. Considering the dispute raised, in terms of the agreement, the disputes were referred to an Adjudicator for settlement. In his report dated 14.3.2005, the Adjudicator expressed his view that the first respondent was entitled for reasonable https://hcservices.ecourts.gov.in/hcservices/ 4 compensation. As the petitioners had not produced the relevant records, the adjudicator held that he was not in a position to arrive at a quantum. As there was no further progress, the first respondent requested the petitioners to appoint a sole arbitrator as per the terms of the agreement. Since the petitioners had not appointed an Arbitrator, the first respondent moved this Court under Section 11(4) of the Arbitration and Conciliation Act, 1996 for appointment of an Arbitrator. By order dated 04.08.2006, this Court appointed the sole Arbitrator to settle the dispute. 4. The learned Arbitrator, after hearing both the parties and perusing the materials placed, passed an award granting relief to the first respondent to the tune of Rs.86,07,100/- with interest at 9% from 1.4.2003 till the date of payment. 5. Aggrieved by the above-said award, the Public Works Department, respondents before the Arbitral Tribunal, have filed the present Original Petition challenging the grant of liquidated damages on the extended time on the premise that the award goes against the terms of the agreement. 6. Referring to Clause 9.2.1 of the agreement, learned Special Government Pleader appearing for the https://hcservices.ecourts.gov.in/hcservices/ 5 petitioners submitted that when the original period of contract for 24 months was extended four times at the instance of the first respondent herein and the contractor was well aware of the site conditions, there could be no payment of extra cost. Hence, the award is liable to be set aside. In the circumstances, in so far as the granting of relief is contrary to the terms agreed upon, the award merits to be interfered with under Section 34 of the Arbitration and Conciliation Act. 7. Learned Special Government Pleader appearing for the petitioners placed reliance on the decisions reported in (2007) 13 SCC 434 (ONGC Limited V. Garware Shipping Corporation Limited); (2007) 4 SCC 697 (Food Corporation of India V. Chandu Construction and another) as well as (2001) 5 SCC 629 (Sikkim Subba Associates V. State of Sikkim) that any award passed contrary to the terms of the contract suffers illegality and hence, has to be set aside. She further pointed out that in the absence of any material to substantiate that the first respondent suffered loss on account of idling of men and machinery, the grant of any relief under this head has to be set aside. She pointed out that this submission on the idling of men and machinery have to be seen in the context of the first respondent seeking time for execution of the award. She further pointed out that with the site handed over on 21.6.1999 https://hcservices.ecourts.gov.in/hcservices/ 6 even as on 7.8.2001 at the end of one year two months, only 40% of the work was completed whereas the contractor ought to have completed the work by 5.7.2001. In the background of the said facts, the allegation of not handing over the site and that work got delayed is totally incorrect. The claim by the first respondent after receipt of the final bill with no claim is an after-thought. The first respondent had received Rs.55,43,179/- under the price escalation clause for the Contract I period and for the extended period based on the price index. There are no evidence in support of the first respondent's claim on the idling of men and machinery. The award passed, hence, has to be set aside. 8. Per contra, learned counsel appearing for the first respondent placed reliance on the contract terms, particularly to the compensation events clause, which enables the contractor to seek compensation when the site was handed over belatedly on account of the prolonged land acquisition proceedings. Hence, rightly, the learned Arbitrator took note of the various facts that resulted in the delayed execution and granted the relief. He pointed out that the first respondent had made a claim then and there as regards the extra cost to be paid. In the above circumstances, the award passed after considering the issues and the materials, hence, has to be upheld. https://hcservices.ecourts.gov.in/hcservices/ 7 9. As to the specific issue raised by the learned Special Government Pleader that the claim was made after receipt of the final payment and certifying that there are no claim, learned counsel appearing for the first respondent placed reliance on the decision reported in AIR 2004 Supreme Court 1330 (C & M.D., N.T.P.C. Ltd., V. R.C.Builders and Contractors) that the printed format which contains such satisfaction clause would not be a binding one on the first respondent and going by the contract terms, particularly, one relating to compensation events, the claim was rightly made. Apart from this, the delay and the consequential extension granted was only on account of the petitioner going in for granting the contract even before the land acquisition proceedings concluded. 