Arbitration appeal 8/2010 1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY APPELLATE SIDE, BENCH AT AURANGABAD ARBITRATION APPEAL NO. 8 OF 2010 M/s Balraje Construction, 4, Saraswati Colony, Georai, Tal. Georai, Dist. Beed. ..Appellant. Versus The Maharashtra State Electricity Transmission Co. Ltd. (Formerly Maharashtra State Electricity Board) through the Executive Engineer, Civil Division, EHV, Civil Construction Division Complex, 3rd Floor, Aurangabad – 431 001. ...Respondent. Mr. Amol K. Gavali, Advocate for appellant. Mr. A.S. Golegaonkar, Advocate for respondent. CORAM : A.V. NIRGUDE, J. Reserved on : 24th January, 2011 Pronounced on : 25th April, 2011. ORAL JUDGMENT: 1. By the arbitration appeal the appellant has challenged judgment and order dated 18/01/2010 passed by the Principal District Judge, Aurangabad in M.A.R.J.I. No. 415/2008, by virtue of which, the learned District Court had set aside part of the award passed by the sole arbitrator Shri M.D. Tambekar passed on 02/09/2008. This Hon’ble Court by its order dated 23rd July, 2010 had issued notice to the respondent returnable three weeks, clarifying that the matter would be finally disposed of at the stage of admission and in the mean time record and proceedings were called for. In pursuance of the earlier order, after hearing both the parties, I am disposing of the present arbitration appeal by following order. Arbitration appeal 8/2010 2 2 Factual matrix necessary to decide the present appeal is as under. The appellant was selected as a successful tenderer by respondent No.1 i.e. the Maharashtra State Electricity Board for carrying out the civil work at 2020 K.V. Sub station at Jalna comprising construction of Gantry foundation, equipment foundation, transformer foundation and cable trenches. The estimated cost of the tender was Rs.48,24,176/-. The appellant had quoted amount of Rs.9.9% higher than the estimated cost of work. The offer of the appellant to complete the contract work for Rs.53,01,769/- had been accepted and work order was issued to the appellant on 09/04/2002. It is the contention of the appellant that due to breach of reciprocal promises on the part of the respondent, and non performance of necessary contractual obligation, he had to suffer various difficulties and hindrances in completion of work. By reasons of these difficulties, he could not complete the work within the stipulated time and was required to work on the site for prolonged period, over and above the stipulated period of contract. It was the case of the appellant that he had suffered financial losses, for reasons attributable to the respondents, for which he had claimed damages by making correspondence with the respondent. It is further the case of the appellant that since respondent did not amicably resolved the dispute, he had invoked arbitration clause. Both the parties to the dispute have appointed Shri M.D. Tambekar, Retired Chief Engineer as the sole arbitrator. 3 The arbitrator on 02/09/2008 had declared the award thereby awarding amount of Rs. 33,37,651/- to the appellant with Arbitration appeal 8/2010 3 future interest @ 15% per annum. 4 The respondent being aggrieved and dis-satisfied by the award passed by the sole arbitrator, had challenged the same by filing M.A.R.J.I. No. 415/2008 under section 34 of the arbitration and conciliation Act, 1996, before the Principle District Judge, Aurangabad. The learned Judge partly allowed the arbitration appeal and thereby set aside majority of the claims awarded by the sole arbitrator. 5 The appellant has by virtue of the present arbitration appeal filed under section 37 of the arbitration Act, challenged part of the judgment of the learned District Court dated 18/01/2010. 6 The first issue between the parties is in respect of the contractor’s claim for more compensation for the work of excavation. It is the case of the contractor, that during the course of excavation work, he came across more hard rock than soft soil. Obviously, the charges for excavating the hard rock would be more, and so, the contractor would get more compensation for the work he did. It is common ground that during the course of excavation, the contractor made grievance to the Executive Engineer that the measurement of his work, especially the work of excavation of hard rock, was not properly done. Thus, an issue between the parties had arisen as to how much work the contractor had done in respect of excavation of hard rock. It is also common ground that as per the terms of the contract, in such controversy, the decision of the Executive Engineer of the employer would be final and cannot be questioned by the parties Arbitration appeal 8/2010 4 further. It is common ground that the work of contract