Bharat Aluminium Co. Ltd. vs Jagdish Prasad Agrawal

Sanjay K. Agrawal, J.—Invoking Section 37 of the Arbitration and Conciliation Act, 1996 (hereinafter called as ''the A.C. Act, 1996'') and calling in question the legality and validity of order dated 22-1-2005 passed by District Judge, Korba in Miscellaneous Civil Case No. 76/2004 in Bharat Aluminium Company Limited v. M/s. Jagdish Prasad Agarwal by which the appellant''s application under Section 34 of the A.C. Act, 1996 to set aside the award dated 27-1-1999, has been rejected by the learned District Judge. The facts in brief, necessary for adjudication of this appeal, are as under:

1.1 The appellant-Company issued notice inviting tender for the purpose of mining of 75000 metric tones of Bauxite at Mainpat Mines and its transportation to Korba. The respondent''s offer was found to be lowest and accordingly his offer was accepted and general conditions of the contract of the appellant-Company were made part of the contract and work-order was issued to the respondent on 11-9-1993. The mining operations were to be carried out in two blocks of Mainpat Mines, namely, Kesara and Kudardihi as per the plan/drawings enclosed with the tender documents. It is the case of the appellant-Company that on 22-9-1993 and 23-9-1993, the part of the site was handed over for carrying out mining and stacking out Bauxite from the mines. It is the further case of the appellant-Company that the Deputy General manger, Head of Mines Department and General Manager, Alumina visited Mainpat and found the area to be sufficient for execution of the required quantity and the respondent-Contractor was directed to commence the work. The respondent-Contractor, without commencing the work, insisted for handing over the entire site before commencing the work and he did not commence the work in spite of repeated instructions and consequently, the appellant-Company was left with no alternative but to take action for terminating the contract as per Clause 8.3 of the General Conditions of the Contract for which notices dated 18.10.1993 and 19.11.1993 were issued. Finally, the contract was terminated on 13.12.1993 as the respondent-Contractor failed to comply with the terms of the contact by not commencing the work.

1.2 On a representation being made by the respondent, the appellant-Company, by order dated 23-12-1993, passed a detailed order rejecting the representation and forfeiting the earnest money deposited by the respondent-Contractor.

1.3 The respondent-Contractor filed an application under Section 20 of the Arbitration Act, 1940 before the District Judge, Korba for finalisation of arbitration agreement and for appointment of an Arbitrator in terms of arbitration agreement contained in General Conditions of the Contract. The said application was filed on 8-1-1994. The District Judge, after hearing both the parties, by order dated 12-6-1996, appointed Joint Arbitrators and referred the dispute to the Arbitrators so appointed. The Arbitrators so appointed entered into a reference in which the respondent-Contractor filed statement of claim and the appellant-Company also filed counter claim. The Joint Arbitrators, after due inquiry, passed award dated 27-1-1999 granting damages under the following heads:

"(i) Rs. 2,20,000/- Earnest Money Deposit with 18% interest after the maturity of the above term deposit.

(ii) Rs. 39,000/- for 20 idle labors for one month.

(iii) Rs. 1,24,000/- on the head of idle machinery.

(iv) Rs. 23,92,500/- claim awarded for damage @ 10% of the contract value.

(v) 10% of the prime cost as contractor''s profit for damage of breach of contract."

1.4 Feeling dissatisfied with the award dated 27-1-1999 so passed by the Joint Arbitrators, the appellant filed an application under Section 30 read with Section 30 & 33 of the Arbitration Act, 1940 (hereinafter referred to as "the Act of 1940") for setting aside the award stating inter alia that the Arbitral Tribunal misconducted the proceedings and misconducted themselves in passing the award and the sums awarded were against the terms of the contract and the award was liable to be set aside.

1.5 During the proceedings before the District Judge, the respondent raised an objection that the objection filed under Sections 30 and 33 of the Act of 1940 is not maintainable as the Act, 1996 has come into force with effect from 26-1-1996. The District Judge, by his order dated 3-3-2003, rejected the objection. Thereafter, the appellant also filed an application for recalling of order dated 3-3-2003k by moving an interlocutory application The District Judge, by his order dated 16-4-2004, rejected the application for review/recall of the order dated 3-3-2003. The appellant/Company filed a writ petition, being Writ Petition No. 3519/2004 challenging the order dated 3-3-2003.

1.6 Thereafter, the aforesaid writ petition came-up for hearing before this Court on 17-3-2005. Since the original objection was already decided on 22-1-2005, therefore, the writ petition was dismissed as withdrawn with liberty to avail the remedy challenging the order dated 3-3-2003. Miscellaneous Appeal No. 306/2005 was filed before this Court on 4-3-2005; therefore, the writ petition filed on 17-3-2005 was dismissed as withdrawn to avail the liberty available under the law.

