IN THE HIGH COURT OF HIMACHAL PRADESH, SHIMLA Arb. Case No. 30 of 2007. Judgment reserved on : 7.5.2009 Date of decision : 15.6.2009. M/s Satluj Jal Vidyut Nigam Ltd. …Objector. Versus M/s Techno Electric & Engineering Co.Ltd. … Respondent. Coram The Hon’ble Mr. Justice Kuldip Singh, Judge. Whether approved for reporting ?1 Yes For the Objector : Mr. Ramakant Sharma, Advocate. For the Respondent : Mr. Rabinder Singh Advocate with Mr. Vikas Bhardwaj, Advocate Kuldip Singh, Judge The Objector has filed this petition under Section 34 of the Arbitration and Conciliation Act, 1996 (for short ‘Act’) against the award dated 8.5.2007 of Arbitral Tribunal consisting of Sh. D.P.Bajaj, Presiding Arbitrator, Sh. G.Venkataraman, Arbitrator and Lt.Gen. (Retd.) S.K.Jain, Arbitrator awarding a sum of Rs.48,02,357/- to the respondent. In the event of failure by the petitioner to release the amount awarded within sixty days, the awarded amount shall carry simple interest at the rate of 18% per annum from the date of award to the date of payment. 1 Whether reporters of Local Papers may be allowed to see the Judgment ?Yes 2 2. The facts, in brief, are that petitioner invited bids, issued letter of intent (LOI) to the respondent on 26.12.2001 for executing certain works on turnkey basis of Cables, Cabling and Cable Trays, Package-IX. The respondent accepted LOI vide letter dated 26.12.2001. The aforesaid letter of intent was followed by two letters of award (LOA) dated 15.1.2002. The LOA No. 20/1869 was for supply of equipment and material whereas LOA No.21/1870 was for transportation, insurance, erection and commissioning. The respondent accepted LOAs vide letter dated 18.1.2002. 3. The objector on 23.1.2002 informed the respondent to keep in abeyance letter of intent and both LOAs till further notification. The objector ultimately withdrew both LOAs on 18.2.2002 The respondent had filed CWP No.247 of 2002 in this Court challenging withdrawal of LOAs by objector. A Division Bench of this Court vide judgment dated 23.7.2002 held that writ petition involves disputed questions of facts and law which cannot be gone into in writ jurisdiction and the writ petition was dismissed. The Division Bench observed that it would be open to the respondent to have recourse to appropriate remedy as permissible under law. 4. The respondent after dismissal of the writ petition on 23.1.2004 made a representation for compensation and the claim of the respondent was repudiated by objector on 7.5.2004. The respondent vide letter dated 16.2.2005 addressed to the Engineer- in-charge invoked clause 50.2 of General Condition of Contract documents ( for short GCC) for adjudication of disputes between the parties. The respondent thereafter invoked arbitration clause on 3 12.5.2005 and appointed Sh. G.Venkataraman, former Director (Projects), N.T.P.C. as its arbitrator. The objector took the stand that matter does not fall within the purview of arbitration and did not appoint its arbitrator, therefore, on the request of respondent institution of Engineers, India under clause 50 appointed Lt. Gen. (Retd.) S.K.Jain as arbitrator on behalf of the objector and also appointed Sh. D.P.Bajaj, Chief Engineer (Retd.) as third arbitrator, thus, the Arbitral Tribunal was constituted (for short’ Tribunal’). 5. On receipt of notice, the objector moved an application under Section 16 of the Act before the Arbitral Tribunal which was answered on 6.5.2006 by the Tribunal that the Tribunal has jurisdiction to adjudicate the dispute between the parties. 6. The respondent submitted its statement of claims before the Tribunal as follows: i) Loss of profit: @ 15% of the = Rs.92.60 lakh contract price. ii) Expenses incurred in establishment = Rs. 4.84 lakh of Bank Guarantee. iii) Forfeited advance by the Claimant’s = Rs. 40.59 lakh major sub-suppliers, namely M/s Poly Cab for supply of cables And M/s Techno Engg. for supply of Cable Trays. iv) Interest @ 14% due from the date = To be calculated of issuance of letter of intent till realization of compensation amount. v) Cost of Arbitration as the = As per actual Respondent did not honour their Contractual obligation under Clause 47 of GCC. 7. The objector did not submit any counter-claim. The Tribunal on 8.5.2007 allowed the claim of the respondent to the following effect:- 4 Claim Description Amount Amount awarded No. claimed (Rs.in lakh) (in Rs.) i. Loss of profit @ 15% of the 92.60 30,86,655 (5% of contract price. Contract price) ii. Expenses incurred in 4.84 4,01,712( in respect establishment of Bank of CPGs at a and b of Guarantee. The claim) iii. Forfeited advance by the 40.59 NIL Claimant’s major. iv) Interest @ 14% due from To be calculated i) @ 11% on amount the date of issuance of awarded under Claim-1 letter of intent till w.e.f.23.02.2004 till realization of compensation date of award 08/05/07 amount. = 10,89,320/- ii) @ 11% on amount awarded under Claim-2 w.e.f.18.03.2002 till date of award 08.05.07 = 2,30,627/- v) Cost of Arbitration as the As per actual NIL as both the parties Respondent did not to bear their own cost. honour their contractual obligation under clause 47 of GCC. Grand Total = Rs. 48,02,357/- The Tribunal further directed the payment of interest on the award amount, as noticed above. 