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Judgment
S. Rajeswaran, J.—This Original Petition has been filed to set aside the award dated 16.12.1996 passed by the 2nd respondent viz. the sole
arbitrator in his proceedings CE (CAL) ARB/JP/01 and for costs.
This O.p. was originally filed before the City Civil Court in O.P. No. 339/1997 and later transferred to this Court and renumbered as Tr.O.P.
No. 524/2003.
The brief facts are under:
The 1st respondent/contractor entered into an agreement with the petitioner/Government on 13.2.1989 under which the 1st respondent agreed to
construct a building for the petitioner for the purpose of housing a Telephone Exchange at Mandaveli chennai including internal water supply and
sanitary installation.
The construction work was stipulated to be completed by 28.11.1990 and the work was not completed even by the extended time, the
petitioner was forced to rescind the contract and forfeit the Security Deposit of Rs. 20,000/-.
The 1st respondent raised a dispute invoking the arbitration clause resulting in. the appointment of 2nd respondent as sole arbitrator who passed
an award on 15-12-1996. directing the petitioner to pay the 1st respondent a sum of Rs. 6,36,508/- with interest at 12% per annum and also
awarding a cost of Rs. 3 lakhs. The 2nd respondent rejected all the 13 counter claims of the petitioner. Challenging the award dated 16.12.1996,
this 0.1?. has been filed u/s 34 of the Arbitration and Conciliation Act, 1996 (hereinafter called the Act
The following grounds have been raised by the petitioner for assailing the award:
(1) The award of Rs. 75,203/- under claim No. 1 namely, for the continuous heavy pumping done for the foundations in heavy pressure surging
water resulting in boiling up of soil is contrary to tender specifications, according to which, the 1st respondent shall at his own expense and without
any extra charge make provisions for all shoring, pumping dredging, bailing out water if found necessary and the foundation trenches shall be kept
free from water while all the work below ground level are in progress.
(2) The award of Rs. 54,000/- under claim No. 4, namely for timbering, strutting etc; is contrary to the specifications attached with the tender
documents.
(3) The award of Rs. 2,204/- on account of claim No. 5 compels the petitioner to make payment twice for the claim since payment in this regard
had already been effected as per the sanctioned memo dated 1.11.1994.
(4) The award of Rs. 3,284/- towards claim No. 6 is not justified as the 2nd respondent gone beyond its jurisdiction in awarding payment for
transportation of steel and cement whereas the 1st respondent requested for payment towards difference in measurement of excavation actually
made and measured.
(5) The award for item No. 8 for a sum of Rs. 9,0007- is also contrary to the Clauses 2 and 5 of the contract and hence the same is liable to be
set aside.
(6) The award of Rs. 11,980/- under claim No. 9 is also contrary to Clause 42 of the contract.
(7) The award of Rs. 4,87.153/- under claim No. 12 for breach of contract is perverse when it was actually the 1st respondent who breached the
contract.
(8) The award of Rs. 20,000/- under claim No. 13 is not justified as the refund of the Security Deposit cannot be made since it was forfeited for
the default committed by the 1st respondent.
(9) The award of interest and cost are not proper.
(10) The rejection of all 13. counter-claims of the petitioner herein is unjustified and not tenable.
The 1st respondent filed a counter-statement supporting the award and. praying to reject the petition filed by the Government.
Heard the Addl. Central Government Standing Counsel Mr. S. Udayakumar and the learned Senior Counsel Mr. C. Chinnasamy for the 1st
respondent. I have also gone through the documents filed and the judgments referred to by them in support of their submissions
Before deciding the issue first let me consider the decisions relied on by both the counsel in support of their submissions.
The following decisions were referred to by the learned Adll. Central Govt. Standing Counsel for the petitioner.
(1) In K.V. George Vs. Secretary to Government, Water and Power Department, Trivandrum and Another, the Hon''ble Supreme Court held that
when the arbitrator has not decided the counter claim of the Government while considering the claim filed by the claimant and making an award the
High Court rightly held that. me arbitrator misconducted himself and the proceedings are liable to be set aside.
(2) In 1994(4) 66 5 Union of India v. Jain Associates the Hon''ble Supreme Court held that when the umpire failed to consider the counter claim
on the specious plea that it is a belated counter-statement, it would show his non-application of mind, which would go to the root of the
competence of the arbitrator to decide the issue.
