: 1 : IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION ARBITRATION PETITION NO.19 OF 2006 National Bank for Agriculture and . Rural Development, incorporated and . Constituted under the National Bank . for Agriculture and Rural Development . Act, 1981 Having its Head Office at . Plot No.C-24, "G" Block, . Bandra-Kurla Complex, P.O. Box No.8121, . Bandra (East) Mumbai-400 051. ....Petitioners (Ori.Respdts.) V/s. M/s.Unity Construction Co. Ltd. . a Partnership firm having their . office at 1252, Pushpanjali Apartment, . 1st Floor, Old Prabhadevi Road, . Mumbai-400 025, through its Partners . (1) Shri K.K. Avarsekar, (2) Shri K.C. . Vasandan, (3) Mrs.Pushpa K. Avarsekar, . (4) Mr.Abhijit K. Avarsekar carrying . on their business under the Indian . Partnership Act. ....Respondent (Ori.Claimants) Ms.Snehal M. Paranjpe i/b Mohana Nair Associates for the Petitioners. Mr.Ketan Parekh i/b Kadam & Co. for the Respondent. CORAM : S.J. VAZIFDAR, J. DATED : 18TH OCTOBER, 2006. ORAL JUDGMENT : 1. This is a Petition under Section 34 of the Arbitration and Conciliation Act, 1996 for setting aside an award dated 1.8.2005 as corrected on 19.9.2005. : 2 : 2. The Petitioners issued a notice inviting tenders for the construction of a building. The Respondent was the successful tenderer. 3. Initially a work order dated 21.2.1995 was issued. The work order confirmed the acceptance of the Respondent’s tender. The value of the contract was stipulated to be Rs.43,67,46,795=70. 4. Thereafter a written contract dated 15.5.1995 was executed between the parties. Clause 2 of the agreement refers to the architect appointed by the Petitioners and a Project Management Consultant (PMC). Clause 9 of the agreement read as under :- "9. The employer reserves to itself the right of altering the drawings and the nature of the work through the Architects / PMC by adding to or omitting any items of work or having portions of the same carried out without prejudice to this contract. 5. The last recital stipulated that the Respondent had agreed to execute the work subject to : 3 : the provisions contained therein as also inter-alia in the General Instructions to the contractors, General Conditions of Contract, Special Conditions and Construction Schedule. It would be convenient to set out the relevant clauses of the incorporated documents/terms which fall for consideration. (A) Clauses 2-a and 2-e, 30, 31 and 40 of the General Conditions of Contract read as under :- "2. SCOPE SCOPE SCOPE OF CONTRACT : OF CONTRACT : OF CONTRACT : The Contractor shall carry out and complete the works in every respect in accordance with this Contract and with the directions of and to the satisfaction of the Architect / PMC / Employer. The Architect / PMC / Structural Consultant may in absolute discretion and from time to time issue further drawings and/or written instructions, details, directions and explanations which are hereafter collectively referred to as "instructions" reflected either in the minutes or in any other form in regard to :- a. The variation or modification of the design quality or quantity of works or the addition or omission or substitution of any work. b. .............................. c. .............................. d. .............................. e. The postponement of any work : 4 : to be executed under the provisions of this Contract." 30. DELAY DELAY DELAY AND EXTENSION OF TIME : AND EXTENSION OF TIME : AND EXTENSION OF TIME : If in the opinion of the PMC the works be delayed (a) by force majeur or (b) by reason of any exceptionally inclement weather or (c) by reason of proceedings taken or threatened by the dispute with adjoining or neighbouring owners or public authorities arising otherwise than through the Contractor’s own default or (d) by the works or delays of other Contractors or tradesmen engaged or nominated by the Employer or the PMC and not referred to in the Schedule of Quantities and/or Specifications or (e) by reason of the PMC’s instructions as per clause (g), or (f) by reason of civil commotion (to be commotion (to be commotion (to be checked) checked) checked), legal combination of strike or lock-out affecting any of the building traders or (g) in consequence of the Contractor not having in due time necessary instructions from the PMC for which he shall have specifically applied in writing, ahead of time, giving the Consultant reasonable time to prepare such instructions, the Employer/PMC (to be Employer/PMC (to be Employer/PMC (to be checked) checked) checked) shall make a fair and reasonable extension of time for completion of the Contract works. In case of such strike or lock-out, the Contractor shall, as soon as may be, given written notice thereof to the PMC, but the Contractor shall nevertheless constantly use his endeavours to prevent delay and shall do all that may reasonably be required to the satisfaction of the Consultant to proceed with the work. 31. DAMAGES