IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED :21-9-2007 CORAM THE HONOURABLE MR. JUSTICE P.K. MISRA AND THE HONOURABLE MR. JUSTICE R. SUDHAKAR O.S.A.Nos.406 and 407 of 2000 O.S.A.No.406 of 2000(O.P.No.908 of 1999):- 1.The State of Tamilnadu, represented by its Secretary to Government, Animal Husbandry & Fisheries Department, Chennai-9. 2.The Director of Fisheries, Anna Salai, Teynampet, Chennai-6. 3.The Superintending Engineer, Fisheries & Harbour Circle, Nagercoil, now at the office of the Director of Fisheries, D.M.S. Office, Anna Salai, Chennai-6. ... Appellants/Petitioners Vs. 1.K.Ramachandran, Proprietor, Complex Pile Foundations, Chennai-600 014. 2.Justice K.M.Natarajan (Retd.), 117/1, L.B. Road, Kamaraj Nagar, Thiruvanmiyur, Chennai-600 041. ... Respondents/Respondents https://hcservices.ecourts.gov.in/hcservices/ O.S.A.No.407 of 2000 (Application No.1221 of 2000 in O.P.No.326 of 1999):- 1.The State of Tamilnadu, represented by its Secretary to Government, Animal Husbandry & Fisheries Department, Chennai-9. 2.The Director of Fisheries, Anna Salai, Teynampet, Chennai-6. 3.The Superintending Engineer, Fishing Harbour Project Circle, Nagercoil, now at the office of the Director of Fisheries, D.M.S. Office, Anna Salai, Chennai-6. ... Appellants/Respondents Vs. K.Ramachandran, Proprietor, Complex Pile Foundations, Chennai-600 017. ... Respondent/Applicant Both O.S. Appeals are filed under Order XXXVI, Rule 1 of the High Court Original Side Rules read with Clause 15 of the Letters Patent against the Common Order dated 26.4.2000 passed by a learned single Judge of this Court in O.P.No.908 of 1999 and A.No.1221 of 2000 respectively in O.P.No.326 of 1999. For Appellants in O.S.A.Nos.406 and 407 of 2000 : Mr.S.Senthilnathan, Government Advocate D.Srinivasan, AGP. For first respondent in O.S.A.No.406 of 2000 and respondent in O.S.A.No.407 of 2000 : Mr.G.R.Swaminathan https://hcservices.ecourts.gov.in/hcservices/ For second respondent in O.S.A.No.406 of 2000 : No appearance COMMON JUDGMENT (The Judgment of the Court was delivered by R.SUDHAKAR,J.) Original Side Appeal No.406 of 2000 is filed by the appellants/petitioners in O.P.No.908 of 1999 challenging the common order dated 26.4.2000 passed by the learned single Judge, rejecting their claim for setting aside the Award dated 27.3.1999 passed by the sole Arbitrator in Application No.76 of 1995 in C.S.No.263 of 1987. 2. Original Side Appeal No.407 of 2000 is filed by the appellants/respondents in A.No.1221 of 2000 in O.P.No.326 of 1999 challenging the common order of learned single Judge dated 26.4.2000 allowing O.P.No.326 of 1999 to receive and confirm the award and A.No.1221 of 2000 to pass decree in terms of the Award dated 27.3.1999. 3. The parties, viz., the appellants are referred to as Department and the first respondent is referred to as claimant/ contractor in both the appeals for the sake of convenience. 4. The sole Arbitrator was appointed in C.S.No.263 of 1987 and he passed an award dated 27.3.1999. The Arbitrator filed O.P.No.326 of 1999 before this Court to receive and confirm the award dated 27.3.1999. The first respondent, the claimant filed Application No.1221 of 2000 in the said O.P.No.326 of 1999 to pass a decree in terms of the award. The appellants herein filed O.P.No.908 of 1999 challenging the award dated 27.3.1999. The learned single Judge by a common order dated 26.4.2000 in both O.P.Nos.326 of 1999 and 908 of 1999 and the A.No.1221 of 2000 allowed the Application No.1221 of 2000 and O.P.No.326 of 1999 and dismissed the O.P.No.908 of 1999. It is against this common order dated 26.4.2000, present appeals are filed. 