(3) In Rajasthan State Mines and Minerals Limited Vs. Eastern Engineering Enterprises and Another, Enterprises the Hon''ble Supreme Court held
as follows:
From the resume of the aforesaid decisions, it can be stated that:
(a) It is not open to the Court to speculate, where no reasons are given by the arbitrator, as to what impelled the arbitrator to arrive at his
conclusion.
(b) It is not open to the court to. admit to probe the mental process by which the arbitrator has reached his conclusion where it is not disclosed by
the terms of the award.
(c) If the arbitrator has committed a mere error of fact or law in reaching his conclusion on the disputed question submitted for his adjudication then
the court cannot interfere.
(d) If no specific question of law is referred, the decision of the arbitrator on that question is not final, however much it may be within his
jurisdiction and indeed essential for him to decide the question incidentally. In a case where a specific question of law touching upon the jurisdiction
of the arbitrator was referred for the decision of the arbitrator by the parties, then the finding of the arbitrator on the said quest ion between the
parties may be binding.
(e) In a case of a non-speaking award, the jurisdiction of the court is limited. The award can be set aside if the arbitrator acts beyond his
jurisdiction.
(f) To find out whether the arbitrator has travelled beyond his jurisdiction it would be necessary to consider the agreement between the parties
containing the arbitration clause. The arbitrator acting beyond his jurisdiction is a different ground from the error apparent on the face of the award.
(g) In order to determine whether the arbitrator has acted in excess of his jurisdiction what has to be seen is whether the claimant could raise a
particular claim before the arbitrator. If there is a specific term in the contract or the law which does not permit or give the arbitrator the power to
decide the dispute raised by the claimant or there is a specific bar in the contract to the raising of the particular claim then the award passed by the
arbitrator in respect thereof would be in excess of jurisdiction.
(h) The award made by the arbitrator disregarding the terms of the reference or the arbitration agreement or the terms of the contract would be a
jurisdictional error which requires ultimately to be decided by the court. He cannot award an amount which is ruled out or prohibited by the terms
of the agreement. Because of a specific bar stipulated by the parties in the agreement, that claim could not be raised. Even if it is raised and
referred to arbitration because of a wider arbitration clause such claim amount cannot be awarded as the agreement is binding between the parties
and the arbitrator has to adjudicate as per the agreement. This aspect is absolutely made clear in Continental Construction Co. Ltd. Vs. State of
Madhya Pradesh, by relying upon the following passage from Alopi Parshad and Sons Ltd. Vs. Union of India (UOI), which is to the following
effect: (SCC p.88, para 5)
There it was observed that a contract is not frustrated merely because the circumstances in which the contract was made, altered. The Contract
Act does not enable a parry to a contract to ignore the express covenants thereof, and to claim payment of consideration for performance of the
contract at rates different from the stipulated rates, on some vague plea of equity. The parties to an executory contract are often faced in the course
of carrying it out with a turn of events which they did nor at all anticipate, a wholly abnormal rise or fall in prices, a sudden depreciation of
currency, an unexpected obstacle to execution or the like. There is no general liberty reserved to the courts to absolve a party from liability to
perform his part of the contract merely because on account of an uncontemplated turn of events, the performance of the contract may become
onerous.
(i) The arbitrator could not act arbitrarily, irrationally, capriciously or independently of the contract. A deliberate departure or conscious disregard
of the contract not only manifests the disregard of his authority or misconduct on his part but it may tantamount to mala fide action.
(j) The arbitrator is not a conciliator and cannot ignore the law or misapply it in order to do what he thinks just and reasonable; the arbitrator is a
tribunal selected by the parties to decide the dispute according to law.
(4) In West Bengal State Warehousing Corporation and Another Vs. Sushil Kumar Kayan and Others, the Hon''ble Supreme Court held that the
award made by an arbitrator can be set aside if the arbitrator acts beyond jurisdiction and to find, out whether the arbitrator travelled beyond
jurisdiction, it would be necessary to consider the agreement between the parties contrary to. the arbitration clause and if the arbitrator acts
beyond the arbitration clause then it would be deemed that he has acted beyond jurisdiction.
