IN THE HIGH COURT OF JUDICATURE AT MADRAS Dated: 01.07.2011 CORAM THE HONOURABLE MR.JUSTICE VINOD K.SHARMA O.P.No.812 & 813 of 2010 1 The Union of India Rep. by The General Manager, Southern Railway, Chennai 600 003. 2 The Divisional Manager (Works), Southern Railway, Park Town, Chennai 600 003. ... Petitioners in both O.Ps. Vs. 1 M.Senthilkumar ... 1st Respondent in O.P.No.812/10 2 K.S.Baburaj ... 1st Respondent in O.P.No.813/10 2 Mr.Justice K.M.Natarajan Arbitrator. ... 2nd respondent in both O.Ps. The Original Petitions are filed under Section 34 of the Arbitration and Conciliation Act, 1996 to set aside the award dated 20.04.2008 passed by the second respondent respectively. For Petitioner : Mr.R.Thiagarajan S.C. for Mr.V.Haribabu For Respondents : Mrs.Nalini Chidambaram, S.C. for Mr.S.Amalraj Penkilapatti ***** COMMON ORDER This order shall dispose of O.P.Nos.812 and 813 of 2010 as the common question of law and facts involved are involved in these above Original petitions. For the sake brevity, the facts have been taken from O.P.No.812 of 2010. 2 The petitioners herein filed these Original petitions under Sec.34 of the Arbitration & Conciliation Act challenging the Awards dated 20.04.2008 passed by the sole Arbitrator Mr.Justice K.M.Natarajan. 3 In response to the tender notice issued by the petitioner, the first respondent applied for the Track Ballast contract work "MAS-DGR Sections-Collections and supply of 50 mm size machine crushed stone Ballast at TADA Depot for SSE/P.way/SPE and SPE sections including loading and unloading from BKH wagons for making up deficiency in ADEN-SPE and ADEN-SPE sub division" 4 The tender submitted by the respondent was accepted by the Railway vide letter of acceptance No.M/W.496/East/ 5181 dated 26.5.2005. The period for completion of contract work was 11 months commencing from the date of letter of acceptance, and the work was to be completed on or before 25.04.2006. The total value of the contract was Rs.2,77,95,000/- (Rupees two crores seventy seven lakhs ninety five thousand only) and the quantity of ballast for collection to be loaded and unloaded was 50,000 cum. An agreement No.101/East/MAS dated 3.8.2005 was executed between the parties. The respondent was to commence work within 14 days of the letter of acceptance. 5 It is admitted case of the parties that the contract was not completed, and the respondent was able to execute 33.39% of the contract work till the expiry of stipulated period. It was one of the conditions of the contract that minimum 3 samples of ballast analysis was to be taken for measurement on any particular date even if the numbers of stacks to be measured were less than three. 6 It was also stipulated in the agreement that the supply of the first 100 cum, the tests for size gradation, Abrasion Value, Impact Value and water Absorption was to be carried out by the Railway and further supply was to be accepted only after this ballast satisfies the specifications for these tests. The Railway reserved the right to terminate the contract as per general conditions of the contract if the ballast supply failed to conform to any of the specifications. 7 It was also stipulated in the contract that no price variation shall be payable under the contract price/rate quoted by the Contractor, and would remain firm over the entire period of contract including extended period. The period for collection of quantities for loading and unloading was fixed at 30 days from the receipt of the permission for loading/unloading and the delay was to carry penalty of Rs.5/- per cum for the shortfall in loading and unloading. 8 It was also one of the conditions that entire quantity of ballast was to be supplied within completion period including monsoon. Clause 17 of the General conditions of the contract reads as under: "17 Force Majeure Clause: if at any, during the continuance of this contract, the performance in whole or in part by either party of any obligation under this contract shall be prevented or delayed by reason of any war, hostility, acts of public enemy, civil commotion, sabotage, serious loss or damage by fire, explosions, epidemics, strikes, lockouts or acts of God (hereinafter referred to as 'events') provided, notice of the happening of any such event is given by either party to the other within fifteen (15) days from the date of occurrence thereof, neither party shall by reason of such event, be entitled to terminate this contract nor shall either party have any claim for damages against the other in respect of such non-performance or delay in performance, and works under the contract shall be resumed as soon as practicable after such event has come to an end or ceased to exist, and the decision of the Engineer as to whether the works have been so resumed or not shall be final and conclusive, provided further that if the performance in whole or in part of any obligation under this contract is prevented or delayed by reason of any such event for a period exceeding ninety (90) days, either party may at its option terminate the contract by giving notice to the other party. 