Union of India (UOI) vs Shri S.K. Chopra

Rajiv Sahai Endlaw, J.—The suit was registered on the filing of arbitration award dated 24th October, 1994 in this Court by the arbitrator. Notice of the filing of the award was issued to both the parties. Objections under Sections 30 & 33 of the Arbitration Act 1940 in the form of IA No. 1118/1996 by the petitioner Union of India and IA No. 1119/1996 by the respondent Shri S.K. Chopra have been preferred with respect to the parts of the award against the respective parties and claimed to be severable from the other part of the award. Though, the objections have been pending for long but as per the prevalent practice, the usual issues had remained to be framed. The same were framed on 7th July, 2009. The counsels for the parties stated that the arbitral record received in this Court only would be relied upon by them in support of their respective objections and no affidavits by way of evidence are required to be filed. The counsels for the parties have been heard.

The agreement between the parties with respect whereto disputes arose, was of award of contract by the petitioner Union of India to the respondent of construction of Flyover and Retaining Walls near the Flated Factories at Jhandewalan, New Delhi. The date of start of the work was 6th December, 1985 and the stipulated date of completion was 5th December, 1986. However, the work continued to be executed beyond the stipulated date of completion also and the time for completion was repeatedly extended by the petitioner Union of India. The said work was not completed by the respondent and disputes and differences arose between the parties. The contract was rescinded on 15th November, 1989. The award records that only the claims of the petitioner Union of India were referred to the arbitrator vide letter dated 9th December, 1992. The award also records that the respondent made counter clams before the arbitrator on which pleadings were completed though the said counter claims had not been referred by the appointing authority to the arbitrator. The award nevertheless deals with the claims and the counter claims together under one head only.

The arbitrator has held that initially the petitioner Union of India was in breach in its failure to handover a part of the site to the respondent and later the respondent had inordinately prolonged the work; the arbitrator in view of the fact that the contract had been rescinded by the petitioner Union of India belatedly without making the time for performance as essence, holds that legally no risk and cost action in terms of the agreement subsists in favour of the petitioner UOI against the respondent and nothing could be awarded to the petitioner UOI against the respondent under the claim No. 2 in this regard. For the same reason the claim No. 1 of the petitioner UOI for levy of compensation for delay in execution of work was also declined. On the same reasoning the counter claim No. 5 of the respondent for losses due to idle establishment etc. due to prolongation of the contract was also declined. The award also holds that the petitioner Union of India had already paid the escalation under the provisions of Clause 10(CC) of the agreement for the work done during the stipulated period of the contract and finding the delays attributable to both parties, no further payment on this account has been allowed to the respondent. The award also negatives the claim of the respondent for wrongful deduction of the rebate for timely payment of the bills. The award also negatives the claim of the respondent for centering/shuttering.

The award holds the respondent entitled to refund of security deposit of Rs. 1 lac and also holds the respondent entitled for the value of work done, less recoveries admissible to the claimant. The arbitrator has found a sum of Rs. 1,47,699/- to be due to the respondent against the final bill. The award also has allowed a sum of Rs. 5,000/- to the respondent against the wrongful withholding from the respondent''s bill of sum of Rs. 4,000/- and Rs. 1,000/- for non-sanction of AHR items. Thus a total sum of Rs. 2,52,699/- (Rs. 1,47,699/- + 1,00,000/- + 5,000/-) has been found due to the respondent from the petitioner Union of India.

The arbitrator has found that the respondent failed to return 51.62 M.T. of steel of the value of Rs. 3,35,530/- issued to it for the purposes of the works. The arbitrator in terms of the Clause 42 of the contract held the petitioner Union of India to be entitled to double the value of the said steel i.e. Rs. 6,71,060/-.

Besides the said amount certain other small amounts with respect whereto no arguments have been addressed, were also found due to the petitioner Union of India from the respondent. Thus a total sum of Rs. 7,28,737/- was found due to the petitioner Union of India from the respondent. After deducting Rs. 2,52,699/- (Supra) therefrom, the petitioner Union of India was held entitled to recovery of Rs. 4,76,038/- from the respondent. Costs of Rs. 5,000/- and simple interest at 12% per annum from 13th October, 1992 to the date of the award have also been awarded to the petitioner Union of India against the respondent.