1.7 The District Judge, by his order dated 22-1-2005, treating the objections filed by the appellant-company under Section 34 of the A.C. Act, 1996 and dismissing the objections declined to set aside the award passed by Arbitrators finding no "patent illegality" as provided in Section 34(2)(b)(ii) of the A.C. Act, 1996.

1.8 Questioning the legal acceptability and sustainability of the order dated 22-01-2005; the appellant-Company initially preferred appeal under Section 39 of the Arbitration Act, 1944 before this Court. An application was moved by the appellant-company for converting this appeal into appeal under Section 37(b) of A.C. Act, 1996, by order dated 5-12-2013; this appeal was allowed to be converted and treated as appeal under Section 37(b) of the AC. Act, 1996. This is how this appeal is before this Court for determination.

Shri Ratnakar Banerjee & Shri Abhishek Sinha, learned counsels appearing for the appellant-Company, while questioning the award of the Joint Arbitrators and the order dated 22-1-2005 rejecting the application filed under Section 34 of the A.C. Act, 1996, would submit as under:-

(1) The Joint Arbitrators have committed grave legal error in awarding interest on the earnest money which is prohibited by Clause 1 of the Tender Documents under Instructions to Tenderers (Annexure A), Clause 4 of the Tender Documents under Instructions to Tenderers (Annexure B) and Clause 2.13.2 of the General Conditions of the Contract (Annexure C) and the District Judge has committed legal error in refusing to set aside the part of award granting interest.

(2) The part of award of the Joint Arbitrators awarding earnest money of Rs. 2.20 lacs with interest @ 18% is also contrary to Clause 8.3(b) of the General Conditions of Contract (Annexure C) read with Clauses 8.3.1.6 and 8.3.1.8 of the General Conditions of Contract (Annexure C) as the award being contrary to the term of the contract.

(3) The award of Rs. 39,000/- towards idle labour is prohibited by Clause 6 of the Special Conditions of the Contract is bad as the Joint Arbitrators itself held that the claimant could not prove the said fact.

(4) Likewise, the award for claim for idle machinery for one month is also prohibited by Clause 6 of the Special Conditions of the Contract merely on the basis of assumption.

(5) The award for damages to the extent of 10% of the contract value is prohibited by Clause 8.2 of the General Conditions of the Con tract. Apart from the fact, the same has not been proved that he has actually suffered such damages.

(6) The Joint Arbitrators have committed legal error in holding that the termination of contract in question was bad in law. The findings of the Arbitral Tribunal and the District Judge are contrary to the record.

Shri K.R. Nair, learned counsel appearing for the respondent/claimant would support the order passed by the learned District Judge, Korba rejecting the application filed by the appellant under Section 34 of the AC Act, 1986. He would further submit that there is no patent illegality in the award passed by the Arbitrators and that is the reason, the learned District Judge has declined to set aside the award passed by the Joint Arbitrators and the appellant has also failed to point out any "patent illegality" in the order of learned District Judge and consequently, the order of District Judge deserves to be affirmed in this appeal.

I have heard learned counsel appearing for the parties and considered the rival submissions made therein and perused the record of court below with utmost circumspection.

Upon hearing learned counsel appearing for the parties and on perusal of the record, following question needs to be considered by this Court in the appeal:-

(i) "Whether the finding recorded by the arbitrators holding that the appellant/company to be guilty of breach of the contract is unjustified?"

And/or

"Whether the arbitrators have rightly held that the termination of the contract is unjustified?

(ii) "Whether the arbitrators are justified in granting damage to the extent of 10% without its actual proof, under the head i.e. anticipated damages?"

(iii) "Whether the awards made by the arbitrators with respect to idle men & machinery is justified in light of the terms of contract?"

(iv) "Whether the arbitrators were justified in granting interest at the rate of 18% from the date of reference to the entire award amount?"

Re-Question No. 1

(i) The Joint Arbitrators have considered the aforesaid issues during the course of arbitration and have came to a categorical conclusion that sites of Kesra and Kudardihi were to be given duly cleared to the respondent/claimant as required in the work order dated 1.1.1993 and in its award it has been held that appellant/Company has filed to handover both the sites i.e. Kesra and Kudardihi as required as per para 3 of the work order dated 11.09.1993. It was the appellant/Company to handover the entire sites to the respondents-Contractor as the two con tractors for trenching and mining area cannot work smoothly in the same area simultaneously with different rates as Mr. K.N. Singh, the trenching Contractor was already working in the said area.

(ii) It has further been held that the appellant/Company did not supply detail drawing and other related information in connection with the work to the respondent/Claimant and has only supplied the sketch without any scale and by which, it was not possible for the respondent/claimant to start the work in question.

(iii) That, the termination of the contract under Clause 8.3 of the agreement on 13.12.1993 was unjustified as the appellant/Company has other available remedies under Clause 9 and Clause 2.14.1 to forfeit the earnest money deposit.

