Indian Oil Corp.Ltd vs M/S Sps Engineering Ltd

2. The Indian Oil Corporation Limited, the appellant herein, awarded an infrastructure work relating to drinking water system for its Paradip Refinery project to the respondent on 17.10.2000 and followed by a formal agreement dated 18.1.2001. The period stipulated under the contract for completion of the work was 13 months from the date of issue of the order dated 17.10.2000 and the contract value was Rs.16,61,17,473/-. The appellant 2 terminated the contract on 29.10.2002 alleging that the respondent contractor though required to complete the work within 13 months, had achieved a progress of hardly 15.94% till 30.4.2002 and notified the respondent that the work will be got completed through an alternative agency, at the risk and cost of the respondent under Clause 7.0.9.0 of the General Conditions of Contract.

3. In view of the said termination, the respondent raised certain claims against the appellant and invoked the arbitration agreement contained in the General Conditions of Contract and filed an application under section 11 of the Arbitration and Conciliation Act, 1996 (`Act' for short) before the Delhi High Court for appointment of an arbitrator. The Designate of the Chief Justice of the High Court, by order dated 17.3.2003, appointed a retired High Court Judge as the arbitrator.

4. Before the arbitrator, the respondent filed a statement of claims raising eight claims. However in its written submission before the Arbitrator, the contractor confined its claims to only three, aggregating to Rs.1,31,81,288/-.

5. The appellant made several counter-claims aggregating to Rs.92,72,529/-. Subsequently the statement of counter-claims was amended and the following para was added in regard to the extra cost in getting the work completed through an alternative contractor:

(emphasis supplied) The prayer in the counter-claim however remained unaltered and did not include the claim of Rs.2,10,41,626/- on account of risk - execution of balance work. Even after the above amendment, the prayer continued to be as under :

He further directed that if the amount was not paid within three months from the date of award, the appellant shall pay interest at the rate of 12% per annum from the date of award till payment. The appellant did not challenge the award and it thus attained finality.

7. The appellant claims that it entrusted the incomplete work to Deepak Construction Company for completion in the year 2005, that the said contractor completed the work on 29.12.2007, and that the final bill of the said alternative agency was settled on 7.5.2008. On that basis, the appellant calculated the actual extra cost incurred in completing the work and the total amount recoverable from the petitioner in terms of the contract, as under:

Towards the said claim against the respondent, the appellant adjusted the sum of Rs.80,23,182/- awarded by the arbitrator to the respondent and arrived at the net amount recoverable from the respondent towards extra cost for completion as Rs.3,75,92,646.89. The appellant by notice dated 22.1.2009 called upon the respondent to pay the said sum of Rs.3,75,92,646.89 (and interest thereon at 18% per annum if the amount was not paid within seven days) and informed the respondent that if it disputed 7 its liability, to treat the said letter as appellant's notice invoking arbitration.

8. The learned Designate of the Chief Justice of the Delhi High Court (for short `the Designate') by the impugned order dated 8.12.2009 dismissed the application with costs of Rs.50,000/-. He held that the application under section 11 of the Act by the appellant was misconceived, barred by res judicata, and mala fide. The Designate held (i) that the claim by the appellant in regard to extra cost had already been considered and rejected by the Arbitrator; (ii) that the claim regarding extra cost was barred by limitation (by drawing an inference from the observation of the Arbitrator that the risk execution tender was not awarded to Deepak Construction Co.

(emphasis supplied)

20. We may at this stage refer to one aspect of the claim for extra cost.

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.

21. In view of the foregoing, this appeal is allowed and the order of the Designate is set aside. The application under section 11 of the Act filed by appellant before the Chief Justice of the Delhi High Court is allowed and Justice P.K.Bahri (Retd.) who was the earlier Arbitrator is appointed as the sole arbitrator to decide the appellant's claim in regard to the additional cost for completing the work. It is open to the respondent to raise all contentions against the claim of the appellant including the contention of limitation, 20 maintainability and res judicata, before the arbitrator. Nothing in this order shall be construed as expression of any opinion on the merits or tenability of the claim of the appellant regarding extra cost.