Gail (India) Ltd. vs M/S Gupta Bros (India)

,,

Vibhu Bakhru, J",,

Introduction,,

GAIL (India) Ltd. (hereinafter ‘GAIL’) has filed the present petition under section 34 of the Arbitration and Conciliation Act, 1996",,

(hereinafter the ‘A&C Act’) impugning an arbitral award dated 31.07.2018 (hereinafter the ‘impugned award’) delivered by an Arbitral,,

Tribunal constituted of Justice (Retd.) Aftab Alam, former Judge of the Supreme Court as the Sole Arbitrator (hereinafter the ‘Arbitral",,

Tribunal’).,,

The impugned award was rendered in the context of disputes that have arisen between the parties in connection with a contract for construction of,,

a residential colony for the employees of GAIL who are employed at LPG Recovery Plant at Ghandhar, District Bharuch, Gujarat (hereafter ‘the",,

Contract’). GAIL had terminated the Contract alleging that the respondent, M/s Gupta Bros (India), had failed to perform its obligations and",,

complete the work within the stipulated period.,,

GAIL had, thereafter, engaged another contractor for completion of the balance work at the risk and costs of the respondent. GAIL claimed that in",,

terms of the Contract, it was entitled to be reimbursed the additional amount paid for completion of the works (the amount spent in excess of the",,

agreed consideration) along with administrative charges at the rate of 10% of the additional amount. Accordingly GAIL claimed a sum of Rs.,,

7,38,10,000/- on account of balance works executed at the respondent’s risk and cost. GAIL recovered part of the amount by encashing the",,

Contract Performance Bank Guarantee (hereafter ‘the PBG’) of Rs. 1,65,00,000/- and selling certain construction equipment belonging to the",,

respondent for a sum of Rs. 5,00,000/-. GAIL claimed the remaining amount along with interest at the rate of 18% per annum.",,

The respondent disputed the claims made by GAIL. It contended that GAIL was responsible for the delay in execution of the project and therefore,",,

the termination of the Contract by GAIL was illegal. It also claimed that GAIL’s termination of the Contract was motivated to punish the,,

respondent for taking recourse to Courts to challenge GAIL’s of blacklisting the respondent in respect of another contract. The respondent also,,

raised several counter-claims premised on the aforesaid assertions.,,

The Arbitral Tribunal accepted the respondent’s case that GAIL did not have any grounds to terminate the Contract and the termination of the,,

Contract werewrongful and unsustainable. The Arbitral Tribunal rejected the claims raised by GAIL. Insofar as the counter claims are concerned, the",,

Arbitral Tribunal allowed the respondent’s claim for payment of work done but not paid; refund of the amount recovered by encashment of PBG;,,

and refund of bank charges along with interest at the rate of 12% per annum from 10.10.2014 till the date of payment. The remaining counterclaims,,

were rejected.,,

The respondent has accepted the impugned award and has not challenged the impugned award to the extent it has rejected the counter-claims.,,

GAIL, being aggrieved by the impugned award, has filed the present petition.",,

Factual Context,,

GAIL issued a Notice dated 16.03.2010 inviting offers for construction of residential accommodation / quarters / bachelors accommodation for its,,

employees / officials at Bharuch in Gujarat, Rajamundry in Andhra Pradesh and Khera in Madhya Pradesh. The bidders were permitted to submit",,

separate bids for the projects at the aforesaid three locations. The bidssubmitted by the respondent for the project at Bharuch in Gujarat and,,

Rajamundry in Andhra Pradesh were accepted. On 27.07.2010, GAIL issued a Fax of Acceptance (FOA) on 27.07.2010 communicating its",,

acceptance ofthe bids submitted by the respondent for the projects at the said two locations (Bharuch and Rajamundry).,,