5. The brief facts of the case as stated by the claimant is as follows:- The appellants floated a tender for the formation of R.C. Jetty at Valinokkam Fishing Harbour in Ramanad District. The nature of work was precasting and driving of R.C.C. Piles. The last date of receipt of tender was fixed on 30.12.1983 as per the tender schedule. The tender will be valid upto six months from 30.12.1983 to 29.6.1984. During the opening of the Tender, the first respondent/claimant made the following conditions:- (1) Mobilisation charges of Rs.2 lakhs and Electric Power and Water Supply should be made available at the site by the Department and https://hcservices.ecourts.gov.in/hcservices/ (2) Required cement and steel for the casting yard should be supplied by the Department free of cost The first respondent/claimant submitted the lowest quote. On the request made by the Department by its letter dated 1.8.1984 claimant revalidated the tender and finally, it is stated that the claimant received the work order dated 26.3.1985. Since the work order was issued after lapse of 15 months, claimant sent a letter dated 28.3.1985 claiming 30% escalation as against 20% claimed earlier. At the request of the Superintending Engineer that the escalation amount will be paid on receipt of formal orders from the Government, claimant/contractor accepted the contract work on 20.4.1985. After accepting the agreement in the presence of Mr.G.Kaliasundaram, the then Superintending Engineer, the claimant brought all Pile Driving Equipment and machinery and the construction materials necessary for this project work in the site. Some portion of Pile Driving machinery, were hypothecated under the hypothecation agreement with the then Superintending Engineer Mr.G.Kaliasundaram on 18.5.1985 and received the recoverable mobilisation charges of Rs.2 lakhs as mentioned in the tender condition dated 30.12.1983. However, it is only on 4.7.1985 that the Department handed over the site. On 4.7.1985 itself casting of Pile work was started. During the casting of piles, the Department did not supply the required cement and steel and proper instructions were not given. However, the claimant has completed the casting of piles. Due to the aforesaid delay, the claimant incurred loss as the machinery and labour were kept idle. Further, 3rd appellant did not pay the full bill amount for the work done upto October, 1985 and has not prepared the escalation bill amount according to letter dated 6.4.1984. Due to non- payment of escalation bill amount as promised, the claimant was unable to make any progress in the driving of piles. After many oral representations and several letters, 3rd appellant arranged a Dredger in October, 1985 for the above work. The Dredger, however, sunk on its way near Pamban Bridge at Rameswaram on 30.12.1985. After several oral representations and reminders, made by the claimant, the Superintending Engineer G.Kaliasundaram sent a letter dated 12.1.1986 stating that the approval of the Government regarding escalation charges will be obtained within a month, however, even after lapse of four months the Department did not pay the escalation bill amount. By letter dated 12.7.1986, claimant requested the third appellant to settle claim amount including the pending bill amount and also to release the machinery and equipment, in default to pay simple interest at 18% per month from 15.9.1986. claimant further intimated that failure to settle the claim before 31.12.1986, the claimant will seek remedy as per law. Inspite of this, the Department had not released pending bills, escalation bill amount and further did not release machinery and equipment, and thereby crippled the claimant from taking any other contract work. Claimant stated that he was incurring loss day by day. The claimant, therefore, prayed for arbitration in terms of Clause 39 of General Conditions of the contract. Since the department refused to appoint an Arbitrator, claimant approached https://hcservices.ecourts.gov.in/hcservices/ this Court by filing C.S.No.263 of 1987 for appointment of an Arbitrator to settle the claim amount and for release of machinery and equipment and other construction materials. Mr.C.R.Gopal, the then Superintending Engineer promised to arrange for a Dredger and instructed the claimant to start Pile Driving work. The Department paid 20% escalation amount on 27.7.1987 in G.O.No.791. However, by letter dated 14.1.1988, the Executive Engineer directed the claimant to refund the above said escalation amount. Trusting the words of the third appellant, claimant started the Pile Driving work for which the bill amount was not paid to the claimant inspite of several requests and reminders. The pile driving work could not be proceeded as the third appellant failed to arrange for a Dredger during 1988. Since