8. The objector has assailed the impugned award by filing objections under Section 34 of the Act on the grounds that Tribunal had no jurisdiction to adjudicate the dispute between the parties. The claim allowed by the Arbitrator in favour of the respondent is beyond the scope of arbitration, clause 47.3 of the GCC refers to payment of equitable and reasonable compensation and not awarding of damages on account of loss of profit on the work which was to be executed by respondent. There was no concluded contract between the parties, and, therefore, the objector has not violated any term or condition of the contract. The objector has also assailed the order dated 6.5.2006 of the Tribunal. The interest 5 allowed by the Tribunal is wrong and illegal. The respondent misled the Valuation Committee which led the arbitrator to accept the bid. The respondent was not eligible for the work awarded. The Tribunal has awarded huge amount to the respondent without any work. 9. The respondent contested the objections by filing reply and took preliminary objection that the objector has filed contradictory affidavit. It was submitted that the objections do not satisfy the grounds of challenge available under Section 34 of the Act and, therefore, objections deserve dismissal. The paras 1 to 8 of the objections were not denied by pleading that the contents of paras 1 to 8 are matter of record. The respondent denied the remaining stand of the objector and has submitted that the Tribunal had given a reasoned award. On the pleadings of the parties, the following issues were framed:- i) Whether the Arbitrator had no jurisdiction over the subject matter of the dispute? OPO. ii) Whether the award is against the public policy of India? … OPO. iii) Relief. 10. Heard and perused the record. The parties led their evidence by way of affidavits. Mr. Ramakant Sharma, Advocate appearing on behalf of the objector has reiterated his stand which was taken by the objector in the objections. Mr. Ranbir Singh, Advocate appearing on behalf of the respondent has supported the impugned award. My issue-wise findings are as follows:- Issue No.(i) 11. The contention of learned counsel for the objector on issue No.i is two fold (a) the Tribunal had no jurisdiction to arbitrate 6 between the parties for want of formal contract between the parties as per clause 20 of LOAs. In other words, there is no arbitration clause to adjudicate the dispute between the parties ; (b) the Tribunal had no jurisdiction over the subject matter of the claim. The clause 47.3 provides payment of equitable and reasonable compensation and not payment of any amount on account of expected loss of profit to the respondent. 12. The objector had filed reply in CWP No.247 of 2002 on the affidavit of Pradeep Dube, the relevant portion of the affidavit is as follows:- “It is submitted that the matters complained can be agitated before the authorities named in Clause 50 & 51 of GCC terms & conditions in accordance with the prescribed procedure. I further submit that LOI/LOA has been cancelled at the very threshold & before the execution & signing of the formal contract in prescribed proforma accompanying the bid documents (Annexure-VI) Annexure VI to Conditions of Contract Agreement i.e. proforma for Contract Agreement is also being placed on record as Annexure R-2. In the averments made in the writ petition, determination of all matters as to whether a concluded contract came into existence between the parties fall within the Arbitrator’s authority and jurisdiction and who are bound to give a reasoned Award. All jurisdictional and factual matters can only be decided by the Arbitrators in Arbitration specifically governed by the Arbitration & Conciliation Act, 1996 (Cl 51.4 of GCC). The writ petition is thus barred by the alternative remedy agreed to by the parties. Besides, Clause 47.00 provides for a self-contained remedy, that is, in the event of termination of the contract on the Owner’s initiative, the contractor shall be paid equitable and reasonable compensation, as dictated by the circumstances prevailing at the time of termination and in the event of disagreement between the parties, Clauses 50 and 51 shall come into play, if so invoked by the aggrieved party.” The Division Bench on 23.7.2002 in CWP No. 247 of 2002 while dismissing the writ petition has observed as follows:- 7 “It would be