IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 2.11.2011 CORAM: THE HONOURABLE MR.JUSTICE P.JYOTHIMANI O.P.No.541 of 2009 and O.A.Nos.379 and 380 of 2009 The Chairman Guindy Industrial Estate Infrastructure Upgradation Company, Garment Complex-II (Near Electronics Complex) Thiru Vi-Ka Industrial Estate Guindy, Chennai – 600 032. .. Petitioner Vs. 1. Gurumurthy Engineering Enterprises Civil Engineering Contractors No.7/3, Ring Road Ashok Nagar, Chennai – 600 083. 2. P.Sridharan 3. D.S.Dharmaseelan 4. N.Sethu Ramaswami .. Respondents Prayer: Petition under Section 34 of the Arbitration and Conciliation Act, 1996 to set aside the award dated 30.3.2009 made in relation to the disputes arising out of the contract agreement dated 25.6.2007 entered into between the petitioner and the first respondent insofar as Claim Nos.1, 2, 4, 6 and 8 are concerned. For Petitioner : Mr.B.Shantha Kumar For 1st Respondent : Mr.G.Masilamani, Sr.Counsel for Mr.D.Balaraman https://hcservices.ecourts.gov.in/hcservices/ 2 O R D E R This petition is filed under Section 34 of the Arbitration and Conciliation Act, 1996 (for short, “the Act”) for setting aside the award passed by the Arbitrators insofar as it relates to Claim Nos.1, 2, 4, 6 and 8 made by the first respondent (hereinafter referred to as "the Contractor"). The particulars regarding the claim and the award are as under: Clai m No. Description Claim Amount (Rs) Amount Awarded (Rs) 1 Rate for conveyance of surplus excavated earth 7,68,111/- 3,45,502/- 2 Revision of rates for the items of work carried out beyond the contract period 87,98,572/- 1,32,56,362/- 4 Loss of profit claimed on the work not performed in 37 roads 89,78,105/- 47,81,690/- 6 Loss due to idle overheads: (i)Loss due to idle establishment 11,69,061/- 3,69,324/- (ii)Loss due to idle machinery 36,20,252/- Nil 8 Interest 12% up to the date of award and 18% from the date of the award 1,14,533/- The petitioner (hereinafter referred to as “the Employer”) has filed the present original petition in respect of the https://hcservices.ecourts.gov.in/hcservices/ 3 grant of the above said awards. BACKGROUND FACTS 2.1. The brief facts giving rise to the dispute as well as the passing of the award are as follows: The Contractor was awarded a contract by way of an agreement entered between the Employer and the Contractor on 25.6.2007 for Improvement, Widening and Strengthening of Existing Roads, Construction of storm water drains and cross masonry work inside Thiru Vi-Ka Industrial Estate, Guindy. The contract price, as per the agreement for the work, was Rs. 9,19,46,759/-. The date of signing of the agreement, as stated above, was 25.6.2007 and the date of commencing of work was 15.6.2007 and as per the terms of agreement, the period fixed for completion of the work was seven months, namely on or before 14.1.2008. The period of contract for completion of the work was extended up to 31.3.2008 and second extension was granted up to 30.6.2008. It is also stated that the Contractor purported to terminate the contract on the ground of breach by the Employer, but as the time was extended from 31.3.2008 to 30.6.2008, the Contractor continued the work and ultimately, the Employer has terminated the contract on 30.3.2009 on the ground of default stated to have been committed by the Contractor. https://hcservices.ecourts.gov.in/hcservices/ 4 2.2. As per the terms of agreement, the Contractor has raised number of disputes and nominated the third respondent as Arbitrator and the Employer has nominated the fourth respondent as its nominee and respondents 3 and 4 (Arbitrators) have appointed the second respondent as a Presiding Arbitrator. The Contractor has made the following nine claims: Claim No. Description Claim Amount (Rs) 1 Rate for conveyance of surplus excavated earth 7,68,111/- 2 Revision of rates for the items of work carried out beyond the contract period 87,98,572/- 3 Release of pending bills for the work done 46,73,300/- 4 Loss of profit claimed on the work not performed in 37 roads 89,78,105/- 5 Loss of turn over due to breach committed by the Employer 96,25,200/- 6 Loss due to idle overheads: (i) Loss due to idle establishment 11,69,061/- (ii) Loss due to idle machinery 36,20,252/- 7 Loss due to omission of work from the contract 77,19,445/- 8 Interest 12% up to the date of award and 18% from the date of the award 9 Cost --- 2.3. The Arbitral Tribunal while rejecting Claim No.5, 7 and 9, has also rejected part of Claim No.6 in respect of https://hcservices.ecourts.gov.in/hcservices/ 5 loss due to idle machinery. The Contractor has not challenged the rejection of the said claims by the Arbitral Tribunal. On the other hand, in respect of Claim Nos.1, 2, 