the area was covered by sea sand, the jetty was not constructed as the seabed was not dredged. Instead of supplying a Dredger to enable the claimant to complete the work, the then 3rd appellant terminated the contract on 11.4.1989 while the piling work was in progress. Because of the failure on the part of the appellants Department for arranging a Dredger and dredging the seabed, the claimant was unable to proceed further with the Pile Driving work. Aggrieved by the termination of the contract without paying the claimant the Pile Driving Bill amount, Pile Casting Bill amount, Escalation Bill amount and other claims made earlier, as illegal and arbitrary, the first respondent/contractor sought for arbitration of the dispute. According to the first respondent/claimant due to delay at various stages he suffered huge loss and the non-use of machinery, equipment and other materials from 30.12.1983 to 11.4.1989, he suffered further loss. First respondent/contractor made a claim for Rs.2,46,42,498/- under various heads as follows:- "CLAIM No.1: Value of work done not yet paid - Claim according to agreement rates Casting of 160 numbers of Piles: 1.Shuttering, Centering, Seafolding, Steel Rods Bending & Building & Oiling the shuttering & concreting and curing all the works: Lumpsum Rate for each Pile: Rs.5160/- For 160 numbers of Piles : Rs.5160 x 160 Piles = Rs.8,25,000/- https://hcservices.ecourts.gov.in/hcservices/ 2.Handlying & Driving the Precast Piles: Lumpsum Rate for each Pile: Rs.5870/- For 10 Piles : Rs.5870 x 10 = Rs. 58,700/- --------------- Total amount = Rs.8,83,700/- Minus the Bill amount paid = Rs.2,20,000/- --------------- Balance to be billed: Net amount due = Rs.6,63,700/- --------------- Balance to be billed: Net amount due = Rs.6,63,700/- CLAIM No.2: Escalation Lumpsum @ 180% on the compelled work during the extended period beginning from 4.7.1984 to 11.4.1989 Completed work : Rs.8,83,700/- Escalation @ 180% : Rs.8,83,700 x 180 = Rs.15,90,660/- 100 CLAIM No.3: Non Recoverable Mobilisation charges not paid = Rs.3,00,000/- CLAIM No.4: Compensation for Losses suffered on account of overheads & Loss of profit during the stipulated period of contract from 4.7.1985 to 3.1.1986 = 6 months a) Amount of contract = Rs.33,25,500/- b) Overheads component of (a) 20% worked out during quoting of tender: = Rs.6,65,100/- https://hcservices.ecourts.gov.in/hcservices/ c) Value of work done upto 3.1.89 (contract period of six months)= Rs.8,25,000/- d) Prorate (b) on (c) 20% on Rs.8,25,000/- being overhead & profit for 6 months = Rs.1,65,000/- e) Net loss on overheads profits on = (b) – (d) = Rs.5,00,000/- Rs.5,00,000/- CLAIM No.5: Losses suffered during the extended period from 4.1.86 to 11.4.89 on account of overheads & loss of profits for 39 months: (a) Provision for overheads & profits made by the claimant while working out the revalidated tender amount is = Item (b) in claim No.4 6 months Contract period 6 months : Rs.6,65,100/- 6 months Overheads & Loss of Profit for each months : Rs.1,10,850/- (b) Overheads & Loss of profit during the extended period per month : Rs.1,10,850/- for 39 months : Rs.1,10,850/- x 39 = Rs.43,23,150/- CLAIM No.6: Damages due to Idle of Machinery, Equipment & other construction materials withheld by the respondents from 4.1.1986 to 22.6.93; Total 89 months: Machinery Component : 35% Contract value : Rs.33,25,500/- For 35% for 6 months in the value of contract : Rs.11,63,923/- 6 months https://hcservices.ecourts.gov.in/hcservices/ Loss on account of idle of machinery for each month : Rs.1,93,,987.50 For 89 months : Rs.1,93,987.50 x 89 = Rs.1,72,64,888/- CLAIM AMOUNTS Claim No.1 : Rs. 6,63,700/- Claim No.2 : Rs. 15,90,660/- Claim No.3 : Rs. 3,00,000/- Claim No.4 : Rs. 5,00,000/- Claim No.5 : Rs. 43,23,150/- Claim No.6 : Rs.1,72,64,888/- ------------------ Total claim amount Rs.2,46,42,498/- ------------------ Thus, claimant prayed for passing of award for Rs.2,46,42,498/-. 