DAMAGES DAMAGES FOR NON-COMPLETION : FOR NON-COMPLETION : FOR NON-COMPLETION : (a) If the Contractor fails to complete the works by the date named in Clause 29 (date of completion) or within any extended time under clause : 5 : 30 (Extension of Time) and if the P.M.C. shall certify in writing on or before the date of issue of the Certificate for the last payment to which the Contractor may become entitled hereunder that the works could reasonably have been completed by the date or within the said extended time, then the Contractor shall pay or allow the Employer the sum to be worked out as 0.25% (to be as 0.25% (to be as 0.25% (to be checked) checked) checked) of contract price per week to be recovered as Liquidated Damages (and not by way of penalty) for the delay, beyond the said date or extended time, as the case may be, during which the works shall remain unfinished and such damages may be deducted from any moneys due or which may become due to the Contractor. The maximum amount of Liquidated damages shall be 5% of contract price." "40. MATTER MATTER MATTER TO TO TO BE BE BE FINALLY FINALLY FINALLY DETERMINED DETERMINED DETERMINED BY THE PMC : BY THE PMC : BY THE PMC : The PMC’s decision, opinion, direction, Certificates (except for payments) with respect to all or any of the matter under clauses 2, 7, 9, 17, 23, 30 (a), (b), (c), (d), (f) and the schedule of rates as contained in Annexure VII, hereof and as to the exercise by him under clause 12 of the right to have any works opened up, (which matters are here in referred to as the excepted matters) shall be final and conclusive and binding on the parties hereto and shall be without appeal. Architect or Employers instructions if any, in this regard in case of any urgency, shall also be conformed / vetted by the PMC at the earliest possible." 4. Clauses 8, 58, 59 of the Special Conditions of Contract read as under :- : 6 : "8. PROGRAM PROGRAM PROGRAM OF WORK : OF WORK : OF WORK : The Bidder shall, along with his bid, submit a schedule for completion of work, either in the form of a CPM Net Work or in the form of a bar chart, showing how he proposes to complete the works. This program shall be prepared in sufficient detail and shall indicate, among other things, the following details on a month-to-month basis (for each month). (a) Quantum of work under each major item of work that would be carried out. (b) Amount of resources that would be deployed (e.g. shuttering materials skilled / unskilled labour, carpenters, masons, fitters, equipment etc.) (c) Schedule of delivery of materials to site. (d) Approximate value of work contemplated to be completed each month. (e) Schedule and manner in which details or materials (to be issued by the Employer) are required from the Consultant / Employer. (f) Time periods allowed for other agencies work, (g) Various milestones to be achieved. This program, suitably amended after discussions with the PMC shall become binding on the Contractor. However, during the execution of the project, should it become necessary, in the opinion of the PMC to re-schedule some of the activities, the Contractor shall do so at no extra cost and / or : 7 : without any other claim. Acceptance of a bidder’s tender does not necessarily imply acceptance of the schedule submitted and the PMC / Employer reserves to himself the right to modify / amend this schedule to suit the overall project schedule and the Contractor shall adhere to these divisions / modifications at no extra cost to the Employer. "58 (i). PRICE PRICE PRICE VARIATION VARIATION VARIATION ADJUSTMENT ADJUSTMENT ADJUSTMENT CLAUSE (PVA) CLAUSE (PVA) CLAUSE (PVA) (EXCLUDING (EXCLUDING (EXCLUDING ADJUSTMENT FOR PRICE ADJUSTMENT FOR PRICE ADJUSTMENT FOR PRICE VARIATION VARIATION VARIATION FOR STEEL) FOR STEEL) FOR STEEL) In partial modification of the stipulation that the rates quoted shall be firm and shall not be subject to any exchange variations, labour conditions, fluctuations in railway freight and any conditions whatsoever under this clause, any increase or decrease in prices of materials and labour rates shall be adjusted on the basis of the formula given below: 58(4). The price adjustment clause shall be applicable only for the work executed during the contract period including authorised extension, if any. In case the work is not completed within the contract period including authorised extension and the provision of liquidated damages has to be enforced, these adjustment clauses will not be applicable for work done during that period. It is also clarified that price adjustment clause will not be applicable to any extra variation items, the rates of which are based on prevailing market rates. In view of the price adjustment in cost being covered as above, no other adjustments viz., increase or decrease due to statutory measures/levies, etc. will be allowed for any reason whatsoever. : 8 : In case the bill is submitted to the PMC prior to 15th of a particular month, index for that month will not be reckoned for calculating the average indices for arriving at the adjustment. If however, the bill is submitted on or after 15th, the Index for that particular month shall be taken consideration." 