17-A Subject to any requirement in the contract as to completion of any portion or portions of the works before completion of the whole, the Contractor shall fully and finally complete the whole of the works comprised in the contract (with such modifications as may be directed under conditions of this contract) by the date entered in the contract or extended date in terms of the following clauses:- (i)Extension due to modification:- If any modifications have been ordered which in the opinion of the Engineer have materially increased the magnitude of the work, then such extension of the contracted date of completion may be granted as shall appear to the Engineer to be reasonable in the circumstances, provided moreover that the Contractor shall be responsible for requesting such extension of the date as may be considered necessary as soon as the cause thereof shall arise and in any case not less than one month before the expiry of the date fixed for completion of the works. (ii)Extension for delay not due to Railway/ Contractor:- If in the opinion of the Engineer the progress of work has any time been delayed by any act or neglect of Railway's employees or by other contractor employed by the Railway under sub-clause (4) of clause 20 of these conditions or in executing the work not forming part of the contract but on which Contractor's performance necessarily depends or by reason of proceedings taken or threatened by or dispute with adjoining or to neighbouring owners or public authority arising otherwise through the Contractor's own default etc. or by the delay authorised by the Engineer pending arbitration or in consequences of the Contractor not having received in due time necessary instructions from the Railway for which he shall have specifically applied in writing to the Engineer or his authorised representative then upon happening of any such event causing delay, the Contractor shall immediately give notice thereof in writing to the Engineer within 15 days of such happening but shall nevertheless make constantly his best endeavours to bring down or make good the delay and shall do all that may be reasonably required of him to the satisfaction of the Engineer to proceed with the works. The Contractor may also indicate the period for which the work is likely to be delayed and shall be bound to ask for necessary extension of time. The Engineer on receipt of such request from the Contractor shall consider the same and shall grant such extension of time as in his opinion is reasonable having regard to the nature and period of delay and the type and quantum of work affected thereby. No other compensation shall be payable for works so carried forward to the extended period of time, the same rates, terms and conditions of contract being applicable as if such extended period of time was originally provided in the original contract itself. (iii)Extension of time for delay due to Railway:- In the event of any failure or delay by the Railway to hand over the Contractor possession of the lands necessary for the execution of the works or to give the necessary notice to commence the works or to provide the necessary drawings or instructions or any other delay caused by the Railway due to any other cause due whatsoever, then such failure or delay shall in no way affect or vitiate the contract or alter the character thereof or entitle the Contractor to damages or compensation therefor but in any case, the Railway may grant such extension or extensions of the completion date as may be considered reasonable. 17-B Extension of time for delay due to Contractor:- The time for the execution of the work or part of the works specified in the contract documents shall be deemed to be the essence of the contract and the works must be completed not later than the date(s) as specified in the contract. If the Contractor fails to complete the works within the time as specified in the contract for the reasons other than the reasons specified in clauses 17 and 17A, the Railway may, if satisfied that the works can be completed by the Contractor within reasonable short time thereafter, allow the Contractor such further extension of time (Proforma at Annexure I) as the Engineer may decide. On such extension, the Railway will be entitled without prejudice to any other right and remedy available on that behalf, to recover from the Contractor as agreed damages and not by way of penalty, a sum equivalent to = of 1% of the contract value of the works for each week or part of the week. For the purpose of this clause, the contract value of the works shall be taken as value of work as per contract agreement including any supplementary work order/contract agreement issued. Provided also, that the total amount of liquidated damages under this condition, shall not exceed the under noted percentage value or of the total value of the item or groups of items of work for which a separate distinct completion period is specified in the contract. (i) For contract value - 10% of the total value of the up to Rs.2 lakhs contract. (ii ) For contracts valued - 10% of the first 2 lakhs and above Rs.2 lakhs 5% of the balance Provided further, that if the Railway is not satisfied that the works can be completed by the Contractor and in the event of failure on the part of the Contractor to complete the work within further extension of time allowed as aforesaid, the Railway shall be entitled, without prejudice to any other right or remedy available in that behalf, to appropriate the contractor's security deposit and rescind the contract under clause 62 of these conditions, whether or not actual damage is caused by such default." 9 Clause 61 of the General conditions of the contract gives right to the Railway to determine the contract. Clause 61 of the contract reads as under: 61.1)Right of Railway to determine the contract:- The Railway shall be entitled to determine and terminate the contract at any time should, in the Railway's opinion, the cessation of work becomes necessary owing to paucity of funds or from any other cause whatsoever, in which case the value of approved materials at site and of work done to date by the Contractor will be paid for in full at the rate specified in the contract. Notice in writing from the Railway of such determination and the reasons therefore shall be conclusive evidence thereof. (2) Payment on determination of contract by Railway:- Should the contract be determined under subclause (1) of this clause and the Contractor claims payment for expenditure incurred by him in the expectation of completing the whole of the works, the Railways shall admit and consider such claims as are deemed reasonable and are supported by vouchers to the satisfaction of the Engineer. The Railway's decision on the necessity and propriety of such expenditure shall be final and conclusive. (3) The Contractor shall have no claim to any payment of compensation or otherwise, howsoever on account of any profit or advantage which he might have derived from the execution of the work in full but which he did not derive in consequence of determination of contract. 