The controversy in the present case relates to the Contract for executing the works at Bharuch (hereinafter ‘the Project’). The Project,,

involved construction of a colony comprising of 67 houses, Bachelor Hostel and Badminton Court including civil, sanitary, internal and external",,

electrifications and other developments. On 02.08.2010, GAIL issued a Letter of Acceptance (LOA) to the respondent awarding the contract for",,

execution of the Project. The consideration for executing the Project was divided into two parts. One part was on lumpsum basis for certain works,,

and the remaining part was on items rate basis. The total consideration was agreed at Rs. 16,58,19,917.05/- inclusive of all taxes.",,

GAIL also appointed a company, M/s Potential Semac Consultant Pvt. Ltd., as Engineer-in-Charge (hereafter ‘the EIC’) for monitoring the",,

works at site.,,

The execution of the Project was delayed from the very commencement. The site was a low laying area and had black cotton soil. The sub-soil,,

water was high and therefore, the site required due watering to commence any work. In addition, the respondent found that the drawings submitted",,

did not match with the site and the site conditions. The reference points in the layout did not match with the drawings as forwarded. On the,,

respondent pointing out the same, it was advised to get a survey done by the Total Station Method for revised drawings to be issued. In addition to the",,

above, there were several other reasons on account of which the Project was delayed including stoppage of work due to heavy rains; disruption of",,

work caused by the village residents / Gram Panchayat; changes in the scope of work; delay in release of payments; delay in rendering the required,,

decisions and approval of material etc. The respondent sought extension of time and on recommendations of the EIC granted the same on six,,

occasions, albeit, subject to certain conditions. The time for completion of the Contract was extended (under the sixth extension) upto 31.07.2014.",,

The works could not be completed before the extended date and the respondent sought further extension upto 30.11.2014 for completing the,,

Project. However, the EIC did not recommend that the extension as sought be granted. It advised GAIL to terminate the Contract and get the",,

remaining work executed at respondent’s risk and cost.,,

By a letter dated 05.08.2014, GAIL informed the respondent that the reasons stated by it for the delay in completion of the works were not",,

convincing and therefore, unacceptable. It further stated that the Contract had become ineffective from 01.08.2014. The respondent was called upon",,

to be present at site on 10.08.2014 for joint measurements and reconciliation of the work done. Thereafter, by letter dated 14.08.2014, the EIC called",,

upon the petitioner to vacate the Project site immediately and handover the site and the works in the condition as extant for completion of the balance,,

work at itsrisk and cost.,,

By a letter dated 10.10.2014, GAIL terminated the Contract. It also invoked the PBGfora sum of Rs. 1,65,00,000/- which was furnished by",,

Canara Bank. Thereafter, GAIL engaged another contractorviz. M/s Siddhi Construction, Surat, for execution of the balance work. GAIL issued the",,

FOA, accepting the said contractor’s offer, on 08.01.2015. The same was followed by a LOA dated 15.01.2015.",,