3, 4, 6 (Part) and 8, the following amounts were awarded, namely: Claim No. Description Amount Awarded (Rs) 1 Rate for conveyance of surplus excavated earth 3,45,502/- 2 Revision of rates for the items of work carried out beyond the contract period 1,32,56,362/- 3 Release of pending bills for the work done 12,55,599/- 4 Loss of profit claimed on the work not performed in 37 roads 47,81,690/- 6 Loss due to idle overheads: (i) Loss due to idle establishment 3,69,324/- (ii) Loss due to idle machinery Nil 8 Interest 1,14,533/- 2.4. Neither the Contractor nor the Employer has challenged the claim awarded in respect of Claim No.3. Except Claim No.3, in respect of other claims, namely Claim Nos.1, 2, 4, 6 (Part) and 8, in respect of which award has been made, the Employer has filed the petition to set aside the same. CONTENTIONS 3.1. The main contention pertains to the award granted in respect of revision of rates on the basis that the https://hcservices.ecourts.gov.in/hcservices/ 6 agreement does not provide a clause for revision of rates. It is contended that as per the clause in the agreement, the rate quoted by the bidder shall be fixed for the duration of contract and is not subjected to any adjustment on any account. Moreover, there is no application of price adjustment under the contract and therefore, the question of revision of rates as claimed by the Contractor is opposed to the terms of the contract and ought to have been rejected by the Arbitral Tribunal. 3.2. It is further contended that as per the terms of agreement, which contemplates the procedure for initiation of arbitration, the arbitration can be commenced only as per Clause 23.2 of the Conditions of Contract, which contemplates issuance of notice in respect of a dispute by a party and giving of reply thereafter within fourteen days and if no reply is received or the reply is not acceptable, the affected party can suggest for arbitration, and, according to the Employer, in the present case, the Contractor has appointed Arbitrator even before the dispute or claim was rejected and, therefore, the proposal for appointment of arbitrator by the Contractor becomes invalid. 3.3. It is also contended that while granting extension, the Employer has categorically mentioned that the extension is subject to the condition that the balance https://hcservices.ecourts.gov.in/hcservices/ 7 work under the agreement is to be executed at the existing contract rates and conditions, which was never objected to by the Contractor and that being so, the grant of revision of rates by the Arbitral Tribunal is without jurisdiction. The learned counsel would also rely upon the judgments in Ennore Port Limited v. Skanska Cementation India Limited, (2008) 1 MLJ 1147 and Rajasthan State Mines and Minerals Limited v. Estra Engineering Enterprises, AIR 1999 SC 3927. Therefore, according to the learned counsel for the Employer, the second claim should have been rejected at the outset as a preliminary issue. 3.4. It is the further contention that the view taken by the Arbitral Tribunal that the Employer has not raised any objection to various statements filed and marked as Ex.C42 in the form of revised rates claiming a revised rate of Rs 87,98,572/- is unsustainable, as such change of claim has been made by the Contractor without permission from the Employer or the Arbitrators as required under the Act and thereby the Contractor made an unlawful insertion correcting the claim and, therefore, the original claim made in Claim No.2 becomes non est in law. It is also stated that the modified and corrected statement marked as Ex.C42 is unauthorized and the same is without any date and signature, and the same is not certified by the auditors or the Contractor and, therefore, according to the Employer, https://hcservices.ecourts.gov.in/hcservices/ 8 the Arbitrators without even referring to the same, especially in the absence of any pleading to that effect, modified the claim of the Contractor to Rs 68,37,575/- instead of Rs 87,98,572/- and, therefore, such insertion makes the award null and void. It is the submission of the learned counsel for the Employer that consequent to the said unlawful insertion, the change in respect of the revised claim to the extent of Rs. 1,32,56,362/- without any pleadings or amendment to the claim as required under Section 23(3) of the Act is not bona fide and illegal. It is also further stated that such revised claim has been awarded by the Arbitral Tribunal without any evidence. 3.5. As far as the Claim Nos.1 and 8 are concerned, it is the contention raised on behalf of the Employer that in the absence of notice of dispute before referring to arbitration, the Arbitrators ought to have refused to grant such relief without commencing the arbitration. It is his submission that the counter defence made by the Employer in this regard before the Arbitrators has not been considered by the Arbitrators. 