Thereafter, in an application filed under Section 34 of the Act, 1996 for Setting aside the impugned award, learned District Judge has declined to interfere with the award finding no patent illegality in the award within the meaning of Section 34(2)(b)(ii) of the A.C. Act of 1996.

Learned counsel appearing for the appellant, in order to assail the finding of learned Arbitrators in the above stated question and to further challenge the order of District Judge, would submit as under:-

(i) That the whole basis of the award is that entire site was not handed over by BALCO for execution of work, which is contrary to Clause 11 of the contract permitting BALCO to allot such areas to the contractor who is required to work/raise/mine/excavate Bauxite, therefore, entire award is illegal and perverse.

(ii) That clause 3.2.4 of contract permits BALCO to let other contract in connection with the work. This clause impose an obligation on the contactor to afford other contractors reasonable opportunity for the storage of material and execution of the work and to coordinate his work with theirs. Therefore, the reason by the claimant contractor not to commence work for the presence of M/s. K.N. Singh, another contractor working at same area of the site is contrary to the terms under clause 3.2.4. Claimant also issued a certificate in line with Clause 3 instructions to tenders regarding inspection of work site prior to submission of tender and therefore, it is presumed that he had the knowledge of work by other contractors in the adjoining areas. Therefore, this could not be an excuse for not commencing the work.

Per contra, learned counsel appearing for the respondent while supporting the impugned award and order of learned District Judge would submit that appellant-Company did not allot the entire area duly cleared at both the mines to the respondent-Contractor to execute the contract and also did not give certified drawing/plan to the respondent-contractor and, therefore, there is clear breach on the part of the appellant Company and thus, the termination of the contract is absolutely unjustified and Joint Arbitrators have rightly held so.

In order to decide the controversy, it would proper to take note of Clause 11 & Clause 3.2.4 of the Contract, which states as under:-

"11. ALLOTMENT OF AREA FOR MINING WORK:

(i) The Contractor shall be required to work/raise/mine/excavate Bauxite from such areas as may be allotted by the Mines Manager from time to time within the area marked on the plan. The Mines Manager shall have the right to stop the work in any area assigned to the Contractor and ask the Contractor to work in an alternative area.

(ii) Mines Manager may at his discretion, order stoppage of entire or part of mining work, blasting operation and/or transportation work to ensure compliance of the safety measures by the Contractor."

And

"3.2.4 SEPARATE CONTERACTS IN CONNECTION WITH THE WORK

The company shall have the right to let other contracts in connection with the work. The contractor shall afford other contractors reasonable opportunity for the storage of their materials and the execution or their work and shall properly contract and coordinate his works with theirs. In any part of the contractor''s work and shall property connect and coordinate his works with theirs. In any part of the contractor''s work depend for proper execution of results upon the work of another contractor, the contractor shall inspect and promptly report to the Engineer any defect in such work that tender it unsuitable or such proper execution and results. The contractor''s failure to inspect and report shall constitute an acceptance of other contractor''s work as fit and proper for the reception of his work.

The work order dated 11.9.1993 provides that the date of commencement shall be reckoned from the date of site clearance given by the Execution Department. Paragraph ''3'' of the work order states as under:

"3. The date of commencement shall be reckoned from the date of site clearance by the Execution Deptt. The completion of the contract is only nine months. Monthly schedule indicated 1 to be adhered to during execution."

The question that needs consideration is that whether both the sites, duly cleared fro excavation, were handed over to the respondent/contractor for commencing the work. Work order dated 11.9.1993 clearly provides that time for completion of work was nine months and date of commencement will be reckoned from the date of site clearance given by the Execution Department. Appellant-Company by its order dated 22.9.1993 and 23.9.1993 had handed over both the sites to the respondent/Contractor. It is the stand of the appellant-Company before the Joint Arbitrators that both sites of Kesra and Kudardihi on the aforesaid two dates duly cleared were handed over to the respondent-Contactor.

Mines Manager during his cross examination before the Arbitrators on 15.10.1997 had admitted that trenching Contractor Mr. K.N. Singh & Co. was working on both the mines sites as he had to mine 1000 metric tons of bauxite from both the trenches and he had to transport the bauxite stack of 1300 Metric tones from the nearby trenched sites. Not only this, the DGM (Mines) in this examination before the Arbitrator had admitted that M/s. K.N. Singh & Co. was working at both the sites but the 3/4th of the area was available to be operated by the respondent-Contractor for mining of bauxite. Thus, appellant-Company has changed his stand during the arbitration proceedings initially taken by stating that 3/4th area was available for mining work by the respondent-Contractor.