Counter-claim 1,"Letter dated 05.08.2014 of GAIL suspending

the Contract, letter dated 14.08.2014

directing for stoppage of work and vacating

the site and letter dated 10.10.2014

terminating the Contract were wrongful in

nature",

Counter-claim 2,"Payment for the work done as per the

15thR.A. Bill plus interest thereon @18%

per

annum","Â Rs. 3,81,92,884.09/-

Counter-claim 3,"Payment for work done after submission of

15th R.A. Bill upto 31.07.2014","Rs. 1,85,22,345.66/-

Counter-claim 4,"Refund of Performance Bank Guarantee

amount wrongfully invoked by GAIL plus

payment on account of unrecovered bank

commission and bank charges plus interest

thereon @18%","Rs. 1,78,69,180/-

plus Rs. 12,87,180/-

Counter-claim 5,"Increased cost for entire period of delay and

default on (i) on construction and building

material; (ii) on labour wages; and (iii) fuel

charges","Â Rs. 2,90,45,768.41/-

Counter-claim 6,"Use of the Contractor’ssite

infrastructure by GAIL","Â Rs. 82,92,200/-

Counter-claim 7,"Use of the Contractor’s materials lying

at the site by GAIL","Â Rs. 21,34,200.43/-

Counter-claim 8,"Cost of the Contractor’s plant &

machinery

impounded by GAIL","Rs. 9,03,963/-

Counter-claim 9,"Cost of overhead and other expenses during

the extended period of Contract

plus interest @18% thereon","Rs. 2,92,20,834/-

Counter-claim 10,Loss of profits under the Contract,"Rs. 2,92,20,834/-

Counter-claim 11,"Account of loss of bonus for early

completion","Rs. 41,45,500/-

Counter-claim 12,"Account of loss of goodwill for illegal and

wrongful cancellation of Contract","Â Rs. 4,89,33,000/-

Counter-claim 13,"Refund of liquidated damages illegally levied

and deducted from the Contractor’s bill","Rs. 83,35,995.65/-

Counter-claim 14,"Legal expenses for pursuing legal remedies

against illegal blacklisting","Rs. 8,00,000/-

Counter-claim 15,"Pendente lite interest and post award

interest @18% per annum till realization of

the awarded amount",

Counter-claim 16,Cost of arbitration proceedings,

of time to complete the Contract were allowed by GAIL on six prior occasions. In each of its applications, the respondent had set out the reasons for",,

the delay, which were duly examined by the EIC and GAIL. It is apparent that the same were found to be justified as EIC had recommended",,

extending the term of the Contract and GAIL had granted the extensions. GAIL had extended the time for completion of the Project till 31.07.2014,,

(the sixth extension). Thus, the Arbitral Tribunal found that the controversy regarding justification of delays prior to 31.07.2014 would not be of much",,

relevance. And, the question whether the termination of the Contract was illegal was required to be considered on account of justification for seeking",,

the extension of the Contract beyond 31.07.2014 (the Seventh extension).,,

GAIL had rejected the Contractor’s request for extending the Contract beyond 31.07.2014 and had terminated the Contract. Thus, the Arbitral",,

Tribunal examined the material circumstances relevant for extending the Contract beyond 31.07.2014 (the respondent’s application for seventh,,

extension).,,

The respondent contended that the GAIL’s termination of the Contract was mala fide and motivated to punish the Contractor for seeking,,

recourse to the Court for challenging GAIL’s action in issuing the blacklisting orders. The Arbitral Tribunal held that the action of a party to,,

terminate the Contract could not be questioned on the grounds of motivationas in public law. If the action was in terms of the Contract, the same was",,

immune to challenge. Accordingly, the Arbitral Tribunal rejected the said contention.",,

However, the Arbitral Tribunal found in favour of the respondent in respect of other grounds. The Arbitral Tribunal also took note of the minutes",,

of the internal meeting held between the officers of GAIL and EIC on 22.04.2014. The progress of the Project was reviewed at the said meeting and,,

the Director (Project), GAIL had expressed satisfaction over the progress of the work. It is material to note that in the said internal meeting, the",,

respondent’s representative was not present. The Arbitral Tribunal found that the Minutes of the said meeting were material and did indicate that,,

GAIL had no grievance with regard to progress of the work as on 22.04.2014. The Arbitral Tribunal noted that GAIL had blocked the,,

respondent’s Vendor Code as a result of the blacklisting orders issued by it. The same had resulted in denial of payments due to the respondent,,

and had disabled it from carrying on works at the Project site.,,

The Arbitral Tribunal found that on 30.07.2013(two days prior to blacklisting), EIC had noted that a sum of Rs. 58,75,000/- was due and payable to",,

the respondent. The said amount was also not paid to the respondent as GAIL had blocked its Vendor Code.,,

The Arbitral Tribunal also found that the respondent had submitted its 14th RA bill (Ex.RW1/100) on 31.07.2013 but the same was processed in,,

February, 2014 that too under pressure of Contempt Petition filed by the respondent. The respondent was made to re-submit the 14th RA bill on",,