4.1. On the other hand, it is the contention of Mr.G.Masilamani, learned Senior Counsel appearing for the Contractor that the Arbitrators have given cogent reasoning. It is his further submission that as far as the https://hcservices.ecourts.gov.in/hcservices/ 9 price fixation is concerned, the same is applicable only during the tenure of contract and when the terms of contract and time for performance have been extended by the Employer, the price variation clause goes. 4.2. It is further contended that, on the facts of the present case, the handing over of the site itself was delayed by the Employer and, therefore, the fixed price rate will not be valid. The rate has been claimed as per the terms of the contract. On the part of the Contractor, the work has been commenced immediately after the site was handed over and everything was done with the consent of the Employer and at every stage the work has been monitored by the Employer and therefore, the contract and performance is bilateral. 4.3. It is his contention that the documents were filed before the Arbitrators and the Arbitrators object is not to non suit the parties, and the Arbitrators are entitled to adjust or amend the position when further facts come to light and therefore, it is flexible in nature. In fact, the documents filed by the Employer (Exx.R5 and R6) were considered and the majority of the Arbitrators have granted the award. It cannot be said that the Arbitrators have not followed the procedure. When documents were filed the Employer has not raised any objection, and the contract https://hcservices.ecourts.gov.in/hcservices/ 10 can be by the conduct of the parties also. After completion of the contract, the Employer has improperly terminated the agreement. The work having been executed with the consent of the Employer, it is no more open to the Employer to raise objection regarding the revised claim. 4.4. It is his contention that in respect of Claim No.1 regarding the rate for conveyance of surplus excavated earth, the same formed part of the agreement as amended and even as per the tender document, the scope of work includes excavation and disposal of unsuitable surplus materials, and, therefore, as per the clause the unsuitable surplus materials not used shall be disposed by the Contractor with all lifts and leads. The contract amount concluded in Item No.1.03C is inclusive of the same as per Clause 301.9.6. It is stated that, in fact, the Arbitral Tribunal has considered the same specifically and even though the Contractor has claimed Rs 7,68,111/-, the amount awarded was Rs. 3,45,502/-. 4.5. In respect of the Claim No.2, which relates to the revision of rates, it is submitted that the claim made by the Contractor to the extent of Rs 87,98,572/- was up to Part V bill as per Ex.C42, since the final quantities were not arrived at at that time. It is stated that the Employer has raised clarifications regarding certain errors and https://hcservices.ecourts.gov.in/hcservices/ 11 mistakes in the calculations and accordingly, the Tribunal has sought details of quantities of materials executed as per minutes dated 16.9.2008 directing the Contractor to correct statements before the Tribunal and by that time, the final quantities up to Bill No.VII were arrived at and it was pursuant to the direction of the Tribunal, the Contractor vide its letter dated 17.10.2008 corrected the inadvertent mistakes in the calculations and rates and the final quantities up to bill No.VII and submitted a claim for the revised rate of Rs. 1,32,56,362/- with a copy served to the Employer, who has never raised any objection for the revised calculations and it was in those circumstances, the revised claim made was taken on record by the Arbitral Tribunal, the same was considered and award was passed. Therefore, it is not correct to contend that the majority of the Arbitral Tribunal has granted more than what was claimed and that would amount to ignoring the subsequent events that have taken place before the Tribunal. It is also stated that the revision of rates was only based on the data adopted by the Highways Department with tender premium. The correction was made before the Tribunal only after considering the arguments advanced and after giving opportunity to the Employer, especially when the Employer has not raised any objection. It is submitted that it is not as if the Tribunal should act as a Civil Court and the Code of Civil Procedure is applicable. It is https://hcservices.ecourts.gov.in/hcservices/ 12 the submission of the learned Senior Counsel that the Employer has conveniently suppressed what has happened subsequently to question the validity of the second claim. 