IN THE HIGH COURT OF HIMACHAL PRADESH AT SHIMLA Arb. Case No. 75 of 2002 Date of Decision: 15th September, 2008 The Chief Engineer (R&D) and another Petitioners Versus M/s Joginder Lal Sethi and another Respondents Coram The Hon’ble Mr. Justice Sanjay Karol,J. Whether approved for reporting1? Yes. For the petitioners: Mr.K.B.Khajuria, Central Govt. Counsel. For the respondent No.1: Mr. Ajay Kumar, Advocate. Sanjay Karol, J. (Oral) The present petition filed by the petitioners (hereinafter referred to objector) under Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the Act), is for setting aside of award dated 22.7.2002 passed by Shri Namo Narain, CSW, Sole Arbitrator, appointed by the objector Department. It appears that certain disputes having arisen between the parties, on the request of respondent No.1 (hereinafter referred to Contractor), without interference of the Court, were referred to the arbitration of Chief Engineer (R&D) on 18.1.2000. The appointed Arbitrator resigned and the disputes were referred afresh to the present Arbitrator on 24.4.2001. The parties were afforded full opportunities to Whether the reporters of Local Papers are allowed to see the Judgment? 2 plead and lead their evidence, if any, and after examining the material on record, the Arbitrator passed the award dated 22.7.2002 running into 36 pages. For the purpose of construction of “provision of MT Garages, Protective works, Single living Acccn (accommodation) and five bedded Hospital at HQ SASE, Manali”, vide letter dated 4.11.1989, the Contractor was awarded contract evaluating to Rs.1,43,11,703.40. In terms of the contract, the work was to be completed within two years i.e. w.e.f. 4.12.1989 to 3.12.1991. However, the time for completion of the work was repeatedly extended and lastly upto 15.5.1995, but since the entire work was not completed, the contract was rescinded on 5.8.1995. Even though no final bill was either submitted by the Contractor or cleared by the objector, but as has been stated by the learned counsel for the objector a sum of Rs.89,19,118.70 stood paid for the works completed by the Contractor. Objection petition has been filed primarily on the ground that no reasons have been assigned by the Arbitrator while awarding the claims; the time being the essence of the contract no damages could have been awarded to the Contractor; the impugned award is erroneous, perverse, unconscionable and amounts to unjust enrichment of the Contractor as the same is based on surmises and conjectures. The petition was objected by the Contractor by filing a reply. Based on the pleadings of the parties, on 14.11.2003, the Court framed the following issues:- 1. Whether the time was essence of contract and because of delay in execution on the part of respondent, the 3 contract was rightly cancelled after following procedure as per law and agreement? OPP. 2. Whether the award is non-reasoned, non-speaking and has been passed on conjectures and surmises, without following law? OPP. 3. Whether the (sic) bad for closure of proceedings without the consent of parties? OPP. 4. Whether the award is in conflict with terms and conditions of contract and in contradiction to usages and trade applicable to transaction and against public policy? OPP. 5. Relief. Learned counsel for the parties agreed that all the aforesaid issues be clubbed together and decided claim-wise. As such, all the issues are clubbed together and decided claimwise. Submissions of learned counsel for the parties have also been dealt with while dealing the objections claimwise. Before the Arbitrator, both the Contractor and the Department have filed the claims. The Claims of the Contractor were dealt with by the Arbitrator as under:- Claim No.1: Balance payment for work done including escalation etc. As against the claim of Rs..30,30,905.48, the Arbitrator has divided this claim into various sub-claims as under:- (i) Work done against Sch ‘A’ Part I 65,96,261.53 (ii) Road Work Sch. ‘A’ Part II 6,45,855.51 (iii) Sewage disposal Sch ‘A’ Part III 1,60,355.34 (iv) External water supply Sch ‘A’ Part IV 41,351.81 (v) External electrification Sch ‘A’ Part V 14,74,342.40 (vi) Protective work 39,62,230.24 (vii) Demolition and dismantling 484.49 ------------------------- 1,28,80,881.22 4 Effect of Dos ( - ) 5,02,247.18 ------------------------ 1,23,78,634.04 Add price escalation 16,67,081.25 ------------------------ 1,40,45,715.29 Deduct (i) Water charges : 52,591.39 (ii) Sch ‘B’ stores 43,78,619.30 (iii) Sch ‘C’ 15,963.08 (iv) 7.00 ----------------- 44,47,180.77 (v) Payment made by RAR 89,19,118.70 ……………. 