1 arbp84.07.sxw IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION ARBITRATION PETITION NO. 84 OF 2007 Indian Oil Corporation Limited a Company incorporated under the provisions of the Indian Companies Act, 1956, having its Office at Indian Oil Bhavan, G-9, Aliavar Marg, Bandra (E), Mumbai 400 051. ....Petitioners. Vs. Megi Control Systems Pvt. Ltd., having its office at 504, “Neelambari”, Thane Belapur Road, Vitawa, Thane- 400 605. ....Respondents. Mr. Chirag Balsara a/w Ms. Jyoti Sinha i/by M/s. Negandhi Shah and Himayatullah for the Petitioners. Mr. V.P. Sawant a/w Mr. P.M. Jadhav, for the Respondents. CORAM : ANOOP V. MOHTA, J. JUDGMENT RESERVED ON : 7th APRIL, 2011. JUDGMENT PRONOUNCED ON : 5th MAY, 2011. JUDGMENT:- The Petitioners (Original Respondents) have challenged, under Section 34 of the Arbitration and Conciliation Act, 1996 (for short, the Act), an award passed by the Sole Arbitrator on 26th September, 2006, 2 arbp84.07.sxw in favour of the Respondents (Original Claimants). 2 The operative part of the award is as under:- “i. Sum of Rs.11,00,982-00 (Rupees Eleven Lacs Nine Hundred and Eighty Two only) being the amount towards the recovery as Liquidated Damages by the Respondent from the Claimant’s final bill. ii. Sum of Rs.60,308-00 (Rupees Sixty Thousand Three Hundred and Eight only) being the amount towards the recovery as liquidated Damages by the Respondent for the extra work/excess work bills from the Claimants. iii. Respondent to pay simple interest at the rate of 7% per annum from the date of final bill till realization for (i) and (ii) above. iv. Each party to bear their own costs of the Arbitration.” FACTS 3 On 7th September, 1998, based upon work order dated 2nd June, 1998, an agreement executed between the parties, whereby the Petitioners awarded the Respondents the work of Electrification of B.G. Loading facility at Vasco Terminal, IOC, Goa. 4 As per clause 4 of work order dated 2nd June, 1998, the contract need to be completed within 10 months from the date of handing over 3 arbp84.07.sxw the site to the Respondents by the Petitioners which includes mobilization period of 4 weeks. However, the time was further extended for 2½ months till 15/07/1999. 5 As per clause 5 of the Contract, the work needs to be completed in accordance with the specifications, designs, drawings, bills of quantities and instructions on or before the due date. The time was stated to be the essence of the contract. 6 Clause 6 of the Contract provides for compensation of delay for unfinished work and further that in case the claimants commit any default or breach of the terms and Conditions of the Agreement and/or the General Conditions of the contract or failed in the due performance thereof within the time fixed and do not complete the entire work within a stipulated period, the Petitioners (Original Respondents) shall be entitled to recover and the Claimants agreed to pay, as and by way of compensation or liquidated damages, an amount calculated @ 1% for every week or part thereof, of the delay beyond the stipulated date on account of any item which is not completed or finished and delivered on the stipulated date, subject to a maximum of 10% of the total contract value. It was also agreed that 4 arbp84.07.sxw the amount of compensation or liquidated damages fixed represent the genuine, fair and reasonable pre-estimate loss and damages that would be suffered by the Petitioners (Respondents), on account thereof. It was also agreed as alleged that the sum payable by the Respondents (Original Claimants) should be considered as reasonable compensation irrespective of whether actual loss or damage is sustained or not and the Respondents would not be required to render any proof in support thereof. 7 As per the work order, the contract had to be sequentially performed in four parts, which were- “(a) Preparation and approval of the drawings and the documents. (b) Procurement of the materials as required under the work order. (c) Compliance of statutory requirements such as obtaining Labour and Electrical Inspector’s Licences prior to the site being handed over to the Claimant by the Respondent. (d) The testing, installation and commissioning of the entire work including obtaining the Electrical Inspector approval after the site is handed over to the Claimant by the Respondent.” 8 As per the Petitioners, the site order handed over on 5 arbp84.07.sxw 02/07/1998. The Respondents-Claimants’ case was that the site was to be taken over as per the letter dated 04/02/1999 and actual site was handed over on 07/02/1999. The final bill dated 01/05/2000, indicated the work commenced on 02/07/1998 and the work was deemed closed on 31/03/2000. The actual work was completed as per the Respondents on 14/12/1999. The performance warranty period was over by 31/03/2001 but the amount was released on 19/04/2002. The final bill was of Rs. 1.16 crores, with extra items of 2.36 lacs, as the same portion of the work was deleted for placing supplementary order for getting electrical approvals separately. 