Budhiraja Electricals vs Rites

Rajiv Sahai Endlaw, J.—The objections under Sections 30 & 33 of the Arbitration Act, 1940 by way of I.A. No. 6198/1999 preferred by the petitioner M/S Budhiraja Electricals, on being served with notice of filing in this Court of the award dated 10th February, 1999 of Sri B.K. Makhija, General Manager of the respondent Rites, acting as the sole Arbitrator are for consideration. The Arbitrator was appointed pursuant to the order dated 26th November, 1997 of this Court in a petition u/s 20 of the 1940 Act preferred by the petitioner and registered as Suit No. 2312A/1995 of this Court. Accordingly, even though the Arbitrator entered upon reference after coming into force of the 1996 Act but the arbitration was one under the 1940 Act.

It was one of the pleas of the respondent Rites in Suit No. 2312A/1995 that the petitioner having prior thereto furnished a no claim certificate and accepted refund of the security deposit thereunder was disentitled from seeking arbitration. This Court in order dated 26th November, 1997 in Suit No. 2312A/1995 left the said question also open for arbitration. The Arbitrator in the award filed in this Court has held that the petitioner was forced to give the no claim certificate and/or furnishing of the same did not prevent the petitioner from seeking arbitration of disputes raised earlier.

The petitioner before the Arbitrator raised six claims. The objections have been preferred to the findings of the Arbitrator on Claim Nos. 1, 2 & 4. However, the counsel for the petitioner at the time of hearing fairly stated that she was not pressing the objections insofar as the award on Claim No. 1 and confined her arguments to the objections to the findings of the Arbitrator on claim Nos. 2 & 4 only.

The Claim No. 2 of the petitioner of Rs. 13,49,017/-was for non payment of escalation specially agreed to between the parties. It was the case of the petitioner that the respondent Rites had agreed to pay escalation in terms of the letter dated 2nd March, 1990 of the petitioner to the respondent Rites and in addition to the escalation provided under Clause 10CC of the contract; that while the petitioner had been paid for escalation in accordance with Clause 10CC, it had not been paid the escalation in terms of the letter dated 2nd March, 1990.

The respondent Rites contested that the letter dated 2nd March, 1990 whereunder Claim No. 2 of Rs. 13,49,017/- for escalation was made, was a part of the contract. The Arbitrator negated the said contention of the respondent Rites and held the letter dated 2nd March, 1990 to be a part of the contract.

However, the Arbitrator has rejected the Claim No. 2 for the reason of the petitioner having failed to submit any documentary proof of entitlement to escalation in accordance with the letter dated 2nd March, 1990.

The respondent Rites on 4th August, 1989 had invited tenders for the electrical installation works at Exhibition Centre of Trade Fair Authority of India (TFAI) at New Delhi. The respondent Rites having been unable to take a decision on the Tender of the petitioner within the period of its validity, sought extension and the petitioner vide its letter dated 2nd March, 1990 (supra) agreed to such extension with the clarification that ''difference in costs due to any statutory increase in prices by the Government or in the market by the manufacturers since the date of opening of the Tender shall be payable'' by the respondent Rites to the petitioner. The Tender of the petitioner was accepted and a Letter of Intent dated 18/19th April, 1990 issued by the respondent Rites to the petitioner.

It was further the case of the petitioner that as per the Tender the work had to be completed within a tight time schedule and owing whereto the petitioner had kept its resources in a state of readiness; however the execution of the work was delayed for reasons not attributable to the petitioner. Hence, the claim of the petitioner for escalation.

The petitioner had claimed total escalation of Rs. 28,63,158.11p. The respondent Rites allowed escalation of Rs. 15,14,121/-. Accordingly, the balance amount of Rs. 13,49,017/- was the subject matter of Claim No. 2 before the Arbitrator. It was the petitioner''s case that the escalation paid to it of Rs. 15,14,121/- was under Clause 10CC of the contract and escalation claimed of Rs. 13,49,017/- was in terms of the letter dated 2nd March, 1990.