(5) In 2003(1) CTC 4 (Union of India v. Ramnath International Construction Pvt. Ltd. a Division Bench of this Court followed the decision of the
Hon''ble Supreme Court in Rajasthan State Mines & Minerals Ltd. case (cited supra) and held that when the arbitrator travelled beyond his
jurisdiction in awarding compensation and escalation charges, the award is liable to be set aside as one without jurisdiction.
(6) In 2003(4) L.W. 482 Oil & Natural Gas Corporation Ltd. v. Saw Pipes Ltd. the Hon''ble Supreme Court held as follows:
7 7. In the result, it is held that.-
A.(1) The Court can set aside the arbitral award u/s 34(2) of the Act if the party making '' the application furnishes proof that:
(i) a party was under some incapacity, or
(ii) the arbitration agreement is not valid under the law to which the parties have subjected it or failing any indication thereon, under the law for the
time being in force; or
(iii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise
unable to present his case; or
(iv) the arbitral award deals with dispute not contemplated by or not. falling within the terms of the submission to arbitration, or it contains decisions
on matters beyond he scope of the submission to arbitration;
(2) The Court may, set aside the award:
(i) (a) if the composition of the arbitral tribunal was not in accordance with the agreement of the parties,
(b) failing such agreement, the composition of the arbitral tribunal was not in accordance with Part-I of the Act.
(ii) if the arbitral procedure was not in accordance with:
(a) the agreement of the parties, or
(b) failing such agreement the arbitral procedure was not in accordance with Part-I of the Act.
However, exception for setting aside the award on the ground of composition of arbitral tribunal or illegality of arbitral procedure is that the
agreement should not be in conflict with the provisions of Part-I of the Act from which parties cannot derogate.
(c) If the award passed by the arbitral tribunal is in contravention of provisions of the Act or any other substantive law governing the parties or is
against the terms of the contract.
(3) The award could be set aside if it is against ''the public policy of India that is to say, if it is contrary to:
(a) fundamental policy of Indian law; (b) the interest of India; or (c) justice or morality, or (d) if it is patently illegal.
(4) it could be challenged:
(a) as provided u/s 13(5); and
(b) Section 16(6) of the Act.
(7) In 2003(3) MLJ 185 (S.C.) Bharat Coking Coal Limited v. Annapurna Construction the Hon''ble Supreme Court heard as follows:
The question is as to whether the claim of the contractor is de hors the rules or not was a matter which fell for consideration before the
arbitrator. He was bound to consider the same. The jurisdiction of the arbitrator in such a matter must be held to be confined to the four-corners of
the contract. He could not have ignored an important clause in the agreement although it may be open to the arbitrator to arrive at a finding on the
materials on records that the claimant''s claim for additional work was otherwise justified.
There lies a clear distinction between an error within the jurisdiction and error in excess of jurisdiction. Thus the role of the arbitrator is to
arbitrate within the terms of the contract. He has no power apart from what the parties have given him under the contract. If he has, travelled
beyond the contract he would be acting without jurisdiction, whereas if he has remained inside the parameter of the contract his award cannot be
questioned on the ground that it contains an error apparent on the face of the records.
(8) In Bharat Coking Coal Ltd. Vs. L.K. Ahuja, the Hon''ble Supreme Court held as follows:
(1) In cases where an arbitrator exceeds the terms of the agreement or passes an award in the absence of any evidence which is apparent on the
face of the award, the same could be set aside.
(2) It is not unusual for the contractor to claim loss of profit arising out of diminution in turnover on account of delay in the matter of completion of
the work. What he should establish in such a situation is that had he received the amount due under the contract, he could have utilized the same
for some other business in which he could have earned profit. Unless such a plea is raised and established claim for loss of profit could have been
granted.
This decision was also relied on by the learned Senior Counsel for the 1st respondent for the proposition that -
(1) when the arbitrator has applied his mind to the pleadings, the evidence adduced before him and the clauses of the contract there is no scope for
the court to reappraise the matter as if this were an appeal and even if two views are possible, the view taken by the arbitrator would prevail.