1,33,66,299.47 (-) 1,33,66,299.47 6,79,415.82 Say: 6,79,416.00 As such, the Arbitrator has awarded a sum of Rs.6,79,416/- under Claim No.1. While doing so, the Arbitrator after examining the correspondence exchanged between the parties, the terms of the agreement, physically verifying the site, has given reasons for arriving at its conclusions. Importantly, the Arbitrator has divided this claim into various sub-heads and evaluated each claim individually. The Arbitrator noted the contentions of both the Contractor and the Objector and after visiting the site and perusal of the inventory for the incomplete items of work has arrived at its conclusion. It was found from the payment of 33rd RAR bill that the work pertaining to road/path/culverts was complete as Board of Officers did not find any such work left incomplete. It is not the case that any other Contractor has completed this work. The measurements of the road/ works was carried out during the site visit. Importantly, the Arbitrator has applied its mind and has not awarded any amount with regard to claims pertaining to sewage disposal, 5 external water supply, external electrification, protective work, CGI sheet in roof, non-ISI marked rolling shutter and other deviation orders being 13 in number. Claim No.2: Loss of Tools and Plants, Machinery, Centering and shuttering materials etc. taken over by the Deptt after illegal cancellation of the contract. Claim No.3: Materials brought at site for incorporation in the work and taken over by the Department in its custody. As against the claim of Rs.8,74,220 under Claim No.2, the Arbitrator has awarded Rs.75,000/- and as against the claim of Rs.4,43,371.11 under Claim No.3 the Arbitrator has awarded Rs.3,53,738.00. The Arbitrator, after appreciating the material on record came to the conclusion that the Contractor was entitled to compensation only for some of his construction material such as concrete mixer, welding machine, drilling machine, washed away stores/ office huts, small tools and plants etc. It was also found that no gate pass for removal of the material had been proved on record to establish the objector’s contention that the Contractor had actually removed the material from site. The fact that the inventory was required to be prepared as requested by the Contractor was taken into account. It is not in dispute, as is evident from the Arbitrator’s findings, based on the record of proceedings of the objector, that some of the material actually washed away in the flash floods and the same being covered under the expected risk, the Contractor was entitled to reimbursement of the same. The Arbitrator has taken into account the proceedings of the Board of Officers constituted by the Objector. It found that in the record of proceedings, the damage caused to the complete work 6 had not been recorded, inspite of the fact that the proceedings continued for more than two hearings. That there had been flash floods between 4/5th September, 1995 to 30th December, 1995 is seriously not disputed. It is true that the Contractor did not appear before the Board but it is not disputed that the material was brought at site by the Contractor and without any permission/ authorization it would not have been possible for any person to remove the material from the site. The Arbitrator rightly assumed that the material might have been washed away during or after the flash floods. Claim No.4: Excavation in hard rock/boulders in lieu of ordinary soil. As against the claim of Rs.72,24,856.65, the Arbitrator has awarded a sum of Rs.49,618.00. The Arbitrator found that the work for the construction of the road had been carried out by the Contractor. The claim pertained to the building work, road path culverts, sewage disposal, external water supply, external electric supply and protective work, some of which were adjudicated vide Claim No.1. The Arbitrator has given sufficient reasons while arriving at its conclusion. Claim No.5: Loss suffered due to flash floods on 5.9.91 being accepted risk As against the claim of Rs.6,00,000.00 the Arbitrator has awarded a sum of Rs.20,000-00 after taking into account that in terms of letter dated 11.9.1991 issued by the Union of India, extra labour had been deployed to clear the debris from the building areas so as to start the work for early completion. Claim No.6: Release of individual security deposit deposited in shape of fixed deposit receipt dated 8.5.90 issued by Union Bank of India. 