IN THE HIGH COURT OF JUDICATURE AT MADRAS Dated : 02..11..2009 C O R A M THE HONOURABLE MRS. JUSTICE PRABHA SRIDEVAN AND THE HONOURABLE MR. JUSTICE M. SATHYANARAYANANAN O.S.A. Nos.369 of 2008 M/s. State Industries Promotion Corporation of Tamil Nadu Ltd. (A Govt. of Tamil Nadu Undertaking), Rep. by its Asst. General Manager (Law) Mrs. C. Indira, 19-A, Rukmani Lakshmipathy Road, Egmore, Chennai-8. .. Appellant versus 1. M/s. Ircon International Ltd., Rep. by its Zonal Manager, Kences Towers, 4th Floor, 4-A, Ramakrishna Street, T. Nagar, Chennai-17. 2. Justice G. Ramanujam (Retd.), Sole Arbitrator, 15, 4th Main Road, Kasturba Road, Chennai-84. .. Respondents - - - - - Prayer : Appeal filed under Clause 15 of the Letters Patent and Order XXXVI, Rule 1 of the Original Side Rules of the Madras High Court against the order passed by a learned single Judge of this Court dated 12.8.2008 in O.P. No.919 of 2006. - - - - - For Appellant : Mr. G. Masilamani, Senior Counsel for Mr. G. Nagarajan For Respondent-1 : Mr. V.T. Gopalan, Senior Counsel for Mr. V.G. Suresh Kumar - - - - - https://hcservices.ecourts.gov.in/hcservices/ J U D G M E N T Prabha Sridevan, J. The appellant-State Industries Promotion Corporation Of Tamil Nadu Ltd. (hereinafter referred to as 'SIPCOT') alleges misconduct on the part of the Sole Arbitrator on the ground that the learned Arbitrator had relied completely and totally on an award passed by him in another proceedings between the respondent herein and another, to which the appellant was not a party, although the subject matter of the contract may be the same in both the proceedings. It is contended that the absence of independent application of mind, total reliance on the proceedings where the appellant herein was not a party and therefore, violation of the principles of natural justice would vitiate the award. There is no doubt nor any dispute that the award in this matter was passed in favour of the first respondent herein almost entirely because of the fact that in the other proceedings, the award was passed against the first respondent herein. Even the first respondent herein does not deny it, but according to the first respondent, this was justified, whereas according to the appellant, this amounts to gross misconduct. 2. The matter relates to the construction of internal road to bituminous standards for SIPCOT Irungattukottai Complex, Sriperumbudur Taluk. The first respondent herein, M/s. IRCON International Ltd. (hereinafter referred to as 'IRCON'), was the successful bidder. The agreement was entered into between the parties on 10.7.1997, which included the arbitration clause. The agreement barred sub-letting except with the permission of SIPCOT. By two separate agreements, IRCON sub-contracted the project to M/s. Vinay Heavy Equipment (hereinafter referred to as 'VHE'), which is not a party hereto. The contract was executed and the final bill was also submitted. On 12.11.200, VHE invoked the arbitration clause. VHE moved this Court for appointment of an arbitrator under Section 11 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the 'Act'). By order dated 27.7.2001, the second respondent herein (hereinafter referred to as the 'learned Arbitrator') was appointed as the Sole Arbitrator to resolve the dispute between IRCON and VHE. IRCON also invoked the arbitration clause and sought for arbitration and had moved another application under Section 11 of the Act. By order dated 1.11.2002, the second respondent herein was appointed as the sole arbitrator to resolve the dispute between the parties in this matter as well. The appellant raised the issue of the learned Arbitrator's jurisdiction to hear this matter since he was also the arbitrator in the other matter. This was rejected. On 6.10.2003, an award was passed in the VHE- IRCON dispute, allowing almost all the claims of VHE. On 9.11.2003, IRCON moved an application to amend its claims since an award had been passed against it in the other matter. A copy of the award was enclosed with the application. On 3.9.2004, an award was passed in https://hcservices.ecourts.gov.in/hcservices/ this dispute. On 9.9.2005, O.P. Nos.107 and 108 of 2004 along with Application Nos.2651 and 2652 of 2004 filed under Section 34 of the Act as against the award passed in the VHE-IRCON dispute were dismissed by this Court. On 7.12.2006, O.S.A. Nos.312 and 313 of 2005 filed by IRCON against the above orders were also dismissed by the Division Bench. Against that judgment, IRCON has filed a Special Leave Petition which is pending. On 12.8.2008, O.P. No.919 of 2006 was filed by the appellant under Section 34 of the Act was dismissed. This is the order under challenge. These are the relevant dates with regard to the proceedings in the two matters, both before the learned Arbitrator and before this Court. 