6. Respondents/Department filed a counter with counter claim as follows:- The value of the claimant's tender as submitted on 30.12.1983 was Rs.34,33,200/- and the same was reduced to Rs.33,25,500/- to secure the work for himself. After the reduction of rates, the Superintending Engineer recommended the tender to Director of Fisheries on 9.2.1984. The recommendation of the Superintending Engineer was considered at various other Departments and placed before the Tender Committee. The Tender Committee consisting (i) The Commissioner and Secretary to Government, Forest and Fisheries Department (ii) The Deputy Secretary to Government, Public Works Department (iii) The Director of Fisheries and (iv) Thiru G.Kaliyasundaram, the Superintending Engineer, Fishing Harbour Projects Circle considered the question of mobilisation advance and decided that a mobilisation advance of Rs.2 lakhs may be granted on the usual terms and conditions, which amount is to be recovered from the claimant's bills, while accepting the lower tender of the claimant for Rs.33,25,500/- with an excess of 2.90% over the estimate amount. Government in their G.O.Ms.No.268 P & F Department, dated 7.3.1985 accepted the tender offer of the claimant for Rs.33,25,500/- with excess percentage of 2.90% over the estimate and mobilisation advance was also sanctioned under usual terms and conditions. In the G.O. there was no mention of acceptance either to pay escalation at 20% of the tender rates or to grant Rs.3 lakhs (non-recoverable) mobilisation charges. During the interim period after the expiry of revalidation on 28.12.1984, the Superintending Engineer again requested the claimant in his letter dated 19.12.1984 to extend the tender rates for a further period of one https://hcservices.ecourts.gov.in/hcservices/ month from 29.12.1984. Promptly, the claimant in his letter dated 21.12.1984 revalidated his tender rates for a further period of one month from 29.12.1984 to 28.1.1985. Claimant referred only to his earlier revalidation letter dated 2.10.1984 without any preconditions and not to his letter dated 31.8.1984 wherein preconditions had been stipulated. The Superintending Engineer in his letter dated 9.1.1985 submitted revalidation letter of the claimant for the further period from 29.12.1984 to 28.1.1985 to the Director of Fisheries. The Director of Fisheries in turn submitted the copy of letter dated 21.12.1984 of the claimant to the Government revalidating the claimant's tender upto 28.1.1985, whereas the claimant has alleged that the claimant had not accepted for giving further revalidity of tender, because there was further escalation in the prices of materials and labour. The allegation that the then Superintending Engineer Thiru G.Kaliasundaram promised to give work order within one month's time is denied. The work order was issued by the Superintending Engineer on 26.3.1985 after the Government accepted the tender vide G.O.Ms.No.268 dated 7.3.1985. There was no mention and no stipulation made either in respect of grant of non- recoverable mobilisation charges of Rs.3 lakhs in the work order. The claimant on receipt of the work order dated 26.3.1985 raised objection vide his letter dated 28.3.1985. The Superintending Engineer in his letter requested the claimant to execute the agreement and introduce a change in the agreement that escalation charges will be paid to the claimant on receipt of formal orders of Government "if approved". There was no whisper that the non-recoverable mobilisation charges of Rs.3 lakhs as wanted by the claimant will be paid to the claimant. Claimant requested the Superintending Engineer to delete the word "if approved" so as to pressure the Superintending Engineer to accept the escalation stipulation of claimant for 30% enhanced rates while the Superintending Engineer had no power or authority to grant escalation of rates. Once the negotiated tender offer was accepted by Government, the claimant may only accept the work order and execute the agreement or he may reject the work order and refuse to sign the agreement whereupon the Department may forfeit the EMD. Claimant added a further demand that the non- recoverable mobilisation charge of Rs.3 lakhs which had so far not been raised either in the claimant's revalidation upto 28.12.1984 or upto 28.1.1985 in his letters dated 2.10.1984 and 21.12.1984 respectively and also in the minutes of meeting of the tender committee on 4.12.1984 and G.O.Ms.No.268 dated 7.3.1985. The agreement dated 10.5.1985 was registered