IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 26-09-2011 Coram THE HONOURABLE MRS. JUSTICE R. BANUMATHI and THE HONOURABLE MR. JUSTICE B. RAJENDRAN O.S.A. No. 215 of 2007 Tirunelveli City Municipal Corporation rep. By its Commissioner Tirunelveli – 627 001 .. Appellant/ Versus 1. M/s. Sri Pathy Associates rep. By its Managing Director No.63, Thanga Perumal Street Erode – 638 011 2. S.A. Kumarasamy Raja Presiding Arbitrator Former Superintending Engineer (Highways - Government of Tamil Nadu) No.119, Vengavesan Savadi Street Palapalayam Rajapalayam – 626 001 3. N. Ramamoorthy Arbitrator Former Chief Engineer (Highways - Government of Tamil Nadu) No.20, Balaji Nagar, High Ground Tirunelveli – 627 001 4. R. Nadimuthu Arbitrator Former Chief Engineer (Highways - Government of Tamil Nadu) Plot No.135, Cholan Street Alwar Thirunagar Chennai – 600 087 .. Respondents Appeal filed under Order 37 Rule 1 of the O.S. Rules read with Clause 15 of the Letters Patent against the Order of this court dated 05.06.2007 made in O.P. No.331 of 2004. The Original Petition filed under Sec.34 of the Arbitration and conciliation Act 1996 to set aside the award dated 18.3.2004 to the respondent 2 to 4 in so for as claim No.2,3,4,5,6,8,10,11 and 13 of the 1st respondent and claim No.1&2 of the petitioner are concerned and declare them as null and void. https://hcservices.ecourts.gov.in/hcservices/ For Appellant : Mr. R. Muthukumarasamy, Senior Counsel for Mr. S. Kandasamy For Respondents : Mr. R. Murari for R1 JUDGMENT B. RAJENDRAN, J The Tirunelveli City Municipal Corporation, represented by its Commissioner, Tirunelveli, is the appellant in this appeal. The corporation/ appellant is aggrieved by the order dated 05.06.2007 passed by the learned single Judge, dismissing the O.P. No. 331 of 2004 filed by them. 2. According to the Appellant/Corporation, the Tirunelveli Municipal Corporation initiated a project for construction of a modern bus stand at Veinthakulam in Tirunelveli and the Government of Tamil Nadu had also accorded administrative sanction of Rs.628 lacs for this purpose. Subsequently, the Appellant/Corporation flouted tenders and out of the 19 tenders it received, the first respondent herein emerged as the successful bidder. Subsequently, the contract was awarded to the first respondent on 30.08.2000 for a cost of Rs.5,31,90,725/- and on the same date, an agreement was entered into between the Appellant/Corporation and the first respondent. The period for completion of the work stipulated in the agreement was 18 months and the work has to be completed by the first respondent on or before 28.02.2002. A work order was also issued by the corporation to the first respondent on 30.08.2000. According to the first respondent, since there was a delay attributable on the part of the Appellant/Corporation, the contract could not be completed in time. In this context, a dispute arose between the Appellant/Corporation and the first respondent. Therefore, as per the agreement, the first respondent nominated their arbitrator on 11.09.2002 and the appellant corporation in turn nominated their arbitrator on 10.10.2002. Both the arbitrators have chosen an umbire, the third arbitrator on 28.10.2002 and the arbitral tribunal commenced the arbitration proceedings. The arbitral Tribunal, after hearing both sides, passed an award, by majority, a sum of Rs.77,80,705/- as against the total claim made by the first respondent at Rs.2,12,48,646/-. Aggrieved by the award passed by the arbitral Tribunal, the Appellant/Corporation filed O.P. No. 331 of 2004 before the learned single Judge, which was also dismissed confirming the award passed by the arbitral Tribunal. As against the same, the present original side appeal is filed by the Appellant/Corporation. 3. The learned senior counsel appearing for the Appellant/Corporation would contend that though initially the entire amount awarded by the arbitral tribunal was questioned by the corporation in the Original Petition filed before the learned single Judge, the corporation is restricting their claim only in respect of claim Nos. 2, 5, 8 and 13 out of which claim No.13 pertains to rate of interest awarded by the arbitral Tribunal. https://hcservices.ecourts.gov.in/hcservices/ 4. The learned counsel for the first respondent would only contend that normally, the Court will not interfere with the award passed by the arbitral Tribunal under Section 34 of the Arbitration and Conciliation Act, unless there are materials to show that there was a patent error or illegality or the arbitral Tribunal had relied on a material which is irrelevant for consideration. In this context, the learned counsel for the first respondent relied on the decision reported in (Pune Helium India Pvt Ltd., vs. Oil & Natural Gas Commission) 2003 8 SCC 593 to fortify his submission that the award passed by the Arbitral Tribunal, which are based on factual findings, shall