4.6. It is also denied that there is an express provision in the contract which bars claiming escalation and stipulates that the prices shall be firm. He would rely upon a clause in the Conditions of Contract which enables the recommendation of the Engineer for liquidated damages and other deductions in respect of variation of price of bitumen. Therefore, when the contract clause itself provides for variation, one cannot say that it is a price fixed contract. In fact, the Tribunal has considered all these aspects while passing the award. The Employer, who has not raised any dispute regarding the quantum or working of rates, cannot now raise it under Section 34 of the Act. 4.7. Regarding Claim No.4, in respect of the loss of profit, it is his contention that the total contract amount was fixed at Rs.9,19,46,759/- insofar as it relates to 81 roads, whereas the work was performed only in respect of 37 roads, which was, according to the Contractor, due to the breach of contract committed by the Employer. If only the Employer has allowed the Contractor to fulfill the entire contract, the Contractor would have earned profit of https://hcservices.ecourts.gov.in/hcservices/ 13 Rs.9,19,46,759/- and that was reduced to Rs. 3,63,97,966/- due to the breach of contract by the Employer. In respect of the right of the Contractor to claim estimated profit, he would rely upon various judgments, namely (i) Mohd. Salamatullah and others v. Government of Andhra Pradesh, AIR 1977 SC 1481, (ii) A.T.Brij Paul Singh v. State of Gujarat, AIR 1984 SC 1703, and (iii) The Superintending Engineer, T.N.U.D.P., Madras Circle v. A.V.Rangaraju, AIR 1994 Madras 217. 4.8. In respect of Claim No.6 regarding the loss due to idle establishment, the Tribunal has considered the claim on the basis of the materials placed and under Section 34 of the Act the jurisdiction of this Court is not to re-appreciate the evidence and that is also his submission in respect of Claim No.8 relating to interest. CONSIDERATION 5. I have heard the learned counsel for the Employer and the learned Senior Counsel for the Contractor and perused the entire records and given my anxious though to the issue involved in this case. 6. The Employer, through the Tamil Nadu Road Development Company, has issued a publication in the newspapers on 16.2.2007 inviting tenders for Improvement, https://hcservices.ecourts.gov.in/hcservices/ 14 Widening and Strengthening of Existing Roads, Construction of storm water drains and cross masonry works inside Thiru Vi.Ka.Industrial Estate, Guindy, Chennai, fixing the last date for receipt of tenders as 21.3.2007. A pre-bid meeting was held on 2.3.2007 and tender was called on a double cover format. The qualification tender was opened by the Tamil Nadu Road Development Corporation on 21.3.2007 and the Contractor was pre-qualified along with another tenderer. Thereafter, the financial bid was opened on 9.4.2007 and on finding that the tender furnished by the Contractor was lower, namely ` 9,46,13,415/-, in the letter of the Tamil Nadu Road Development Corporation dated 11.4.2007, a discussion was arranged with the Tender Evaluation Committee and after prolonged discussion, as the Contractor has reduced quoted rates in respect of few items, the final negotiated amount was arrived at Rs. 9,19,46,759/- and the Employer, by letter dated 17.5.2007, notified the acceptance and directed the Contractor to furnish performance security. 7. Admittedly, as per the terms of agreement, it was signed on 25.6.2007 and the work was commenced on 15.6.2007, and as per the terms of agreement, the period for completion of the work is seven months, namely by 14.1.2008, and it was subsequently extended by the Employer up to the date of termination, namely 30.3.2009. Since https://hcservices.ecourts.gov.in/hcservices/ 15 there was a review of quantum of work after the contract was awarded, it was assessed that in respect of the entire work, the cost will increase to Rs.16,91,41,214/-. However, the Employer took a decision to permit the Contractor to complete the work only in respect of 37 roads for the agreed amount of Rs.9,19,46,759/-. 