As far as the objections preferred by the petitioner Union of India are concerned, there are virtually no pleadings whatsoever therein. It is merely stated that the award is grossly erroneous and the arbitrator has not analyzed all the claims of the petitioner Union of India. Besides, it is merely stated that "the petitioner is mainly challenging Clause 2 of the arbitration". However, in view of the submissions of the counsel, the effect of such cursory pleadings in the petitions under Sections 30 & 33 of the Act need not be gone into these proceedings. The counsel for the petitioner Union of India has challenged the finding of the arbitrator of the delays being attributable to the Union of India also. It is contended that under Clause 2 of the contract, in the event of the contractor failing to comply with the conditions mentioned therein he is liable for compensation of an amount equal to 1% or such smaller amount as the Supdt. Engineer (whose decision in writing shall be final) may decide on the said estimated cost of the whole work. It is contended that Supdt. Engineer had decided the liability of the respondent as Rs. 5,61,123/- on this account and the decision of the Supdt. Engineer was final and not arbitrable. The counsel urges that however since arbitration was claimed qua other claims, recovery in the said amount was also shown in the claim petition but the arbitrator was not competent or entitled to return a finding thereon, the same being nonarbitrable .

Though the petitioner Union of India itself made the claim before the arbitrator, which upon being disallowed by the arbitrator is being challenged before this Court as nonarbitrable but the said matter is no longer res integra in view of the judgment of the Division Bench of this Court in Delhi Development Authority Vs. M/s. Sudhir Brothers, . It has been held therein that when a matter is not arbitrable, the court can order so in objections u/s 33 of the Act, notwithstanding the party seeking the said relief having itself sought arbitration with respect thereto. It was held that the court has to in such cases merely order the said part of the award to be struck of.

The senior counsel for the petitioner has also fairly conceded that in view of the judgment aforesaid, this Court may order so with respect to the said claim of the petitioner Union of India, subject of course to the right of the respondent to the appropriate remedy as and when the said claim is sought to be enforced by the petitioner Union of India against the respondent.

Accordingly, it is directed that the claim of the petitioner for Rs. 5,61,123/- being an accepted matter could not have been arbitrated upon and the award in that respect shall stand struck of. The said claim having not been arbitrated upon and thus there being the question of this Court returning any finding on the same, the respondent shall have the remedies, if any, available to him as and when the said claim is enforced by the petitioner Union of India against the respondent.

The arguments centered around the award qua 51.62 M.T. steel with respect whereto double the value thereof has been awarded in favour of the petitioner. The senior counsel for the respondent has challenged the said award on three grounds; (1) on the ground of being without reason as required under the agreement; (2) the finding of misappropriation of 51.62 M.T. of steel by the petitioner being contrary to the record and (3) the law not permitting payment of double the value thereof by way of penalty, without proof of any loss.

The award deals with the contention of the respondent that he had left the surplus steel at the work site after rescission of the contract and the same was deemed to have been in the custody of the petitioner and the petitioner being thus not entitled to claim the value thereof. The arbitrator has held that it was the obligation of the respondent to handover the surplus steel to the petitioner at the time of closure of the contract and having not done so the respondent is liable for the same. Another plea in this respect dealt with in the award is on account of overweight. The arbitrator has held that the respondent never raised the said plea at any time during the execution of the work and is thus not entitled to raise the same as an afterthought.