04.02.2014 which was processed on 4.02.2014 by temporarily unblocking the respondent’s Vendor Code. The Arbitral Tribunal found that there,,

was no explanation as to why the respondent’s RA bill was not processed/paid for more than six months.,,

As noticed above, Mr. Handoo earnestly contended that the said finding of the Arbitral Tribunal was, ex facie, perverse and erroneous. He states",,

that the Arbitral Tribunal had ignored the contractual provisions which provided that the RA bill to be at least Rs. 75,00,000/-.",,

This Court finds that the aforesaid contention isrequired to be rejected as no such contention wash advanced by GAIL before the Arbitral,,

Tribunal. The respondent had asserted that it had submitted the bill on 31.07.2013. However, in its pleadings, GAIL had denied the said assertion.",,

Thus, according to GAIL no such bill was submitted on 31.07.2013. The Arbitral Tribunal had found that in fact the respondent had submitted the 14th",,

RA bill on 31.07.2013. GAIL does not dispute this finding is correct. It is now contended by GAIL â€" contrary to the assertions made in its pleadings,,

before the Arbitral Tribunal â€" that the respondent had submitted the 14th RA Bill on 31.07.2013 but the same was returned as it was below Rs.,,

75,00,000/-and had certain other defects. However, the respondent had re-submitted the bill on the very same date without curing the defects. Mr.",,

Kakra, learned Senior Counsel appearing for the Contractor had referred to the 14th RA bill and pointed out that in fact the bill was for a gross",,

amount of Rs. 76,55830.63, which was more than Rs. 75,00,000/-. He submitted that there were certain deductions which had reduced the final",,

amount payable to Rs. 74,66,000/- and therefore the contention that the 14th RA bill was less than Rs. 75,00,000/- is erroneous.",,

This Court is of the view that GAIL attempt toraise this controversy in this petition is unjustified to say the least. The Arbitral Tribunal had no,,

occasion to examine this controversy in view of GAIL’s stand that the respondent had not submitted the 14th RA bill on 31.07.2013. The,,

contention that the said bill could not be processed since it was less than Rs. 75,00,000/- is clearly an afterthought. GAIL had presented no explanation",,

whatsoever as to the delay in processing the 14th RA bill as according to it, the same hadnot been submitted on 31.07.2013.",,

The Arbitral Tribunal had found that the delay in processing of the bills has a serious and adverse effect on the progress of the work at site. After,,

evaluating the evidence and material on record, the Arbitral Tribunal had concluded that the delay in execution of the Project after 01.08.2013 was",,

primarily for reasons attributable to GAIL and not by the respondent. The said conclusion is well considered and cannot be by any stretch of,,

imagination be assailed as perverse or patently illegal. Thus, it warrants no interference by this Court in these proceedings.",,

The next question to be examined is whether the decision of the Arbitral Tribunal to draw an adverse inference against GAIL for not providing the,,

measurement of the work done to the respondent or producing the same, warrants any interference in this proceeding.",,

GAIL had asked the respondent to be present at the site on 10.08.2014 for joint measurement and reconciliation. Concededly, the joint",,

measurements were not taken on that date. The joint measurements were stated to be taken on 25.08.2014. The Arbitral Tribunal found that this was,,

in the absence of any authorized representative of the Contractor since notices were sent to the respondent at an address at which it was not available,,

at the material time. Mr. Handoo had contended that the joint measurements were taken at the presence of the representative of the respondent but,,

he had refused to sign the same.,,

This Court is unable to accept the aforesaid contention. There is no material to indicate that the authorized representative of the respondent was,,

present at site on 25.08.2014 for taking joint measurements. According to GAIL, the accountant of the respondent had not signed the joint",,

measurements. According to the respondent, its representative had gone to the site on 12.08.2014 but was not allowed to enter the Project site.",,