as CR.No.5/85-86. No special conditions were stipulated in the agreement except to state that mobilisation advance of Rs.2 lakhs shall be paid for procuring machinery and making preliminary arrangements at the site against hypothecation of machinery to the Government. This advance was to be recovered in ten equal instalments with interest at commercial rates from the first 10 consecutive bills after 20% work is done. G.O.Ms.No.268 dated 7.3.1985 provided for the grant of mobilisation advance of Rs.2 lakhs on hypothecation of machinery. Accordingly, on the claimant bringing his machinery to site and hypothecating the same, claimant was sanctioned the mobilisation advance of Rs.2 lakhs. Thus, it https://hcservices.ecourts.gov.in/hcservices/ will be clearly seen there was no breach by the appellants Department in either accepting the negotiated tender of the claimant as per G.O.Ms.No.268 dated 7.3.1985 or in the sanction of the mobilisation advance by the Department on 18.5.1985 as per the hypothecation deed and insurance cover at pages 117 to 135 of the agreement. The mobilisation advance was paid to the claimant on 19.5.1985. 7. It is also stated that the claimant did not by any letter during the period in question before 4.7.1985 state that the appellants Department delayed handing over the site. The claimant did not withdraw from the contract on the basis that site had not been handed over timely. The agreement was signed by claimant on 10.5.1985 and the claimant took over the site on 4.7.1985. With regard to supply of steel, cement and other materials, the Department contended that there was no delay on their part and the claim of the first respondent/ contractor was misconceived. The fault was stated to be on the part of the contractor/first respondent. The Department also gave the details of payments made to the contractor refuting the claim that amounts were not paid for the work done. The amount claimed by the first respondent was disputed by the Department. 8. After October, 1985 the claimant did not carry out any work till November and December, 1988 when 10 piles were driven by claimant. There is no justification for this kind of delay and piece meal work in the sense even the 10 piles driven have not been fully driven and cut off. For handling 10 piles, payment is due to claimant. The payment due is Rs.15,000/- only. This works was not carried out in October, 1985 but only later during November and December, 1988 and in February 1989. The claimant has further falsely stated that third appellant has not prepared the escalation bill amount according to the letter dated 6.4.1985. As per the letter of Superintending Engineer addressed to the claimant, it was informed that the representation is being submitted to the Government. The Government considered the repeated request of claimant for escalation charges of 20% over tender rates and sanction escalation charges in G.O.Ms.791 F& F Department dated 17.7.1987. After 20.10.1985 no work had been done by the claimant till date of the said G.O. On issue of the said G.O., the escalation charges for work done until then by the claimant was paid on 27.7.1987. The payment so made was Rs.1,65,439/-. Thus there was no breach committed by the appellants Department. The above payment has been accepted by the claimant without demur and protest. Having been satisfied by such payment it is not left open to the claimant now to seek escalation. Hence the claim of the claimant under Claim No.2 for escalation once again at 180% for work already done and fully paid is not maintainable and liable to be rejected. 