not be disturbed, especially at the appellate stage. According to the learned counsel for the first respondent, even in respect of claim Nos. 2, 5, 8 and 13 which the Appellant/Corporation is restricting in this appeal, the learned counsel for the first respondent would contend that there is a variance in the contract. The contract itself provides that if there is any deviation or variance in the contract, then such item of work will be treated as a new item and the contractor is eligible to quote as if it is a new item. Admittedly, the first respondent made the claim under item Nos. 2, 5 and 8 as a new item inamsuch as there were deviations and variations in the contract and therefore the claim as made by the first respondent is sustainable. The learned counsel for the first respondent further argued that Arbitral Tribunal consists of experts, who are technically qualified in the field. The arbitral Tribunal, after elaborate consideration of the materials on record have rendered a finding of fact, which was also rightly confirmed by the learned single Judge, and therefore, interference of this Court, at the appellate stage, is not warranted. 5. We have heard the learned Senior counsel for the Appellant/ Corporation as well as the learned counsel for the first respondent. The learned Senior counsel for the appearing for the Appellant/Corporation mainly contended that the contractor/first respondent completed the work and he was also paid the amount claimed, however, the first respondent/contractor claimed huge amount pursuant to certain deviated work or new item of work carried on by them which is disputed by the appellant-Corporation. The learned Senior counsel for the Appellant/Corporation further submits that the first respondent, without exhausting the remedies available in the contract itself, have approached the arbitral Tribunal and therefore, the very reference to the arbitral Tribunal is bad. 6. Before going into the rival contentions, it is necessary to look into clause 24 (1) of the agreement between the parties. Clause 24.1 reads as follows:- "24. Disputes 24.1 If the contractor believes that a decision taken by the Engineer was either outside the authority given to the Engineer by the contract or that the decision was wrongly taken, the decision shall be referred to the Adjudicator within 14 days of the notification of the Engineer's decision. https://hcservices.ecourts.gov.in/hcservices/ 7. As per clause 24.1 of the agreement between the parties, there is an in-built provision which stipulates that if the contractor is dissatisfied with any of the decision taken by the Engineer or in their opinion any decision taken by the Engineer is incorrect, such decision shall be referred to the Adjudicator within 14 days of the notification of the Engineer's decision and thereafter, as per clause 25.1 and 25.2 of the agreement between the parties, the Adjudicator shall come to a conclusion within 28 days of receipt of a notification in dispute. Thereafer, if neither parties refers the decision of the adjudicator to an Arbitrator within 28 days of the written decision of the Adjudicator, the adjudicator's decision will be final. 8. Pointing out this clause, the learned Senior counsel for the appellant/Corporation would mainly contend that in so far as the disputes concerning item Nos. 2, 5 and 8, the first respondent failed to bring it to the notice of the Adjudicator, as provided under Clause 24, 25.1 and 25.2 of the agreement and without referring the dispute to the adjudicator, the first respondent had straight away invoked the clause contained in the agreement for referring the dispute to the Arbitral Tribunal and therefore, the reference of the dispute to the arbitral Tribunal itself is vitiated. 9. The learned counsel for the first respondent pointed out that Clause 25.3 of the agreement between the parties provides for reference of the dispute to an arbitrator in accordance with the arbitration procedure stated in the special conditions of the contract. The special conditions given in the contract namely clause No.3 – Arbitration (GCC Clause 25.3) is read as a whole, it will be clear that the procedure for invoking the arbitration clause is provided therein, which reads as follows:- "3. ARBITRATION (GCC Clause 25.3) The procedure for arbitration will be as follows:- 25.3 (a) In case of dispute or difference arising betweenthe Employer and a domestic contractor relating to any matter arising out of or connected with this agreement, such disputes or difference shall be settled in accordance with the Arbitration and Conciliation Act, 1996. The arbitral Tribunal shall consist of 3 arbitrators one each to be appointed by the Employer and the Contractor. The third Arbitrator shall be chosen by the two Arbitrators so appointed by the Parties and shall act as Presiding arbitrator. In case of failure of the two arbitrators appointed by the parties