3. In the statement of claim filed by IRCON, it is admitted that even before bidding for this tender, IRCON had decided to obtain principal bid quotations from contractual agencies to sub-contract the work in case it is awarded to IRCON, and among the terms stipulated were that, all the terms and conditions laid down by SIPCOT would be applicable to the tenderers on back-to-back basis and that the work would be completed in ten months. According to IRCON, the size of the contract was relatively small. Therefore, it did not consider it worthwhile to shift their own machinery and manpower for execution of the work and in consultation with the Head Office, they split up the work into four parts, viz., Packages 'A', 'B', 'C1' and 'C2'. Packages 'C1' and 'C2' were awarded to VHE and the cost thereof worked out to Rs.4,87,66,573.08, whereas the contracted amount between SIPCOT and IRCON was Rs.13,06,16,557/-. As per the usual practice, the agreement between SIPCOT and IRCON contained Bill of Quantities (BOQ) with regard to the scheduled items. Item-2 of the BOQ related to excavation of earth by cutting through the natural ground wherever such ground was higher than the proposed road. Items-3 and 4 related to forming embankments with the soil so obtained. Item-5 related to disposal of the excess cut earth. The BOQ under Item-2 referred to the Ministry of Surface Transport (MOST) Specifications. According to IRCON, though Clause-10 of the Sub- conditions of Contract specified that there shall be no sub-letting without the approval of the first respondent, both the respondent (referring to SIPCOT) SIPCOT and M/s. Rail India Technical and Economic Services (hereinafter referred to as 'RITES'), which was employed as a consultant in the matter of execution, dealt officially with VHE, which could be seen in the entries in the Site Order Book and the minutes of the meeting. After the work commenced, IRCON claimed that the excavation was actually a non-scheduled item and a fresh route must be worked out. But the claim made by IRCON was not agreed. There was a dispute between SIPCOT and IRCON as to whether Items-2, 3, 4 and 5 were part of the BOQ or were non-scheduled items. According to IRCON, after the soil was excavated, it was discovered that the quantity would not be adequate for construction of embankment. Therefore, IRCON "borrowed earth" from a plot which came to be known as MARCUBEAN Area. The payment for leveling this area was also not made by SIPCOT in spite of repeated requests. According https://hcservices.ecourts.gov.in/hcservices/ to IRCON, the claim made with regard to the construction of embankment was not for separation of materials, but for the extra cost involved in handling different type of material and this extra cost must be borne by SIPCOT. The final bill was submitted for a gross value of Rs.5,92,75,421/-. RITES cut out from the bill all its claims for the non-scheduled items and drastically reduced it. After completion of the project, IRCON continued pressing for payments for the non-scheduled items of work, and for increased quantities in respect of BOQ items. They were all rejected. In the meanwhile, VHE pressed for payment for the non-scheduled items of work. According to IRCON, the primary issue in the entire matter is the role of IRCON and that in the mater of making payments to VHE, IRCON depended entirely on the payments to be made by SIPCOT and after paying them, the balance would be retained by IRCON towards its profits and IRCON cannot make payments "out of their own funds". According to IRCON, even at the time of inviting tender in IRCON's agreement with VHE, the concept of back-to-back was explained and that even payments would be made on back-to-back basis and this meant that IRCON would not make any payment to VHE unless such work is accepted by SIPCOT and corresponding payment is received by IRCON from SIPCOT. According to IRCON, the claim made by VHE was exorbitant and when IRCON made the claim, the claim of VHE was pending consideration and even before the learned Arbitrator, IRCON juxtaposed in a tabular statement the amount claimed by VHE and their corresponding claim against SIPCOT. Claim No.1 related to cutting of soil, and while according to IRCON, the quantity of earth work was 324343.293 cub. mts. at the rate of Rs.51/50 per cub. mtr., the claim of VHE was for 80952.815 cub. mts. at the rate of Rs.184 per cub. mtr. Claim No.2 related to loading the excavated boulders and stacking them. There are 25 such claims and we will deal with the independent claims only if necessary, since we are not sitting in appeal. 