9 There arose disputes as the Petitioners deducted Rs. 11,00,982/- from the final bill as the liquidated damages and Rs.60,308/- from the extras/excess work bills. On 31st January, 2000, the Respondents demanded certain amounts from the Petitioners. The Petitioners also deducted Rs.22,368 from the payment advice from 25/11/2002 without any reason. The claim was also made by the Respondents for Rs.60,000/- as they did not return the part of the rejected cables of the claimants. 10 As dispute arose by letter dated 25/07/2003, the sole Arbitrator 6 arbp84.07.sxw was appointed. The Respondents filed their statement of claims on 11/03/2004. It was replied on 22/07/2004. The rejoinder was also filed by the Respondents on 20/10/2004. The draft issues were finalized on 15/12/2004. Both the parties agreed in the meeting dated 27/04/2005 not to lead any oral evidence and agreed to rely on written arguments. The matter was ultimately heard and closed on 02/05/2006 for the award. The Arbitrator has passed the award on 26th September, 2006. Heard finally. Both the counsel made their respective submissions by referring to the documents and the reasonings. The findings given by the Arbitrator is well within the frame work of law and the record, need to interfere. THE REASONABLE AND CORRECT AWARD 11 The Arbitrator rightly held that the date of commencement of site activities was 07/02/1999 after getting the necessary license and the joint approvals, which was granted on 09/02/1999. The labour license was issued on 19/02/1999 and the license from the Electrical Inspector was issued on 23/03/1999, though the site was handed over to the Respondent on 02/07/1998. The various documents also support the same. The time was extended/granted also because of delay by the Petitioners. 7 arbp84.07.sxw 12 The Arbitrator, held correctly after considering the material on record and the requirement of necessary approval from Electrical Inspector with respect of Rule 50 and 64-A of the Electricity Rules, 1956, the same approval was granted by the Electrical Inspector on 08/02/2002. 13 The Arbitrator held rightly that the Respondents’ inordinate delay in compliance with the mandatory requirement of providing ‘VCB’ as per I.E. Code to obtain the permission from the Electrical Inspector, though the stand of the Respondents claim was as per the Rules. 14 The Arbitrator after considering the rival material and submission made by the parties right in holding that the Petitioners failed to make work fronts available within the contractual completion period due to which the extension of about 3 months was granted, to the claimant, basically by observing that the MCC switch room was ready only by 15th April, 1999 and they extended the contractual period till 15/07/1999. Therefore, the Petitioners failed to prove all work fronts within the contractual completion period and provided extension of completion time without consent of the claimants as to 8 arbp84.07.sxw the acceptance of the time extension. 15 The Arbitrator further held rightly that the extra and excess items have been negotiated and finalized by the parties. Therefore, the case of the Petitioners that the Respondents were not entitled to claim rates of extra/excess items were incorrect. 16 The Arbitrator has also held rightly by rejecting the contention of the Petitioners that the claimants were made known to the deduction of the liquidated damages while releasing the payment subsequent from the date of final period, specifically when the final joint bill sent by the parties nowhere mentioned of the deduction of any amount as liquidated damages. The Petitioners admittedly had granted extension to complete the work. The Arbitrator therefore, rejected also the contention that the time was the essence of the contract, as contended. 17 The learned Arbitrator has held rightly that the claimants are entitled to recover a sum of Rs.11,00,982/- as deducted wrongly by the Petitioners towards the liquidated damages, on the finding that the delay in execution and completion of the contract cannot be 9 arbp84.07.sxw attributed to the claimant alone by observing as under:- “(a) The MCC Switch room was made available as late as on 15th April, 1999 to the Claimant by the Respondent. (b) The Respondent did not agree to provide the V.C.B. As which was mandatory as per the statutory authority i.e. Central Electricity Authority, consequently prevented the Claimant to discharge their responsibility under the work order to obtain approvals from Electrical Inspector. (c) Subsequent