Western Coalfields Ltd. vs Progressive Engineering Company

V.A. Naik, J—Since the issues involved in both the appeals are identical and since they arise from two separate but similar Awards passed by the Arbitrator and the common judgment of the 6th Joint Civil Judge, Senior Division, Nagpur, in the Special Civil Suits filed by the respondent-civil contractor under Section 14(2) of the Arbitration Act, 1940, they are heard together and are decided by this common judgment.

That the respondent-civil contractor was awarded a contract for construction of the Machine Shop and Store Room at Tadali, by the appellant-Corporation. The consideration for the contract in respect of the machine shop complex was fixed at Rs. 1,92,70,000/-, whereas for the construction of the store room, the consideration amount was fixed at Rs. 68,50,000/-. The contract was to be completed on or before 30/07/1990. It is not in dispute that due to the extension granted by the Corporation, the respondent-civil contractor completed the work of construction of the machine shop and the store room on 07/02/1992. There were some disputes between the parties and in view of the Arbitration agreement, in terms of the order passed in the proceedings under Section 20 of the Arbitration Act, the company appointed Shri A.K. Shenolikar, retired Chief Engineer, as an Arbitrator. The Arbitrator, on a consideration of the claim of the civil contractor, passed separate Awards dated 06/09/1995. Two separate Civil Suits were filed by the Civil Contractor under Section 14(2) of the Arbitration Act for passing a decree in terms of the award. By a common judgment, dated 05/02/2000, the trial Court decreed the suits with costs and directed the appellant-company to pay the amount of Rs. 23,81,611/- to the Civil contractor with interest at the rate of 17% per annum on the amount of Rs. 17,31,200/- from the date of the Award till the realization of the decretal amount in respect of the construction of the Stores. Similarly, by decreeing the other suit filed by the respondent-civil contractor, the appellant-company was directed to pay the sum of Rs. 68,68,575/- to the Civil contractor at the rate of 17% per annum on Rs. 50,09,500/- from the date of the Award till the date of realization of the decretal amount. The judgment of the 6th Joint Civil Judge, Senior Division, Nagpur, is assailed by the appellant-company in these appeals.

It appears from the statements of claim filed by the civil contractor before the Arbitrator that the claim was based only in view of the delay in completion of the contract, which according to the civil contractor was attributable to the appellant-company. According to the civil contractor, it would have been in a position to complete the contract before the stipulated date i.e. 30/07/1990, had the appellant-company not breached the conditions of the work order relating to supply of electricity and cement to the civil contractor and payment of bills within the time stipulated in the work order. According to the civil contractor, as is seen from the statements of claim, electric supply was not provided to the civil contractor till 11/01/1990 and that had delayed the construction work considerably. According to the civil contractor, there was a short supply of cement on several occasions and that slowed down the work. Also, according to the civil contractor, the bills were not paid within a period of one month from the date of their submission, as per the condition in the work contract and hence in the absence of funds, the progress of the work slowed down. The civil contractor sought specified amounts towards losses on account of unabsorbed overhead expenses, losses on account of idle machinery charges and the difference in material and P.O.L. (Petroleum Oil and Lubricant), on account of escalation in the prices of the said items during the extended period of the contract. The civil contractor also claimed interest on the amounts specified, at the rate of 18% per annum.

The appellant-company filed the written statement in both the statements of claim. The claim of the civil contractor was denied, except a small part of the claim made in the final bills. The appellant-company specifically denied that the delay in the completion of the contract was attributable to the appellant-company. According to the appellant-company, the civil contractor was solely responsible for the delay in completion of the contract. According to the appellant-company, there was hardly any delay in payment of the bills and in respect of the non-supply of electricity, no claim could have been made by the civil contractor, in view of Clause 5 of the work order. It was pleaded in the written statement that the civil contractor could have secured the electric supply on its own and could have asked the appellant-company to reimburse, in terms of the offer of the civil contractor, dated 28/01/1988 by which the civil contractor had offered to charge the sum of Rs. 250/- per tonne towards fabrication and erection, if electric supply was not made available by the appellant-company. The appellant-company had denied in the written statement that there was delay on the part of the appellant-company in supplying cement. It was the case of the appellant-company that the entire delay was attributable only to the civil contractor and hence, a counter claim was filed by the appellant-company. A specified amount was sought by the appellant-company from the civil contractor in the counter claim. The parties tendered the documents and the Arbitrator, by two separate awards, dated 06/09/1995 awarded almost all the claims made by the civil contractor and dismissed the counter claim of the appellant-company on merits as also on limitation.

