State of West Bengal vs Bright Construction

Ashim Kumar Banerjee, J.—Respondent was entrusted for construction of a building by the State through a regular tender process. There had been delay in execution of the contract. However, work was completed within the extended period. Even after completion of the work. State was not inclined to take possession of the building in question as they had some internal problem. However, ultimately the building was handed over to the State. The respondent was duly paid the running bills and final bill. He accepted final bill without any protest. The security deposit was withheld for sometime and thereafter it was paid. The respondent however lodged a claim of Rs. 6.00 lacs and odd on account of idle labour and guarding charges for the period when the State was not able to take possession despite completion. The matter was referred to arbitration of a Government nominee who made and published his award awarding a sum of Rs. 2.89 lacs together with interest @11% per annum from the date of the award. The award was a non-speaking and lumpsum one. The State filed an application for setting aside of the award which was heard by me on the above mentioned dates.

Points urged before me:

The award of the arbitrator was assailed before me on various grounds. However, the following points were principally urged before me to assail the award.

(i) Once the final bill was paid and was accepted by the respondent in full and final settlement without any protest there could not have been any further claim on the contract which stood concluded upon payment of the final bill.

(ii) The arbitrator travelled beyond the scope of reference and permitted the respondent to enlarge their claim which was originally lodged by the respondent.

(iii) There were certain claims which were expressly prohibited under the contract even then the arbitrator entertained the same.

(iv) There were excepted matters which were kept out of the purview of the arbitration. Those claims were entertained by the arbitrator.

To support the award the following points were urged before me by the respondent:

(i) The award was a lumpsum one and non-speaking too, hence judicial scrutiny was not permissible.

(ii) There was no enlargement of claim as would be apparent on a comparative study of the original claim and the statement of claim. Hence, factually such plea was not tenable.

iii) The reference was made without any intervention of Court. The parties invited the arbitrator to decide the Issues placed before him who was a Government nominee and his decision was final and blinding upon the parties more so, because of the reason that no objection whatsoever was raised by the State before the Arbitrator at any stage of reference.

(iii) The respondent notified the claims well before the settlement of the Final bill and payment of final bill in Full and Final settlement could not operate as a bar to place their claim which was raised earlier.

(v) The prohibitory clauses being clause 7 and 14 were related to war or any other like events and that too related to supply of materials whereas the claim was principally lodged on account of idle labour for delay on the part of the State to hand over the site and drawing. Hence, such clauses were not applicable in the instant Case and the arbitrator was free to decide the same as the Parties invited him to do it,

(vi) Similarly on the issue 4 guarding changes, the State was not in a position to take possession of the building in question even though the same was completed within the extended time. Hence, the State was obliged to reimburse the respondent the cost of guarding charges of the said premises till the same was handed over to them. The parties invited the arbitrator to decide on the said issue. The State left the matter to the discretion of the arbitrator in course of hearing. Hence, the same could not be said to be an issue outside the scope of reference.

Cases cited before me. :

The petitioner cited the following decisions:

(i) 1994, Suppl 3 SCC 126 (M/s. P.K. Ramaiah & Co. as Chairman & Managing Director, National Thermal Power Corporation).

(ii) General Manager Northern Railways and Another Vs. Sarvesh Chopra,

(iii) General Manager Northern Railways and Another Vs. Sarvesh Chopra, .

(iv) 2005 1 CLT 566 (coal India Ltd. vs. Manish Traders).

(v) Orissa Mining Corporation Ltd. Vs. Prannath Vishwanath Rawlley, .

(vi) Orissa Mining Corporation Ltd. Vs. Prannath Vishwanath Rawlley, .

(vii) 1998 II, CLT 420 (State of West Bengal & Ors. vs. Chittadas Roy).

(viii) Steel Authority of India Limited Vs. J.C. Budharaja, Government and Mining Contractor,

(ix) My unreported decision in A.P. No. 297 of 2003 (Union of India vs. M/s. S.R. Ghosh).

Respondent cited the following decisions:

(i) 1999 6 SCC 1888 (H.I., Batra & Company vs. State of Haryana).