7 As against the claim of Rs.75,000/- the Arbitrator held that the Contractor was entitled to the refund of the entire security deposit amounting to Rs.75,000/- alongwith 5% simple interest upto the date of the award. Claim No.7: Delayed and restricted payment of RAR during the entire currency of the contract. As against the claim of Rs.2,50,000.00, nothing was awarded by the Arbitrator to the Contractor. Claim No.8: Payment not made for additional item of work executed at site. As against the claim of Rs.8,79,564.79, the Arbitrator has awarded a sum of Rs.17,182.00. This was so done taking into account the works carried out by the Contractor for excavation in hard rock. The Arbitrator has applied its mind while coming to the conclusion that the item of culvert does not specify that the earth work is included in the rate and keeping in view the ambiguity as to whether the earth work is included in item No.6 or to be paid separately under item No.7, the Arbitrator has gone ahead in awarding the Claim of Rs.17,182.00. I see no reason to differ with the same. Claim No.9: Losses and damages suffered due to breach of the contract by the department. Claim No.10: Loss suffered due to arbitrary and illegal cancellation of the contract by the Department. The Arbitrator, after considering the ratio of law laid down by the Apex Court in M/s Hind Construction Co. vs. State of Maharashtra, 1979 (2) SCC 70, and also taking into account the correspondence exchanged between the parties, concluded that Union of India had failed in 8 complying with the conditions of the contract, therefore, the period stipulated i.e. 2 years for completion of the work was not binding on the parties when repeated extensions had been admittedly given by the Union of India. Consequently, the cancellation of the contract was also held to be invalid. But, however, no damages were awarded to the Contractor for the same. Claim No.11: Advances to labour, suppliers and staff. As against the claim of Rs.1 lac, no amount has been awarded by the Contractor. Claim No.12: Turn over loss due to cancellation of contract. As against the claim of Rs.2,86,082.06, the Arbitrator has awarded a sum of Rs.1,14,432.00. This was done taking into account the ratio of law laid down in AT Brij Paul Singh and others vs. State of Gujarat, (1984) 4 SCC 59, that the contractor is entitled to claim for the remaining work due to improper cancellation of contract. Claim No.13: Unlawful recoveries made by the Department from RARs. As against the claim of Rs.2,00,000.00, no amount has been awarded by the Arbitrator. Claim No.14: Interest @ 24% P.A. on all claims as admissible under section 31 of the Arbitration and Conciliation Act 1996 (Pre- suit Pendentelite and further. Interest at the rate of 15% per annum has been awarded w.e.f. 18.1.2000, when the Arbitrator was first appointed. Mr. Khajuria has referred to and relied upon a decision of the Apex Court in Krishna Bhagya Jala Nigam Ltd. vs. G.Harischandra Reddy and another, (2007) 2 SCC 720, wherein interest on the claim has been restricted to at the rate of 9% per annum. 9 Faced with this situation, Mr. Ajay Kumar, fairly agreed that this being the position of law, the rate of interest has to be awarded accordingly. In the facts and circumstances of the case and keeping in view the ratio of law laid down by the Apex Court, the interest is reduced from 15% to 9% from the date of commencement of arbitration proceedings till the date of payment. Ordered accordingly. The claims of the Objector were dealt with by the Arbitrator as under:- Claim No.1: Minus amount of final bill. The aforesaid claim was rejected by the Arbitrator after considering the material on record. The Arbitrator found that the Objector had not suffered any revenue loss due to delay and in fact provisional extensions had been granted upto 15.5.1995, which only indicated that the further extensions were in contemplation and the recession of the contract was bad in law. The Arbitrator also found that running bills upto a particular point had been cleared by the Objector without demur which only proved that no claim/ loss had either arisen or suffered by the Objector. With regard to stores and excess material supplied to the Contractor, the Arbitrator found that keeping in view the topography and also the overall control and supervision of the objector, it was not easy for any person to have removed any material from the site without the knowledge of the Objector. Nothing was placed on record to support the contentions, therefore, the claim was rejected by the Arbitrator. I see no reason to differ 10 as nothing has been shown from the record that the findings are perverse, contrary to law or contract. Claim No.2: Recovery of technical examination. Rs.11,563/- was awarded on the basis of the concession made by the Contractor. Claim No.3: Cost of Arbitration Claim No.4: Interest past, pendente lite and future @ 18%. Both the above claims were disallowed by the Arbitrator. In my view since interest has been awarded on the contractor’s claim, therefore, even the objector would be entitled to the same on the similar terms. Ordered accordingly. Mr.Khajuria has not been able to point out any term in the contract and more, particularly, the