to reach upon a consensus within a period of 30 days from the appointment of the arbitrator appointed, subsequently, the Presiding Arbitrator shall be appointed by the President of the Institution of Engineers (India) Tamilnadu Chapter, Chennai. https://hcservices.ecourts.gov.in/hcservices/ 10. Pointing out this clause, the learned counsel for the first respondent contends that in case of dispute or difference arising between the Employer and a domestic contractor relating to any matter arising out of or connected with this agreement, such disputes or difference shall be settled in accordance with the Arbitration and Conciliation Act, 1996. Based on this clause contained in the agreement, the learned counsel for the first respondent would contend that even though the agreement provides for reference of the dispute to the adjudicator, merely because the dispute was not referred to an adjudicator, the first respondent will not be barred from invoking the arbitration clause contained in the agreement. There is no clause in the agreement which stipulates that only after exhausting the remedy before the adjudicator, the matter has to be referred to the arbitral Tribunal. Moreover, the appellant/Corporation participated in the arbitration proceedings before the arbitral Tribunal without raising any objection, therefore, the argument now raised by the learned senior Counsel for the appellant/Corporation is hit by the principles of acquiesence. Moreover, the appellant/Corporation has also not brought to the notice of the arbitral Tribunal about clause Nos. 24 and 25 contained in the agreement which provides for reference of the dispute to the adjudicator and defended the proceedings initiated by the first respondent before the arbitral Tribunal. Therefore, at this point of time, it is not open to the appellant/Corporation to contend that the first respondent has not exhausted the remedies provided under clauses 24 and 25 of the agreement. In this context, the learned counsel for the first respondent also referred to Section 16 (3) of the Arbitration and Conciliation Act, 1996, which reads as follows:- 16 (3) A plea that the arbitral tribunal is exceeding the scope of its authority shall be raised as soon as the matter alleged to be beyond the scope of its authority is raised during the arbitral proceedings 11. If we read Section 16 (3) of the Arbitration and Conciliation Act, it is clearly stated that if a person is aggrieved by the fact that the arbitral Tribunal is exceeding the scope of its authority, then he shall raise such point as soon as the matter alleged to be beyond the scope of its authority during the arbitral proceedings. If we read Section 16 (5) of the Arbitration and Conciliation Act, 1996 it clearly stipulates that the arbitral tribunal shall decide on a plea referred to in sub-section (2) or sub-section (3) of Section 16 and where the arbitral tribunal takes a decision rejecting the plea, they can continue with the arbitral proceedings and pass an arbitral award. Therefore, if the first respondent failed to exhaust the remedy provided under Clauses 24 and 25 of the agreement and failed to refer the dispute to the adjudicator, as provided in the agreement, even though it is not a bar for the first respondent as nothing is stated in the agreement that the contractor should exhaust the remedy before the adjudicator, the appellant/Corporation ought to have raised a plea before the arbitral Tribunal. In this case, the appellant/Corporation did not make any plea before the arbitral Tribunal and on the other hand, continued to defend the arbitral proceedings. Moreover, in the normal circumstances, the in-built provisions given in Section 24 and https://hcservices.ecourts.gov.in/hcservices/ 25 of the agreement would only mean that in respect of any dispute, it has to be referred to the adjudicator first so as to avoid any unnecessary initiation of arbitral proceedings. But, if the contractor has not exhausted this remedy and proceed with the arbitration proceedings, the appellant/Corporation ought to have immediately brought it to the notice of the arbitral Tribunal, as provided under Section 16 (3) of the Arbitration and Conciliation Act, 1996. Unfortunately, the appellant/Corporation has not chosen to raise any such objection, whereas, they participated in the arbitration proceedings. Therefore, this plea of the appellant/Corporation that the first respondent failed to exhaust the remedies provided under clauses 24 and 25 of the agreement before invoking the arbitration proceedings is unsustainable. 