Admittedly, it is not disputed that no technical person from the respondent was present at the site when the work done is stated to have been",,

measured. Thus, the finding of the Arbitral Tribunal that the joint measurements were allegedly done in the absence of any representative of the",,

respondent cannot be faulted.,,

Having noted the above, it is also material to note that the Arbitral Tribunal did not reject the measurements and drawn an adverse inference only",,

on the ground that the measurements weretaken in the absence of the representative of the respondent.,,

The Arbitral Tribunal had drawn an adverse inference, essentially on three grounds. First, it found that GAIL had not provided the the",,

measurements of the work done as on 25.08.2014 to the respondent despite the respondent demanding the same on several occasions.,,

Second, the said material was available with GAIL but it had not produced the same before the Arbitral Tribunal.Some measurement sheets (177",,

in number) were produced before the Arbitral Tribunal pursuant to an order passed by the Arbitral Tribunal on 17.02.2018 at the stage when the,,

matter was being heard finally. The said sheets as produced did not reflect the measurements of the work done. The said sheets apparently contained,,

the schedule of items of balance work in respect of which tenders were invited. The Arbitral Tribunal found that it was impossible to make a,,

reasonable assessment of the work done on the basis of such measurement sheets.,,

Third, the Arbitral Tribunal found that the measurements were not entered into SAP (the ERP package used by GAIL). The import of the same",,

was that the quantum of work done was not recorded in GAIL’s system for processing any payment.,,

There is no dispute that therespondent had demanded copies of the joint measurements dated 25.08.2014 but GAIL had failed and neglected to,,

provide the same to it. Finally, the Arbitral Tribunal issued an order dated 17.02.2018 calling upon GAIL to furnish the joint measurements recorded on",,

25.08.2014. In compliance with the said direction, GAIL filed a volume captioned “Copy of Joint Measurements dated 25.08.2014†which",,

contained 177 sheets with the Arbitral Tribunal on 26.02.2018 (two days before the final hearing). The first page of the said sheets was captioned as,,

“Schedule of Items for Balance Works of Bharuch Townshipâ€. It is not disputed that the said sheets contained items of the work for which,,

tenders were invited. The contention that the work / items for which tenders were invitedcouldbe reduced from the total scope of work to arrive at the,,

joint measurements, is unpersuasive. This Court has examined the measurement sheets and it is not possible to ascertain the quantum of work done by",,

the respondent. Admittedly, GAIL had not carried out any exercise to reduce the balance items of work to be done from the scope of work, to place",,

on record any statement to reflect the measurement of the work done by the respondent. According to GAIL, the work done by the respondent was",,

measured on 25.08.2014. The said measurements would clearly indicate the quantum of work done and not the quantum of balance work to be done.,,

However, no such measurements were produced by GAIL before the Arbitral Tribunal.",,

The said sheets also indicate that certain works which were on lumpsum basis werenow awarded on item rate basis. Finally, there is no dispute",,

that the measurements made were not fed into the SAP system maintained by GAIL and therefore, would the same are not captured in the records",,

which were necessary for effecting payments to the respondent. Clearly, in the given facts, the decision of the Arbitral Tribunal to draw an adverse",,

inference against GAIL for withholding the measurements cannot be faulted.,,

The contention that there was no evidence for Arbitral Tribunal to award the amount raised in 15th RA bill and the work done thereafter is also,,

unmerited. The respondent had raised the Bills along with measurement sheets. The same is sufficient material for the Arbitral Tribunal to enter the,,

award in respect of Counter-claims No.2 and 3 keeping in view that GAIL had withheld the best evidence available with it.,,

It is trite that the scope of interference with an arbitral award is limited to the grounds as set out in Section 34 of the A&C Act and this court is,,

not required to re-examine the disputes as in original action or as the first appellate court.,,

This Court is unable to accept that the impugned award is vitiated on account of patent illegality or falls foul of public policy of India.,,

The petition is unmerited and is accordingly dismissed.,,