to the deemed closure of the Contract, the Respondent installed the V.C.B. And obtained the approval of the Electrical Inspector by its Letter No. WRIO/CG-122/I-9927/2001-02/DD/3294 dated 8th February, 2002, to complete the project. (d) As stated in point no. 10 of the Claimant statement of claim, it is observed that Work front for street lighting at ‘Baina’ end of B.G. Siding was made available in the month of November, 99 which is evident from Respondent seeking the permission from railway authority vide its letter no. VSG/ENG/74 dated 14.10.99. (e) As stated in point no.11 of the Claimants statement of claim, it is evident from the point no.16 of minutes of meeting dated 10.03.2000 between respondent, PDIL (Consultant) and Mr. R.D. Bhide, MS Pumps were installed by the respondent as late as March 2000. Thus, Claimants could complete electrification only after the installation of pumps. (f) Respondents did not consider any extension of time to Claimants for providing VCB which was in the Respondents scope of work. The extension unilaterally granted by Respondent was not enough to complete the work in time considering the delay on 10 arbp84.07.sxw the part of the Respondent to perform its obligation of providing the VCB to the Claimant.” 18 In view of above findings itself and as the parties and basically the Petitioners-Original Respondents who, unilaterally of their own, based upon the alleged agreement/clause, deducted the amount of Rs. 11 lacs and odd towards the liquidated damages, just cannot get the benefit of the Judgment of Oil and Natural Gas Corporation Ltd. Vs. Saw Pipes Ltd. 1 The facts and circumstances are totally different and distinguishable. I have already observed in Arbitration Petition No. 449 of 2007 Oil and Natural Gas Corporation Limited, Vs. Oil Country Tubular Limited, dated 25 th March, 2011, as under:- 37 Saw Pipes(Supra) - para 46 reads thus- “46. From the aforesaid sections, it can be held that when a contract has been broken, the party who suffers by such breach is entitled to receive compensation for any loss which naturally arises in the usual course of things from such breach. These sections further contemplate that if parties knew when they made the contract that a particular loss is likely to result from such breach, they can agree for payment of such compensation. In such a case, there may not be any necessity of leading evidence for proving damages, unless the court arrives at the conclusion that no loss is likely to occur because of such breach. Further, in case where the court arrives at the conclusion that the term contemplating damages is by way of penalty, the court may grant reasonable 1 (2003) 5 S.C.C. 705 11 arbp84.07.sxw compensation not exceeding the amount so named in the contract on proof of damages. However, when the terms of the contract are clear and unambiguous then its meaning is to be gathered only from the words used therein. In a case where agreement is executed by experts in the field, it would be difficult to hold that the intention of the parties was different from the language used therein. In such a case, it is for the party who contends that stipulated amount is not reasonable compensation, to prove the same.” Above underlined observations in Saw Pipes (Supra) reflects the importance of leading evidence to prove no loss or reasonable compensation. 38 All these requirements of close scrutiny of documents and materials and the evidence of the parties are necessary, to be placed before the Court or the Arbitrator to decide firstly, the breach of contract and secondly the actual loss or no loss or the reasonable compensation and followed by the measurement of damages /compensation. (g) In Saw Pipes (Supra), the Apex Court has observed that the party who relied upon such clause, may lead evidence to claim more, if the damage/compensation amount is not reasonable. The Court may also direct the parties to lead evidence to confirm that the action of delay amounts to breach of contract and which has caused the damages and therefore, entitled for a reasonable compensation/ amount. The reasonable amount/ compensation cannot be equated with the fixed amount and/or maximum amount as per the liquidated damages clause in question. The observations that other side to prove that the claimant has not suffer any loss or damage itself contemplates necessity of leading evidence by both the parties. The burden is always on the parties who claimed compensation to prove actual loss, even for the reasonable compensation. The other doctrines; 12 arbp84.07.sxw “Mitigation of loss”, “Burden of Proof”, “Onus of proof” and “Shift of burden” just cannot be overlooked by the Court or the Arbitrator, while determining the reasonable compensation. h) The Court’s power and the scope under