The Arbitrator has held that the letter dated 2nd March, 1990 had been made part of the contract; that there was delay not attributable to the petitioner entitling the petitioner to escalation. However, the Arbitrator has held that ''the best and only right proof to establish the then prevailing rates would have been the actual supplier bills/purchase vouchers which the claimant did not produce either during the currency of the contract or later during the arbitration proceedings''. Such hesitancy on the part of the petitioner to produce best evidence was held to disentitle the petitioner from the claim. The Arbitrator further found that the petitioner had not submitted any price lists to demonstrate statutory increase or increase by the manufacturers, as it was required to in terms of the letter dated 2nd March, 1990 (supra). Yet another reason given was that even before the Arbitrator, the price lists were not submitted alongwith the letters under cover of which they were alleged to have been submitted to the respondent Rites and were submitted almost one year thereafter. Such non-filing of the relevant price lists alongwith the letters before the Arbitrator was held to support the version of the respondent Rites of the price list having not been submitted under cover of the letters for which they were alleged to have been submitted. The Arbitrator also held that the price lists were filed before him only after directions in that regard.

The petitioner has objected to the award on the basis of its letter dated 5th June, 1992 to the respondent Rites proved as Ext. C-3 before the Arbitrator. The petitioner vide the said letter purported to intimate revised rates for the items and sought approval of the same. The said letter as ''Enclosure'' thereto mentioned ''two sets of analysis of rates''. The petitioner also places heavy reliance on the letter dated 4th August, 1993 of the respondent Rites to India Trade Promotion Organization (being the changed name of TFAI). The respondent Rites vide the said letter supported the case of the petitioner. It is the case of the petitioner that the said two letters clearly show that the revised price lists were submitted by the petitioner as claimed and the finding of the Arbitrator of the petitioner having not submitted the revised price lists to the respondent Rites is contrary to the documents on record. Reliance in this regard is placed on:

(i) K.P. Poulose Vs. State of Kerala and Another, holding inconsistent findings and decision in ignorance of material documents to be a misconduct within the meaning of Section 30 of the 1940 Act.

(ii) Food Corporation of India Vs. Chandu Construction and Another, holding that the Arbitrator has to operate within the four corners of the agreement and if he ignores the specific terms of the contract, he commits a jurisdictional error on the face of the award falling within the ambit of legal misconduct which could be corrected by the Court.

(iii) Sathyanarayana Brothers (P) Ltd. Vs. Tamil Nadu Water Supply and Drainage Board, relying on K.P. Poulose (supra).

However, in the present case, it is not as if the Arbitrator has ignored or disregarded the documents aforesaid forming the basis of the objections of the petitioner before this Court. The Arbitrator has in para 4.2.7 (ii & iii) of the award dealt with the said documents. It has been held that the reference therein is not to escalation in terms of the letter dated 2nd March, 1990. It has further been held that the said documents do not contain any admission by the respondent Rites of any price lists having been submitted by the petitioner.

Thus the judgments cited do not apply to the facts of the present case. The controversy in the present case rather falls within the domain of appreciation of evidence and construction of documents and which fall outside the domain of interference in an award. If the courts while adjudicating objections to the awards start interfering in appreciation of the evidence by the Arbitrator or in construction of documents by the Arbitrator, the scope of jurisdiction of interference in awards would be no different from the scope of jurisdiction in appeals from orders of the Courts of original jurisdiction.

The counsel for the respondent Rites in this regard has relied on:

(i) U.P. State Electricity Board Vs. M/s. Searsole Chemicals Ltd., laying down when the Arbitrator has applied his mind to the pleadings, the evidence adduced and the terms of the contract, it is beyond the jurisdiction of the Court to reappraise the matter as in an appeal-where two views are possible, the view taken by the Arbitrator would prevail.

(ii) Prem Chand Sharma and Co. Vs. DDA and Another, laying down that interpretation of a contract is a matter for the Arbitrator and on which the Court cannot substitute its own decision.

There is yet another reason for me to refrain from interfering in the award on Claim No. 2. The letter dated 2nd March, 1990 (supra) forming the basis of the said claim was written by the petitioner while extending the validity of its Tender. The condition imposed by the petitioner for such extension being statutory increase in price or increase in price by the manufacturers would only have reference to the increase, if any, between the date, till when the tender was valid and the date till when the validity thereof had been extended. However, the perusal of the letters claiming increase proved before the Arbitrator and filed as annexures to the objections show that the increase claimed was between the date of original validity of the tender and the ''current rate''. According to this Court, the petitioner on the basis of the letter dated 2nd March, 1990 is not entitled to the current rates and the claim for increase/escalation between the date of acceptance of the tender and the date of execution of the contract could only be on the basis of the term in the contract i.e. Clause 10CC, escalation whereunder has already been received by the petitioner. Though the said reason does not appear to have been the defence of the respondent Rites or to have been considered by the Arbitrator but in the opinion of this Court, if for such reason the petitioner is not entitled to Claim No. 2, the award on the said claim even if for erroneous reasons, cannot be interfered with.