open to the petitioners to have recourse to other appropriate remedy as permissible under law.” 13. The learned counsel for the objector has submitted that the Division Bench has also held that seriously disputed questions or rival claims of the parties with regard to breach of contract are to be investigated and determined on the basis of evidence which may be led by the parties in a properly instituted civil suit rather than by a court exercising prerogative of issuing writs. The contention of learned counsel for the objector is that the Division Bench in the judgment dated 23.7.2002 has not observed that the dispute is determinable by way of arbitration. The learned counsel for respondent has submitted that observation of Division Bench relied by the learned counsel for the objector is with reference to judgment State of Bihar and others Vs. Jain Pulastics and Chemicals Ltd. (2000) 1 Supreme Court Cases, 216 noticed in the judgment dated 23.7.2002. The operative part of the judgment dated 23.7.2002 is very clear wherein it was observed that it would be open to the respondent to have recourse to other appropriate remedy as permissible under law. The stand of the objector in CWP No.247 of 2002 was also that the dispute raised by the respondent in the writ petition was determinable by way of arbitration. In these circumstances, the contention of learned counsel for the objector that for want of formal contract between the parties the dispute was not determinable through arbitration is rejected. 14. The second limb of argument of learned counsel for the objector with regard to jurisdiction of the Tribunal is that under clause 47.3 of GCC what was provided was equitable and 8 reasonable compensation and not any loss of profit on the basis of contract price. It has been contended that the Tribunal has re- written the agreement by awarding 5% loss of profit on contract price instead of considering the case of the respondent for payment of equitable and reasonable compensation provided in clause 47.3 of GCC In substance the claim of the respondent is that it would have earned 15% profit on contract price had it executed the contract. The claim for damages is to be founded on some basis. The Tribunal has awarded 5% loss of profit on contract price to the respondent. The clause 51.1 of GCC provides that all dispute or differences in respect of which decision, if any, of the Engineer has not become final or binding shall be settled by arbitration. The clause 51.1 embraces “all disputes” and gives jurisdiction to the Tribunal whereas clause 47.3 provides how the compensation is to be determined. In determining equitable and reasonable compensation, the Tribunal had jurisdiction to adopt any known acceptable principle. Therefore, it cannot be said that the Tribunal had no jurisdiction to award compensation to respondent, hence second contention of the learned counsel for the objector regarding jurisdiction of the Tribunal to adjudicate the dispute between the parties is also rejected. Issue No. (ii): 15. On behalf of objector it has been submitted that impugned award is against the public policy of India inasmuch as there was no concluded contract in terms of GCC read with clause 20 of LOAs. The clauses 47.1, 47.2 and 47.3 of GCC have been misconstrued by the Tribunal. The objector under clause 47.1 was 9 well within its rights to withdraw the LOI and LOAs. The respondent had not executed any work under the LOAs but despite that the Tribunal vide impugned award has awarded huge amount to the respondent. The impugned award is nothing but undue enrichment of the respondent at the cost of public exchequer. The Tribunal has awarded interest at the rate of 18% per annum on the award amount without recording reasons in support of excessive rate of interest. This is more so when the respondent in fact had not commenced the work under the LOAs. In support of his contentions, the learned counsel for the objector has relied Oil and Natural Gas Corporation Ltd. Vs. Saw Pipes Ltd. AIR 2003 S.C. 2629. 16. The learned counsel for the respondent has supported the impugned award and has submitted that two LOAs were themselves independent and binding contracts between the parties. Clause 47.1 provides 30 days notice in writing to the contractor before termination of the contract by the owner. The LOAs were issued on 15.1.2002 by the objector which were accepted by respondent on 18.1.2002. The objector vide letter dated 23.1.2002 informed the respondent that LOI and LOAs issued to respondent were held in abeyance till further notification. On 18.2.2002 LOI and LOAs issued to respondent were withdrawn without serving 30 days notice as contemplated under clause 47.1 of GCC. The learned counsel for the respondent has submitted that the termination of the contract by the objector was in complete violation of clause 47.1, therefore, the Tribunal has rightly awarded damages to the objector. The learned counsel for respondent has submitted that in Mohd. Salamatullah and others vs. Government of 10 Andhra Pradesh, (1977) 3 SCC 590, M/s A.T. Brij Paul Singh and others vs. State of Gujarat (1984) 4 SCC 59 and Dwaraka Das Vs. State of M.P. and another (1999) 3 SCC 500, the Supreme Court has upheld award of damages on the basis of contract amount. 