Section 34 is quite limited. Therefore, the view expressed through the reasoned award, based upon the possible and plausible interpretation of the clause and after due scrutiny of the evidence and the documents and in accordance with law, cannot be stated to be contrary to law or the record, or perverse and/or against the Public Policy. THE SUPPORTIVE EVIDENCE IS ESSENTIAL 19 Therefore, to say that the Petitioners/Company need not lead evidence to support their action of deduction, is incorrect. It is wrong reading of the Judgment of Saw Pipes that in each and every matters, the party, one who deducted the amount from the final bills, need not lead any evidence to justify their action of deduction. In the present case, as noted above, there were various facts which were denied by the parties, which is clear from the pleadings and material and documents on record, and as finding so recorded above by the Arbitrator, shows that the action of deduction on the basis of disputed facts and treating the default or delay on the part of the Respondents/Claimants, was totally contrary to the record. Therefore, Saw Pipes is nowhere supports the case of the Petitioners to interfere with the findings so given in the present case. 13 arbp84.07.sxw 20 The another important facet in this matter is that the Petitioners unilaterally deducted the amount from the final bill of the Respondent, therefore, the Claim was raised by the Respondent for that deducted amount. The petitioners, who deducted the amount based upon the contracts, terms and conditions, therefore, must justify and support the action of deduction and prove the actual loss, if any, suffered by the Petitioners. Both the parties had chosen not to lead evidence. In such circumstances, in view of above unilateral action of deduction, the Petitioners, failed to discharge its basic burden to support the deduction of the amount on the basis of the alleged default and the delay, committed by the Respondents. 21 It is also relevant to note that the reliance so placed by the learned counsel appearing for the Petitioners on Saw Pipes is also of no assistance in view of the fact that the Petitioners deducted the amount in the year 2000 and the Saw Pipes Judgment is of the year 2003. Therefore, the Petitioners’ action of unilateral deduction was on wrong reading and interpretation of the contract, clauses, specially in the facts and circumstances of the case. 14 arbp84.07.sxw AWARD ON INVALID STAMP PAPER 22 Though no specific argument was made, but as it is an important issue, I am inclined to deal with the same. Section 52-B(b) of the Bombay Stamp Act, 1958 is reproduced as under: 52B. Invalidation of stamps and saving (a) ....... (b) Any stamps which have been purchased n or after the commencement date but have not been used, or no allowance has been claimed in respect thereof, within a period of six months from the date of purchase thereof, shall be rendered invalid. 23 The Arbitration Act nowhere specifically deals with the aspect of Stamp duty on any award. The Bombay Stamp Act is relevant for the purposes of the stamp duty. Section 3 (Schedule I) (Article 12) of the Bombay Stamp Act provides that an award is chargeable to stamp duty and must be stamped at the time of its execution and/or making it. Therefore, it is necessary that an award need to be made on the stamp paper with proper stamp duty, in the present case of Rs.100/-. There is a procedure provided under the Act with regard to the 15 arbp84.07.sxw adjudication as to proper stamps including a certificate by Collector to that effect. There is a provision also to deal with the instrument of covenants if undervalued. It provides the power of examination and impounding of instruments. It also provides that instruments if not duly stamped, are inadmissible in evidence. In the present case, in view of the above provisions, as the Arbitrator has made and signed the award on 26 September 2006 on a stamp paper dated 17 February 2006, which in view of this Section is invalid and is un-executable as per the ground raised, as used after six months from the date of its purchase. 24 It is also important to note that Section 31 of the Arbitration Act, nowhere prescribe any particular format and/or obligation of either of the parties to provide valid stamp paper. There is nothing also on record to show the responsibility/obligation of the parties to provide stamp paper. An award is an expression of an adjudication of a dispute between the parties. In my view, the party in whose favour award is passed, therefore, should not be punished for no fault of his and/or for the others fault. 