(2) When appropriate pleadings have not been raised before the arbitrator the view taken by the arbitrator cannot be interfered with. If these
pleadings were raised. The arbitrator could have certainly considered them. (9) In State of Rajasthan Vs. Nav Bharat Construction Company, the
Hon''ble Supreme Court held as follows:
There can be no dispute to the well-established principle set out in these cases. However, these cases do not detract from the law laid down in
Bharat Coking Coal Ltd. Vs. M/s. L.K. Ahuja and Co., or Continental Construction Co. Ltd. Vs. State of Madhya Pradesh, . An arbitrator
cannot go beyond the terms of the contract between the parties. In the guise of doing justice he cannot award contrary to the terms of the contract.
If he does so, he will have misconducted himself. Of course if an interpretation of a term of the contract is involved then the interpretation of the
arbitrator must be accepted unless it is one which could not be reasonably possible. However, where the term of the contract is clear and
unambiguous the arbitrator cannot ignore it.
The following decisions were relied on by the learned Senior Counsel for the 1st respondent in support of the award.
(1) Tarapore and Company Vs. Cochin Shipyard Ltd., Cochin and Another, the Hon''ble Supreme Court held that when a specific question of law
is referred to an arbitrator for his decision including the one touching upon the jurisdiction of the arbitrator, the decision of the arbitrator would be
binding on both the parties and it would not be open to any of the parties to wriggle out of it by contending that the arbitrator cannot clutch at or
confer jurisdiction upon himself by misconstruing the arbitration agreement.
(2) In AIR 1986 S.C. 2316 Delhi Municipal Corpn. v. Jagan Nath Ashok Kumar the Hon''ble Supreme Court held that arbitrator is a sole judge
of the quality as well as quantity of evidence and it will not be for this Court to take upon itself the task of being a judge of the evidence before the
arbitrator. It may be possible that on the same evidence the court might have arrived at a different conclusion than the one arrived at by the
arbitrator, but that by itself is no ground for setting aside the award. The. Hon''ble Supreme Court further held that the modern tendency in the
opinion of the Supreme Court more especially in commercial arbitration is to endeavour to uphold awards of the skilled persons that the parties
themselves have selected to decide the question at issue between them. If an arbitrator has acted within the terms of the submissions and has not
violated any rules of what is so often called natural justice the courts should be slow indeed to set aside his award.
(3) In Jagdish Chander Vs. Hindustan Vegetable Oils Corporation and Another, the Delhi High Court held that where an arbitrator appointed
under agreement of parties was a serving officer of the Government of India, holding a very high rank he was presumably an expert or well-versed
in that particular field, an award made by such a person could not be lightly interfered with. In the very same judgment the Delhi High Court further
held that even though the arbitrator may be an expert he is still bound by the law of land, bound to follow principles of natural justice and the bound
to apply the correct law.
(4) In Union of India (UOI) Vs. A.L. Rallia Ram, the Hon''ble Supreme court held that the award is the decision of a domestic tribunal chosen by
the parties and the civil courts which are entrusted with the power to facilitate arbitration and to effectuate the awards, cannot exercise the
appellate powers over the decision. Wrong or right the decision is binding if it be reached fairly after giving adequate opportunities to the parties to
place their grievances in the manner provided by the arbitration agreement.
(5) In Smt. Santa Sila Devi and Another Vs. Dhirendra Nath Sen and Others, . the Hon''ble Supreme Court held that a court should approach an
award with a desire to support it if that is reasonably possible, rather than to destroy it by calling it illegal,
(6) In Puri Construction Pvt. Ltd. Vs. Union of India (UOI), the Hon''ble Supreme court held that a court while examining the objections taken to
an award is not required to examine the correctness of the claim on merits and the scope is very limited.
(7) In A.T. Brij Paul Singh and Others Vs. State of Gujarat, the Hon''ble Supreme Court held that when the State was guilty of breach of contract
inasmuch as the rescission of contract is held to be unjustified and the contractor executed a part of the works contract, the contractor would be
entitled to damages by way of loss of profit,
(8) In Gujarat Water Supply and Sewerage Board Vs. Unique Erectors (Gujarat) (P) Ltd. and Another, the Hon''ble Supreme Court held that
even in a case where the arbitrator has to state reasons, the sufficiency of reasons depends upon the facts and circumstances of the case and the
court does not sit in appeal over the award and review the reasons.
(9) In The Upper Ganges Valley Electricity Supply Company Ltd. Vs. The U.P. Electricity Board, the Hon''ble Supreme Court held that if parties
constitute an arbitrator as a sole and final judge of the dispute arising between them they bind themselves as a rule to accept the award as final and
conclusive. An award is ordinarily not liable to be set aside on the ground that either on faces or in lav; it is erroneous.