specific conditions of the contract, whereby further extension of time for completion of the work is prohibited. The fact of the matter is that the complete site was not handed over by the objector. During the operation of work due to flash floods the work had not only stopped but property had also been damaged. From the letters dated 17.6.1993, 4.5.1994 and 4.3.1995, shown to me from the record by Mr. Khajuria in the Court, it is evident that the extensions have been granted without any reservation or condition. It simply records as under:- “Chief Engineer, Udhampur Zone Post Office Garhi, Udhampur (J&K)-182121 No.85906/507/EB 17 June 93 CWE Mamun CA No.CEUZ-10/89-90 :PROVN of MT GARRAGES WKSP PROTECTIVE WORKS SINGLE LIVING ACCN 11 FOR CRs & 5 BEDDED HOSPITAL AT HQ SASE MANALI: M/S JOGINDER LAL SETHI 1. Ref your letter No. 8309/10/700/EB dated 14 June 93. 2. In view of the circumstances stated in your above quoted letter, the Accepting Officer of the contract has granted extension of time upto and including 12 July 93 in terms of condition 11 of IAFW-2249. 3. Please implement the above extension through a DO indicating the financial effect as NIL.” The extension has been granted in terms of Clause 11 of the General Conditions of the contract, which for the purpose of ready reference reads as under:- “Time, Delay and Extension – (A) Time is of the essence of the Contract and is specified in the contract documents or in each individual Works Order. As soon as possible after Contract is let or any substantial Works Order is placed and before Work under it is begun, the G.E. and the Contractor shall agree upon a Time and Progress Chart. The Chart shall be prepared in direct relation to the time stated in the contract documents or the Works Order for completion of the individual items thereof and/or the Contract or Works Order as a whole. It shall indicate the forecast of the dates for commencement and completion of the various trade processes or sections of the work, and shall be amended as may be required by agreement between the G.E. and the Contractor within the limitation of time imposed in the contract documents or Works Order. If the Works be delayed:- (i) by force majeure, or (ii) by reason of abnormally bad weather, or (iii) by reason of serious loss of damage by fire, or (iv) by reason of civil commotion, local combination of workmen strike or lockout, affecting any of the trades employed on the work, or (v) by reason of delay on part of nominated sub- contractors, or nominated suppliers which the Contractor has, in the opinion of G.E., taken all practicable steps to avoid, or reduce, or (vi) by reason of delay on the part of Contractors or tradesmen engaged by Government in executing works not forming part of the contract, or 12 (vii) by reason of any other cause, which in the absolute discretion of the Accepting Officer is beyond the Contractor’s control; then, in any such case the Officer hereinafter mentioned may make fair and reasonable extension in the completion dates of individual items or groups of items of Works for which separate periods of completion are mentioned in the contract documents or Works Order, as applicable. Upon the happening of any such event causing delay, the Contractor shall immediately, but not later than 30 days of the happening of the event, give notice thereof in writing to the G.E. but shall nevertheless use constantly his best endeavour to prevent or make good the delay and shall do all that may reasonably be required to the satisfaction of G.E. to proceed with the works. Extension of time shall be granted as under:- (a) by G.E. for all Term Contracts; (b) by Accepting Officer of the contract for all other Contracts. In case the Contractor fails to notify the G.E. of happening of an event(s) causing delay within the period of 30 days stipulated in sub-para 3 above, he shall forfeit his right to claim extension of time for the delay caused due to such event(s). Extension of time, as granted above, shall be communicated to the Contractor by G.E. in writing and shall be final and binding. PROVIDED THAT in the case of contracts (other than Term Contracts) accepted by the G.E., in the event of the Contractor not agreeing to the extension granted by the G.E., the matter shall be referred to the C.W.E. whose decision shall be final and binding. (B) If the Works be delayed: (a) by reason of non-availability of Government stores shown in Schedule ‘B’; or (b) by reason of non-availability or breakdown of Govt. Tolls and Plant listed in schedule ‘C’; then, in any such event, notwithstanding the provisions hereinbefore contained, the Accepting Officer may in his discretion grant such extension of time as may appear reasonable to him and the same shall be communicated to the