was done fully by the contractor and he was paid Running Account Bills, one after another. According to the employer, the amount they had paid was in respect of actual work done by the contractor. The contractor disagreed with this and proceeded. Ultimately, he took the matter before the Arbitrator. The employer took-up the stand that the controversy between the parties regarding the measurement of the excavation work of hard rock was finally resolved by the Executive Engineer, and so, this area would be beyond the scope of Arbitration. The learned Arbitrator, it seems, did not decide the question as to whether the controversy that had arisen between the parties, in respect of the measurements of the work of excavation of hard rock was finally resolved by the Executive Engineer or not? He observed in the Award on this point that the employer intended to examine the then Executive Engineer as their witness, and since they failed to do so, he held that he was able to decide the issue of disputed measurements. He thus allowed himself to enter into excepted area. 7 The learned District Judge set aside this finding on the basis of pleadings and the documentary evidence that had come before him. However, after going through both these findings recorded by the Courts below, I find it difficult to gather as to whether the Arbitrator had applied his mind on the question as to whether the Executive Engineer finally decided the issue of measurements. Unless the case is remanded back to the Arbitrator, this sensitive issue between the parties cannot be decided properly. The Arbitrator should be given fresh opportunity to decide, on facts, as to whether the Executive Engineer had finally decided the issue of measurements. Unless he holds that Arbitration appeal 8/2010 5 he (the Executive Engineer) did not decide so, it would not be open for him to decide the issue of measurement all by himself. 8 The second item of claim of Contractor is in respect of the increased cost of sand procurement. It is his case that the employer’s estimated cost of work was on the basis of assumption that good quality sand was available in vicinity. He says when work started, the Superintending Engineer noticed that the sand that was being used by the Contractor, which was procured from the vicinity, was not of good quality and he suggested to the Contractor that if required, he should procure sand from different quarry. The Contractor was also suggested that the sand which he would use from the vicinity, should be sieved to get required quality fineness. Due to this difficulty, the Contractor searched and procured sand from a quarry which was situated at least 60 k.m. away from the site. He thus incurred additional and unexpected expenses for transporting the sand from the quarry to the site. He claimed escalation in cost of sand. As against this, the employer pointed out that whatever might have been predicament of the Contractor in procuring the sand, he would not get any escalation price, because the agreement did not permit the escalation in price of material procured for the contract. The learned Arbitrator without taking into account the defence raised by the employer straight way accepted the case of the Contractor in respect of escalation and allowed the claim. The learned District Judge set aside the Award in respect of this claim. Still question remained unanswered is to why the Arbitrator refused to accept the defence raised by the employer. Unless he records reasons for not taking into account the defence of the employer, the Award is incomplete in that regard. In my Arbitration appeal 8/2010 6 view, even on this count, the Court ought to have given an opportunity to the Arbitrator to take appropriate action so as to eliminate the grounds for setting aside the Award. In this view, even on this question, the case is required to be remanded back to the Arbitrator. 9 The next issue is based on the determination by the Arbitrator as to who is responsible for the delay caused in execution of the work. The claim Number 7 i.e. loss of business profit for which the arbitrator has awarded Rs.5.97 lakhs, claim no. 8 i.e. loss due to overheads for which the arbitrator has awarded Rs.2.97 lakhs, claim no. 9 loss due to idle machinery for which the arbitrator has awarded Rs.1,62,000/-, claim No. 10 loss due to idle staff and labour for which arbitrator has awarded Rs.1,57,500/-, claim No. 11 interest on delayed Running Account Bills for which the arbitrator has awarded Rs.1,06,294/- were compensatory claims. 