In the light of the settled legal principles arising out of the above decisions, referred to by both the learned Counsel, let me now consider the
validity of the award passed by the 2nd respondent/arbitrator under challenge in this O.P.
The petitioner/Government entered into an agreement with the 1st respondent on 13.2.1989 for the work; of construction of Telephone
Exchange at Mandaveli, Madras including internal water supply and sanitary installations. The stipulated period of completion of work was 21
month and the stipulated date of completion of the work was 27.11.1990. It is not in dispute that differences arose between the parties
necessitating the petitioner/Government to issue show cause notice dated 16.5.1990 for which a reply was given by the 1st respondent in their
letter dated 31.5.90. On 19.11.90, the contract was rescinded by the petitioner. The 1st; respondent initiated arbitration proceedings before the
2nd respondent/arbitrator who is the Chief Engineer (Civil), Department of Telecommunications, Calcutta. Before the 2nd respondent/arbitrator 14
claims were raised by the 1st respondent and 13 counter claims were filed by the petitioner/Government. The 2nd respondent/arbitrator rejected
all the counter claims of the petitioner and partly allowed claim Nos. 1,4,5,6,S,9,11,12 and 14. Claim No. 13 was fully allowed. A total sum of
Rs. 6,36,508/- was directed to be paid by the petitioner to the 1st respondent with simple interest at 12% along with the cost of Rs. 3,000/-.
Insofar as claim No. 1 is concerned, the 2nd respondent has awarded a sum of Rs. 7 5.203/- against the claim of Rs. 2,08,000/-. The 1st
respondent claimed this amount for the excavation of the whole area for the basement. needed continuous and heavy pumping with a number of
large size pumps.
The learned Addl. Central Govt. Standing Counsel appearing for the petitioner submitted that as per the contract conditions, the petitioner is
not liable to pay any cost to the 1st respondent for installing pumps in the wells and pumping out water. (As per clause No. 19 of the Special
conditions. which is as follows:
The contractor shall at his own expenses and without expense and without extra charge make provision for all shoring pumping dredging, or
bailing out water if found necessary. The foundation trenches shall be kept free from water while all the work below ground level are in progress.
As per Additional Condition No. 2 (1) the rates for different items of work shall apply for all heights and depths unless otherwise specified.
Nothing shall be paid for bailing out water if met with and as per additional condition No. 2(2) the contractor must get acquainted with the
proposed site for works and study specifications and conditions carefully before tendering.
The 1st respondent by their letter dated 23.7.1988 (EX.R7) submitted their tender in which in para 3 and 4 stated that water from the
existing/new wells at the above sits will be used for construction works and balling out water if necessitated shall be paid for as an extra item. But
by their subsequent. Letter dated 13.17.88 the 1st respondent informed the petitioner that they were agreeable to withdraw the said conditions set
out by them in para Nos. 3,4 etc. contained in their letter dated 28,7.88. Thus it is very clear that the petitioner is not liable to pay any amount for
pumping the water and. the award in respect of the same made in claim No. 1 against the Clause 19 of the special condition and additional
condition No. 2 is without jurisdiction and as submitted by the learned. Add1 Central Govt. Standing Counsel for the petitioner, the same is to be
set aside. The 2nd respondent/arbitrator, even though was very much aware of these two clauses went on to say that the nature of pumping and
depressurisation work done by the 1st respondent are not included in the literal meaning of bailing out of water mentioned in special coudition No.
19 in additional condition No. 2 and the specification of the work This in my view is excess of jurisdiction committed by the 2nd
respondent/arbitrator. When the 2nd respondent/arbitrator himself is the creature of the contract agreement he cannot go beyond the clauses
contained in the contract and award an- amount which is barred under the relevant clauses. It is true 2nd respondent/arbitrator is a Chief Engineer
(Civil), telecommunication department and a technical person. Even if the arbitrator happens to be a person he cannot go beyond the scope of the
condition and award a sum ignoring the relevant clauses in the contract.
Insofar as the claim No. 4 is concerned, the 2nd respondent/arbitrator has awarded a sum of Rs. 27,634/- against the claim of Rs. 54,000/-.