10. In reply to the contentions taken by the first respondent, learned Special Government Pleader pointed out that as regards the claim of the first respondent for payment of extra cost, the Engineer's decision is final and if there be any dispute over that, the party should raise the issue for arbitration within 14 days on such a decision. The first respondent having not fulfilled the same, the claim is not an arbitrable one. 11. Heard the learned Special Government Pleader https://hcservices.ecourts.gov.in/hcservices/ 8 appearing for the petitioners and the learned counsel appearing for the first respondent. 12. As for the submission of the learned Special Government Pleader on the arbitrability of the issue, the submissions of the learned Special Government Pleader on this aspect has to be rejected straight away, since, the arbitrability of the issue was never raised before the learned Arbitrator either in the counter or at the time of argument. Except for a faint challenge on this aspect, that too before this Court only, no issue was raised in any of the grounds to contend that objection was made as to the jurisdiction of the learned Arbitrator. In the circumstances, there being no claim made by the petitioners on the decision invited thereon, I do not find any justification to grant any such relief in this regard while considering the merits of the award. 13. A perusal of the award shows that the learned Arbitrator formulated the following issues for consideration: "1. Whether there were lapses on the part of the respondents and if so whether those lapses, consequently led to extension of contractual period? 2. Whether the claimant has suffered any loss due to the extension of contract period and if so to what extent? https://hcservices.ecourts.gov.in/hcservices/ 9 3. Whether the receipt of final bill on 31.3.2003 would disentitle the claimant from claiming compensation or damages from the respondents? 4. Whether the claimant is entitled for compensation under the heads of idle charges, reimbursement of additional expenditure, additional overheads and anticipated profits, and if so, to what extent? 5. Whether the claim made by the claimant under various heads are legally sustainable since all the extensions of time were granted without financial implications to the respondents? 6. Whether the claimant is justified in his claim for compensation when he has not claimed the same as additional cost at the time of extension of time as per clause 44.1 to 44.3 of contract agreement? 7. Having failed to resolve his remedies under Clause 59 of the conditions of contract, whether the claimant can put forth any claim for work done during the extended period? 8. Is the claimant entitled to any interest he has claimed? 9. To what other reliefs the parties are entitled?" 14. As for the first issue as to the delay caused by the petitioners leading to extension of time, learned Arbitrator pointed out that the various communications between the parties indicated that there were land https://hcservices.ecourts.gov.in/hcservices/ 10 acquisition proceedings pending and when the first respondent started its work on 20.6.1999 in Branch Canal, the land owners at LS 9685 metres told the first respondent that land acquisition proceedings were there and that would be completed in one or two months. It is stated that after the work was started by the first respondent herein, the land owners objected to the execution of the work, which prevented the first respondent from continuing the work. Due to this fact, the men and machinery were kept idle and even though the work had to be completed within 24 months from the date, namely, 19.6.2001, on account of the delay in handing over the site, the work could not be completed. The award passed further shows that during one year of the execution, only 800 metres canal length alone was formed; hence the learned Arbitrator pointed out that the claim of the first respondent was justified. 15. Learned Arbitrator, in paragraph 35, pointed out that all the four extensions were granted by the petitioners to the first respondent due to the fact that the petitioners could not hand over the site as per the conditions of the contract. Consequently, lapses were held to be only on account of the petitioners and not on the first respondent. 16. Under issue No.3, as to whether the receipt of https://hcservices.ecourts.gov.in/hcservices/ 11 the final bill on 31.3.2003 would disentitle the first respondent from claiming compensation or damages from the petitioners, learned Arbitrator pointed out that the final bill was made on the basis of the measurements contained in the ledger book. In considering the issue as to whether the document Ex.R.13 issued by the first respondent related to the admission as to the measurements or as a full quit for the amount receivable, learned Arbitrator considered the evidence of C.W.1 that the petitioners herein forced the contractor to give acceptance in the final bill. The learned Arbitrator pointed out that Ex.C.1 speaks about the appointment of an adjudicator. The final bill Ex.R.14 was for payment of the balance of the amount for the work done under the contract and it was signed by the first respondent on 31.3.2001. The meeting before the adjudicator was held subsequent to that date 18.11.2003. The adjudicator considered these issues and ultimately found that the co-operation extended by the petitioners in handing over the site was wanting