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Judgment
119 paragraphs · 2,100 words,,
S. Rajeswaran, J.—This Original petition has been filed u/s 34 of the Arbitration and Conciliation Act, 1996, hereinafter called ''the Act'', to",,
set aside the award passed by the arbitrator dated 31.18.21282 and served on 5.11.2882.,,
The brief facts leading to the above Original petition are as under:,,
The petitioners invited prequalified contractors who are all the class I contractors for awarding the contract in respect of improvement of Mount-,,
Poonamallee Road between KM 8/8-18-8 on 5.11.1997. Seven contractors including 1st respondent submitted their offer on 26.11.97.,,
Subsequently, all the contractors except 1st respondent withdrew their offer and 1st respondent became the only tenderer. The tendered rate was",,
Rs. 18,53,13,381/- which was less about 11.86% to the work estimated. The work had to be completed within the period of 18 months from the",,
date of letter of acceptance. The tender was accepted by the petitioners by letter of acceptance dated 19.1.98 and the site was deemed to have,,
been handed over to 1st respondent on that date itself. The agreement was signed on 23.1.98.,,
As per the agreement the contract had to be completed on or before 19.7.99 and 1st respondent had to strictly adhere to the works,,
programme and achieve the milestone to each and every month as per the contract. However the contractor/1st respondent executed the work,,
fully on 30.9.2000 after the contract period was extended at the request of 1st respondent. During the extended period of time 1st respondent was,,
awarded additional work and for the said additional work separate supplemental agreement was executed and a sum of Rs. 3,13,14242/- had",,
been paid to the 1st respondent towards the supplemental work. But 1st respondent raised a dispute for payment of Rs. 4,56,63,739/-by letter",,
dated 22.5.2001 on claim of the differential rate and also pleaded for compensation for the loss suffered by them. As the claim was rejected 1st,,
respondent filed O.P.No. 461/2001 before this Court seeking for an appointment of an arbitrator and the Hon''ble Chief Justice by order dated,,
7.12.2001 appointed 2nd respondent, who is a retired Supreme Court Judge as arbitrator to enter upon the reference and to pass an award after",,
giving opportunities to the parties.,,
The petitioners submitted that as per Clause 53 of the contract agreement any claim over Rs. 2 lakhs cannot be agitated before any arbitrator,,
and any such claim exceeding a sum of Rs. 2 lakhs shall have to be referred to civil court only. As 2nd respondent was appointed as arbitrator,",,
notwithstanding Clause 53, petitioners filed W.P.No. 13666/2002 and challenged the order dated 7.12.2001 appointing 2nd respondent as",,
arbitrator. The writ petition was dismissed and against which an appeal in W.A.No. 3518/2000 was filed. When the Writ Appeal was pending 2nd,,
respondent proceeded with the arbitration and passed an award on 31.10.2002 and the petitioners did not participate in the arbitration at all.,,
Aggrieved by the ex parte proceedings which culminated into an award on 31.10.2002, the petitioners filed the above O.P., u/s 34 of the Act,",,
1996.,,
The petitioners assailed the award on the following ground''s namely-,,
(1) there was no arbitration clause in the agreement referring a disputed claim exceeding a sum of Rs. 2 lakhs;,,
(2) The 2nd respondent ought not to have proceeded with the arbitration proceedings until the Writ Appeal No. 3518/2002 was disposed of on,,
merits and,,
(3) 2nd respondent ought not; to have allowed the claim of escalation in cost and loss of profit when there is no claim to that effect in the,,
agreement.,,
Heard the learned Addl. Government Pleader for the petitioners and the learned Counsel for 1st respondent. I have also perused the documents,,
filed and the judgments referred to by them in support of their submissions.,,
The learned Additional Government Pleader vehemently contended that in view of Clause 53 the arbitrator has no jurisdiction at all to enter into,,
reference and pass an award. He relied on the decisions of the Supreme Court reported in-,,
(1) 2001(10) SCC 30 (State of A.P. v. Obulu Reddy),,
(2) M. Dayanand Reddy Vs. A.P. Industrial Infrastructure Corporation Limited and others,",,