8. The claim made by the Contractor under the nine heads was mainly based on the allegation that major portion of the road has not been handed over by the Employer as per the provisions of the agreement; actual quantities of work to be carried out has not been issued as per the Bill of Quantities; the instructions on the specifications to be followed for Bituminous Macadam and Semi Dense Bituminous Concrete was not given in time; and the payment for the work done has not been made as per Clause 39 of the Conditions of Contract and the Contractor was prevented from performing the contract leading to idle labour, over heads and loss of turnover, etc. 9. While considering the nine claims, the majority of the members of the Arbitral Tribunal, while rejecting Claim Nos.5, 6 (Part) and 7, has granted an award of Rs. 2,01,23,010/- and also awarded simple interest at the rate of 12% per annum on the said amount from the date of the award till the date of payment. The dissenting Arbitrator, https://hcservices.ecourts.gov.in/hcservices/ 16 while agreeing with the granting of awards in respect of Claim Nos.1 and 3 and rejecting in respect of Claim Nos.5, 6 (Part) and 7, has not accepted the award in respect of Claim No.2 for a sum of Rs 1,32,56,362/-, Claim No.4 for a sum of Rs 47,81,690/-, and Claim No.6 (Part) to the extent of Rs 3,69,324/-. 10. In the petition filed by the Employer under Section 34 of the Act, the Employer has restricted only in respect of Claim Nos.1, 2, 4 6 (Part) and 8. JURISDICTION OF THIS COURT 11. Before going into each and every one of the claims and also submissions made by the respective counsel, it is relevant to note that the jurisdiction of this Court while exercising its power under Section 34 of the Act is limited and it cannot be exercised for the purpose of re- appreciation of evidence or factual matrix, for, the Arbitrator is the sole Judge chosen by the parties in respect of the appreciation of evidence, either regarding quantity or quality. Simply because on appreciation of evidence two views are possible, the Court cannot substitute its view for the view of the Arbitrators. This celebrated concept is uniformly followed by the Apex Court and all other Courts in this country on the conception that the arbitration is the creation of the parties by mutual https://hcservices.ecourts.gov.in/hcservices/ 17 consent to settle their dispute outside the Court, but at the same time the law confers a legal status to such award passed by the Arbitrators. Under Section 34 of the Act, the power of the Court to set aside the award is limited. For proper understanding, it is apposite to extract Section 34 of the Act, which is as follows: "Section 34. Application for setting aside arbitral award.- (1) Recourse to a court against an arbitral award may be made only by an application for setting aside such award in accordance with sub-section (2) and subsection (3). (2) An arbitral award may be set aside by the Court only if- (a) the party making the application furnishes proof that- (i) a party was under some incapacity, or (ii) the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law for the time being in force; or (iii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or (iv) the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matter beyond the scope of the submission to arbitration: Provided that, if the decisions on matters https://hcservices.ecourts.gov.in/hcservices/ 18 submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside; or (v) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Part from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Part; or (b) the Court finds that- (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 arbitral award is in conflict with the public policy of India. Explanation.- Without prejudice to the generality of sub-clause (ii) of clause (b), it is hereby declared, for the avoidance of any doubt, that an award is in conflict with the public policy of India if the making of the award was induced of affected by fraud or corruption or was in violation of section 75 or section 81. (3) An application for setting aside may not be made after three months have elapsed from the date on which the party making that application had received the arbitral award or, if a request had been made under section 33, from the date on which that request had been disposed of by the arbitral tribunal: https://hcservices.ecourts.gov.in/hcservices/ 19 Provided that if the court is satisfied that the applicant was prevented by sufficient cause from making the application within the said period of three months it may entertain the application within a further period of thirty days, but not thereafter. (4) On receipt of an application under sub- section (1), the court may, where it is appropriate and it is so requested by a party, adjourn the proceedings for a period of time determined by it in order to give the arbitral tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the opinion of arbitral tribunal will eliminate the grounds for setting aside the arbitral award." 12. Even while dealing