IN THE HIGH COURT OF HIMACHAL PRADESH, SHIMLA OMP(M) No. 2 of 2000 Reserved on : 24.6.2011. Decided on: 25.7.2011 State of H.P. and another ..Objectors/Plaintiffs. Versus Jagdish Chand Gupta …Respondent. Coram The Hon’ble Mr. Justice Kuldip Singh, Judge. Whether approved for reporting ?1 Yes For the Objectors/Plaintiffs : Mr. J.S.Rana, Assistant Advocate General. For the Respondent : Mr. Ramakant Sharma, Advocate. Kuldip Singh , Judge These objections have been filed under Section 34 of the Arbitration and Conciliation Act, 1996 (for short ‘Act’) against the award dated 6.9.1999 passed by the Arbitrator in agreement No. 12 of 1989-90 for the construction of bridge over river Beas at Chamba Pattan on Jawalamukhi –Chamba Pattan road. 2. The facts, in brief, are that the parties entered into lumpsum contract No. 12 of 1989-90 on 29.5.1989 for construction of bridge over river Beas at Chamba Pattan on Jawalamukhi Chamba Pattan road for `1,98,50,000/-. The respondent as per award letter was to commence the work from the 10th day of the award letter and the work was to be 1 Whether reporters of Local Papers may be allowed to see the Judgment ? yes 2 completed within two years from the said date. The date of completion of the work was 8.6.1991, however, the respondent did not complete the work, but in between, requested to refer the matter to Arbitrator for decision of disputes raised by him. 3. The Arbitrator vide award dated 6.9.1999 has awarded an amount of ` 21,42,524/- plus 12% interest for four years which works out to ` 10,28,411/-, but in reality in view of the findings on claim No. ‘d’ for pneumatic sinking it goes in crores. 4. It has been alleged that the respondent did not complete the work within two years as per stipulation in the contract agreement. In fact, the work remained incomplete and, therefore, Engineer Incharge under clause 64 had rightly imposed 5% compensation amounting to ` 9.925 lacs on respondent. This was confirmed by the Superintending Engineer whose decision was agreed to be final by the parties. Therefore, against levy of compensation imposed by the Engineer Incharge under clause 64 of the contract agreement, no reference for arbitration could be made. The Arbitrator wrongly reduced such compensation to ‘Nil’, which is contrary to Section 34 of the Act. 5. The Arbitrator has wrongly awarded ` 7,23,000/- in favour of respondent under claim No. 3 by holding that the objections have wrongly deducted ` 7,23,000/- from the dues of the respondent on the ground that depth of foundation was wrongly reduced by the respondent. This finding of the Arbitrator is in conflict with clause 84.6 of the agreement. The respondent achieved the foundation level for piers P-1 and P-2 at a reduced level which was less 12.5 meters and 15 meters to the agreed point and involved lesser quantity of work. The petitioners had rightly 3 calculated and deducted the amount of ` 7,23,000/- as per variation schedules supplied by the respondent. 6. The Arbitrator has wrongly awarded a sum of ` 3,61,000/- for watch and ward of tools and plants brought at the site of the work. The respondent had stopped the work and prolonged the work on account of his own omissions and commissions. Therefore, the respondent has been wrongly awarded ` 3,61,000/- for watch and ward of tools and plants. 7. The Arbitrator has wrongly allowed interest at the rate of 12% per annum for four years. The payment of interest is not provided under the agreement and, therefore, the interest awarded by the Arbitrator in the impugned award is liable to be set-aside. 8. The Arbitrator has recorded a finding that pneumatic sinking of wells was not included in the contract agreement. The Arbitrator has also held that lumpsum offer as per Annexure –IV schedule of work (clause 28) cannot be read in isolation and therefore, the respondent is entitled to extra cost for adopting new method of sinking. The Arbitrator under claim ‘e’ directed the objectors to decide the extra cost of sinking of wells by pneumatic method by mutual conciliation between the parties. The Arbitrator has not calculated any amount under the said claim. The finding of the Arbitrator is liable to be set-aside. 9. The matter was referred to the Arbitrator on 17.11.1997 to decide and make an award regarding claim and counter-claim of the parties but the contract was entered into between the parties in the year 1989-90. The Arbitrator has made the award under the Act without taking consent of both the parties to proceed under the Act. The Arbitrator in view 4 of Section 85 of the Act erred in making the award under the Act. The petitioners have prayed for setting aside the impugned award. 