4. In the counter affidavit, the claim made by IRCON was denied and specifically with regard to the reference to VHE, it was stated in paragraph 31 that SIPCOT is not privy to the contract between IRCON and VHE and that SIPCOT :was neither a party nor a witness between the arbitration dispute" between VHE and IRCON, "nor did they get approval" from SIPCOT. Then, the application to amend the claim statement was filed after the award was passed in the other dispute. The objections of the appellant were rejected and thereafter, an award came to be passed in this case. 5. Mr. G. Masilamani, learned senior counsel appearing for the appellant-SIPCOT submitted that every head of the claim was decided only on the basis of the award passed earlier in the other proceedings. There was no independent consideration and read out the award to demonstrate this fact. As regards the dispute regarding Items-2, 3, 4 and 5 of the BOQ, it was submitted that hard rocks alone were excepted in the BOQ and what was found was admittedly https://hcservices.ecourts.gov.in/hcservices/ laterite and not hard rock and hence, there was no necessity for blasting. So, this was covered under the BOQ and it was not a non- scheduled item of work. It was submitted that there is discrepancy even in the quantity of earth excavated. While in the claim made by IRCON, the quantity mentioned is three lakhs and odd cub. mtr., according to VHE, it was only 80,000/-. It was submitted that when the award between VHE and IRCON was not marked in evidence, reliance on that would be unjustified since the appellant had no opportunity to either cross-examine the witnesses who had appeared in the other arbitration proceedings or examine the documents based on which that award was passed. The learned senior counsel further submitted that it is not enough to enclose the award along with the amendment application. The party relying on that must plead and prove it. It was submitted that the dispute not inter partes was not binding on the appellant unless it was marked in evidence. According to the learned senior counsel, any decision could be relied on as a precedent on law but not as a precedent on facts. The learned senior counsel submitted that even on facts, the learned Arbitrator had misconstrued or failed to see the relevant evidence in this regard. The learned senior counsel also submitted that VHE was the contractor even for the construction of administration office. Therefore, the presence of VHE in the site would not mean that SIPCOT had acquiesced in the sub-letting. The learned senior counsel submitted that the fact that the terms and conditions of the contract between SIPCOT and IRCON were identical to that between IRCON and VHE is really not relevant and that by itself would not bind SIPCOT. Learned senior counsel further submitted that even on the basis of their own pleadings, this award could not have been passed. The learned senior counsel submitted that the decision had thrown to the winds all principles of natural justice and fair play and in fact, the award was based on no evidence at all. The learned senior counsel also submitted that with regard to the non-scheduled items of work, the claim should be made within three months, i.e., once a quarter, a claim should be made, but this has been filed long after even the final bill has been submitted and therefore, the claim itself was time barred. The learned senior counsel further submitted that even assuming that the earlier award had been filed into Court, SIPCOT could neither have argued for dislodging the award nor change the award since it was a third party to that dispute. He further submitted that when the amendment application was filed and it was strongly objected to, the learned Arbitrator had rejected the objection on the ground that the fact that the claims have been amended would not by itself prejudice SIPCOT, since the decision on the claims would be subject to proof. Having said that, the learned Arbitrator ought to have required IRCON to prove its amended claims and not granted the claims merely because he had granted to VHE its claims against IRCON. Learned senior counsel relied on several judgments to support his submissions. 