Thus I do not find any case of interference with the award on Claim No. 2 to have been made out and the objections to Claim No. 2 are dismissed.

Claim No. 4 of the petitioner for Rs. 6,60,000/- was towards infructuous expenditure and damages sustained in maintaining establishment and T&P for period of 33 months at the rate of Rs. 20,000/- per month. The sum of Rs. 20,000/- was worked out on the basis of salary of Site Engineer, two Munshis, four Wiremen, 3 Chowkidars, costs of accommodation, T&P Charges etc. It was further pleaded that as per CPWD procedure, the loss on account of overheads worked out to be Rs. 8,60,454/- and the petitioner was claiming Rs. 6,60,000/- only.

The Arbitrator negated the said claim for the reason of the petitioner having not produced any documentary evidence to prove that the staff and T&P mentioned in the calculation was in fact deployed at the site and for the reason that the petitioner had not produced any documentary proof that this issue was raised during the extended period of work. In the circumstances, it was also held that the extensions were accepted by the petitioner without any claim.

The petitioner contends that once the Arbitrator concluded that the delay was attributable to the respondent Rites, the Arbitrator was not empowered to totally reject the claim and was bound to assess the damages caused to the petitioner.

The counsel for the petitioner also contended that the contract in the present case does not contain any provision for loss on that account and that the respondent Rites had not disputed that the petitioner was on the site of work for the period of the delay. It is contended that no further proof was required of breach and on which breach damages should have followed. Reliance in this regard is place on Union of India (UOI) Vs. V. Pundarikakshudu and Sons and Another, to the effect that the Arbitrator cannot act arbitrarily, irrationally, capriciously and independently of the contract and on McDermott International Inc. Vs. Burn Standard Co. Ltd. and Others, laying down that a claim for overhead costs resulting in decrease in profit or additional management costs is a claim for damages and that no invoice was required to be drawn for the same and the amount therefore not required to be quantified and quantification is a matter of proof.

Per contra the counsel for the respondent Rites in this regard also relies on McDermott International Inc. (supra) to contend that different formulas can be applied in different circumstances and the question as to whether damages should be computed by taking recourse to one or the other formula having regard to the facts and circumstances of a particular case would eminently fall within the domain of the Arbitrator and that the Arbitrator may insist on some proof of actual damages and may not allow the parties to take recourse to one formula or the other.

The counsel for the petitioner in rejoinder has contended that the Arbitrator in the present case having admitted delay on the part of the petitioner could have adopted either formula and given damages to the petitioner as per that formula for the admitted delays/breach on the part of the respondent Rites.

The Arbitrator in the present case has declined the Claim No. 4 for the reason of the petitioner having failed to prove that it was deploying man power and the infrastructure at the site during the period of delay. A mere breach of contract does not entitle the other party to damage. The breach has to be accompanied by a loss to the other party and to compensate which damages are awarded. If the breach is not accompanied by a loss to the other party, the question of awarding damages or of applying one formula or the other does not arise. The formulas for computation of damages have evolved in cases where loss was not in dispute. Where loss owing to breach is in dispute and/or is controverted and has not been established, the question by the Court or the Arbitrator awarding any damages does not arise. The petitioner neither in the objection nor during the hearing has cited any evidence whatsoever of loss owing to the breach. In the absence of loss, there can be no damages and there can be no interference with the award. The petitioner having not established any loss and which is a finding of fact and interference wherewith, even otherwise in exercise of jurisdiction u/s 30 & 33 of the Arbitration Act, is very limited.

Accordingly, the objections to the award under Claim No. 4 are also rejected.

Axiomatically I.A. No. 6198/1999 is dismissed. The award is made Rule of the Court and the decree in terms therewith is passed and be drawn up. The amounts as per the award having already been paid, need is not felt to award any interest u/s 29 of the 1940 Act.

No order as to costs.