12. It is seen from the records that claim No.2 relates to loss caused to the first respondent due to extra lead for filling earth. As per the contract, item No.32 requires the contractor to collect and supply earth with all cost and conveyance of earth with 2 km lead to site including all labour charges etc.,complete as per standard specificationof MOST and IRC. According to the first respondent, there was no place available to take the earth within 2 kilometers distance and therefore, the first respondent sought the permission from the Government authorities to identify a location so that the contractor could take the earth for filling up the contract site. According to the first respondent, there was a delay on the part of the appellant/Corporation in identifying a location called Periyakulam Tank. Though the earth was available, the quantity of earth supplied was not sufficient for completion of the work and the first respondent could complete only 50% of the work with the available earth. Therefore, the first respondent sought further permission to fill up the earth by identifying another location. It was also represented by the first respondent that if the proposed location is situate at a distance exceeding 2 kilometers, then he may be permitted to claim extra amount for covering the additional 2 kilometers distance. Pursuant to this, the appellant/Corporation identified another location, which is admittedly located 4 kilometers away from the site. Therefore, for the extra 2 kilometer distance from which the earth is required to be brought in to the site for filling up the earth, the first respondent claimed extra amount. In this context, the first respondent would mainly contend that the extra lead of 2 kilometer from which the earth has to be brought in for filling up the site is a variance in the contract or deviation in the contract as per clause 40.2 of the agreement. Clause 40 (2) of the agreement stipulates as follows:- "40.2 If the work in the variation corresponds with an item description in the bill of quantities and if, in the opinion of the Engineer, the quantity of work above the limit stated in Sub Clause 38.1 or the timing of its execution do not cause the cost per unit of quantity to change, the rate in the Bill of Quantities shall be used to calculate the value of the Variation. If the cost per unit of quantity changes, or if the nature or timing of the work in the Variation does not correspond with items of https://hcservices.ecourts.gov.in/hcservices/ the Bill of Quantities, the quotation by the Contractor shall be in the form of new rates for the relevant items of work. 13. The learned counsel for the first respondent mainly rely upon the words "in the form of new rates for the relevant items of work". According to the learned counsel for the first respondent, since the second place for filling up the earth identified by the appellant/Corporation is 4 kilometers away, the charge for extra 2 kilometers, over and above the agreed 2 kilometers, will be a new item of work by which there is a variance in the contract and therefore, the first respondent claimed amount for this item of work by submitting a new quotation for the entire work at the rate of Rs.112/- per cubic meter in so far as earth filling is concerned. 14. The arbitral Tribunal taking into consideration the variance in the contract had awarded a sum of Rs.37,01,296/- for claim No.2 which is as follows:- "Computation of the rate by the Tribunal: The claimant has quoted a rate of Rs.112/m3. Since the claimant had himself relied on 2000-2001 schedule of rates for computing his new rates the Tribunal is inclined to work out this rate under 2000-2001 SR only. Rate as per 2000-2001., SR for conveyance of 1M3 of Earth fill i) Earth work excavation ... S.S-20B Rs.14.40 ii) 4 Km lead charges @ 10.93 per KM Rs.43.72 iii) Incidental charges Rs.31.75 iv) Unloading charges Rs.12.10 -------------- Rs.101.97/M3 --------------- So, the claimant's rate of Rs.112/M3 is not admitted Therefore rate admitted by the Tribunal is 101.97/M3 Already paid by the respondent is Rs.55.35/M3 So, the balance to be paid is Rs.46.62/M3 Reconciled quantity of earth filling is 73932.88 M3 (given in page 81 of Claimant's Volume V) Award amount = 79392.88 M3 at Rs.46.62/M3 = Rs.37,01,296/- Award https://hcservices.ecourts.gov.in/hcservices/ Therefore, after studying all documents and case laws furnished, and after hearing their pleadings, the Tribunal here by awards an amount of Rs.37,01,296/- (Rupees Thirty Seven Lakhs One Thousand Two Hundred and Ninety Six Only) to the claimant and direct the respondent to pay the same to the Claimant as against the claimant's claim amount of Rs.44,96,480/-." 