Case: Indian Oil Corporation Ltd Vs. M/s. SPS Engineering Ltd

earlier arbitration proceedings. Thirdly, admittedly there is no challenge to the award dated 27.10.2008 by the present petition whereby its counter claim was rejected. Fourthly, I am of the view that once a risk and cost tender is issued at the risk and cost of a person, then, the amount which is to be claimed from the person who is guilty of breach of contract and against whom risk and cost is tendered, becomes crystallized when the risk purchase tender at a higher cost is awarded. Once a higher cost of work is known as compared to the cost of the work for the earlier work for which the earlier contract was there and with respect to which the earlier contractor was in breach, then not only the amount becomes crystallized but limitation also commences for filing of the legal proceedings against the person in breach of obligations under the earlier contract. It cannot be that limitation and a right continues indefinitely to be extended till the performance is completed under a subsequent risk purchase contract. This would give complete uncertainty to the period of limitation striking at the very root of one of the principles of the Limitation Act and which is that evidence is lost by passage of time and which will cause grave prejudice to the person against whom a stale claim is filed." 15. The appellant submitted that having regard to clause 7.0.9.0 of the contract, damages can be claimed by it (as employer), in regard to the additional amount incurred for getting the work completed through an alternative agency at the risk and cost of the contractor along with the supervision charges, only when the amount was actually expended for completion of the entire work; and therefore, unless the work was completed by the alternative agency and the final bill was settled or finalized, the actual extra cost could not be determined. It was pointed out that in the first round of arbitration, the hearing was concluded by the Arbitrator on 13.3.2008 and matter was reserved for orders and the award was declared on 27.10.2008; that the work was completed by the alternative agency on 29.12.2007 and final bill of the alternative agency was drawn and settled only on 7.5.2008, after the conclusion of the hearing, by the Arbitrator; that the actual extra cost could be worked out only when the final bill was prepared, and not on the date of completion of work; that therefore the appellant could not make the claim for actual extra cost, in the first round arbitration. It was also submitted that the appellant was not expected to give details of completion of work and preparation of the final bill, or produce documents in support of it in a proceeding under section 11 of the Act; and that the Designate was not therefore justified in finding fault with the appellant for not stating the date of settlement of the final bill in the petition under section 11 of the Act and for not producing the final bill. 16. The appellant also contended that when its statement of counter claim was amended before the Arbitrator, the appellant had only indicated its estimation of the probable extra cost to be Rs.2,10,41,626/-, as advance indication of a claim to be made in future on the basis of actuals, and that it had not prayed for award of the said amount in the said proceeding. It was pointed out that even after mentioning the proposed claim by amending the statement of counter claim, the actual counter claim before the arbitrator remained as only Rs.92,72,529/- exclusive of any claim on account of the risk completion cost. It was submitted that having regard to clause 7.0.9.0, the counter claim for extra cost could not have been made when the first arbitration was in progress and that the arbitrator had in fact noticed in his award (at para 102) that only when the cost actually incurred, the appellant could make the claim for the extra cost. It is contended that the "rejection" by the arbitrator was not on the ground that the claim for extra cost was not recoverable, nor on the ground that no extra cost was involved in completing the work, but on the ground that as on the date of the award, the appellant had not actually incurred any specific extra cost; and that as the arbitrator clearly held that any claim for extra cost was premature and could not be considered at that stage, the observation that `I reject this counter claim only meant that the claim relating to extra cost was not being considered in that award and that appellant should make the claims separately after the amount was actually expended. 17. Clause 7.0.9.0 of the contract relied upon by the appellant reads thus : "clause 7.0.9.0Upon termination of the contract, the owner shall be entitled at the risk and expenses of the contractor by itself or through any independent contractor(s) or partly by itself and/or partly through independent contractor(s) to complete to its entirety the work as contemplated in the scope of work and to recover from the contractor in addition to any other amounts, compensations or damages that the owner may in terms hereof or otherwise be entitled to (including compensation within the provisions of clause 4.4.0.0 and clause 7.0.7.0 hereof) the difference between the amounts as would have been payable to the contractor in respect of the work (calculated as provided for in clause 6.2.1.0 hereof read with the associated provisions thereunder and clause 6.3.1.0 hereof) and the amount actually expended by the owner for completion of the entire work as aforesaid together with 15% (fifteen per cent) thereof to cover owners supervision charges, and in the event of the latter being in the excess former, the owner shall be entitled (without prejudice to any other mode of recovery available to the owner) to recover the excess from security deposit or any monies due to the contractor." (emphasis supplied)

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]11. To find out whether a claim is barred by res judicata, or whether a claim is "mala fide", it will be necessary to examine the facts and relevant documents. What is to be decided in an application under section 11 of the Act is whether there is an arbitration agreement between parties. The Chief Justice or his designate is not expected to go into the merits of the claim or examine the tenability of the claim, in an application under section 11 of the Act. The Chief Justice or his Designate may however choose to decide whether the claim is a dead (long-barred) claim or whether the parties have, by recording satisfaction, exhausted all rights, obligations and remedies under the contract, so that neither the contract nor the arbitration agreement survived. When it is said that the Chief Justice or his Designate may choose to decide whether the claim is a dead claim, it is implied that he will do so only when the claim is evidently and patently a long time barred claim and there is no need for any detailed consideration of evidence.An application under section 11 of the Act is expected to contain pleadings about the existence of a dispute and the existence of an arbitration agreement to decide such dispute. The applicant is not expected to justify the claim or plead exhaustively in regard to limitation or produce documents to demonstrate that the claim is within time in a proceedings under section 11 of the Act.The award amount due to the respondent under the award dated 27.10.2008 is an ascertained sum due, recoverable by executing the award as a decree. On the other hand the claim of the appellant for reimbursement of the extra cost for getting the work completed, is a claim for damages which is yet to be adjudicated by an adjudicating forum. The appellant cannot therefore adjust the amount due by it under the award, against a mere claim for damages made by it against the respondent. The appellant will have to pay the award amount due to the respondent and if necessary modify its claim for extra cost against the respondent.