(ii) 1999 Vol-IX, S.S.S. 249 (State of Orissa vs. Asis Ranjan Mohanty).

(iii) Smt. Santa Sila Devi and Another Vs. Dhirendra Nath Sen and Others, .

(iv) Smt. Santa Sila Devi and Another Vs. Dhirendra Nath Sen and Others,

(v) Damodar Valley Corporation Vs. K.K. Kar,

(vi) Bharat Heavy Electricals Ltd. v. Amar Nath Bhan Prakash .

vii) Union of India (UOI) and Another Vs. L.K. Ahuja and Co., .

viii) 2000 (Suppl) ALR 458 (Jayesh Engineering vs. New India Assurance Co. Ltd.).

ix) Chairman and M.D., N.T.P.C. Ltd. Vs. Reshmi Constructions, Builders and Contractors, .

x) Jiwani Engineering Works (P.) Ltd. Vs. Union of India (UOI), .

xi) Ravindra Anant Deshmukh Vs. City and Industrial Development Corporation of Maharashtra Ltd.,

Development Corporation).

xii) AIR 1984 NOC, 132 (Mehta & Co. vs. Union of India) xiii) AIR 1984 NOC, 266 (B.D. Chawla vs. Union of India)

xiv) AIR 1982 Kar 50 (S.K. Konda Reddy vs. Union of India)

xv) V.R. Subramanyam Vs. B. Thayappa and Others, .

xvi) The Board of Trustees for the Port of Calcutta Vs. Engineers-De-Space-Age,

xvii) General Manager Northern Railways and Another Vs. Sarvesh Chopra,

xviii) Sudarsan Trading Co. Vs. Government of Kerala and Another,

xix) Hindustan Construction Co. Ltd. Vs. State of Jammu and Kashmir,

xx) M/s. Kundale and Associates Vs. M/s. Konkan Hotels (P) Ltd., .

xxi) 1999, 9, SCC 427 (M/s. Arosan Enterprise vs. Union of India).

xxii) 1989 1 C.J. (S.C.) 399, (P.M. Pal vs. Union of India)

xxiii) 2003 I, ALR 157 (Channa Brothers vs. Union of India).

xxiv) Raipur Development Authority Vs. M/s. Chokhamal Contractors etc. etc., .

My decision mi the issues raied :

Full and Final Settlement :

The parties cited several decisions on this issue. I, however, wish to discuss about the latest decision in the case of NTPC Ltd. (Supra). Two Bench decision of the Apex Court presided over by then Chief Justice of India considered the issue after distinguishing earlier judgments of the Apex Court. Their Lordship framed a guideline to decide on this issue as set out in paragraph 39 of the said judgment which is quoted below :

"39. The fact situation in the present case, would lead to the conclusion that the arbitration agreement subsists because :

(i) Disputes as regards final arose prior to its acceptance thereof in view of the fact that the same was prepared by the respondent but was not agreed upon in its entirely by the appellant herein.

(ii) The appellant has not pleaded that upon submission of the final bill by the respondent herein any negotiation or settlement took place as a result whereof the final bill, as prepared by the appellant, was accepted by the respondent unequivocally and without any reservation therefore.

(iii) The respondent herein, immediately after receiving the payment of the final bill lodged its protest and reiterated its claims.

(iv) Interpretation and/or application of Clause 52 of the agreement would constitute a dispute which would fall for consideration of the arbitrator.

(v) The effect of the correspondences between the parties would need to be determined by the arbitrator, particularly as regards the claim of the respondent that the final bill was accepted by it without prejudice.

(vi) The appellant never made out a case that any novation of the contract agreement took place or that the contract agreement. was substituted by a new agreement. Only in the event, a case of creation of new agreement is made out the question of challenging the same by the respondent would have arisen.

(vii) The conduct of the appellant would show that en receipt of the notice of the respondent through its advocate dated 21-12-1991 the same was not rejected outright but existence of dispute was accepted and the matter was sought to be referred to arbitration.

(via) Only when the clarificatory letter was issued the plea of settlement of final bill was raised.