59. 59. 59. SETTLEMENT OF DISPUTE BY ARBITRATION SETTLEMENT OF DISPUTE BY ARBITRATION SETTLEMENT OF DISPUTE BY ARBITRATION All disputes and differences of any kind whatsoever arising out of or in connection with this agreement or the carrying out of the works (whether during the progress of the works of within one year after their completion, or within one year after the det rmination or abandonment or breach of the contract) excepting however, on matters referred to in clause 40 of General Conditions of Contract hereof, shall be referred by either party for arbitration after giving atleast 30 days notice in writing to the o her(s) (hereinafter referred to as the ’Notice for Arbitration’) clearly setting out the items of disputes for reference to a Sole Arbitrator to be appointed as hereinafter provided. For the purpose of appointing the Sole Arbitrator referred to above, the Employer will send to the Contractor within thirty days of the Notice for Arbitration, a panel of three names of persons who shall be presently unconnected with the organisation of he Employer and the Contractor. The Contractor shall on receipt of the names as aforesaid, select any one of the persons so named to be appointed as a Sole Arbitrator and communicate his name to the Employer within thirty days of receipt of the names. The Employer shall thereupon witho t any delay appoint the said person as the Sole Arbitrator. If the Contractor fails to communicate such selection as provided above within the period specified, the Employer shall make the selection and appoint selected : 9 : person as the Sole Arbitrator. If the Employer fails to send to the Contractor the panel or three names as aforesaid within the period specified, the Contractor shall send to the Employer a panel of three names of persons who shall be unconnected with either party. The Employer shall n receipt of the names as aforesaid select any one of the persons name and appoint him as the Sole Arbitrator. If the Employer fails to select the person and of the panel and inform the Contractor accordingly, the Contractor shall be entitled to appoint ne of the persons from the panel as the Sole Arbitrator and communicate his name to the Employer. If the Arbitrator so appointed is unable or unwilling to act or resigns his appointment of vacates his office due to any reason whatsoever, another Sole Arbitrator shall be appointed as aforesaid. 6. According to the Respondent, the work was delayed due to the various breaches on the part of the Petitioners as a result whereof they suffered damages on various counts. The Respondent accordingly invoked the arbitration in accordance with clause 59. The learned arbitrator made and published the said award dated 1.8.2005. Paragraph 28 of the award tabulates the various heads of claim and the corresponding amounts claimed and awarded as under :- "28.8 FINAL ORDERS :- : 10 : a. The Arbitrator decides and awards to the Claimants following claims and amounts :- -------------------------------------------------------------- Sr. Short description Amount Amount No. of Claim Claimed (Rs.) Awarded (Rs.) -------------------------------------------------------------- 1. C1- Compensation for 6,47,54,039.00 4,74,96,214.00 underutilized overheads -------------------------------------------------------------- 2. C2- Loss due to under 1,12,00,000.00 1,12,00,000.00 utilized tools, plants & machineries . -------------------------------------------------------------- 3. C3- Compensation for 32,00,000.00 NIL idle material storage and blocked capital . -------------------------------------------------------------- 4. C4- Loss due to profit 3,45,35,487.00 NIL not earned at appropriate time . -------------------------------------------------------------- 5. C5- Compensation for 5,05,00,636.00 54,52,000.00 lost productivity and efficiency . -------------------------------------------------------------- 6. C6- Compensation for 4,31,69,359.00 NIL opportunity losses . -------------------------------------------------------------- 7. C7- Demand due to 4,64,33,892.00 1,21,08,467.00 need to restructure rates during extended period . -------------------------------------------------------------- 8. C8- Compensation for As per actual 23,85,782.00 additional cost of insurance, Bank Guarantee etc. . -------------------------------------------------------------- Inter- Interest at 24% As per calculation NIL : 11 : est from due date -------------------------------------------------------------- Total Amount of Award 7,86,42,463.00 -------------------------------------------------------------- b. I decide and award that the Respondents shall pay and the Claimants shall accept an amount of Rs.7,86,42,463.00 (Rupees Seven crores Eighty Six Lacs Forty Two thousand Four hundred Sixty Three only) in full and final settlement of all the claims referred by the Claimant. c. I award future interest on the award amount of Rs.7,86,42,463.00 from the date of publishing the award till payment of award amount. The rate of future interest to be as per the relevant law." 7. The Petitioners have challenged each of the claims awarded by the arbitrator. I will deal with the Petitioner’s case in respect of each of the claims separately. 