It is a common ground raised by the respondent-Contractor which is held to be established, that the site in question, the work by Trenching Contractor Mr. K.N. Singh & Co. was in progress and, therefore, virtually it was impossible for him to get the work started. It is further case of the respondent-Contractor that inspite of several request letters wrote by him to the appellate-Company to allot the clear site for commencing the work, the appellant-Company, instead of allotting and making it available clear site, issued notice of termination and ultimately terminated the contract under Clause 8.3 of the Contract. It is further case of the respondent-Contractor that appellant-Company never informed him about the existing Trenching Contractor Mr. K.N. Singh & Company would complete the work in 3-4 weeks and, thereafter, complete site would be allotted to him for work in question.

Thus, the pleading made and evidence brought on record before the Joint Arbitrators clearly establishes that the appellant-Company firstly took the firm stand that the entire work site at Kesra and Kudardihi were made available and handed over to the respondent-Contractor for commencing the work duly cleared, which came to be untrue by evidence recorded during the course of arbitration and in which their witnesses have clearly stated that the entire sites were not available to the respondent-Contractor as the Trenching Contractor was already working thereon and only 3/4th area of the area was available to be operated by the respondent-Contractor and, thereafter, finding difficulty in maintaining the stand taken before the Joint Arbitrators, appellant-Company changed its stand in view of evidence brought on record stating that 3/4th area in question made available to the respondent-Contractor was sufficient to commence the work in question. Thus, the reliance placed by Mr. Sinha taking assistance of Clause 11 & Clause 3.2.4 of the Contract is not at all helpful to the appellant-Company to say that though the duly cleared site was not available to the respondent-Contractor yet he was required to commence the work and complete the same within the period stipulated in the work order. Thus, considering the fact that Joint Arbitrators appointed in terms of the agreement, are the senior officers having long experience and technical expertise in the working of mines had considered the issue thread-bare and came to the categorical conclusion that work of the trenching and mining are inter-related and two contractors would not work at one place at one point of time and, thus the finding of the Arbitrators that respondent-Contractor was entitled to have the duly cleared site for commencing the work, which was not handed over to the respondent-Contractor is a finding of fact based on evidence available on record.

Apart from this, Joint Arbitrators have also held that in absence of duly signed written agreement and detailed drawing/site plan, the respondent-contractor could not commence the work merely on the basis of work order/sketch. Arbitrators have categorically recorded a finding that appellant-Company did not furnish the proper drawing with duly signed agreement enabling the respondent-Contractor to commence the work and has only furnished the sketch without any scale.

In this regard, Clause 3.4.2.3 and 3.4.2.3 are relevant, which read thus:

"3.4.2.3 Drawings and prints of articles, machinery or fabricated materials of work entering into or forming part of the permanent construction, which are not furnished by the Company and which are by the specifications, required to be furnished by the Contractor, shall be submitted by the Contractor to the requirement contained in the specifications unless expressly so stated. All such drawings and prints as also the drawings and specifications that may be furnished by the Company to the contractor shall be deemed to be the property of the company and they shall not be used on work other than the work covered by the contract, and shall be returned to the company on completion of the work or termination of the contract.

3.4.2.4 The drawings enclosed with tender documents are for tender purposes only and are intended to define the general construction works required. Prior to commencement of field constructions as well as during the course of execution the contractor will receive the certified construction drawings."

From a careful and close perusal of the aforesaid contractual terms, it would be luminously clear that prior to the commencement of the field construction as well as during the course of execution, the respondent-Contractor was entitled to have certified construction drawings and for which respondent-contractor had written several letters to the appellant-Company asking for the drawings but the appellant-Company did not supply the same and, thus, the claim by appellant/Company insisting the respondent-Contractor to commence the work was, therefore, in clear breach of the aforesaid contractual terms of the contract and furnishing of mere sketch of place and certified drawings, which the learned Arbitrators have held to be not readable as available on the record, it has rightly been concluded by the learned Arbitrators that appellant-Company has failed to provide certified drawings in accordance with the contractual terms agreed between the parties and it is held to be finding of fact based on record.

It is also pertinent to note that work order was issued to the respondent-Contractor awarding contract for the mining, sorting and transportation of 75000 Metric Tonnes of Bauxite. It has been mentioned in the counter claim filed by the appellant-Company before the Arbitrator that Trenching Contractor Mr. K.N. Singh & Co. had already completed mining of 5000 Metric Tones of Bauxite out of 75000 MT awarded to the respondent-Contractor. The respondent-Contractor was given termination notice of his contract on 18.10.1993 and the contract was actually terminated on 13.12.1993. The aforesaid sequence of events clearly shows that after the concluded contract has come into existence and much before terminating the contract, a part of the work was taken away and awarded to M/s. K.N. Singh & Co. which is in clear breach of the contract entered into between the parties.

Thus, the finding of fact recorded by learned Arbitrator that neither duly cleared site was handed over to the respondent-Contractor nor certified drawing were supplied to him in accordance with the terms of the contract and, thereby, the appellant-Company is guilty of breach of terms of the contract is a finding based on evidence available on record, in which, there is no patent illegality requiring the said finding to be set aside by the District Judge in exercise of powers under Section 34 of the A.C. Act, 1996; and I do not find any illegality in the said finding.