(ix) The finding of the High Court that a prima facie case, in the sense that there are triable issues before the arbitrator so as to invoke the provisions of Section; 20 of the Arbitration Act, 1940 cannot be said to be perverse or unreasonable so as to warrant interference in exercise of extraordinary jurisdiction under Article 136 of the Constitution of India.

(x) The jurisdiction of the arbitrator under the 1940 Act although emanates from the reference, it is bite, that in a given situation the arbitrator can determine all questions of the and fact including the construction of the contract agreement.

(xi) The cases cited by the learned counsel for the appellant would show that the decisions therein were rendered having regard to the finding of the fact that the contract agreement containing the arbitration clause was substituted by another agreement. Such a question has to be considered and determined in each individual case baring regard to the fact situation obtaining therein.

Let me now apply this guideline in the instant case. On perusal of the pleading it appears to me that the respondent was all the time saving that there had been delay in handing over the site which had caused substantial loss to the respondent and they would make claim on account of such delay at the appropriate stage. In fact, the State was notified about the existence of such claim prior to the settlement of final bill. The final bill was prepared on a joint survey and on the basis of the measurement of the work done by the respondent such bill was prepared and paid. Such payment was accepted in final settlement. Immediately on the next day the respondent again insisted for their additional claims. Hence, it cannot be said that those additional claim, were but an afterthought. Even: if 1 ignore the claim of idle labour charges the guarding expenses should be borne by the State as it was the State who could not take possession of the building in question although the same'' was completed within the extended period. However, I would discuss about these claims hereinafter when such issue would come for discussions. Series of letters were issued by the respondent putting the State on notice with regard to their additional expenses on account of idle labour and guarding charges. In paragraph 22 and 23 of the counter statement of fact the delay was admitted by the State. Hence, it could not be said that the respondent did not have any right to make such claim. The Final bill was paid on March 25, 1988 whereas the respondent notified their right to make additional claim since long time before. The work was completed on November 29, 1987 and the building was, taken possession by the State ultimately in August, 1989 as admitted by the State in paragraph 23 of the counter statement. In this back ground if I apply the guideline of the Apex Court it would appear that such dispute was prevalent prior to acceptance of the Final bill. It was not the case of the State that after submission of the Final bill the money was accepted by the respondent unequivocally as a result of a settlement through negotiation or discussion. The respondent lodged their claim immediately after receiving the payment of the Final bill. Moreover, the conduct of the State as apparent from the pleadings and the documents disclosed before me would exfacie show that they not only accepted the existence of the disputes, they of their own referred the dispute to arbitration. Hence, the plea of the State that there was no claim as on the date of reference which could be decided by the Arbitrator in view of acceptance of the Final bill is not tenable and the same is rejected.

Arbitrator traveled beyond the scope of reference :

This reference which had resulted in an award was a domestic reference without any intervention of Court. The claim was lodged by the respondent to the appropriate authority under the State. The authority thought it fit and proper to refer the same to arbitration. Once such reference was made it could not be said that the arbitrator was not entitled to decide on the claim referred to above. The arbitrator was a Government nominee under the contract. The appropriate authority under the Government examined the claim of the respondent and referred the same to arbitration. To decide the issue one has to examine the conduct of the parties. Arbitration is an alternative mode of resolution of disputes. Parties under the contract agreed to refer their disputes to arbitration. Existence of disputes was admitted by die authority by implication while he referred the disputes to arbitration. It was not obligatory on the part of the State to refer the dispute to arbitration. They did so on their own volition and presumably after accepting the fact that there did exist some disputes which required decision of the Arbitrator. The Arbitrator decided on the claim lodged before him. It was contended on behalf of the State that the claim originally lodged are the authority which was referred to the arbitrator was not the claim which was decided by the arbitrator. 1 have examined the original claim along with the statement of claim. It appears that the security deposit although cairned originally, was left out in the statement of claim. It was contended on behalf of the respondent that after such claim was lodged it was paid by the State. Hence, it was not included in the statement of claim. On other issues it appears to me that the claim was principally on account of idle labour charges and guarding expenses which was the consistent stand of the respondent from the very beginning. The amount deferred as interest mounted on the said claim and less the security deposit paid to the respondent. Hence, the plea that the arbitrator traveled beyond the reference, is not tenable and is rejected.