in all aspects. The adjudicator, in Ex.C.20, narrated the circumstances under which the final bill was signed. In these circumstances, the learned Adjudicator pointed out that the parties herein came to an understanding to review the demands of the contractor once again and recast it as per the records maintained by them during execution as regards the strength of men, machinery, labour etc. Since the petitioner was https://hcservices.ecourts.gov.in/hcservices/ 12 not adhering to the recommendation made by the adjudicator and was reiterating their stand, the contractor accepted the final bill. The learned Arbitrator pointed out, however, that the said exhibit was a printed format and the first respondent had been keeping alive the dispute on the claim for payment on account of cost escalation. In the circumstances, the learned Arbitrator pointed out that after hearing the representation of the contractor and that of the petitioners looking into the compelling circumstances, the adjudicator directed the petitioners once again to consider the issue de novo. 17. As regards the claim of compensation on account of idling of men and machinery, it is further seen from the narration by the learned Arbitrator that the petitioners had not handed over the reaches between 0 to 5640 metres and 7475 to 9125 metres and the entire length of II Branch Canal for execution of work, which is evident from the Ex.R.3 letter dated 01.06.2001. Learned Arbitrator further pointed out that for the Ex.R.3 letter, the petitioners sent a reply to the first respondent herein referring to Ex.R.3 letter granting extension of time. In the context of the various documents available, the learned Arbitrator, rightly, came to the conclusion that there was delay in the execution of the work, which was attributable to the petitioners, as the whole of the site in which the work has https://hcservices.ecourts.gov.in/hcservices/ 13 to be undertaken had not been handed over to the first respondent by the petitioners. Thus, the learned Arbitrator pointed out rightly from the first extension to the last of the extension granted, there had been series of delay, thus leading to the execution of the work postponed. 18. Learned Arbitrator further pointed out that having regard to the fact that the extensions had been only at the instance of the petitioners and ultimately the work had been executed by the first respondent, the mere fact that Ex.R.13 contained a printed clause, would not, by itself, tie the hands of the first respondent from making any further claim. Thus, the learned Arbitrator granted the relief holding that the claim of the first respondent was maintainable. 19. As regards the individual claims made, particularly under Issue Nos.2, 4, 5 and 6, the learned Arbitrator pointed out that the first respondent had not proved the actual loss during the period; consequently, he is not entitled to the claim. Out of the 13 machineries mentioned as critical equipments, admittedly, the claim was for only 7 machineries. On the issue of reimbursement of additional overheads and anticipated profits, learned Arbitrator further pointed out that in the absence of any material to substantiate the claim of loss that the first https://hcservices.ecourts.gov.in/hcservices/ 14 respondent may suffer, no compensation would be paid. As against this, there is no petition filed by the first respondent herein before this Court. 20. In the light of the materials in respect of each and every head, the learned Arbitrator found that the first respondent is not entitled for additional expenditure incurred on account of the delayed execution, which is attributable to the petitioners herein. Consequently, on an overall picture, the learned Arbitrator granted the relief to a sum of Rs.86,07,100/-. 21. On the issue of interest, learned Arbitrator pointed out that having regard to the fact that the work has been carried on by the first respondent beyond the stipulated period and the delay was attributable only to the petitioners herein, the claim of interest available from 31.3.2003 was justifiable. Consequently, learned Arbitrator granted the interest at 9% per annum. 22. In considering the question as to whether the petitioners are justified in their contention that the learned Arbitrator went beyond the terms of the contract, the contract terms, particularly with reference to the delay needs to be seen. As per Clause 28 of the General Conditions of Contract, the Engineer may extend the https://hcservices.ecourts.gov.in/hcservices/ 15 intended completion date, if a compensation event occurs or a variation is issued, which makes it impossible for the completion to be achieved by the intended completion date without the contractor taking steps to accelerate the remaining work and which would cause the contractor to incur additional cost. Clause 44 of the General Conditions of Contract specifies the circumstances, which fall for consideration under the head 'Compensation Events'. Clause 44.1(a) speaks about the employer not giving access to a part of the site by the site possession date as stated in the contract data. Clause (c) to Clause 44.1 of the General Conditions of Contract speaks about the delay on account of drawings, specifications required for the execution of the work not being given on time. Clause 44.2 specifies about the compensation events, which cause additional cost or prevent the work being completed within the completion date, the contract price shall be increased and/or the intended completion date is extended. The Engineer shall decide whether and by how much the contract price shall be increased and whether and by how much the intended completion date shall be extended. 