The determination of aforesaid issue brings me to the next question whether the termination of the contract by the appellant-Company was unjustified as held by the Joint Arbitrators in the facts & circumstances of the case.

The learned Arbitrators have held that termination of contract by the appellant-Company invoking clause 8.3 of the general conditions of the contract by the respondent-contract was unjustified as the appellant-Company had other available remedies under clause 9 and 2.14.1 to forfeit the earnest money. The learned District Judge, in application under Section 34 of the A.C. Act, 1996 declined to interfere holding that there is no patent illegality in award passed by the arbitrators.

Clause 8.1 deals with the reasons attributable to the appellant-Company and Clause 8.3 reasons attributable to the Contractor, which read thus:

8.1. Right of Company to Determine the Contract:

The company shall be entitled to determine and terminate the contract or any time, should in the Company''s opinion the cessation of work become necessary owing to paucity of funds or from any other cause whatsoever in which case the value of approved materials at site and of work done to date by the Contractor will be paid for in full at the rates specified in the contract. Notice in writing from the Company of such determination and the reason therefore shall be conclusive.

8.3 Determination of Contract Owing to Default of Contractor if the Contractor should:

8.3.1.1 become bankrupt or insolvent, or

8.3.1.2 make an arrangement with or assignment in favour of his creditors, or agree to carry out the contract under a Committee inspection of his creditors, or,

8.3.1.3 being a Company or Corporation, go in to liquidation (other than a voluntary liquidation for the purposes of amalgamation or reconstruction), or

8.3.1.4 have an execution levied on his goods or property on the works, or

8.3.1.5 assign the contractor or any part thereof otherwise that as provided in clause 2.8 of these condition, or.

8.3.1.6 abandon the contract, or

8.3.1.7 persistently disregard the instructions of the Engineer, or contravene any provisions of the contract, or

8.3.1.8 fail to adhere to the agreed programme of work by a margin of 10% of the stipulated period, or

8.3.1.9 fail to remove materials from the site or to pull down and replace work after receiving from the engineer to the notice to the effect that the said materials or work has been condemned or rejected under clause 3.7 and 3.8 of these conditions or.

8.3.1.10 fail to take steps to employee competent or additional staff and labour as required under clause 3.8 of these, condition, or

8.3.1.11 fail to afford the Engineer or Engineer''s Representatives proper facilities for inspecting the works or any part there of as required under clause 3.10 of these conditions, or

8.3.1.12 promise, offer or give any bribe, commission, gift or advantage either himself or through his partner agent or servant to any officer or employee of the company or to any person on his or on their behalf in relation to the execution of this or any other contract with the company, or

8.3.1.13 shall obtain a contract with company as a result of ring tendering or other non-bona fide method of competitive tendering.

Then and in any one of the said cases, the Engineer on behalf of the Company may be served the Contractor with a notice in writing that effect and if the Contractor does not within 7 days after the delivery to him of such notice proceed to make good his default in so far as the same is capable of being made good and carry on the work or comply with such directions as aforesaid to the entire satisfaction of the Engineer the company shall be entitled after giving 48 hour notice in writing under the hand of the Engineer to rescind the contract as a whole or in part or parts (as may be specified in such notice) and adopt either or both of the following courses:

(a) ...........

(b) to measure up the whole or part of the work from which the contractor has been removed and to get it completed by the another contractor.

The manner and method in which such work is completed shall be at the entire discretion of the Engineer whose decision shall be final and in both cases (a) & (b) mentioned above the Company shall be entitled (i) to forfeit the whole or such portion of the security deposit as it may consider fit and (ii) to recover from the contractor the cost of carrying out the work in excess of the sum which would have been payable according to the certificate of the Engineer to the contractors, if the works had been carried out by the contractor under the terms of the contract, such certificate being final and binding upon the contractor, provided, however such recovery shall be made only when the cost incurred in excess is more than the Security Deposit proposed to be forfeited and shall be limited to the amount by which the cost incurred in excess exceeds the Security deposit proposed to be forfeited.

Clause 2.14.1 provides for the consequences, which reads as under:

"2.14.1 Time & Extension for Delay: The time allowed for execution of the works as specified in the contract documents or the extended time in accordance with these condition shall be of the essence of the contract. The execution of the works shall commence from the 5th day after the date on which the Engineer issues written orders to commence the work or from the date of handing over of the site whichever is later. If the contractor commits default in commencing the execution of the work as at per said Company shall without prejudice to any other right or remedy be at liberty to forfeit the earnest money absolutely. As soon as possible after the contract is concluded, the Engineer and the contractor shall agree upon a Time and Progress Chart. The Chart shall be prepared in direct relation to the time stated in the contract documents for completion of the items or groups of items of work and/or the contract as a whole. It shall indicate the forecast of the dates of commencement and completion of various trades or sections of the work and may be amended as necessary by agreement between the Engineer and the contractor within the overall limitations of time imposed in the contract documents."