6. Mr. V.T. Gopalan, learned senior counsel appearing on behalf https://hcservices.ecourts.gov.in/hcservices/ of the first respondent-IRCON, on the other hand, submitted that the work was the same, the terms were the same, the project was completed, SIPCOT had taken over the roads for which work the tender had been called for and it is now not open to SIPCOT to refuse to make payment for the work completed. Learned senior counsel referred to the counter affidavit to the amendment claim where SIPCOT had clearly stated that they had no objection to the award being received. He also submitted that for the first time in the appeal it is contended that VHE was present at the discussion in its own right. This was never pleaded before. Learned senior counsel submitted that the question of limitation cannot be raised if it had not been raised before the learned Arbitrator. In any event, the final bill was paid only in the year 2005 and therefore, the claim was made well in time. The first respondent had reserved its right to amend its claims if necessary and therefore, the learned Arbitrator was correct in allowing the amendment application. Learned senior counsel submitted that it is too late in the day to object on the ground of violation of the principles of natural justice since SIPCOT knew that VHE was in the picture and had acquiesced to it and there was nothing to stop SIPCOT from requesting the learned Arbitrator to summon VHE if they so desired it. The learned senior counsel strenuously denied that the decision was a wholesale import of the arbitration award passed in the other claim between VHE and IRCON. On several vital issues, there was independent consideration. Learned senior counsel submitted that it would, no doubt, be ironic if on the same set of facts different constructions are drawn, one in the VHE-IRCON award and one in the award between SIPCOT and IRCON. Learned senior counsel submitted that SIPCOT should have produced the evidence to show that the conclusions in the earlier award were wrong and unless fresh materials are brought in, the findings in the earlier award cannot be differed from. Learned senior counsel submitted that there was clear evidence to show that what was removed were boulders and that when admittedly poclain was used, it would come under non- scheduled items and for this purpose, he referred to the relevant clauses. Learned senior counsel submitted that the scope for interference with the decision of the Arbitral Tribunal is narrow and the learned single Judge had rightly dismissed the O.P. 7. We will first consider whether the learned Arbitrator had considered the pleadings and evidence in this mater, before relying on the other award. 8. In the statement of claim made initially, in paragraph 46, it is stated, "Viewed in an objective manner, the claimant would be satisfied with their own amount of claim for each item. However, under circumstances explained, the claimant pleads that any award made to the claimant under any item of claim may be subject to the condition that the amount awarded to the claimant would not be less than the amount awarded to VHE for a corresponding item of claim in their case against IRCON". From this, it is clear that under this https://hcservices.ecourts.gov.in/hcservices/ contract, what they are entitled to is what they have claimed. But they want more only because they fear that VHE may be awarded more in the other arbitration proceedings. In paragraph 49 of the claim statement, it is stated as follows :- "In 4 out of 21 such common claims (i.e. Claim Nos.2, 3, 5 and 21), the claim of Vinay Heavy Equipments against IRCON is higher than the claim of IRCON against SIPCOT. In these 4 cases, it has been prayed by the present Claimant (IRCON) in the concluding part of the claim that in case the Hon'ble Arbitrator were to be pleased to award the higher amount to Vinay Heavy Equipments, the same amount might be awarded to IRCON also. In 11 out of 21 common claims (i.e. Claim Nos.4, 6, 10, 11, 12, 13, 14, 15, 18, 19 and 20), IRCON have no claims of their own against SIPCOT. But claims have been made by Vinay Heavy Equipments against IRCON. In these 11 cases also, it has been prayed by the present Claimant (IRCON) that in case the Hon'ble Arbitrator were to be pleased to award the amount claimed by Vinay Heavy Equipments against IRCON, the same amount might be awarded to IRCON also. In 5 out of 21 common claims (i.e. Claim Nos.1, 7, 8, 16 and 17), the claim of IRCON against SIPCOT is higher than the claim of Vinay Heavy Equipments against IRCON. In these cases, it has been prayed that Hon'ble Arbitrator might award the claim amount of IRCON. In the remaining 1 claim (i.e. Claim No.9), the claims of IRCON and of Vinay Heavy Equipments are the same." Therefore, on their own pleadings, they are entitled only to what they originally claimed. Similarly, the award should be based on this contract and what is claimed. When the first respondent admittedly "has no claims of its own against the appellant, with what justification can the burden of a third party be shifted to the appellant? 