The 1st respondent claimed this amount for timbering and strutting of the sites of excavation to keep them in position. The award of the claim is
also assailed by the learned Addl. Central Govt. Standing Counsel appearing for the petitioner on the ground that the same is without jurisdiction
and contrary to the clauses contained in the contract.
I find force in the above submissions of the learned Addl. Central Govt. Standing Counsel for the petitioner. Clause 19 of the special
conditions prohibits payment of any cost in this regard and subsequently the award granted by the 2nd respondent disregarding Clause 19 of the
special conditions of the contract is vitiated and is to be set aside.
As regards claim No. 3 is concerned, 2nd respondent has awarded a sum of Rs. 2.204/- against the claim of Rs.15,000/- claimed by the 1st
respondent for Clause 1000 for which payments have not been made despite repeated requests. The learned Addl. Central Govt. Standing
Counsel for the petitioner submitted that this amount of Rs. 2,204/-was already paid by the petitioner as per sanctioned memo dated 1.11.94 and
hence the award in this regard is a double payment.
The 2nd respondent/arbitrator has also referred to sanctioned memo dated 1.11.94 (Ex.R18) and also held that this amount was adjusted by
the petitioner in their final bill. However, the 2nd respondent/arbitrator awarded the sum of Rs. 2,204/- without coming to a definite conclusion as
to whether the amount was still payable as per the claim of the 1st respondent even when it was adjusted by the petitioner in their final bill as he
himself observed in the award. Hence the award under claim No. 5 is without evidence and it is also against his own reasoning and finding.
Therefore the same is vitiated and set aside.
Regarding claim No. 6 is concerned a sum of Rs. 3,284/- was awarded by the 2nd""respondent/arbitrator. against the claim of Rs. 30,000/-
claimed by the 1st respondent for payment for the full quantities of earth work excavation made by them.
A sum of Rs. 3,284/- was awarded by the arbitrator on the basis of the value of work done as per third and final bill taking into relevant
consideration, as such no ground is made out to assail the same.
Regarding claim No. 8 is concerned, a sum of Rs. 9,000/- was awarded by the 2nd respondent against a claim of Rs. 1,50,000/- for the
expenditure incurred by the 1st respondent on providing cement sheds, labour sheds, site office for department and electrical lightings and well and
pumping of water. This amount was claimed on the around that the contract was prematurely terminated by the petitioner. This claim is to be dealt
with claim No. 11 under which a sum of Rs. 4,80,000/- was claimed by the 1st respondent for the loss suffered by them by the rescission of the
contract by the petitioner.
The 2nd respondent/arbitrator has come to a definite conclusion that the petitioner alone was responsible for the breaches of contract causing
delay in carrying out the initial work of basement and foundation construction and that the subsequent action of the petitioner rescinding the
contract on 19.11.90 was wrongful and illegal. To come to this conclusion, the 2nd. respondent has elaborately dealt with the entire evidence
adduced before him especially Ex.R14 termination of contract, Ex.C1 letter dated 5.3.89 of the 1st respondent claiming to have started the work
on 3.3.89. Ex.C6 letter of the petitioner dated 2.5.89 intimating the recommendation of the soil expert and about the method and nature of
pumping out water from the excavated pit, Ex.C19 letter dated 6.11.90 written by the Superintendent Engineer of the petitioner aqreeing to the
reduction on of depth of basementExc.4 petitioner letter dated 19.1.89 admitting that the basement excavation in the building had reached the
basement level for part of the basement Exc. o7 the 1st respondent''s letter dated 13.6.89 requiring the reinforcement bars for half of area Ex.C32
petitioner''s letter dated 9.7.90, indicating poor stock of material, Ex.C11 memo dated 7.8.89 of the petitioner indicating that the petitioner had
problem in making required steel material available for the works, Ex.C15, 1st respondent''s letter dated 12.3.90 requiring reinforcement bars and
cements, Ex.C32 petitioner''s letter dated 9.7.90 admitting 1st respondent''s letter dated 12.3.90 (Ex.C15), Ex-G16 show cause notice dated
16.5.90 issued by petitioner to 1st. respondent, EX.C17,. reply dated 31.5.90 by 1st respondent, Ex.C30, letter dated 16.7.90 by 1st respondent
to Superintending Engineer, Ex.C18, 1st respondent''s letter dated 22.10.90 (16.7.90) stating reasons for delay in carrying out the. works Ex.C19,
letter dated 6.7.90 wriiten by Superintending Engineer requesting 1st respondent to recommence the work and to come to the above conclusion.
