Case: Indian Oil Corporation 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 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:the aforementioned contract is still pending and IOCL is in the process of inducting agency (ies) to complete the said work, the Engineer-in-charge of the said contract, EIL estimated a minimum expenditure of Rs.18,36,20,000/- for completion of the works under the said contract which EIL intimated to IOCL by its letter dated 23.5.2002, a copy whereof is annexed hereto and marked Annexure RY. The said estimated expenditure has been revised by IOCL who has arrived at the reduced figure of Rs.2,10,41,626/- (Rupees Two Crores Ten Lacs Forty One Thousand Six Hundred Twenty Six Only) in its proposal dated 09.09.2006, a copy whereof is annexed hereto and marked Annexure RY- 1. Accordingly, IOCL is entitled to recover from SPSEL any additional sums including the abovementioned Rs.2,10,41,626/- (Rupees Two Crores Ten Lacs Forty One Thousand Six Hundred Twenty Six Only) that it will according to its estimate incur upon execution of the balance work by other agencies pursuant to the termination of the said contract in terms of Clause 7.0.6.0 of GCC along with any other additional expenditure incurred by IOCL in completion of the said works. IOCL, therefore, is entitled to an amount of Rs.2,10,41,626/- (Rupees Two Crores Ten Lacs Forty One Thousand Six Hundred Twenty Six Only) from SPSEL which SPSEL has not paid tille 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 underis therefore prayed that the learned Arbitrator may be pleased to:(i) award a sum of Rs.92,72,529/- (Rupees Ninety Two Lacs Seventy Two Thousand Five Hundred Twenty Nine Only) against SPSEL and in favour of IOCL along with the additional amounts which in IOCs estimate, IOC will incur in further executing and completing at the Claimants risk and cost, the balance works remaining incomplete under the said contract.(ii) grant pendent lite interest @ 18% per annum on the awarded amount;(iii) grant interest on the awarded amount @ 18% per annum from the date of award till the date of payment in full;(iv) grant cost of arbitration proceedings to IOCL;(v) grant such other or further order(s) and/or relief as are deemed appropriate in the circumstances of theThe arbitrator made an award dated 27.10.2008. He awarded Rs.91,33,844 towards the claims of respondent. As against the counter claims aggregating to Rs.92,72,529 made by the appellant, the arbitrator awarded a sum of Rs.11,10,662. In regard to the averments made by the appellant in regard to the extra cost involved in getting the work completed through an alternative contractor, the arbitrator observed thusThe contract was terminated in October 2002 and till date the balance work of the contract has not been executed. Such damage could have been allowed to the respondent if in a reasonable period after termination of the contract, the respondent had executed the balance work at the risk and costs of the claimant. In case the costs actually incurred have been more than the costs which were required to be incurred under the contract, then the difference between the two costs could have been awarded as damages to the respondent. There is no proper evidence on the record to show that what could have been the costs of the balance work if it had been executed within reasonable period after the termination of the contract. Such damage cannot be awarded on mere opinion of any particular person or on hypothetical basis. Under clause 7.0.9.0 of General Conditions of the Contract, the respondent was entitled at the risk and expenses of the contractor to get completed the balance work and recover the costs from the claimant. This clause further contemplates that on the amount actually expended by the owner for the completion of the work 15% to be added as supervision charges, the same would have become recoverable from the claimant. In the present case, no such cost has been incurred till date. Thus, for these reasons, I reject this countersupplied).The arbitrator adjusted Rs.11,10,662 awarded to the appellant, towards the sum of Rs.91,33,844 awarded in favour of the respondent and consequently directed the appellant to pay to the respondent, the balance of Rs.80,23,182. 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:A. Amount determined as payable to the alternative agency (Deepak Construction Co.) for the balance work Rs.4,05,74,465.00B. Material supplied to the alternative agency for completing the work (+) Rs.2,78,68,861.64----------------------C. Total Cost (A + B) Rs.6,84,43,326.64D. The cost of such unfinished work, if it had been completed by the respondent, as per its contract rates. (-)Rs.3,30,93,996.Extra cost incurred on account of getting the work completed at the risk and cost of respondent (C - D) Rs.3,53,49,329.89F. Supervision charges at 15% onRs.6,84,43,326.64 (+) Rs.1,02,66,499.00----------------------Total amount recoverable from the respondent (E+F) Rs.4,56,15,828.89----------------------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 its liability, to treat the said letter as appellants notice invoking arbitration. The appellant also suggested a panel of three names (including Justice P.K. Bahri - the arbitrator who had made the award dated 27.10.2008) with a request to select one of them as the arbitrator. The respondent by reply dated 18.3.2009 refused to comply, contending that the counter claim in regard to the risk-execution cost had already been rejected by the arbitrator, by his award dated 27.10.2008 and that award having attained finality, there could be no further arbitration. In view of the said stand of the respondent, the appellant filed a petition under section 11 of the Act praying for appointment of an arbitrator to decide its claim for the extra cost in getting the work completed through the alternative agency.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. within a reasonable period of termination of respondents contract); and (iii) that as the work was completed by Deepak Construction Co. on 29.12.2007 and the earlier arbitration proceedings had came to an end much later on 27.10.2008, the claim in regard to actual extra cost ought to have been crystallized and claimed in the first round of arbitration.

Court's reasoning:
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.