From the careful perusal of Clause 8.3 of the contract document would show that Clause 8.3 does not permit termination of the contract for delay in commencing the work.

The contract gives power to the appellant-Company to terminate the contract (i) for reasons attributable to the appellant and (ii) for reasons attributable to the contractor. The consequence of such termination is also provided separately in the contract. Clause 8.3 under which the contract has been terminated does not permit termination of contract for delay in commencing the work. Power for that lies in clause 2.14.1 with separate consequence. Since the contract gives power to terminate contract on different grounds with different consequences it cannot be said that when the power under Clause 8.3 has been exercised, the consequences mentioned under Clause 2.14.1 would follow. The termination order itself states that the contract has been terminated under Clause 8.3 for delay in commencing the work. Clause 8.3 does not give power to the appellant/Company to terminate the contract for delay in commencing the work. Therefore, the termination of the contract is contrary to the terms of the contract and cannot be sustained and it has rightly been set aside by the arbitrators.

In view of the finding recorded in foregoing paragraphs holding termination of the contract is illegal, there is no question of forfeiting the Earnest Money Deposit. Earnest Money Deposit can be forfeited only when the contract is terminated under clause 2.14.1 for delay in commencing the work. The contract was terminated under Clause 8.3 which does not include delay in commencing the work as a ground for termination of the contract. The learned arbitrators have therefore rightly awarded the amount of earnest money deposit to the respondent-contractor and learned District Judge committed no illegality in declining to set aside that part of the award.

Re-Question No. 2

Learned Arbitrator, by its award, awarded 10% of the contract value towards damages which remained unexecuted owing to the breach of the contract on the part of the appellant/Company from the date of reference amounting to Rs. 23,92,500/-.

Learned counsel appearing for the appellant/Company would submit that award for damage to the extent of 10% of the contract amount has been allowed on the basis that the respondent/contractor would have earned profit, if the job could have been allowed to be completed by the respondent/contractor, which is clearly prohibited under Clause 8.2 of the terms of the contract. In addition to the fact that respondent/Contractor has failed to prove that he has actually suffered such damages.

As against this, learned counsel appearing for the respondent would submit that Clause 8.2 of the Contract, upon which the appellant/Company has placed strong reliance does not apply to the claim for damages for breach of the contract as that Clause deals with payment of compensation in case the contract is terminated under Clause 8.1 that is for the reasons attributable to the appellant/company and since the claim was for the breach of the contract on account of which the respondent/contractor suffered loss of expected profit had he executed the work. He would further submit that no proof for such loss suffered is required if breach of contract by the party which has awarded the contract is proved.

The question that falls for consideration is whether respondent/contractor is entitled for damages towards loss of expected profit, without proof of actual damage upon establishing breach of contract?

8.2 of the contract provides as under:

8.2 Payment of determination of contract by company: Should the contract be determined under clause 8.1 and the contractor claims payment for expenditure incurred by him in the expectation of completing the whole of the work, the Company shall admit and consider such claims as are deemed reasonable and are supported by vouchers to the satisfaction of the engineer. The Contractor shall however have no claim to any payment whatsoever on account of profit and advantage which he might have derived from the execution of the work in full but which he did not derive in consequence of the contract. The company''s decision on the necessity and propriety of such expenditure shall be final and conclusive.

The Supreme Court in case of A.T. Brij Paul Singh and Others Vs. State of Gujarat, has clearly held that in a works contract, the party entrusting the work commits breach of the contract, the contractor would be entitled to claim damages for loss of profit which he expected to earn by undertaking the works contract. Para 9 of the report states as under:

"9. It was not disputed before us that where in a works contact: the party entrusting the work, commits breach of the contract, the contractor would be entitled to claim damages for loss of profit which he expected to earn by undertaking the works contract. What must be the measure of profit and what proof should be tendered to sustain the claim are different matters. But the claim under this head is certainly admissible."

Thereafter, Their Lordship allowed 15% of the value as damages for loss of profit by holding as under:

"11. Now, if it is well-established that the respondent was guilty of breach of contract inasmuch as the rescission of contract by the respondent is held to be unjustified, and the plaintiff-contractor had executed a part of the works contract, the contractor would be entitled to damages by way of loss of profit. Adopting the measure accepted by the High Court the facts and circumstances of the case between the same parties and for the same type of work at 15% of the value of remaining parts of the works contract, the damages for loss of profit can be measured."