9. The payment escalation charges was not a condition stipulated in the contract or in the agreement. Even if it were, non-payment of escalation charges for any duration is not a cause on the basis of which the claimant may stop work. Claimant failed to discharge his duties as a lumpsum contractor and breached the contract by his failure to complete https://hcservices.ecourts.gov.in/hcservices/ the work. Claimant further breached the contract by his failure to adhere to the rate of progress stipulated in the agreement at pages 6 and 40. The averment that the third appellant should arrange for a dredger for dredging pile driving area is not correct. Claimant should have driven atleast 3 piles per day, but the claimant did not do so and by his failure claimant breached the contract. Since claimant had carried out only 24% of the work even after nearly 4 years, the Department had no other option but to terminate the contract as the claimant had committed fundamental breach of contract. The fact remains that the contract period expired as early as on 3.1.1986 and the same has not been extended. As such, the contractual obligations between the parties did not extend beyond this period and whatever work had been done by the contractor after the efflux of the contractual period inspite of the conduct of the parties the contractor is to be paid for the work done as per the "Quantum Merit" enumerated in Section 70 of the Indian Contract Act 1872 (Central Act IX of 1872). After expiry of contract on 3.1.1986 the claimant has conveyed and driven incompletely 10 piles only in November, 1988 to February 1989. The claimant has claimed Rs.5,870/- per pile for handling and driving the same as per the agreement rate or his revised rate. For the purposes of valuing the work thus carried out by him for handling and driving 10 piles, the claimant even according to his own claim became entitled to Rs.58,700/-. The piles have not been driven to the set point, but have been stopped much above the set point. Therefore, the driving is incomplete and payment of the same cannot be made. Payment can be limited only to the handling of the piles for which a rate of Rs.1,500/- per pile is to be adopted as per the stipulations in the contract as there is no other evidence available. In view of the contract having ended on 3.1.1986 by efflux of time and further as affirmed by the claimant himself by his letter dated 12.7.1986 the contract has undisputedly come to end as on either of these dates and the same was further confirmed by the claimant in his letter dated 29.10.1986. There is no proof to show that the contract was kept alive beyond 3.1.1986. 10. The machinery of claimant had been hypothecated to secure mobilisation advance and the question of release of hypothecated machinery does not arise. It is stipulated under Clause 39 of the agreement that the contractor is prohibited from going for arbitration till the completion of the work. The claimant did not intimate the appellants Department that he cannot (1) complete the contract or (2) that he had no intention of resuming work or (iii) that he was frustrated on account of (a) lack of finance (b) lack of resources (c) lack of managerial and technical skill and expertise to simultaneously manage and execute work at 3 work sites in the sea (Thondi, Valinokkam quay wall and these RCC Jetties at Valinokkam) (d) that appropriate and necessary machinery and equipment of good quality and (e) efficient and effective labour, and therefore he was withdrawing from the contract. Hence, the claimant is not entitled to any relief at the hands of Arbitrator. However, as the disputes referred to are outside the scope of agreement and admittedly outside the scope of the contract period, the claims are not arbitrable https://hcservices.ecourts.gov.in/hcservices/ and are also liable to be rejected in toto. 11. The Superintending Engineer by letter dated 29.10.1986 informed the claimant that the work was at a standstill and if work was not resumed by 10.11.1986, the contract will be terminated with forfeiture of EMD etc. To this letter the claimant vide his letter dated 3.11.1986 replied that he has resumed work on 27.10.1986, which is not correct. Again the Superintending Engineer issued notices to the claimant vide letters dated 1.6.1987, 22.7.1987, 4.8.1987, 19.10.1987 and 24.11.1987 for not resuming the work. The Director of Fisheries also issued notice to claimant instructing the claimant to resume work vide his letters dated 28.9.1987 and 3.11.1987. To all these letters there was no response from the claimant. It shows that there were no labourers at site of work from 20.10.1985 till work was resumed in November, 1988. Hence claim made under Claim Nos.4 to 6 are false. The claimant responded only in his letter dated 2.9.1988 stating that he was arranging to resume work. Earlier in letter