62 Determinatation of contract owing to default of Contractor:- (1) If the Contractor should - (i) becomes bankrupt or insolvent, or (ii) make an arrangement with or assignment in favour of his creditors or agree to carry out the contract under a Committee of Inspection of his creditors, or (iii) being a Company or Corporation, go into liquidation (other than a voluntary liquidation for the purposes of amalgamation or reconstruction), or (iv) have an execution levied on his goods or property on the works, or (v) assign the contract or any part thereof otherwise than as provided in Clause 7 of these conditions or (vi) abandon the contract, or (vii) persistently disregard the instructions of the Engineer, or contravene any provision of the contract, or (viii) fail to adhere to the agreed programme of work by a margin o 10% of the stipulated period, or (ix) fail to remove materials from the site or to pull down and replace work after receiving from the Engineer notice to the effect that the said materials or works have been condemned or rejected under clause 25 and 27 of these conditions, or (x) fail to take steps to employ competent or additional staff and labour as required under clause 26 of these conditions, or (xi) fail to afford the Engineer's representative proper facilities for inspecting the works or any part thereof as required under clause 28 of these conditions, or (xii) promise, offer or give any bribe, commission, gift or advantage either himself or through his partner, agent or servant to any officer or employee of the Railway or to any person on his or on their behalf in relation to the execution of this or any other contract with the Railway. (xiii) (A) At any time after the tender relating to the contract has been signed and submitted by the Contractor, being a partnership firm admit as one of its partners or employ under it or being an incorporated company elect or nominate or allow to act as one of its directors or employ under it in any capacity whatsoever any retired engineer of the gazetted rank or any other retired gazetted officer working before his retirement, whether in the executive or administrative capacity, or whether holding any pensionable post or not, in the Engineering Department of any of the Railways for the time being owned and administered by the President of India before the expiry of two years from the date of retirement from the said service of such engineer or officer unless such engineer or officer has obtained permission from the President of India or any officer duly authorised by him in this behalf to become a partner or a director or to take employment under the Contractor as the case may be, or (B) Fail to give at the time of submitting the said tender:- (a) the correct information as to the date of retirement of such retired engineer or retired officer from the said service, or as to whether any such retired engineer or retired officer was under the employment of the Contractor at the time of submitting the said tender, or (b) the contract information as to such engineers or officers obtaining permission to take employment under the Contractor, or (c) being a partnership firm, the correct information as to whether any of its partners was such a retired engineer or a retired officer, or (d) being an incorporated company, correct information as to whether any of its directors was such a retired engineer or a retired officer, or (e) being such a retired engineer or retired officer suppress and not disclose at the time of submitting the said tender the fact of his being such a retired engineer or a retired officer or make at the time of submitting the said tender a wrong statement in relation to his obtaining permission to take the contract or if the Contractor be a partnership firm or an incorporated company to be a partner or director of such firm or company as the case may be or to seek employment under the Contractor, then and in any of the said cases, the Engineer on behalf of the Railway may serve the Contractor with a notice (Proforma at Annexure III) in writing to that effect and if the Contractor does not within seven days after the delivery to him of such notice proceed to make good his default in so far as the same is capable of being made good and carry on the work or comply with such directions as aforesaid to the entire satisfaction of the Engineer, the Railway shall be entitled after giving 48 hours notice (Proforma at Annexure IV) in writing under the hand of the Engineer to rescind the contract as a whole or in part or parts (as may be specified in such notice) and adopt either or both of the following courses:- (x) to carry out the whole or part of the work from which the Contractor has been removed by the employment of the required labour and materials, the cost of which shall include lead, lift, freight, supervision and all incidental charges (y) to measure up the whole or part of the work from which the Contractor has been removed and to get it completed by another Contractor, the manner and method in which such work is completed shall be in the entire discretion of the Engineer whose decision shall be final: and in both the cases (x) and (y) mentioned above, the Railway shall be entitled (i) to forfeit the whole or such portion of the Security Deposit as it may consider fit, and (ii) to recover