Contractor by the G.E. in writing. The decision so communicated shall be final and binding and the Contractor shall be bound to complete the works within such extended time. (C) No claim in respect of compensation or otherwise, however arising, as a result of 13 extensions granted under Conditions (A) and (B) above shall be admitted. It is important to notice that nothing has been placed on record to show that any action, at the time of giving last extension was contemplated by the objector, therefore, in my view, the Arbitrator has rightly held that cancellation of the contract by the Objector was bad in law. I may also notice that the Arbitrator has held that the work could not be completed by the Contractor due to non-clearance of running bills beyond a particular time. The objector was under an obligation to clear the bills to enable the Contractor to complete the tendered work within time. The same was, however, not done and, therefore, due to non-compliance of the conditions of the Contract by the Objector, the Contractor could not be said to have faulted for not complying with the terms of the contract. It is settled principle of law that whether time is the essence of the contract or not has to be inferred and gathered from the terms of the contract as also the intention of the parties. [ M/s Hind Construction Co. (supra), McDermott International Inc. vs. Burn Standard Co. Ltd. and others, (2006) 11 SCC 181 and Yogest Mehta vs. Custodian Appointed under the Special Court and others, (2007) 2 SCC 624]. In the present fact situation, as has been noticed hereinabove, the extensions are unconditional. The next contention of Mr. Khajuria is that no reasons have been assigned by the Arbitrator while making the Award. I have perused the award. It is correct that while awarding some of the claims the Arbitrator has not assigned elaborate reasons, but, however, it is equally true that respective contentions of the parties were 14 noted down and considered while arriving to the conclusions. The working of the mind of the Arbitrator is evident from the reasons, limited though, furnished by him. In my view, it cannot be said that the award is unreasoned. The scope of interference by this Court is well established. In Bharat Coking Coal Ltd. vs. Annapurna Construction, (2003) 8 SCC 154, the Apex Court has held that there is a clear distinction between an error within the jurisdiction and error in excess of jurisdiction. It is not in dispute that the Arbitrator did not have any jurisdiction to decide any of the claims. The Apex Court in Oil & Natural Gas Corporation Ltd. . vs. Saw Pipes Ltd., (2003) 5 SCC 705, has laid down the principles while interpreting the provisions of Section 34 of the Act. The Court has held that the Award could be interfered only if it is contrary to (i) the fundamental policy of Indian Law; (ii) the interests of India; (iii) justice or morality and (iv) patently illegal. These principles have been reiterated subsequently in Hindustan Zinc Ltd. vs. Friends Coal Carbonisation, (2006) 4 SCC 445; State of Rajasthan and others vs. Basant Nahata, (2005) 12 SCC 77 and Centrotrade Minerals & Metals Inc. vs. Hindustan Cooper Ltd., (2006) 11 SCC 245, wherein it has been held that the ground for setting aside the Arbitrator’s award should be only where the illegality is patent, which goes to the root of the matter and should be so unfair and unreasonable so as to shock the conscience of the Court. I have dealt with each of the claims and to my mind the award cannot be faulted for any of the aforesaid reasons. In Rajasthan State Mines & Minerals Ltd. v. Eastern Engg. Enterprises, (1999) 9 SCC 283, the Court has held as under:- 15 “35. In Rajasthan State Mines & Minerals Ltd. (supra) whereupon Mr. Rohtagi placed strong reliance, this Court held that the dispute to the arbitrator could not be termed as without jurisdiction but proceeded to consider the question as to whether he will have authority or jurisdiction to grant damages or compensation in the teeth of the stipulation providing that no escalation would be granted and that the contractor would only be entitled to payment of the composite rate as mentioned and no other or further payment of any kind or item whatsoever shall be due and payable by the Company to the contractor. 36. It was concluded : (SCC pp 309-10, para 44) "44 (a) It is not open to the Court to speculate, where on reasons are given by the arbitrator, as to what impelled the arbitrator to arrive at his conclusion. (b) It is not open to the Court to admit to probe the mental process by which the arbitrator has reached his conclusion where it is not disclosed by the terms of the award. (c) If the arbitrator has committed a mere error of fact or law in reaching his conclusion on the