10 These claims were based on the arbitrators adjudication as to what was the total amount of delay caused in execution of work, and who was responsible for the said delay. The arbitrator has held that the total delay caused in execution of the work was 14 months. The arbitrator has also assigned reasons for calculating the so called delay of 14 months. The next obligation on the arbitrator was to adjudicate as to who is responsible for the delay of 14 months. Though it appears from the award that the arbitrator has considered the contentions of both the parties, as to the reasons attributable in causing the delay of 14 months and the allegations made by both the parties for fixing of the responsibility, there appears no discussion in the arbitration Arbitration appeal 8/2010 7 award as to how the arbitrator has fixed the responsibility for the delay. The arbitrator in the arbitration award has merely given his conclusion that he held the M.S.E.B. responsible for the delay of 9 months in execution of the work, whereas he holds the appellant responsible for 5 months in causing the delay. The learned District Judge has set aside all the above referred compensatory claims by coming to a conclusion that in fact the appellant was responsible for the delay caused in executing the work and the M.S.E.B. was not at all responsible for such delay. While substituting the decision of the arbitrator, by his own decision, the learned District Judge has exceeded his jurisdiction and re appreciated the evidence which is not permissible while deciding a claim under section 34 of the Arbitration and Conciliation Act, 1996. Though the approach of the learned District Judge of sitting in appeal over the Arbitration award is impermissible, at the same time it needs to be considered that the arbitrator was under obligation to give precise reasoning as to how he has fixed the responsibility of 9 months on M.S.E.B. for the delay caused in execution of work. It is therefore, necessary to remit the matter back to the Arbitrator, in order to provide the arbitration an opportunity to substantiate the award by properly assigning elaborate reasons as to how he has come to a conclusion that M.S.E.B. was responsible for the delay of 9 months whereas the appellant was responsible for the delay of 5 months caused in execution of the contract. My view of remitting the matter back to the arbitrator for recording the reasons in support of his award is fortified by the judgment of the Hon’ble Apex Court in Som Datt Builders Limited Vs. State of Kerala (2009) 10 Supreme Court Cases 259. Arbitration appeal 8/2010 8 11 The next point that arose between the parties is whether the learned District Judge was justified in setting aside the cost awarded by the Arbitrator to the contractor. The learned District Judge recorded a scanty reason for passing such order. He said that since in his “own estimation” of the facts of the case, he had come to the conclusion that it was the contractor who was responsible for the delay in execution of the work, he was not entitled to any cost. I do not accept this reasoning. The learned District Judge failed to appreciate the circumstances in which the parties initially went to the Arbitrator. Assuming that few of claims of the contractor were unjustified, but some of the claims were accepted by the Arbitrator and also by the learned District Judge. So the contractor’s action in approaching the arbitrator was not unjustified. In my view since a few minor claims of the contractor were ultimately granted by the Court below, the contractor was entitled to at least 50% of the cost which he incurred for the arbitration. In view of the above discussion, following order would conclude the judgment. ORDER 1 The judgment and orders of the learned District Judge & Sessions Judge, Aurangabad dated 18/01/2010 passed in M.A.R.J.I. no. 415/2008 is quashed and set aside, to the extent of his setting aside the various claims in the arbitration award in exercise of his power under section 34 of the Arbitration Act. 1) Utilizing the powers under section 34(4) of the Arbitration and Conciliation Act, 1996, I am sending the case back to the Arbitrator who shall record his reasons as to: a) why he entertained the so called excepted dispute between the parties. Arbitration appeal 8/2010 9 b) why the contractor was entitled to transportation charges incurred by him in procuring sand from distant quarries. c) why he held that the employer was responsible for the delay to the extent of 9 months. 2) The parties shall appear before the Arbitrator on or before 9th May, 2011. 3) The record be remitted to the Arbitrator before the date given above. 4) As said above, the 50% cost incurred by the contractor for arbitration is quantified at Rs. 1,00,000/- and same shall be paid by the employer to him before the commencement of the arbitration proceeding. [A.V. NIRGUDE, J.] ts k/2001/jan24/wp1940.10/ok