10. The respondent has contested the petition by filing reply in which preliminary objections have been taken that the objections are not maintainable under Section 34 of the Act. It is not open to the Court to examine the correctness of the reasoned award on re-appraisal of the evidence to prove the mental process of the Arbitrator and speculate as to what impelled the Arbitrator to arrive at the conclusion drawn by him which prompted the award. The Arbitrator is the sole Judge of the quality and quantity of the evidence and it is not for the Court to take upon itself the task of a Judge on the evidence produced by the Arbitrator. The Arbitrator acted strictly under the terms and conditions of the agreement, the objections raised are liable to be dismissed. The award is not liable to be set-aside merely on the ground that the other view is possible. This Court is not to sit in appeal over the findings of the Arbitrator. 11. The respondent admitted the execution of contract No. 12 of 1989-90. The delay in execution of the work was attributed to objectors. The compensation was levied under clause 64 (3) even though drawings and designs were finally approved by the objectors. The Department had accepted the express condition that no penalty and/or liquidated damages would be recoverable from the contractor on account of any delay in interim progress of work. The time extension was granted upto 31.10.1995. The due payments of the respondent were withheld for no reasons and whatever payments were made were erratic. The Department breached the terms of the contract. 5 12. In the letter dated 3.11.1992, the Chief Engineer (North) directed the Superintending Engineer (9th Circle), Nurpur to undertake well foundation sinking by pneumatic method of sinking for pier No.2 and the Superintending Engineer issued written order to modify the design in the light of the directions of the Chief Engineer (North). The modified design of well foundation of pneumatic sinking was sent and it was approved tentatively on 3.4.1993. The pneumatic method of sinking was not included in the scope of lumpsum work under the contract and extra cost incurred was payable to the contractor, which is clear from clause 86.3 (3) (4) of the contract agreement. 13. The Executive Engineer vide letter dated 4.3.1993 intimated that extra cost of pneumatic sinking would be decided and paid to the contractor under the terms of the agreement. However, vide letter dated 30.3.1993 it was intimated that since sinking by all methods was included in the scope of work award as per clause 28 of the contract agreement, nothing extra would be payable on account of pneumatic sinking. The clause 28 of the agreement is not applicable to pneumatic sinking of well in view of clause 86 (3) (4) of the agreement and deletion of Annexure ‘V’. 14. The other items of the work remained in execution but the Department wrongly made recovery of Rs. 7,23,000/- in contravention of clear terms and conditions accepted by the Department without any cause regarding the levels of piers P-1 and P-3 and abutments. The payment of escalation was also held up and was in dispute. On receipt of award dated 6.9.1999, the claimant being dis-satisfied with the award, served notice under Section 33 of the Act to the Arbitrator and the opposite party on 25.9.1999 for making correction, give an interpretation or make additional 6 arbitral award as the award did not conform to the mandatory provision of the agreement and rightful entitlement of the claimant as per law and conclusions drawn by the Arbitrator, the same is pending for consideration before the Arbitrator. 15. It has been alleged that a notice was served on Arbitrator on 11.11.1999 to resume the proceedings on the claims pending for decision particularly Claim No. ‘e’ regarding the extra cost of sinking of well by pneumatic method of sinking. This was to be decided within two months of the date of award by mutual conciliation between the parties and in case of non-settlement, either party was free to approach the Arbitrator for adjudication of the said claim. The same is still pending with the Arbitrator. On merits, the respondent refuted the objections and supported the impugned award. He prayed for dismissal of the objections. 16. The petitioners filed rejoinder, denied the case set up by the respondent and reiterated the stand taken in the objections. On the pleadings of the parties, the following issues were framed:- 1. Whether the impugned award has dealt with a dispute not contemplated by or not falling within the terms of the submissions to arbitration and it contains decisions on matters beyond the scope of submissions to arbitration? OP Objector. 