15. A very important point raised was by the learned Senior counsel for the appellant is in respect of this Claim No.2. The learned Senior counsel for the appellant would clearly point out a patent error on the face of the record. The learned Senior counsel for the appellant brought to the notice of this Court that the contractor/first respondent himself has claimed, even as per their letter dated 23.03.2011, for extra lead at Rs.35 per cubic meter for every additional lead of 1 kilometer and for 2 kilometer additional lead the claim will be Rs.70/- over and above the rate stipulated in the agreement at Rs.42/- giving the total rate at Rs.112/- per cubic meter. If we take into consideration the clause in agreement, under item No.32, which is given in the annexure to the agreement namely description of work and the rates, we find that item No.32 at Page No.41 reads this:- "32. Collection and supply of earth with all cost and conveyance of earth with 2km lead to site including all labour charges etc., complete as per standard specification of MOST and IRC." 16. From a reading of this clause, it is clear that the amount quoted at Rs.42/- per cubic meter is for collection, supply of earth with all costs and conveyance and all other labour charges. The only restriction is they have worked out this clause if the earth is brought in within 2 kilometer lead. The present difference claimed by the first respondent is the entire 2 kilometer from where the earth has to be brought into the site i.e., the place identified by the appellant/Corporation for filling up the earth which is situate at a distance of 4 kilometers. What was claimed by the contractor/first respondent himself in their letter dated 23.03.2001 is clearly for the extra 2 kilometer for which they quoted Rs.35 per cubic meter for transport, which is inclusive of 2 kilometer lead. Therefore, the contractor/ first respondent arrived at Rs.112/- and claimed the same. In other words, the claim of the first respondent is Rs.35/- for each kilometer Extra. When the total cost for all, inclusive of labour, incidental charges, earth excavation and transport itself put together at Rs.42/-, can it be proper for the first respondent to claim Rs.35/- per kilometer and Rs.70/- for 2 extra kilometer lead alone. This vital factor has not been taken note of by the arbitral Tribunal, who are technically qualified. In fact, the arbitral Tribunal committed an error, which is apparent on the face of the record, especially at the time of computation of the claim amount under Claim No.2. 17. When the arbitral Tribunal computed the award amount towards claim No.2, they have initially taken the earth excavation charges, claim for 4 kilometer lead at the rate of Rs.10.93 per kilometer, which they have worked out for 4 kilometer at Rs.43.72 https://hcservices.ecourts.gov.in/hcservices/ (Rs.10.93 X 4). The arbitral Tribunal also included the incidental charges at Rs.31.75 and unloading charges at Rs.12.10, thus, arrived at the total of Rs.101.97 per cubic meter as against Rs.112/- claimed by the first respondent. It is further made clear by the arbitral Tribunal that the rate is arrived as per the then prevailing PWD rate for the year 2000-2001. How this could be? The finding of the arbitral Tribunal as if the whole contract is a new one or the whole work carried out by the first respondent under claim No.2 is not acceptable at all because, this claim itself is in respect of payment for the extra 2 kilometer lead. When the arbitral Tribunal fixed per kilometer transport charges or lead charges only at Rs.10.93 per kilometer, how the arbitral Tribunal can award other charges i.e., incidental charges, loading charges and earth excavation charges, which was given in the agreement for covering 2 kilometers lead in the Rs.42 already. For the extra 2 kilometer lead, at the rate of Rs.10.93/-, at best, the Arbitral Tribunal ought to have awarded only Rs.21.86 for the 2 kilometer extra lead. Thus, the Arbitral Tribunal ought to have awarded Rs.42 + Rs.21.86 = Rs.63.86 and not Rs.101.97 because, what was calculated is for other charges namely labour charges, incidental charges etc., which are all already included in the sum of Rs.42/-. Therefore, this is a patent legal error in the award passed by the arbitral Tribunal, which was also rightly pointed out by the learned senior counsel for the appellant/corporation. This is an improper and incorrect finding of fact. Therefore, if at all, the amount to be awarded for the 2 kilometer extra lead can only be Rs.63.86 per cubic meter for which the contractor was already paid, as admitted by the first respondent, by the appellant/corporation, is at the rate of Rs.55.35 per cubic meter. Therefore, what remains to be paid to the first respondent is only Rs.8.51 per cubic meter. As far as quantum is concerned, there is no dispute. The quantum is 79,392.88 cubic meter. Therefore, what exactly payable to the first respondent is 79.392.88 cubic meter X Rs.8.51 per cubic meter = Rs.6,75,633.40 for claim No.2, as against the sum of Rs.37,01,296/- awarded by the arbitral Tribunal in favour of the first respondent. Therefore, there is a legal fault apparent on the face of the record and the grant of the award by the arbitral Tribunal, in so far as claim No.2 is against the terms of the contract and going beyond the terms of the contract. Therefore, we deem it necessary to interfere with the award passed by the arbitral Tribunal with respect to claim No.2.