23. In contrast to the above is Clause 9 of the Special Conditions of Contract which speaks about grant of extension of time. It states that when the delay is attributable to the contractor, certainly the contractor https://hcservices.ecourts.gov.in/hcservices/ 16 would not be entitled to any extra cost or revised rate due to extension of time. The quoted rate in the contract would prevail during the extension period. The contractor has to pay liquidated damages as per contract data for the extended period. However, if the delay is due to the Deprtment or due to force majeure the Engineer shall have the power to decide whether the extension of time is to be given or not on a request from the contractor. If extension is granted the contractor shall not be paid extra rate and liquidated damages shall not be imposed. Learned Special Government Pleader submits that Clause 9 of the Special Conditions of Contract would have more relevance on the admitted fact that the site could not be handed over to the first respondent on account of the land acquisition proceedings pending, which resulted in the delayed execution leading to grant of four extensions. 24. I do not agree. When Clause 44 of the General Conditions of Contract is a specific clause on compensation events, going by the findings of the learned Arbitrator and on the admitted fact that the land acquisition proceedings were pending as on the date of grant of the contract and that extension had to be granted only on account of the default by the petitioner, I do not find any justification in the submission of the learned Special Government pleader that Clause 9 of the General Conditions of Contract will https://hcservices.ecourts.gov.in/hcservices/ 17 govern this issue. With a specific provision to deal with the case falling under "compensation events". I do not accept the plea that the award suffers material illegality. In the context of Clause 44 of the General Conditions of Contract, the said contention has to be rejected straight away. Learned Special Government Pleader pointed out that if really the first respondent had been aggrieved by the delay, nothing prevented them from going in for termination. I do not appreciate such a line of thinking. Having granted four extensions on account of the delay in handing over the site and had gone through the execution of the work, the petitioners cannot now take recourse to Clause 9 of the Special Conditions of Contract and even by way of defence, to take exception to the conduct of the first respondent in not terminating the contract. The reason given by the learned Arbitrator in granting relief under various heads of the claim is based on appreciation of the materials placed and is in tune with the contract terms. There are no perversity in the reasoning and the relief granted by the learned arbitrator. Consequently, I confirm the award. 25. This takes me to the question of arbitrability of the issue after final payment on the dispute raised. As rightly pointed out by the learned Arbitrator, the petitioners raised a dispute before the Adjudicator, who https://hcservices.ecourts.gov.in/hcservices/ 18 directed de novo consideration. However, while the dispute remaining unresolved, on account of the petitioner, pursuant to the application presented before this Court under Section 11 of the Arbitration and Conciliation Act, 1996, the dispute was placed before the sole Arbitrator. As rightly pointed out by the learned counsel for the first respondent, no issue was raised by the petitioners as regards the arbitrability of the issue. The only contention taken was that on the basis of the contract law, the petitioners are not bound to make the compensation to the first respondent on account of the delayed execution. Consequently, having accepted the final bill, it was not open to the first respondent to raise it as a dispute. 26. As regards this, as rightly pointed out by the learned counsel for the first respondent, there is no dispute that the clause in Ex.R.13 form is a printed one. Learned Arbitrator viewed that such a clause did not foreclose the claim of the first respondent. A reading of the said Form in Ex.R13 shows that the clause as to no claim and full satisfaction is a printed, formatted one and there is hardly anything to show that there was deliberation on this aspect of final settlement between the parties. Learned Arbnitrator accepted the plea of the first respondent that the accptance was only as regards the measurement and the first respondent had raised a https://hcservices.ecourts.gov.in/hcservices/ 19 dispute already as regards the payment for the extended period. 28. Learned counsel appearing for the first respondent, placing reliance on the decision reported in AIR 2004 Supreme Court 1330 (C & M.D., N.T.P.C. Ltd., V. R.C.Builders and Contractors), pointed out to the ground reality that in cases where a contractor makes a