from the Contractor the cost of carrying out the work in excess of the sum which would have been payable according to the certificate of the Engineer to the Contractor if the works had been carried out by the Contractor under the terms of the contract, such certificate being final and binding upon the Contractor. Provided, however, that such recovery shall be made only when the cost incurred in excess is more than the Security Deposit proposed to be forfeited and shall be limited to the amount by which the cost incurred in excess the Security Deposit proposed to be forfeited. The amounts thus to be forfeited or recovered may be deducted from any moneys then due or which at any time thereafter may become due to the Contractor by the Railway under this or any other contract or otherwise. Provided always that in any case any of the powers conferred upon the Railway by sub-clause (1) of clause 62 hereof shall have become exercisable and the same shall not be exercised, the non exercise thereof shall not constitute a waiver of any of the conditions thereof and such powers shall notwithstanding be exercisable in the event of any future case of default by the Contractor for which his liability for past and future shall remain unaffected. (2) Right of Railway after rescission of contract owing to default of Contractor:- In the event of any or several of the courses, referred to in sub-clause (1) of this clause, being adopted- (a) the Contractor shall have to claim to compensation for any loss sustained by him by reason of his having purchased or procured any materials or entered into any commitments or made any advances on account of or with a view to the execution of the works or the performance of the contract and Contractor shall not be entitled to recover or be paid any sum for any work thereto for actually performed under the contract, unless and until the Engineer shall have certified the performance of such work and the value payable in respect thereof and the Contractor shall only be entitled to be paid the value so certified; (b) the Engineer or the Engineer's representative shall be entitled to take possession of any materials, tools, implements, machinery and buildings on the works on the property on which these are being or ought to have been executed, and to retain and employ the same in the further execution of the works or any part thereof until the completion of the works without the Contractor being entitled to any compensation for the use and employment thereof or for wear and tear or destruction thereof; (c) the Engineer shall as soon as may be practicable after removal of the Contractor fix and determine ex-parte or by or after reference to the parties or after such investigation or enquiries as he may consider fit to make or institute and shall certify what amount (if any) had at the time of rescission of the contract been reasonably earned or would reasonably accrue to the contractor in respect of the work then actually done by him under the contract and what was the value of any unused, or partially used materials, any constructional plant and any temporary works upon the site. (d) the Railway shall not be liable to pay to the Contractor any moneys on account of the contract until the expiration of the period of maintenance and thereafter until the costs of completion and maintenance, damages for delay in completion (if any) and all other expenses incurred by the Railway have been ascertained and the amount thereof certified by the Engineer. The Contractor shall then be entitled to receive only such sum or sums (if any) as the Engineer may certify would have been due to him upon due completion by him after deducting the said amount; but if such amount shall exceed the sum which would have been payable to the Contractor, then the Contractor shall upon demand pay to the Railway the amount of such excess and it shall be deemed a debt due by the Contractor to the Railway and shall be recoverable accordingly." 10 Clause 64.5 of the Contract reads as under: "Where the arbitral award is for the payment of money, no interest shall be payable on whole or any part of the money for any period till the date on which the award is made." 11 On 12.05.2006, a letter was addressed to the petitioner by the respondent for short closer (foreclosure of contract) or in the alternative to refer the disputes/claims to arbitration. The claim raised in the notice read as under: No Description of Claims Amount 1 Declaration that the Contract expired and lapsed on 25/04/2006 and that the Railway cannot initiate any penal proceedings including under Clause 28 of the Special Conditions of Contract or under Clause 62 of the GCC 2 Damages for the 'under-utilisation and Idling of contractor's Establishment and Overheads [@10% of the value of the unfinished works] Rs.18,00,000/- 3 Damages for the wasteful expense suffered due to the 'under-utilisation and Idling of the contractor's labour Rs.6,00,000/- 4 Damages for the 'under-utilisation and Idling of the contractor's Lorries, Pay-loader, Crusher and Quarry etc. Rs.26,00,000/- 5 Damages for the loss of the anticipated profits suffered by the contractor because of being partially presented from executing the works by the Railway's defaults [@10% of the value of the unfinished works] Rs.15,00,000/- 6 Damages for the loss of opportunity and Turnover suffered by the contractor to the Railway's defaults Rs.10,00,000/- 7 Balance Payment for the work done and the payment of the Security Deposit, EMD, etc. Rs.12,00,000/- 8 Damages towards unlawful retention and non-payment of the above claim amounts [pendente-lite interest from 25/4/2006 till date of Award and for post award] To be quantified 9 Costs To be quantified Total Rs.87,00,000/- 12 Vide letter dated 02.06.2006, the respondent was informed that his request was not accepted. The