25 It is necessary to note that Section 34 of the Arbitration Act, nowhere contemplates to set aside or interfere with the award other 16 arbp84.07.sxw than the grounds specified under the section. The award is not enforceable unless it attains finality in view of the provisions of Sections 34/37 of the Act. The Petition was filed on 22 December 2006. It was admitted on 22 June 2007. As the Petition was on final hearing board, heard finally and closed for the judgment on 7 April 2011. As noted above, by this award, the Arbitrator has declared that the deduction of the amount by the Petitioner is illegal and, therefore, directed to refund the wrongly deducted amount. It is further necessary to note that the Stamp Act is a fiscal measure enacted to secure revenue for the State. The stringent provisions of the Act are conceived in the interest of the revenue. Once that object is secured according to law, the party stating his claim on the instrument will not be defeated on the ground of the initial defect in the instrument. (AIR 1969 SC 1238 – Hindustan Steel Limited v. M/s.Dilip Construction & Co. ) Therefore, even if there is a defect which, in my view, is curable. The award itself cannot be rendered void or illegal. The award definitely creates right in favour of the concerned parties. Both the parties, if agree, can act upon the said award for all the purposes. Section 34 application is not for enforcement or execution of any award. It only gives finality to the award. The provisions and the stage of enforcement of the award is provided 17 arbp84.07.sxw under Section 36 of the Arbitration Act, only after the award attains finality. The making of award and its finality is different than enforcement of it. 26 Strikingly, in Thiruvengada Pillai vs. Navaneethammal & anr., 2008(2) SCALE 630, the Apex Court while dealing with the effect of use of a stamp paper purchased more than six months prior to the date of the execution, referring to provisions of Indian Stamp Act, 1899, Sections 35, 37 and 54, has observed as under : “12. .. Even if an agreement is not executed on requisite stamp paper, it is admissible in evidence on payment of duty and penalty under section 35 or 37 of the Indian Stamp Act, 1899. If an agreement executed on a plain paper could be admitted in evidence by paying duty and penalty, there is no reason why an agreement executed on two stamp papers, even assuming that they were defective, cannot be accepted on payment of duty and penalty. But admissibility of a document into evidence and proof of genuineness of such document are different issues. 13 There is also a possibility that a lay man unfamiliar with legal provisions relating to stamps, may bonafide think that he could use the old unused stamp papers lying with him for preparation of the document and accordingly use the old stamp papers.” Therefore, in the interest of justice, I am inclined to grant liberty to the Petitioners to take appropriate steps to rectify the defects, if any, before putting the award for enforcement in accordance with law, if necessary. 18 arbp84.07.sxw ACCORD & SATISFACTION 27 The Apex Court has re-iterated the principle of “Accord and Satisfaction” in the following words in Asian Techs Limited vs. Union of India & ors.,1 : 20 It has been held by this Court in National Insurance C o. Ltd. vs. Boghara Polyfab (P) Ltd. [ (2009) 1 SCC 267 ] that even in the case of issuance of full and final discharge/settlement voucher/no-dues certificate, the arbitrator or court can go into the question whether the liability has been satisfied or not. This decision has followed the view taken in NTPC Ltd. v. Reshmi Constructions, Builders and Contractors [(2004) 2 SCC 663] (vide paras 27 and 28). 21 Apart from the above, it has been held by this Court in Port of Calcutta v. Engineers-De-Space-Age [(1996) 1 SCC 516] that a clause like Clause 11 only prohibits the Department from entertaining the claim, but it did not prohibit the arbitrator from entertaining it. This view has been followed by another Bench of this Court in Bharat Drilling & Treatment (P) Ltd. vs. State of Jharkhand [ (2009) 16 SCC 705.] 28 The further submission that the claim itself is not arbitrable in view of the fact that there has been accord and satisfaction entered in respect of the payment under the final bill is also unacceptable as recorded. The amount was deducted without due and proper notice. The principle of accord and satisfaction, cannot be invoked in the present case by the Petitioner simply for the reason that such 1(2009) 10 SCC 354 19 arbp84.07.sxw deduction was not made known to the Petitioner at the relevant time. Such unilateral deduction, which is contrary to the terms and conditions, cannot be treated as legal and valid to support the case of accord and satisfaction. The Tribunal, in the present case, has jurisdiction to decide the matter as per the law. The Arbitrator has power, even if such issue is raised, to decide