Thereafter, the Supreme Court in case of Dwaraka Das Vs. State of Madhya Pradesh and Another, noticing the decision of Supreme Court in case of M/s. A.T. Brij Paul Singh and Bros (Supra) clearly affirmed the principle that claim of expected profits is legally admissible on proof of the breach of contract by the erring party. Para 9 of the report states as under:

"9. The claim of the petitioner for payment of Rs. 20,000/- as damages on account of breach of contract committed by the respondent-State was disallowed by the High Court as the appellant was found to have not placed the material on record to show that he had actually suffered any loss on account of the breach of contract. In this regard the appellate Court observed:

"It is not his case that for due compliance of the contract he had advanced money to the labourers or that he had purchased materials or that he had incurred any obligations and on account of breach of contract by the defendants he had to suffer loss on the above and other heads. Even in regard to the percentage of profit he did not place any material on record but relied upon assessment of the profits by the Income Tax Officer while assessing the income of the contractors from building contracts." Such a finding of the appellate Court appears to be based on wrong assumption. The appellant had never claimed Rs. 20,000/- on account of alleged actual loss suffered by him. He had preferred his claim on the ground that had he carried out the contract he would have earned profit of 10% on Rs. 2 lacks which was the value of the contract. This Court in A.T. Brij Pal Singh (supra), while interpreting the provisions of Section 73 of the Contract Act, has held that damages can be claimed by a contractor where the government is proved have committed breach by improperly rescinding the contractor and for estimating the amount of damages Court should make a broad evaluation instead of going into minute details. It was specifically held that where in the works contract, the party entrusting the work committed breach of contract, the contract is entitled to claim the damages for loss of profit which he expected to earn by undertaking the works contract. Claim of expected profits is legally admissible on proof of the breach of contract by the erring party.

What would be measure of profit would depend upon facts and circumstances of each case. But that there shall be a reasonable expectation of profit is implicit in a works contract and its loss has to be compensated by a way of damages if the other party to the contract is guilty of breach of contract cannot be gain said. In this case we have the additional reason for rejecting the contention that for the same type of work, the work site being in the vicinity of each other and for identical type of work between the same parties, a Division Bench of the same High Court has accepted 15 percent of the value of the balance of the works contract would not be an unreasonable measure of damages for loss of profit.......... Now if it is well-established that the respondent was guilty of breach of contract inasmuch as the recession of contract by the respondent is held to be unjustified, and the plaintiff-contractor had executed a part of the works contract, the contractor would be entitled to damages by way of loss of profit. Adopting the measure accepted by the High Court in the facts and circumstances of the case between the same parties and for the same type of work at 15 percent of the value of the remaining parts of the work contract, the damages for loss of profit can be measured.

To the same effect is the judgment in Mohd. Salamatullah and Others Vs. Government of Andhra Pradesh, . After approving the grant of damages in case of breach of contract, the Court further held that the appellate Court was not justified to interfere with finding of fact given by the trial Court regarding quantification of the damages even if it was based upon guess work. In both the cases referred to hereinabove. 15% of the contract price was granted as damages to the contractor. In the instant case however the trial Court had granted only 10% of the contract price, which we feel was reasonable and permissible, particularly when the High Court had concurred with the finding of the trial Court regarding breach of contract by specifically holding that "we therefore see no reason to interfere with the finding recorded by the trial Court that the defendants by rescinding the agreement committed breach of contract." It follows therefore as and when the breach of contract is held to have been proved being contrary to law and terms of the agreement, the erring party is legally bound to compensate the other party to the agreement. The appellate Court was, therefore, not justified in disallowing the claim of the appellant for Rs. 20,000/- on account of damages as expected profit out of the contract which was found to have been illegally rescind."

Following the principle laid down by their Lordship of Supreme Court in above-stated decision, it is held that the claim awarded by the learned Arbitrators towards expected profits is legally admissible to the respondent/contractor and clause 8.12 of the Contract will not be disentitle him for the said damages and, as such, there is no patent illegality, which could be rectified by the learned District Judge in hearing an application under Section 34 of the A.C. Act, 1996. I hereby affirm the award/order passed rejecting challenge to the same.

Re-Question No. 3

In order to decide this question, it would be proper to note Clause ''6'' of the agreement, which reads thus:

"6. Claim for idle Labour, Vehicles or Equipment: No claim for idle labour or vehicle/equipment due to non-supply of explosive material, diesel, store materials and equipments by the Company or any other reasons whatsoever, including strike, lock-out, hold up or even any natural calamity etc. will be entertained by the Company."

A close perusal of Clause 6 of the contract would show that no claim for idle labour or vehicle or equipments for any reason whatsoever would be allowed to be raised by the respondent/Contractor.

Thus, terms of the contract between the parties clearly prohibits the grant of damages for idle labour or machinery or equipments, whatsoever; and the fact that Joint Arbitrators themselves have clearly held that respondent/contractor could not produce any documents that he has actually engaged labour, vehicle or machinery and, therefore, granting damages for idle men and machinery was clearly contrary to the terms of the contract and the learned Arbitrators have committed illegality in awarding damages and learned District Judge has perpetuated the illegality in declining to set aside that part of award as damages in above-stated head is not permissible by the terms of the contract and will come within the meaning of patent illegality under Section 34(2)(b)(ii) of the Act of 1996 and, therefore, such part of award granting damages of Rs. 39,000/- for idle man and Rs. 1,24,000/- for idle machinery is hereby set aside.