Shri Mehadia, the learned counsel for the appellant-company submitted that the Arbitrator had misconducted himself by not considering the most relevant clause in the work order and ignoring the important, relevant and vital documents produced by the appellant-company in support of its case. It is submitted that though Condition No. 5 of the work order is quoted by the Arbitrator in the award, the Arbitrator failed to consider that no claim could have been entertained on account of any delay in providing electric connection in terms of the said condition. It is submitted that the condition is only quoted in the awards and while considering the issue of delay in electric supply, the Arbitrator has not applied his mind, to the same. It is stated that Condition No. 5 in the work order clearly provides that no claim shall be entertained on account of any delay in providing electric connection. It is stated that despite the said condition in the work order, the Arbitrator proceeded to entertain the claim on the ground of delay by the appellant-company in providing electric connection. It is stated that the clear and the unambiguous condition in the work order has been ignored. It is submitted that the appellant-company had tendered voluminous documents on record to show that the civil contractor had delayed in the matter and the said fact was brought to the notice of the civil contractor from time to time, thereby asking the civil contractor to hurry up. It is submitted that not a single document, tendered by the appellant-company, was considered by the Arbitrator while holding that the delay was caused by the appellant-company and there was no fault on the part of the civil contractor. It is submitted that the non consideration of the material documents tendered by the appellant-company before the Arbitrator would vitiate the awards. It is submitted that it was necessary for the Arbitrator to have considered Clause No. 5 of the work order, which provided that no claim in respect of the delay in supply of electricity could be entertained. It is submitted that the finding recorded by the Arbitrator in regard to the extent of the delay while making payments in respect of the R.A. Bills is perverse. It is submitted that the Arbitrator has wrongly calculated the delay in respect of each R.A. Bill, though the payments chart, on which the Arbitrator has relied, clearly shows that there was no delay while making payment in respect of the most of the bills and the delay in making payment of some of the bills was negligible. It is submitted that the Arbitrator could not have given a break up of the delay and held that there was a delay of approximately 12 months due to delay in supply of electricity, of about 4 to 5 months due to irregular payments and a delay of about one and half months due to shortage of cement. It is submitted that since there was a delay of about 18 months and 8 days in completion of the contract, the Arbitrator has erroneously given a break up of the delay. It is submitted that though the calculations made by the civil contractor in the statements of claim were not admitted by the appellant-company, it is wrongly held by the Arbitrator that there was no dispute in that regard. It is submitted that the counter claim filed by the appellant-company is not rejected on the ground of limitation or delay alone, but is also rejected on merits. It is submitted that the Arbitrator rejected the counter claim on merits without considering the voluminous documents tendered by the appellant-company before him. It is submitted that the Arbitrator has misconducted himself by referring to the documents tendered by the civil contractor and ignoring the relevant documents tendered by the appellant-company on the issue of delay. It is submitted that though these aspects were brought to the notice of the learned trial Court, the trial Court, did not consider the same, while passing the decree in terms of the awards. It is submitted that the Arbitrator could not have granted the compensation towards escalation at the rates prevailing after 30/07/1990 (the date on which the contract was liable to be completed as per the work order) till the actual completion of the contract on 07/02/1992. It is stated that it is clearly mentioned in the three extension letters, dated 21/08/1990, 13-14/11/1991 and 03/03/1992 that the extensions were granted on the condition that the escalation towards increase in price of steel, minimum wages of labour, etc. would be paid for the increase that had occurred only up to 30/07/1990 i.e. up to the original date of completion. It is stated that the Arbitrator considered the three extension letters to hold in favour of the civil contractor that there was an extension for completing the contract on three occasions and the civil contractor had proved the same. It is submitted that if the said documents could have been considered by the Arbitrator for holding that extensions were granted by the appellant-company on three occasions, it was necessary for the Arbitrator to hold that all the three extensions were granted on the aforesaid condition. It is submitted that it is clear from the three extension letters that the escalation towards increase in price of steel, minimum wages of labour, etc. could have been sought only as per the increase that had occurred up to 30/07/1990. It is submitted that the Arbitrator has grossly misconducted himself by not considering the most relevant and vital documents and the contents thereof, before passing the awards. It is submitted that some of the claims of the civil contractor have been awarded in totality, without recording any reasons, much less any cogent reasons for the same. It is submitted that the Arbitrator was not justified in granting interest at the rate of 17% per annum on the amount that was liable to be paid to the civil contractor in terms of the awards and compound interest on the amount that was liable to be paid after the awards were made. It is submitted that since the Arbitrator has misconducted himself and since the trial Court has not considered these aspects of the matter, it would be necessary to set aside the awards of the Arbitrator as also the judgment and decree of the learned trial Court. The learned counsel relied on the decisions, reported in Hindustan Zinc Ltd. Vs. Friends Coal Carbonisation, (2006) 2 ARBLR 20 : (2006) 5 CompLJ 421 : (2006) 4 JT 392 : (2007) 1 SCALE 1 : (2006) 4 SCC 445 , Union of India (UOI) Vs. V. Pundarikakshudu and Sons and Another, AIR 2003 SC 3209 : (2003) 3 ARBLR 168 : (2003) 1 JT 175 Supp : (2003) 7 SCALE 323 : (2003) 8 SCC 168 : (2003) 47 SCL 809 : (2003) 3 SCR 506 Supp and The Municipal Corporation of Greater Bombay Vs. Thermal Engineering Corporation, Bombay and others, (1997) 1 BomCR 353 : (1997) 1 MhLj 700 to substantiate his submissions.