8. Before doing so however it would be convenient to consider one of the grounds which is common to all the claims. Ms.Paranjpe submitted that the Arbitrator’s finding that the Petitioner was in breach was based on no evidence. I am unable to agree. 9. The Arbitrator has analysed the evidence in : 12 : this regard in sufficient detail. He has also considered various relevant factors while coming to this conclusion. I am unable to accept that the factors that he took into consideration were irrelevant or that the finding was patently wrong such as to warrant interference under Section 34 of the Arbitration and Conciliation Act, 1996. (a) For instance the Arbitrator considered as important the fact that the Petitioner did not levy any liquidated damages though it was entitled to under clause 31 of the GCC. This is certainly one of the relevant factors for if, according to the Petitioner, the Respondent was in default and responsible for the delay in completing the work, it would have enforced its contractual right to levy liquidated damages. It cannot be stated that this was an irrelevant consideration. (b) (i). In paragraph 8.9 of the award, the Arbitrator has considered some of the documents which indicate that the Respondent had applied for extension of time to complete the contract stating that the breaches of the contract had been committed by the Petitioner. In response to these applications, the Petitioner extended the contract without levying liquidated : 13 : damages and without reserving to itself the right to claim damages. This action is a relevant consideration in foisting the responsibility for the breaches. In paragraph 10.5 of the award, the Arbitrator analysed the effect of various documents and submissions of the parties on this question. The Arbitrator attached considerable importance to the minutes of the weekly/fortnightly meetings held at site on the ground that they constituted the first common record kept by the PMC appointed by the Petitioner and not by the Respondent. I am unable to find fault with the Arbitrator for having placed considerable evidentiary value on such documents for arriving at this conclusion. It is pertinent to note, as observed by the Arbitrator, that the record had been submitted by the Petitioner itself. The record pertains to the period between the 8th meeting held on 25.5.1995 and the 105th meeting held on 29.7.1998. The Arbitrator has dealt with these minutes in detail. The minutes, he held indicate that till the initial date of completion of the project, the Respondent’s progress and achievement were as per weekly/fortnightly programmes mutually agreed to between the parties and to that extend the PMC had clearly appreciated the same. : 14 : (ii). That the minutes were available only upto 29.7.1998 is irrelevant because the scheduled date of completion was only less than three months away. Thus the minutes were available for the relevant period. The evidence was therefore relevant and important on the issue of breach. (c) The Arbitrator has also relied upon the fact that by a letter dated 2.10.1997, the Respondent had stated that the abnormal delays were caused due to the several breaches of the Respondent mentioned therein and that the Respondent had kept the Petitioner informed about the same right from August, 1995. The letter also states that the issue in this regard was raised at all the meetings. The letter concludes with a request for eighteen months extension of time stating : "this will not breach the rights of both parties for any remedy they may have under law and contract for consequence of delay." The letter no doubt is clearly relevant. The Arbitrator’s reliance upon the fact that even to this letter,the response was only an extension of time being granted without any rebuttal of the Respondent’s contention is understandable and justified. 10. In this view of the matter, it is impossible : 15 : to state that the analysis of the minutes of the meeting, the effect thereof and the finding of the Arbitrator on the question of breach mentioned in paragraph 10.6 of the award is unsustainable. 