2. Whether the objections are not maintainable as envisaged under sub section (2) of Section 34 of the Arbitration and Conciliation Act, 1996? OP Non-objector. 3. Relief. 17. I have heard the learned counsel for the parties and have also gone through the record. The parties led evidence by way of affidavits. On behalf of the objectors, N.K.Thakur, Executive Engineer filed the affidavit 7 and respondent filed his own affidavit. The issue-wise findings are as follows:- Issue No. 2: 18. The sub section (2) of Section 34 of the Act provides that an arbitral award may be set aside by the Court only if the party furnishes proof in support of sub clauses (i) to (iv) of clause (a). The clause (b) further provides that an arbitral award may also be set-aside by the Court, if Court finds (i) the subject matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or (ii) the award is in conflict with the public policy of India. The objectors have not raised grievances covered by sub clauses (i) to (iii) and (v) of sub clause (a) of sub section (2). The objections of the objectors are basically under sub clause (iv) of clause (a) of sub section (2) of Section 34 of the Act which is clear from issue No.1. Therefore, it cannot be said that the objections filed by the objectors are not maintainable under sub section (2) of Section 34 of the Act. The issue No.2 is decided against the respondent/non-objector and in favour of the objectors/petitioners. Issue No. 1: 19. The respondent filed the claim and the objectors counter-claim before the Arbitrator. The gist of the award given by the Arbitrator is as follows:- “AWARD IN FAVOUR OF PLAINTIFF/CLAIMANT-SHRI JAGDISH CHAND GUPTA, ENGINEERS AND CONTRACTORS, 163 SECTOR 38- A, CHANDIGARH. Sr.No. 1 Description of claim 2 Amount demanded 3 Amount awarded 4 Remarks 5 CLAIMS: a Illegal levy of compensation under 9.925 lacs Reduced to NIL - 8 b. c. d. e. f. g. clause 64.1(i) & 63(c) of agreement. Invalid deduction from the bill. Non release of escalation of materials and labour. Whether or not pneumatic sinking method be treated in scope of terms and conditions of the letter of intent dated 26.5.89. What would be extra cost of sinking of wells by pneumatic method of sinking, if required on written orders of the Chief Engineer, HPPWD as provided in Annexure-V. Balance payment of running bills, prolongation and non utilization of machinery. Interest on claims and also cost of arbitration. (i) Cost of Arbitration. (ii) Interest on claims. ` 7,23,000/- ` 20,09,747/- - - ` 46.84 lacs. ` 60,000/- @ 24% per annum. Total: ` 7,23,000/- ` 10,58,324/- - - ` 3,61,200/- NIL @ 12% per annum simple interest on ` 21,42,524/- for four years till date of award. ` 21,42,524/- + Interest as awarded against claim No. g (ii)_____ - Pneumatic method of sinking is not included in the scope of terms and conditions of the contract agreement. The respondent is directed to decide the extra cost of sinking of wells by pneumatic method of sinking on merit by mutual conciliation between the parties. - - 9 AWARD IN FAVOUR OF RESPONDENT-EXECUTIVE ENGINEER, DEHRA DIVISION, HPPWD, DEHRA-177101. Sr.No. 1 Description of Counter -claim 2 Amount demanded 3 Amount awarded 4 Remarks 5 COUNTER-CLAIMS: 1. 2. 3. 4. 5. 6. 7. 5% penalty Cancellation of contract. Cost of material. Cost of pier-2 with well foundation. Bank guarantee 5% equal of tender cost. Escalation. Reimbursement with interest @ 18%. ` 9,92,500/- ` 1,00,000/- ` 4,50,117/- ` 18,85,750/- ` 9,92,500/- ` 1,16,25,097/- ` 19,85,000/- & interest @ 18% Total: Nil Nil ` 4,50,117/- Nil - Nil Nil ` 4,50,117/-_ Already discussed and decided under claim No.’a’ - - - Bank guarantee allowed. - - The net amount of the award to be paid to the claimant –Shri Jagdish Chand Gupta, Engineers and Contractor, 163 Sector 38-A Chandigarh by the Respondent-Executive Engineer, Dehra Division, HPPWD, Dehra, comes out to ` 21,42,524 - ` 4,50,117/- = ` 16,92,407/- + interest as awarded against claim No. g (ii).” 20. The clause -65 of the agreement is as follows:- “65. Disputed claims and arbitration. 