The senior counsel for the respondent has taken me through the pleadings and the documents in the arbitral record in an attempt to demonstrate that there is absolutely no basis for the arbitrator to assume that 51.62 M.T. of steel was in excess/surplus. The senior counsel has successfully demonstrated that the said quantity was seriously challenged by the respondent before the arbitral tribunal. The senior counsel for the respondent has shown the statement of the claim of the petitioner Union of India in which it was mentioned that 446.435 M.T. of steel had been issued to the respondent as borne out from unstamped receipt (USR) filed as CE 19 to 36. He has also shown the reply filed by the respondent to the said settlement of claim wherein the respondent has denied that 446.435 M.T. of steel had been issued to it; it is further pleaded that as per the recovery statement attached with the 19th RA Bill paid on 18th May, 1989, a total quantity of 389 M.T. only had been recovered; that the quantities issued as shown in the statement attached to the final (20th Bill) were entirely different; that the total quantities as per the USR''s filed by the petitioner worked out to 436.121 M.T., out of which 28.094 M.T. had been transferred by the petitioner to the other works leaving a net quantity of 408.118 M.T. only issued to the respondent; out of this 382.396 M.T. was consumed in the work and after adding wastage and variation as per the terms of the agreement, theoretical consumption works out to 401.746 M.T. The fact remains that the arbitrator has not dealt with the same and from the bare reading of the award it cannot even be said that there was any dispute before the arbitrator as to the quantity of the steel.

It is not in dispute that steel consumed in the works is 382.396 M.T. It is also not in dispute that 28.094 M.T. of steel issued by the petitioner to the respondent was transferred to other projects; this was admitted by the petitioner in its rejoinder. The senior counsel for the respondent has contended that the petitioner however in its rejoinder and to which the respondent had no opportunity to file any further pleadings, totally changed its stand; the petitioner now contended that in fact the total quantity of steel issued to the respondent was 474.449 M.T. and after transfer of 28.094 M.T., the net quantity issued was worked out to 446.435 M.T.

The counsel for the petitioner Union of India did not controvert the argument of respondent that the USR''s on the arbitral record were not with respect to the entire 474.449 M.T. It is however argued that all these figures are shown in the final bill. It is contended that there are other USR''s and a register is also separately maintained of the steel issued; the figures in the final bill are taken from the said register which is maintained in the normal course and that is why there is no error in the shortfall of 51.62 M.T. believed by the arbitrator.

The senior counsel for the respondent has urged that in the aforesaid circumstances, it is clear that the arbitrator being human has erred in believing the shortfall to be 51.62 M.T. and further having failed to decide the said disputed contentions. It is argued that it is not a case where the arbitrator has even recorded that he after perusal of the record he is of the opinion that the shortfall is 51.62 M.T. and not as contended by the respondent. Thus setting aside of the award to the said extent is sought.

The argument of the respondent appears attractive. However, the same is to be judged in the light of the jurisdiction being exercised by this Court i.e. under Sections 30 & 33 of the Arbitration Act. The award on the very first page thereof records "NOW THEFREFORE, AFTER PERUSAL OF THE PLEADINGS AND DOCUMENTS FILED AND HAVING HEARD AND CONSIDERED THE ARGUMENTS ADVANCED BY THE CLAIMANT AND THE RESPONDENT, I V. NAINANI, DO HEREBY MAKE AND PUBLISH THIS AWARD AS FOLLOWS".

Attention of the senior counsel for the respondent was invited to the judgment of the Supreme Court in Arosan Enterprises Ltd. v. Union of India 1999 3 Arbitration Law Reporter 310 (SC). A five Judge Bench of the Supreme Court in Goa, Daman and Diu Housing Board Vs. Ramakant V.P. Darvotkar, in an appeal from the order of the Bombay High Court setting aside the award for being without reasons inspite of being required to give reasons, accepted the argument that the mere statement of the arbitrator that the award had been made after hearing the parties and after consideration of papers and documents filed by the parties to be enough and it was held that such an award could not be said to be illegal or suffering from any misconduct. It was further held that unless there was anything to show that the arbitrator has misconducted himself or the proceedings in any other manner or to show that the award had been improperly procured, or that the arbitrator has not fairly considered the submissions of the parties in making the award in question, the award cannot be set aside. The Supreme Court held that from the statement aforesaid of the arbitrator it was evident that the arbitrator had considered all the specific issues raised by the parties in the arbitration proceedings and come to the finding returned. The Division Bench of this Court in a recent Judgment in Delhi Development Authority Vs. Madhur Krishna, has also relied upon the said constitution bench judgment. In D.D. Sharma Vs. Union of India (UOI), also the arbitrator had in the award stated that he had examined and considered the pleadings submitted by and on behalf of the parties and documentary and oral evidence produced before him. The same was held sufficient by the Supreme Court to hold that there did not exist any material on record to show that the arbitration while making the award ignored any material documents. The same was the position in Bijendra Nath Srivastava (Dead) through LRs. Vs. Mayank Srivastava and others, . There also the challenge to the award for being without any reasons was met, by the arbitrator recording the award that he had heard the parties and considered all the points raised by them, the rights and claims of the parties involved and the accounts and evidence produced by them.