Prohibitory and Excepted Matters :

The award was a non-speaking one and lumpsum too. Hence, it is very difficult for this court to find out as to on what account the claim was allowed by the arbitrator. Although a total claim of Rs. 12.00 lacs and odd was made by the respondent a sum of Rs. 2.89 lacs was ultimately awarded by the arbitrator.

It was contended on behalf of the State that since it was not possible for the court to find out which portion of the claim was not allowed and it would be extremely difficult for the Court to decide on the issue as to whether the arbitrator did entertain and decide the claims which were prohibitory and/or excepted matters under the contract. Clause 7 and 14 of the contract were drawn my attention to. An attempt was made to give a harmonious construction of these two clauses by saying that the said two clauses were in the nature of a protection to the awardee of the contract against future claims which could arise on escalation or on account of delay due to war or any other like events. On a bare perusal of the claims it would appear that substantial amount was claimed on account of delay in of drawings and handing over of site and delay in taking possession of the building in question even after completion. These could not possibly come within the mischief of Clause 7 and 14. However, the arbitrator is the master of his own procedure. Arbitrator can decide the issue applying his ability and intelligence and understanding of the law and facts. I am not competent to substitute my own view specially when this was a non-speaking and lumpsum award. It would not be correct to annul the award by observing that the arbitrator should not have entertained prohibitory or excepted matters. There is no mechanism to find out whether arbitrator actually entertained claims under those two heads assuming those restrictive clauses of the contract would apply therein. Hence, it would not be appropriate for this court to set aside the award based on surmise and conjecture.

Both the parties heavily relied upon the Apex Court decision was on a reference made by the court u/s 20 of the Arbitration Act, 1940. On the issue of idle labour charges, their Lordships held that if there was any question of delay in performance of a contract or if there was an abnormal rise in price of material and labour it might frustrate the contract and then the innocent party need not perform the contract. The Apex Court also observed that under the Indian Law in spite of there being a contract between the parties as hereunder the contractor has undertaken not to make a claim for delay, still a claim would be entertainable if the contractor repudiates the contract where the employer gives extension by making it clear that escalation would be permissible. The Apex court also thought of a third eventuality. According to Their Lordships if the contractor makes it clear that escalation or compensation for delay shall have to be made by the employer and the employer accepts performance by contractor inspite of delay and such notice by the contractor putting the employer on terms. In the instant case from the very beginning letters after letters were written by the respondent, not a single one was replied to. The extension was given by the State presumably considering the delay on their part to hand over the site and drawing". Hence, in my view, this claim assuming prohibited under the contract would be covered by the third eventuality contemplated by the Apex Court in Sarvesh Chopra (Supra). Hence, the plea of prohibitory matters and or excepted matters being not tenable is rejected.

My unreported decision in A.P. No. 297 of 2003 was relied on by the State wherein applying the principal laid down in Popular Builders (Supra) 1 set aside the award published under the new Act being the Act of 1996. That award was a reasoned one. On perusal I found that the claim nos. 1, 2 and 5 could not have been raised at all. In Popular Builders (supra) the Apex Court observed that when very invocation was wrong the contention that whether such plea was taken in the application for setting aside was immaterial. Even after holding the same the Apex Court set aside only a part of the award only where due objection was raised before the Arbitrator on the issue of arbitrability. In the instance case from the minutes of the meeting before the Arbitrator it appears that no attempt was made on behalf of the State to demonstrate as to whether there was in fact any objection raised by the State with regard to the arbitrability on prohibitory or excepted matters. On perusal of the counter statement of facts it would appear that such plea was not taken at all by the State. The counter statement of fact dealt with the claims on merits and no such issue was ever raised before the arbitrator. Hence, neither Popular Builders nor my unreported decision in A.P. No. 297 of 2003 would lend any support to the State in the instant case.

Conclusion :

In the result, the application fails and is hereby dismissed. There would be, however, no order as to costs.

Urgent xerox certified copy would be given to the parties, if applied