17. The Tribunal in para 11.1.1 of the impugned award has observed that the issue before the Tribunal is whether the cancellation of contract done by the objector is in accordance with the provisions of the Contract or not, though the right of termination is available to the objector under the provisions of the Contract. The objector while canceling the contract had not given the due notice required to do so under the provisions of the Contract. Hence it has to be treated that termination / cancellation is not strictly in tune with the provisions of the Contract. 18. The respondent had earlier filed CWP No.247 of 2002 in this Court against the cancellation of contract. The respondent besides other grounds had taken the following ground in CWP No.247 of 2002 for assailing the communication dated 18.2.2002 :- “The impugned communication and/or order, and/or directions, dated 18.2.2002 is arbitrary, unreasonable, unjust and improper because the respondents have failed to give even the mandatory notice of 30 days as contemplated in Clause 47.0 of Conditions of Contract, Section GCC, Cited by the Respondents themselves in the impugned communication and/or order, and/or directions dated 18.2.2002”. The Division Bench in CWP No.247 of 2002 on 23.7.2002 has held as follows:- “In the present case according to the petitioners they had changed their position to their detriment by taking various steps in furtherance thereof by incurring expenditure for preparation and submission of offer against the tender including the cost of bid bond 11 etc.etc. after respondent-Corporation had issued LOI dated 26.2.2001 and LOA dated 15.1.2002 respectively to them. We had observed in the earlier order that there was no concluded contract entered into between the parties. Respondent-Corporation took its decision in terms of clause 47.0 of conditions of Contract (Section GCC) on ‘Owner’s Initiative’. LOI and LOA issued to the petitioners was cancelled by competent authority of respondent-Corporation on the ground of improper evaluation of Bid Prices as advised by their consultant (NHPC) a Government of India Undertaking charged with the duty of commissioning and setting of Hydro Electric Projects having the necessary technical know-how and expertise. It has also been specifically stated by respondent-Corporation that the petitioners had not mobilized the work at site at all nor they carried out any steps altering their position to their disadvantage as alleged by them before LOI/LOA were kept in abeyance and thereafter when proper inquiry was made by the competent authority, LOI/ LOA issued to the petitioners were withdrawn. Further, the respondent- Corporation has refunded the earnest money / CPG of the petitioners vide letter No. A/II/BKG/02/7931-32 dated 20.2.2002 and NJPC/ECD/PKG-IX/02-2191 dated 8.2.2002 respectively. In this view of the matter no representation or promise if any made by respondent-Corporation on the recommendation of TEC awarding contract in question to the petitioners can preclude the respondent- Corporation from enforcing a statutory prohibition contained in notice inviting tenders. It appears to us that from the material placed on record and photo copies of the noting of the various authorities referred to in earlier part of this judgment, it appears to us that the petitioners wanted to take an advantage of the fault of the members of TEC who had not considered whether petitioner No.1- Company was qualified L-I to submit its tender for carrying out the work in question. The initial evaluation of the petitioners’ bid price accepted by TEC appears to us was contrary to CVC guidelines.” The Division Bench has further held :- “ In the present case as pointed out earlier, after the issuance of LOI and LOA to the petitioners and before he could commence the work, the competent authority of respondent-Corporation found that the petitioners were not qualified L-1 and therefore, LOI and LOA ought not to have been issued to them. The decision to withdraw LOI and LOA taken by the competent authority after due consideration of entire material placed before the said authority by the Experts officers of respondent-Corporation and the decision so taken was in the interest of public and National work”. 