(3) K. Sasidharan Vs. Kerala State Film Development Corpn., and",,
(4) Dharma Prathishthanam Vs. Madhok Construction Pvt. Ltd., in this regard. The learned Additional Government Pleader also relied on an",,
unreported judgment of this Court dated 26.8.2004 (P. Janakiraman v. State of Tamil Nadu rep., by Superintending Engineer, Chennai.6.) made",,
in O.P. No. 466/2001 in which a similar arbitration clause was considered by the then Hon''ble Chief Justice of this Court who held that if the,,
claim is more than Rs. 2 lakh then the party has to resort to civil court. He further urged that even on merits 2nd respondent committed an illegality,,
in granting escalation cost and loss of profit when there is no provision for granting the same in the contract.,,
Per contra, the learned Counsel for 1st respondent submitted that 2nd respondent was appointed by the very same Hon''ble Chief Justice who",,
decided O.P.No. 466/2001 (which was relied on by the Addl. Government Pleader), that too after hearing the then Special Government Pleader.",,
Further the writ petition filed against this order was dismissed even though writ appeal was filed, there was no stay prohibiting the continuation of",,
proceedings before 2nd respondent. He further pointed out in *view of the decision of the Supreme Court reported in S.B.P. and Co. Vs. Patel,,
Engineering Ltd. and Another, as the order dated 7.12.2001 made in O.P.No. 461/2001 appointing 2nd respondent as arbitrator was not",,
challenged before the Supreme Court, the same is very much binding on the petitioners. "" He relied on the following decisions reported in-",,
(1) A.T. Brij Paul Singh and Others Vs. State of Gujarat, ,",,
(2) Dwaraka Das Vs. State of Madhya Pradesh and Another,",,
(3) P.M. Paul Vs. Union of India (UOI),",,
(4) 2002(1) Arb. L.R. 311 (Delhi)(J.S. Construction v. Delhi Development Authority) and,,
(5) 2003(2) Arb L.R.546 (The Superintending Engineer, T.N.H.B. v. M. Paramasivam)-",,
to submit that arbitrator can very well award escalation in cost and loss of profit if the delay is attributable to the other side. He further relied on the,,
decision of the Supreme Court reported in Pure Helium India Pvt. Ltd. Vs. Oil and Natural Gas Commission, to submit that arbitrator has got",,
jurisdiction to interpret the contract, having regard to the terms and conditions of the contract, conduct of the parties, circumstances of the case",,
and the pleadings of the parties. The learned Counsel cited the decision of the Supreme Court reported in M/s. Sundaram Finance Ltd. Vs. M/s.,,
NEPC India Ltd., to submit that the provisions of the Act, 1996 ought to be construed uninfluenced by the principles underlying the Act, 1948 as",,
Act 1996 is very different from Act 1948. The learned Counsel wound up his arguments by submitting that as none of the grounds as set out u/s 34,,
of the Act 1996 are available to assail the award under challenge, the O.P., is to be dismissed.",,
I have considered the rival submissions carefully with regard to facts and citations.,,
I am of the considered view that it is not open to the petitioners before me to contend that in view of Clause 53 of the contract agreement, the",,
claim of 1st respondent itself ought not to have been referred to and the award under challenge suffers from lack of jurisdiction.,,
It is not in dispute that the claim of 1st respondent for a sum of Rs. 4,56,63,739/- by their letter dated 22.5.2001 was rejected by the",,
petitioners in their letter dated 28.6.2001. Only thereafter O.P.No. 461/2001 was filed by 1st respondent for appointing an arbitrator to resolve,,
the dispute between the petitioners and 1st respondent. Only after hearing the then Special Government Pleader, the then Hon''ble Chief Justice",,
appointed the 2nd respondent as an arbitrator to enter upon an arbitration and pass an award. It is also an admitted fact that challenging the,,
appointment of an arbitrator a writ petition was filed and the same was dismissed and in the Writ Appeal there was no stay staying the arbitral,,
proceedings. In such circumstances, there was no bar for 2nd respondent to proceed with the arbitration proceedings. The petitioners ought to",,
have appeared and participated in the arbitration proceedings, once they failed to get stay in the Writ Appeal. The petitioners cannot be allowed to",,