Re-Question No. 4

Learned Arbitrators have held that respondent/Contractor are entitled for interest @ 18% from the date of reference till the actual payment by the appellant/Company, against which, the appellant Company has urged that such grant of interest is prohibited by terms of the contract and is liable to be set aside.

Clause 2.13.2 of the General Conditions of the Contract provides that no interest was payable on the earnest money.

(i) Instructions to tenders provides as

(ii) No interest will be allowed as earnest money deposit.

(iii) 2.13.2 No interest shall be payable upon the earnest money or the security deposits or amounts payable to the contractor under the contract, but Government securities deposited in terms of clause 2.13.1 will be payable with interest accrued thereon.

2.13.1 provides as under:

"The earnest money deposited by the contractor with his tender will be retained by the company as part of security for the due and faithful fulfillment of the contract by the contractor. The total amount of the security deposit payable by the contractor shall be 10% or the value of contract in the case of first Rs. 10.00 lakhs, 7% of the value of contract for Rs. 10 lakhs to 20 lakhs, 5% for the remaining.

The award in question directs payment of interest as under:

"Accordingly the joint arbitrator hereby directs the appellant-Company to pay the amount as awarded within 30 days from the date of award, failing which they will be liable to pay the interest @ 18% from the date of reference till the actual payment is released by appellant Company."

Section 31(7)(a) of the A.C. Act, 1996 reads as under:

"31. Form and contents of arbitral award - (1) An arbitral award shall be made in writing and shall be signed by the members of the arbitral tribunal.

(2) xxx xxx xxx

(3) xxx xxx xxx

(4) xxx xxx xxx

(5) xxx xxx xxx

(6) xxx xxx xxx

(7) (a) Unless otherwise agreed by the parties, where and in so far as an arbitral award is for the payment of money, the arbitral tribunal may include in the sum for which the award is made interest, at such rate as it deems reasonable, on the whole or any part of the money, for the whole or any part of the period between the date on which the cause of action arose and the date on which the award is made.

From a careful and close reading of the use of word "unless otherwise agreed by the parties in Section 37(1)(a) of the A.C. Act, 1996, clearly indicates that Arbitrator is bound by the terms of the contracts in so far as award of interest from the date of cause of action to the date of award and if the parties had agreed that no interest shall be payable, the Arbitrator cannot award interest between date of accrual of cause of action to date of award."

The Supreme Court in Union of India (UOI) Vs. Concrete Products and Const. Co. Etc., after noticing the decision of Supreme Court in case of Sayeed Ahmed and Co. Vs. State of U.P. and Others, & Sree Kamatchi Amman Constructions Vs. The Divisional Railway Manager (Works), Palghat and Others, , has held as under:

"19. Section 37(1) of the new Act by using the words "unless otherwise agreed by the parties" categorically clarifies that the arbitrator is bound by the terms of the contract insofar as the award of interest from the date of cause of action to the date of award. Therefore, where the parties had agreed that no interest shall be payable, the Arbitral Tribunal cannot award interest between the date when the cause of action arose to the date of award.

From the aforesaid it becomes apparent that the arbitrator could not have awarded any interest from the date when the recovery was made till the award was made. However, interest would have been payable from the date when the award was made till the money was deposited in the High Court and thereafter converted to fixed deposit receipts. Upon the amount being deposited in the High Court, no further interest could be paid to the respondents."

Thus, the co-joint reading of clause (a) of sub-section (7) of Section 37 of the Act with Clause 2.13.1 and 2.13.2 of the contract would show that respondent-Contractor is not entitled for the interest on any amount payable under the contract including the earnest money or security deposit as specifically prohibited by terms of the contract except government''s security deposited in terms of Clause 2.13.1 and respondent-contractor would be entitled for interest only from the date of award till the date of its actual payment.

Thus, the part of the award directing payment of interest from the date of reference i.e. from the date of accrual of cause of action till the date of award is set aside as indicated above.

CONCLUSION

Thus, the award of the Arbitrator is modified to and the respondent-contractor would be entitled as under:

(i) Respondent-Contractor''s claim for earnest money - Rs. 2,20,000/-.

(ii) Respondent-Contractor''s claim for anticipated damages - Rs. 23,92,500/-

(iii) Interest @ 18% from the date of award till realization except government securities deposited in terms of Clause 2.13.1 will be payable with interest accrued thereon.

A fall out and consequence of the aforesaid discussion is that the appeal deserves to and hereby allowed in part setting aside the order of the Joint Arbitrators awarding damage towards idle man and machinery and the award of interest is modified as stated above. Rest of award is maintained. Thus, award as well as the order of District Judge stand modified to the extent indicated hereinabove. No order as to costs.