12 The Division Bench ultimately concluded:- “In the result, there is no merit in this writ petition which is accordingly dismissed. There will be no order as to costs. It would be open to the petitioners to have recourse to other appropriate remedy as permissible under law. Stay order shall stand vacated. All miscellaneous applications filed by the petitioners shall stand disposed of”. The Division Bench in the judgment dated 23.7.2002 has clearly held that there was no concluded contract between the parties. The Tribunal has also come to the conclusion that the right of termination was available to objector under the provisions of the contract. 19. The clauses 47.1, 47.2 and 47.3 of GCC are reproduced hereinbelow for ready reference:- “47.1 – The Owner reserves the right to terminate the Contract either in part or in full due to reasons other than those mentioned under clause entitled “Contractor’s Default” and “Outbreak of War”. The Owner shall in such an event give thirty (30) days notice in writing to the contractor of his decision to do so. 47.2 – The Contractor upon receipt of such notice shall discontinue the work on the date and to the extent specified in the notice, make all reasonable efforts to obtain cancellation of all orders and contracts to the owner, stop all further sub-contracting or purchasing activity related to the work terminated, and assist the owner in storage, maintenance, protection, and disposition of the works acquired under the Contract by the Owner. 47.3 – In the event of such a termination, the Contractor shall be paid equitable and reasonable compensation, as dictated by the circumstances prevalent at the time of termination”. 20. The bare reading of clause 47.1 of GCC indicates that owner has right to terminate the contract either in part or in full due to reasons other than those mentioned under clauses “Contractor’s Default” and “Outbreak of War”. The owner shall in such an event give thirty days notice in writing to the Contractor of his decision to do so. On receipt of notice under clause 47.2, the Contractor shall 13 discontinue the work on the date and to the extent specified in the notice and cooperate with the owner in the manner provided in clause 47.2. The clauses 47.1, 47.2 do not indicate that 30 days notice in writing is to be given to the Contractor before termination of the contract. The owner under clause 47.1 is required to give to Contractor 30 days notice in writing of his decision to terminate the contract. In contrast under clause 45.1 where the power has been given to the owner when Contractor neglects to execute the work to give notice in writing to the Contractor to make good the failure, neglect or contravention complained of and in case Contractor fails to comply with the notice in 30 days from the date of service thereof, then owner shall be at liberty to take such further action as provided in clause 45.1. In clause 47.1 or 47.2, there is no indication that purpose of notice is to give opportunity to Contractor to improve his work. There is nothing in clause 47.1 such as advance notice of 30 days before termination of the contract. There is nothing in clause 47.1 that some opportunity is to be given to the Contractor to represent the owner in 30 days and thereafter, the owner shall pass final order of termination of contract. The 30 days provided in clause 47.1 is not statutory period but the time agreed between the parties. There is nothing in clause 47.1 that before termination of the contract, 30 days notice by the owner to the Contractor is mandatory. It is clear from clauses 47.1 and 47.2 that on receipt of notice the Contractor shall forthwith discontinue the work on the date and to the extent specified in the notice which indicates that termination of the contract shall come into force on the receipt of notice and not after 30 days of the receipt of notice. The 14 reference in clause 47.2 that the contractor upon receipt of such notice shall make all reasonable efforts to obtain cancellation of all orders and contracts to the owner is for other orders and contracts and not the contract in question. The combined reading of clauses 47.1 and 47.2 does indicate that purpose of 30 days notice in writing is to give time to contractor to wind up the work. The clause 47.3 for payment of damages also comes into operation after termination of contract. If contention of respondent is accepted that 30 days notice is must before termination of contract then there is no termination of contract in the present case as according to respondent 30 days notice for termination of contract was not given to respondent by the objector, in that situation there is no question of payment of any damages to respondent under clause 47.3 of GCC. The Tribunal has not properly construed clauses 47.1, 47.2 and 47.3 of GCC in returning the finding that termination of the contract was not strictly in tune with the provision of the contract. In