10 Except where otherwise provided in the contract all questions and disputes relating to the meaning of the specifications, designs, drawings and instructions hereinbefore mentioned and as to the quality of workmanship or materials used on the work or as to any other question, claim, right, matter or thing whatsoever, in any way arising out of or relating to the contract , designs, drawings, specifications, estimates, instructions, orders or these conditions or otherwise concerning the works, or the execution or failure to execute the same whether arising during the progress of the work or after the completion or abandonment thereof shall be referred to the sole arbitration of the person appointed by the Chief Engineer, Himachal Pradesh Public Works Department. It will be no objection to any such appointment that the arbitrator so appointed is a Government servant, that he had to deal with them matters to which the contract relates and that in the course of his duties as Government servant he had expressed views on all or any of the matters in dispute of difference. The arbitrator unto whom the matter is originally referred being transferred or vacating his office or being unable to act for any reason, the Chief Engineer, Himachal Pradesh Public Works Department at the time of such transfer, vacation of office or inability to act, shall appoint another person to act as arbitrator in accordance with the terms of the contract. Such person shall be entitled to proceed with the reference from the stage at which it was left by his predecessor. It is also a term of this contract that no person other than a person appointed by Chief Engineer, Himachal Pradesh Public Works Department should act as arbitrator and if for any reason, that is not possible, the matter is not to be referred to arbitration at all. Subject as aforesaid the provisions of the Arbitration Act, 1940, or any statutory modification or re-enactment thereof and the rules made thereunder and for the time being in force shall apply to the arbitration proceeding, under this clause.” 21. The scope of issue No.1 is limited, it can be split into two parts (i) the award has dealt with a dispute not contemplated by or not falling within the terms of the submissions to the arbitration (ii) it contains decisions on matters beyond the scope of submissions to the arbitration. It has been argued that Engineer Incharge had imposed 5% compensation rightly and legally amounting to ` 9.925 lacs under clauses 64.1(i) and 64.3 11 (c) of the agreement. This was even confirmed by the Superintending Engineer. The Arbitrator has no jurisdiction to waive off the compensation so imposed by the Arbitrator. The clause 64 of the agreement provides compensation for unreasonable delays. The clause 64.1 and clause 64.3 of the agreement are as follows:- “64.1 If the Contractor – (i) fails to complete the works and clear the site on or before the Contract (or extended) date/period of completion ; or (ii) fails to complete works costing 1/8th of the contract sum within 1/4th of the contract period or works costing 3/8th of the Contract sum in half the contract period and/or works costing 3/4th of the Contract sum within 3/4th of the Contract period; he shall, without prejudice to any other right or remedy of Government on account of such breach, pay as agreed compensation an amount, as calculated below (or such smaller amount as may be fixed by the Accepting Authority), on the contract sum in respect of (i) above and on the appropriate cost of works viz 1/8th, 3/6th or 3/4th of the Contract sum, as the may be in respect of (ii) above, on which the compensation is leviable:- (a) completion period(as originally stipulated or At the rate of as extended) not exceeding 6 months 1 per cent per week. (b) completion period (as originally stipulated or At the rate of as extended) exceeding 6 months and not 1/2 per cent exceeding 2 years. per week. (c ) completion period (as originally stipulated or At the rate of as extended) exceeding 2 years. 1/4 per cent per week.” “64.3. Provided always that the total amount of compensation for delay to be paid under this condition shall not exceed the under- noted percentage of the Contract value of the work:- (a) completion period(as originally stipulated or 10 per cent as extended) not exceeding 6 months (b) completion period(as originally stipulated or 7 ½ per cent as extended) exceeding 6 months and not exceeding 2 years; (c ) completion period (as originally stipulated or 5 per cent as extended) exceeding 2 years.” 12 22. In Civil Suit No. 10 of 1998 State of Himachal Pradesh vs. M/s Punjab Chemi Plants Ltd., identical clause 64.3 (c ) was considered by this Court. In the judgment dated 21.7.1999 in Civil Suit No. 10 of 1998 Vishwanath Sood vs. Union of India and another,AIR 1989 SC 952 has been noticed and it has been held as follows:- “The terms contained in the clause (2) of the agreement in the case before the Supreme Court are not same and similar to the terms contained in clause 64.3 (c ) of the agreement in the present case. No finality has been attached to the decision of the “Accepting Authority” under clause 64.3 (c ) of the agreement in the present case as was attached to the decision of the Superintending Engineer under clause (2) of the agreement in the case before the Supreme Court. Therefore, the ratio relied upon by the learned