M/S.J.G.Engineers Pvt.Ltd vs Union Of India & Anr

2. On 26.3.1993 the respondents awarded the work of "extension of terminal building" at Guwahati airport to the appellant. As per the contract, the date of commencement of work was 10.4.1993 and the period of completion of the work was 21 months, to be completed in different stages. As the appellant (also referred to as the `contractor') did not complete the first phase of the work within the stipulated time, the respondents terminated the contract by order dated 29.8.1994. The termination was challenged by the appellant in a writ petition filed before the Gawahati High Court. By judgment dated 27.9.1994, the High Court set aside the termination and directed the respondents to grant time to the appellant till the end of January 1995 for completion of the first phase reserving liberty to the appellant to apply for further extension of time. As the work was not completed, the respondents granted an extension upto 31.7.1995 by letter dated 24.8.1995, without levying any liquidated damages. The contractor proceeded with the work even thereafter. However, as the progress was slow, the respondents terminated the contract on 14.3.1996 on the ground 3 of non-completion even after 35 months. The appellant filed a writ petition, challenging the cancellation. The High Court by order dated 25.6.1996, noticed the existence of the arbitration agreement and referred the parties to arbitration. In pursuance of it, on a request by the appellant, the respondents appointed Mr. C.Vaswani as the sole arbitrator on 14.2.1997.

3. On 17.4.1997, the appellant filed its statement of claims. Claims 1 to 11 aggregated to Rs.2,38,86,198.31 (subsequently, reduced to Rs.2,06,70,495/-). Claim 12 was for interest at 18% per annum on the total claim amount from 20.5.1996 to date of realization. Claim 13 was for Rs.2,13,729/- as cost of arbitration. On 3.2.1999, the respondents filed their reply and also filed their four counter claims before the arbitrator aggregating to Rs. 279,54,225/-.

4. By award dated 5.9.2001 (as amended on 22.9.2001) the Arbitrator awarded a sum of Rs.1,04,58,298/- with interest and costs in favour of the appellant and rejected the counter claims of the respondents. The particulars of the amounts claimed and the awards thereon are as under: 4

The Arbitrator awarded to the contractor, simple interest @ 9% per annum on Rs.38,21,298 for the period 14.9.1996 to 31.3.1997 and simple interest @ 15% per annum on Rs.1,04,58,298 for the period 1.4.1997 to date of payment (under Claim No.12). The Arbitrator also awarded Rs.39,610/- towards costs (under Claim No. 13). All the counter claims of respondents were rejected.

(iii) The rejection of the counter claims of respondent, by ignoring the agreed terms of contract and the legal provisions, was also patently illegal. As a consequence, the award was liable to be set aside fully, as the respondents would have been entitled to adjust the amounts found due and payable against claims 2, 4, 6, 7, 8, 9 against their counter-claims, if allowed. In view of the said findings the High Court directed as follows :

8. Claim No. (1) for Rs.11,26,518 relates to the payment due in regard to the 34th running bill withheld by the respondent. It comprises Rs.5,90,000/- levied as compensation under clause (2) of the agreement, Rs.3,17,468 withheld towards alleged risk cost in getting the work executed by an alternative agency and Rs.2,19,050 being the escalation in 9 regard to the period January 1995 to July 1995 which was admitted by the respondents to be due. The Arbitrator allowed the entire claim holding that the appellant was not responsible for the delay and consequently the rescission/termination was illegal and levy of liquidated damages and recovery of excess cost in getting the work completed through an alternative agency was not permissible, was bad.

9. Claim No.3 was for refund of security deposit of Rs.100,000/-. The respondents had encashed the bank guarantee for Rs.1 lakh which had been issued in lieu of security deposit and forfeited the same on the ground that the contractor was in breach. The arbitrator held the contractor was not in breach and the forfeiture was illegal and directed that the said sum of Rupees one lakh should be refunded to the contractor.

(emphasis supplied)

23 Re : Question (iii)

The High Court therefore committed an error in setting aside the award in regard to claim No.5 on the ground that it violates clause 10(cc) of the contract.

Re : Question (iv)

(iii) Claim on account of expected demand for escalation in rates payable to the alternative contractor in getting the work completed, in addition to the extra expenditure claimed under counter claim No.1 [counter claim No.(3) for tentative sum of Rs.75 lakhs to be ascertained after the work was actually completed and the bill of the new agency is settled].

(iv) Claim for cost of arbitration [counter claim No.(4) for Rs.100,000/-].

The High Court proceeded on the erroneous assumption that when clauses (2) and (3) of the agreement made the decisions of the Superintending Engineer/Engineer-in-Charge final as to the quantum of liquidated damages and quantum of extra cost in getting the balance work completed, the said provisions also made the decision as to the liability to pay such liquidated 28 damages or extra cost or decision as to who committed breach final and therefore, inarbitrable; and that as a consequence, the respondents were entitled to claim the extra cost in completing the work (counter claims 1 and 3) and levy liquidated damages (counter claim No.2) and the arbitration costs (counter claim No.4). Once it is held that the issues relating to who committed breach and who was responsible for delay were arbitrable, the findings of the arbitrator that the contractor was not responsible for the delay and that the termination of contract is illegal are not open to challenge. Therefore, the rejection of the counter claims of the respondents is unexceptionable and the High Court's finding that arbitrator ought not to have rejected them becomes unsustainable. The award of the Arbitrator rejecting the counter claims is therefore, upheld. Conclusion

24. No part of the decision of the High Court is sustainable. The appeal is therefore allowed, the impugned order of the High Court is set aside and the order of the District Court dated 12.12.2003, is restored.