11(a) Ms. Paranjpe submitted tht the arbitrator considered drawing nos.2, 5A and 13 despite this not being tendered in evidence. (b) The contention is not correct and required my examining the record. The minutes of the 52nd meeting held on 18.8.2004, which are not disputed, expressly record inter-alia the said drawing having been examined in respect of the issue pertaining to delay. Further the drawings were in fact on record. They were produced before the arbitrator and filed in this court. The Index to Volume II (numbered by the court) at page 208 refers to the same. 12(a) It is not necessary for the Arbitrator to record and analyze each and every letter. If the Arbitrator has ignored correspondence or documents or any other evidence which if considered would ex-facie have a bearing on the decision it may be another matter. It would of course depend on the facts and circumstances of the case. : 16 : (b) Ms.Paranjpe was unable to invite my attention to any document which clinches the issue establishing that the Arbitrator’s finding was perverse, based on no evidence or contrary to the record and therefore absurd. 13. Ms.Paranjpe submitted that the Arbitrator’s finding on mitigation is incorrect. It was contended on behalf of the Petitioner before the Arbitrator that the Respondent had not proved that they had mitigated the alleged losses. 14. There is some difference of opinion on the question as to on whom the onus lies to establish the mitigation of loss. It is, in the present case, not necessary to decide this question as the Arbitrator’s finding on facts in this regard cannot be said to be absurd. In this regard the Arbitrator has held as follows :- "Mitigation does not seem to be regularly applied in construction claims for several reasons. In this particular contract, I am convinced, nature of work was such that the mitigation was not possible risking demobilization and remobilization on one count or the other. In such : 17 : contracts, it is difficult to mitigate the losses unless work is kept suspended for a specific period due to some specific hindrance. Moreover, the conclusion of most delay claims while they are occurring cannot be accurately predicted. To mitigate a contractor needs to know when the delay will end to determine whether labour should be dismissed ; leased equipment returned and materials stored. In the present case this was not at all feasible. I accept the Claimants stand that there was never a definite programme of the Respondents as regards issuance of drawings and designs as also giving decisions on critical matters to enable the Claimants to mitigate their losses to the extent possible. Because of erratic and unplanned supply of drawings and decisions, the Claimants could never reduce their mobilization thereby they had no chance of mitigating the losses at any stage." . The finding is certainly not absurd. It appears to be more than just reasonable. The Respondent has not established anything to the contrary. 15. The challenge to the award on this ground is therefore rejected. . RE : CLAIM NO.1 : 16. Claim No.1 reads as under :- : 18 : "C-1) COMPENSATION COMPENSATION COMPENSATION FOR FOR FOR UNDER UNDER UNDER UTILIZED UTILIZED UTILIZED OVERHEADS : OVERHEADS : OVERHEADS : The total contract value was Rs.43,16,93,592.00 and the job was to be done in 32 months. The workload contracted was Rs.1,34,90,424.75 per month. The amount of work done is Rs.42,08,38,634.00. Therefore the effective Time of Contract is 31 months only. The total stay on job has been 63 months and therefore the idle stay on job is 32 months. The overheads provided in this highly skilled industry is about 15% of the job i.e. @ Rs.20,23,563.71 per month. Thus we have lost benefit of overheads amounting to Rs.20,23,563.71 x 32 months = Rs.6,47,54,039.00 Rs.6,47,54,039.00 Rs.6,47,54,039.00 and this amount may please be paid to us." [B]. It is important to note that in the statement of claim, claim No.1 was based on the following averments :- "Home office overhead It is now well established that an allocable portion of a delayed contractor’s home office overhead expenses is a compensable element of damage. When an engineering project is interrupted, the contractor does not realize direct billings in the time period during which they were anticipated. As a result, home office overhead is said to be unabsorbed. Unabsorbed overhead is to be contrasted with extended costs incurred when additional work is performed. The generally accepted method for calculating unabsorbed home office overhead is the Eichleay formula. Contract Billings Total overhead for Overhead : 19 : ----------------- x Contract period = Allocable to Total billing for the contract Contract period period Allocable Overhead ------------------ = Daily Contract Overhead Days performance Daily Contract Overhead x Days of Delay = Amount Claimed This being our major assignment, most of our office overheads are required to be booked to Owners." 17. The claim was denied by the Petitioners in their reply to the statement of claim inter-alia on the ground that the Respondent had not furnished any proof or evidence of the alleged losses. The Petitioner,