As rightly pointed out by the learned Senior Counsel for the 1st respondent this Court is not. an appellate court to re-appraise and re-evaluate
the evidence to corns to a different conclusion even if it is possible, But the learned Addl. Central Govt. Standing Counsel for the petitioner
submitted that still the aware granted by and respondent/arbitrator is bad as the same is not in consonance with the principles laid down by the
Hon''ble Supreme Court in the judgments referred to by him.
Now let me consider the claim No. 8. Under claim No. 8 1st respondent claimed a sum of Rs. 1.50,000/- towards compensation for the
premature termination of the contract. The compensation sought for included the expenditure spent by them on the infrastructure put up by them in
the site for doing the. contract work. But the learned Addl. Central Govt. Standing Counsel for the petitioner submitted that no extension of
contract was claimed by 1st respondent before terminating the contract and therefore no amount should be given to them under this claim.
Even though a sum of Rs. 1,50,000/- was claimed, under claim No. 8 2nd respondent/arbitrator has granted a sum of Rs. 9,000/- after holding
that petitioner alone is responsible for the breaches of the contract. Therefore no ground is made out by the petitioner to interfere with the award of
Rs. 9,000/-
Now let me consider claim No. 11 under which Rs. 4,80,000/- was claimed by 1st respondent for breaches of the contract towards losses
and damages. The arbitrator considered this claim against claim Nos. 8,9 and 12. In claim No. 8, a sum of Rs. 48,600/- for transporting cement
and steel issued to 1st respondent from the stores to the sites. This claim was seriously resisted by the learned Addl. Central Govt. Standing
Counsel for the petitioner stating that the same is contrary to Clause 42(i) of the tender condition of the contract.
I find force in the above submissioins of the learned Addl. Central Govt. Standing Counsel for the petitioner. Clause 42(i) reads as under:
Clause 42(i) The contractor shall see that only the required quantities of materials- are got issued. Any such material remaining unused and in
perfectly good condition at the time of completion of determination of the contract shall be returned to the Engineer-in-Charge at a place where
directed by him if by a notice in writing under his hand he shall so require. Credit for such material will be given at the prevailing market rate not
exceeding the amount charged from him, excluding the storage charges levied at the time of issue of materials to him. The contractor shall also not
be entitled to cartage and incidental charges for returning the surplus materials from and to the stores wherefrom they were issued.
As per this clause, 1st respondent shall not be entitled to cartage and incidental charges for returning the supply material and to the stores
where from they were issued. This is the condition imposed on 1st respondent ever if the contract had not been terminated and was executed by
1st respondent. In such circumstances, awarding a sum of Rs. 11.980/- under this claim No. 9 ignoring Clause 42(i) is without jurisdiction and is
liable to be set aside.
In claim No. 12.1st respondent claimed the return of EMD of Rs. 20,000/- which was forfeited by the petitioner. 1st respondent has also
claimed loss of profitability on the balance work at 15% and claimed a sum of Rs.17,32,254/-. They have further claimed a sum of Rs. 10 lakhs
for the loss of prestige good name-image. But the 2nd respondent/arbitrator awarded a sum of Rs. 4,87,153/- which is worked out by him as
under:
Claim No. 12 It has been held vide reasons given for award on claim No. 8 that the Respondent was responsible for the breaches of contract
causing delay in execution of work and its subsequent action in rescinding the contract on 19.11.90 was wrongful & illegal. The measure of
damage is the loss suffered which in this case is the loss of profit that would have been gained had the innocent party been placed in the same
position as if the contract had been performed. After duly considering the principle of mitigation of damage this measure of damage is reasonably
evaluated as under:
(a) The contract value as per the work-order dt. 13.02.89
(Exhibit R-1) = Rs. 116,20,437.50
(b) The deviation limit is 50% as per the
contract. Hence the minimum value of work
that could have been executed = 50% of Rs. 116,20,437.50
= Rs. 58,10,219.00
(c) The value of work actually executed = Rs. 79 007.00
(d) So the minimum value of work that could have been
further executed
= (Rs.58,10,219.00 - Rs. 79.007.00)
= Rs. 57,31,212.00
(e) Reasonable profit & overhead for such type of building work is considered as 15% of gross value of work out of which 5% is considered as
overhead expenses ''and 10% as profit.