9. Now we will look at the amendment application. In the amendment application, what they have said is that the award passed in the proceedings in favour of VHE would essentially represent the cost of non-scheduled items and therefore, SIPCOT is liable to make good that amount. This is how the amendment application is filed and they have also pleaded that the learned Arbitrator should treat the common award as an exhibit. In the counter affidavit filed originally, the first respondent had, apart from denying the specific claims, in paragraph 31, stated as follows :- "The averments in Para 38 of claim statement are contra to he terms of the agreement. The respondent submits that he respondent is not privy to the contract executed between the claimant and M/s. Vinay Heavy https://hcservices.ecourts.gov.in/hcservices/ Equipments and the respondent was neither a party nor a witness in the arbitration dispute between M/s. Vinay Heavy Equipments and the claimants or either got approved from the respondent." It was also pleaded that the term 'back-to-back basis' is outside the conditions of contract between SIPCOT and IRCON and IRCON had only to execute the work as per the conditions of the contract under the supervision of RITES. It was also pleaded that when it is IRCON's own admission that the claim of VHE is exorbitant, there was nothing to stop IRCON to have summoned RITES as a witness to report on the correctness and justifiability of the claims made by VHE. It pleaded that the arbitral tribunal can only decide in accordance with the terms of the contract between the parties and it was not open to IRCON to pray for award of a claim subject to the condition that it should not be less than the amount awarded to VHE. While it is true that SIPCOT had stated that it had no objection to treat the award as an exhibit on its merits and demerits, but they had clearly qualified it by saying that "the award had been passed by the same arbitrator and neither SIPCOT nor RITES, the consultant, whose certificate played a crucial role, was privy to the arbitration proceedings as witnesses to depose before the Honourable Arbitrator on the bona fide of the various claims, both in terms of the quantity and the value therefor". Therefore, this objection that has been raised. 10. The learned Arbitrator is also aware that the appellant has nothing to do with VHE's claims. In paragraph 13 of the VHE-IRCON award, the learned Arbitrator had held, "To say that it will pay only when SIPCOT pays for those works on the ground that the contracts are 'back-to-back' basis is to throw the blame on a third party who is not a party to the contracts and against whom no liability can be enforced by the claimant. I have already held in the earlier paragraphs that 'back-to-back' arrangement will apply only to specifications, the quality and quantum of works and not to the rate and payment clauses. In my considered view, IRCON is primarily liable to pay the claimant for the various items of work, both scheduled and non-scheduled and it has to work out its rights as against SIPCOT as per the terms of its contract with SIPCOT. Therefore, the learned Arbitrator was quite conscious that since SIPCOT was not privy to the contract, it could not be asked to pay what VHE claimed. After holding that the blame cannot be thrown on a third party who is not a party to the contract against whom no liability can be cast, the learned Arbitrator had thrown the liability on the appellant based on an award, to which the appellant was a third party. The learned Arbitrator ought to have tested IRCON's claim against SIPCOT in terms of the contract between them, as he had rightly said in the award passed in VHE's claim, whereas indirectly, he has done exactly what he had frowned upon IRCON for attempting to do. https://hcservices.ecourts.gov.in/hcservices/ 11. Now, we will look at those clauses in the present award which make this abundantly clear. The learned Arbitrator finds that it is quite clear that IRCON is the contractor and VHE is the sub- contractor with regard to the same identical work and when SIPCOT contended that no separate claim can be made for the non-scheduled and additional scheduled items of work since they would come under the items of BOQ, the learned Arbitrator said that it would be dealt with while individually dealing with each item of claim and when amendment was sought for, the learned Arbitrator said that the arbitral tribunal will find on evidence the actual quantity of boulders excavated and that, "that issue is one of factual proof" and therefore, the mere mention of a higher figure by way of amendment will not prejudice SIPCOT. Thereafter, with regard to Item-2 which is about stacking, all that is said is that "this item of work is found to have been executed and evaluated