counsel for the defendant, has no application to the facts of the present case. On the true interpretation of clause 64.3( c) of the agreement, the question of imposition of penalty/compensation under the said clause was arbitrable and as such the Arbitrator cannot be said to have exceeded his jurisdiction. The issue is decided against the defendant.” In view of State of Himachal Pradesh vs. M/s Punjab Chemi Plants Ltd., it is clear that imposition of compensation under clause 64 is arbitrable and it cannot be said that Arbitrator has no jurisdiction to consider the legality of compensation amounting to ` 9.925 lacs imposed by the Engineer Incharge and confirmed by the Superintending Engineer. The Arbitrator has recorded a finding that there is accepted condition in the award letter that no penalty or liquidated damages shall be recoverable from respondent on account of delay in interim progress of the work. The extension was granted upto 31.10.1995 by the competent authority and the compensation was imposed on 7.10.1995 when the work was in progress. It has been held by the Arbitrator that compensation imposed is against the spirit of the award letter dated 29.5.1989 and the same is unjustified and 13 illegal. This finding of the Arbitrator is based upon evidence and, therefore, it cannot be said that the same is illegal. 23. It has been submitted that under claim ‘b’ an amount of ` 7,23,000/- on account of reduction in depth of foundation has been wrongly awarded by the Arbitrator in favour of the respondent. The Arbitrator has wrongly held that the amount of ` 7,23,000/- was wrongly deducted by the Department. N.K.Thakur, Executive Engineer in the affidavit has stated that it was agreed between the parties that depth of the foundation to be achieved by the contractor was mutually agreed 410 RL (Reduced Level) to piers, whereas the contractor achieved the founding level for P-1 and P-2 at reduced level 423.5 metres and 425 metres respectively which was 13.5 metres and 15 metres less than the agreed point. Therefore, lesser quantity of work was involved, hence an amount of ` 7,23,000/- was deducted. The respondent in his affidavit has stated that the founding level of P-1 and P-2 piers and abutments as per the condition in the agreement was to be taken according to designed level and not as shown in the tender drawing. The Department agreed that there is no change in the founding level of the abutments and piers P-1 and P-2 of the approved design and the actual level achieved. The deduction of ` 7,23,000/- was made illegally and unjustified. 24. The Arbitrator while considering the claim No. ‘b’ has recorded a finding that in the letter dated 28.1.1989 there is a revised variation schedule which is part of the agreement in which variation schedule of foundation depth has been accepted as “Extra for increase/decrease in depth of foundation level below/above design level”. The wording as shown in the original tender offer/drawing has been deleted in respect of 14 increase/decrease in the depth of foundation in the revised/accepted variation schedule. The respondent had option to change the over all design system based on drawing No. 2284 P/2. The competent authority had approved the designed founding level after the change of the consultant. The foundations of abutments and piers were constructed as per approved designed founding levels and there is no variation in the approved designed level and founding levels of constructed foundations of abutments and piers. The Arbitrator has recorded a definite finding that in these circumstances an amount of ` 7,23,000/- has been wrongly deducted by the Department. In these circumstances, it cannot be said that it is not a case of no evidence for allowing claim of ` 7,23,000/- in favour of the respondent. 25. It has been contended that Arbitrator has wrongly allowed claim ‘f’ amounting to ` 3,61,200/-. The respondent had claimed Rs. 46.84 lacs on account of prolongation of work and non-utilisation of machinery. The Arbitrator has held that work of the respondent has not been rescinded as such, it will be deemed to have been in progress. A finding has been given that the work has been prolonged due to the breach of the contract agreement by the objectors. As finding has been recorded that the respondent has incurred expenditure for the maintenance of infrastructure, staff for watch and ward and suffered loss due to non-utilization of tools and plants lying at the site of the work. The Arbitrator has ultimately recorded a finding that the respondent is liable to be compensated to the extent of ` 3,61,200/-. It is not the case of the objectors that material evidence has been ignored by the Arbitrator