contend that as long as Writ Appeal is pending, the arbitral proceedings should also be kept pending when there is no stay in the appeal. Further in",,
view of the decision of the Supreme Court reported in S.B.P. and Co. Vs. Patel Engineering Ltd. and Another, , the power exercised by the Chief",,
Justice u/s 11(6) is a judicial power and an appeal will lie against that order only under Article 136 of the Constitution of India to the Supreme,,
Court. The Supreme Court further held that all the orders made u/s 11(6) of the Act before the above decision of the Supreme Court appointing,,
arbitrators ought to be treated as valid and all objections left to be decided by the arbitrator u/s 16 of the Act. This decision of the Supreme Court,,
was delivered on 26.10.2005 and before that the law that was holding the field was that the order of the Chief Justice u/s 11(6) of the Act was an,,
administrative order and therefore the arbitral tribunal can very well go into the existence of a valid arbitration agreement u/s 16 of the Act.,,
In the present case the order was passed appointing 2nd respondent as arbitrator on 7.12.2001 and therefore when the petitioners failed to get,,
a stay in the Writ Appeal., they ought to have raised the jurisdiction issue and the non-availability of the arbitration clause for a claim exceeding",,
Rs.2 lakhs before the arbitrator u/s 16 of the Act 1996. As it was not done, it is too late to question the jurisdiction before this Court for the first",,
time in a petition filed u/s 34 of the Act, 1996.",,
Coming to the merits of the award, 2nd respondent arbitrator framed the following seven issues for consideration:",,
1) The contract of 18 months was prolonged to 32 months (30.9.2000). Who is the causer of the delay and the apportionment of delay on the,,
respective parties.,,
2) Depending on (1) consequences of extension of completion period and the eligibility to the claimants of Additional cost, overheads, erosion of",,
profit, depreciation charges of machinery and interest of investment, loss of productivity, extra cost incurred on insurance policies, interest charges.",,
3) Whether levy of liquidated damage was reasonable and the justifiability of the action and the quantum,,
4) Whether the rectification work done by the contractor was to be paid for or the justifiability of the recovery of rectification cost said to have,,
been done through other agencies.,,
5) Claimants alleged ''coercion'' in drawing the supplemental agreement for Central median for Kerbs. Whether it is fact or not and the eligibility or,,
otherwise of the claim.,,
6) Refund of security deposit after 1 year of completion by producing Indemnity Bond.,,
7) what relief the claimants are entitled to?,,
From the above, it could be seen that the very first issue is, who is responsible for the delay, thereby the contract of 18 months was prolonged",,
to 32 months.,,
After going through the evidence available and the clauses contained in the contract 2nd respondent-arbitrator found that the petitioners are,,
under an obligation to give unencumbered possession to 1st respondent in order to enable them to complete the work as per the programme for,,
achieving milestone in Kms. 2nd respondent-arbitrator on the basis of evidence concluded that the site conditions did; not enable 1st respondent to,,
follow or implement the milestone performance. The 2nd respondent-arbitrator also considered the design mistake in the contract proposals and,,
the proposal for providing overlay over the existing BT surface with LBM 150 mm thick instead of WBM 150 mm thick was approved only after,,
I.,Nos. to be executed as per agreement,
,-B.O.O.N.18,= 9600 Nos.@ 134/ each
,= 9680 x 134.00,"= Rs. 12,86,400
II.,II As per supplemental agreement slip No.2 dated 2.3.2000,
,Total work executed,= 6521.40 metres
,Deduct 9600 Nos./as per original agreement,= 2162.16 metres
,Length to be paid for at supplemental agreement rate,= 4359.24 metres
,"payment for 4359.24 m at supplemental agreement
rates",= Rs.219.20/ metre
,"= 4359.24m x 219.20
= Rs.9.55.545.00",
,,
,,
Total due I & II = 12,86,400 9,55,545= Rs. 22,41,945",,
,"Deduct payments already received towards execution
of total work",= Rs.14.29.49B
,Balance to be awarded,= Rs. 8.12.455