(f) Hence, the estimated profit on the minimum value
of balance work that could beexecuted
under the contract - 10% of (0.85 x 57,31,212.00)
= Rs. 4,87,153/-
This is. therefore the reasonable minimum profit that could have been earned by the claimant by executing the contract. This claim is, therefore,
found partly justified for Rs.4,87,153/-.
From the above it is clear that 2nd respondent/arbitrator has calculated a profit of on the minimum value of work, which is 509% of the
contract work and awarded a sum of Rs. 3,97.153/-.
Learned Addl. Central Govt. Standing Counsel for the petitioner seriously objected to this by contending that loss of profit should not be
granted by the arbitrator and even otherwise the calculation done by 2nd respondent/arbitrator is not correct as 2nd respondent/arbitrator did not
consider the fact that the main materials like cement and steel were supplied on the petitioner themselves
In AT Brij Paul Singh case cited supra the Hon''ble Supreme Court held that the contractor would be entitled to damages for loss of profit and
upheld the order of civil judge in commuting the loss of profit against 15% on the remaining value of the contract work. Therefore it cannot be said
that the 1st respondent is not entitled to claim damages for loss of profit- But the learned Addl. Central Govt. Standing Counsel for the petitioner
relied on Bharat Col-ring Coal Ltd. case cited supra to contend that as there was no pleading in the claim statement filed before the arbitrator as to
how 1st respondent could have utilised the same for some other business in which he could have earned profit, the award by. 2nd respondent is
bad and is to be set aside.
I am unable to accept the contention of the learned Addl. Central Govt. Standing Counsel for the petitioner. In the Bharat Coking Coal Ltd.
case, cited supra, the facts were different and the Hon''ble Supreme Court observed that contractors can claim loss of profit arising our of
diminution in turnover on account of delay in the matter of completion of the work. Only in that context it was observed that there should be a
pleading averring that had he received the amount due under the contract he could have utilised the same for some other business in which he
could. have earned profit. Therefore the above decision is helpful to the learned Addl. Central Govt. Standing Counsel for the petitioner.
Considering the fact that a profit ox 10% only was calculated on the minimum value of work, I do not think any ground is made out to set aside the
same. Similarly, the award amounting to a sum of Rs. 20,000/-towards the forfeiture of EMD is also to be upheld as the petitioner is found to be
the breacher of the contract. T. am. also not inclined to interfere with the grant of interest amount at 12% which is normal and reasonable.
Insofar as the counter-claims are concerned the learned Addl. Central Govt. Standing Counsel for the petitioner submitted that they were not
at all considered by the 2nd respondent/arbitrator and therefore he has committed a misconduct as held by the decision of the Hon''ble Supreme
Court referred to by him and he prayed for setting aside the award on this score.
I am unable to accept this contention of the learned Addl. Central Govt. Standing counsel for the petitioner. It is true that if the counter-claims
are not considered while passing the award, the arbitrator is guilty of misconduct and the award is bad in the eye of law. But in the case on hand,
2nd respondent/arbitrator has considered all the 13 counter-claims and rejected the same In fact all the counter-claims were claimed on the basis
that 1st respondent has committed breach of contract resulting in loss to the petitioner-government. As 2nd respondent/arbitrator has found that
the petitioner alone is responsible for the breaches of the contract causing delay in carrying out the initial work of basement and foundation
construction and that the subsequent action of the petitioner in rescinding the contract on 19.11.90 was wrongful and illegal. Therefore 2nd
respondent/arbitrator has rejected the counter-claims in toto. I do not find any grounds made out to interfere with the award rejecting the counter-
claims as I have held that the finding of 2nd respondent/arbitrator that the petitioner is responsible for the breaches of the contract is purely based
on evidence and the same cannot be interfered with.
In the result, the award dated 15.12.96 is set aside insofar as claim No. 1, Claim No. 4, claim No. 5 and claim No. 9 are concerned and the
same is upheld in respect of the other claims and counter claims.
The above O.P. is disposed of in the above terms.