The contention of the senior counsel for the respondent that the arbitrator was performing a judicial function and must give reason on each and every contentious issue raised is thus not acceptable. A reading of the entire award in the present case does not show that the arbitrator was oblivious of the case of the respective parties before him. In the circumstances, it cannot be said that the arbitrator has not applied himself before coming to the conclusion that 51.62 MT of steel delivered by the respondent had been misappropriated by the petitioner. That being the position, and this being a finding of fact, this is his non- interferable in the exercise of jurisdiction under Sections 30 and 33 of the Act.

The senior counsel for the respondent has next urged that as per the dicta of the Five Judge Bench of the Supreme Court in Fateh Chand Vs. Balkishan Das, , even if there is to be no dispute as to the quantity of steel for which the respondent is to compensate the petitioner, Clause 42 of the contract providing for payment of double the value of the steel is penal in nature and in the absence of any proof of loss, the award for double the value of the said steel is contrary to law. Reliance in this regard is also placed upon Pearl Hosiery Mills v. UOI 1978 RLR 1994, Marimuthu Gounder Vs. Ramaswamy Gounder and Others, , State of Orissa v. Calcutta Company Ltd. AIR 1981 Orissa 206 Maula Bux Vs. Union of India (UOI), .

The attention of the senior counsel for the respondent during the hearing only was invited to Oil and Natural Gas Corporation Ltd. Vs. SAW Pipes Ltd., . The Supreme Court in the said case though speaking through a Bench of Two Judges only but after considering the judgments of the larger Bench in Fateh Chand and Maula Bux (supra) held that there could be cases where loss can not be proved. Examples were cited of delays in construction of road or the bridge; neither any person/individual or municipal nor any government suffers any loss therein. The loss is of the public at large. The Supreme Court in such a situation held that when the clause provided for a particular amount to be paid in the event of default, that could be directed to be paid even without proof of loss. Of course in that case the clause was more specific, providing for the amount to be a pre-estimate arrived at by the parties. Clause 42 is not so specific; but in my view, the principle would be applicable also where the government from its own stocks supplies materials to the contractor for carrying out certain works, and obligation is placed on the contractor to return the excess/unused material and it is further provided that if the material is not so returned, the contractor shall be liable to pay double the amount thereof.

The senior counsel for the respondent has contended that the only loss which can be suffered by non-return of such material is of the difference in price of the material supplied and the price prevailing on the date of failure to return. It is argued that the same being calculable, the loss in such cases cannot be equated to the losses subject matter of consideration in Saw Pipes Ltd. (supra) where it was found to be incalculable. I, however, am unable to accept the said contention. The procurement / purchase of material by the Government / government department is not as simple. Considerable effort goes in the same. Tenders have to be prepared, invited, bids screened and only thereafter the material can be procured. It is virtually impossible to calculate the costs of all the said steps. Further, the said materials of the government are not necessarily for one project only and can be used in other projects if returned on time. Non return of the material and resultant delays in procurement can also lead to consequent delays in other projects and can have a cascading effect. In the aforesaid state of law, it cannot be said that the award enforcing the clause for payment of double the value of the material is so contrary to law or so improbable which no reasonable person could have arrived at. Once that test is satisfied, interference u/s 30 and 33 is not permissible.

Thus no error is found in the part of the award challenged by the respondent. No other plea has been urged. Also, no element of perversity or shocking the judicial conscience, essential for the court to set aside the award is found.

Accordingly, IA 1118/1996 of the petitioner Union of India is allowed to the aforesaid extent and IA. No. 1119/1996 of the respondent is dismissed. The award as modified above is made rule of the court and decree is passed in terms thereof. However, in the facts of the case, since the parties are found to have raised a bona fide conflict for adjudication by this Court, the parties are left to bear their own costs.