Shri D.V. Chauhan, the learned counsel for the respondent-civil contractor, submitted that with the limited powers and scope under Section 30 of the Arbitration Act, this Court would not be entitled to set aside the awards of the Arbitrator. It is submitted that in respect of the claim for damages on the count of delayed supply of electricity, the appellant-company has not pleaded that the claim on account of delayed supply of electricity could not have been made in view of Condition No. 5 of the work order. It is submitted that in the absence of any plea in this regard, the Arbitrator rightly did not consider Condition No. 5 of the work order. It is submitted that after the work order was issued, the appellant-company could not have relied on the offer letter of the civil contractor, dated 28/01/1988, by which the civil contractor had sought to charge a sum of Rs. 250/- per tonne, if power was not made available and the same was procured by the civil contractor. It is stated that in view of Condition No. 5 of the work order that the appellant-company was required to provide the electric supply to the civil contractor, the appellant-company could not have offered to pay the damages only at the rate of Rs. 250/- per tonne for fabrication and erection, as pleaded in the written statement. It is submitted that there was an overall delay on the part of the appellant-company and, therefore, the Arbitrator has rightly considered the delay on all counts to hold that the appellant-company was solely responsible for the delay. It is submitted that by the three extension letters, the appellant-company could not have unilaterally changed the terms of the contract in respect of the claim for escalation. It is stated that the appellant-company could not have imposed the condition that the escalation towards increase in minimum wages of labour and increase in price of steel as per JPC rates would be paid only for the increase that had occurred till 30/07/1990. It is submitted that the awards of the Arbitrator cannot be set aside merely because another view in the matter may be possible. It is submitted that there is no pleading in the written statement, attributing delay to the civil contractor and the letters addressed by the appellant-company to the civil contractor in respect of the slow progress were tendered by the appellant-company along with the counter claim and hence, the Arbitrator was not obliged to consider the same. It is submitted that once the extension was granted, the claim for escalation was permissible and this principle has been laid down by the Hon''ble Supreme Court in the judgment, reported in P.M. Paul Vs. Union of India (UOI), AIR 1989 SC 1034 : (1989) 2 ARBLR 215 : (1989) 1 JT 299 : (1989) 1 SCALE 221 : (1989) 1 SCC 368 Supp : (1989) 1 SCR 368 Supp : (1989) 1 SCR 115 : (1989) 1 UJ 399 . It is submitted that a correct finding is recorded by the Arbitrator in respect of the delay on the part of the appellant-company, and with the limited scope for interference with an award of the Arbitrator under the provisions of Section 30 of the Arbitration Act, the appeals are liable to be dismissed. The learned counsel relied on the judgments, reported in P.M. Paul Vs. Union of India (UOI), AIR 1989 SC 1034 : (1989) 2 ARBLR 215 : (1989) 1 JT 299 : (1989) 1 SCALE 221 : (1989) 1 SCC 368 Supp : (1989) 1 SCR 368 Supp : (1989) 1 SCR 115 : (1989) 1 UJ 399 , Bhagawati Oxygen Ltd. Vs. Hindustan Copper Ltd., AIR 2005 SC 2071 : (2005) 1 ARBLR 608 : (2005) 2 BC 585 : (2005) 4 JT 73 : (2005) 3 SCR 232 and Rashtriya Ispat Nigam Ltd. Vs. Dewan Chand Ram Saran, AIR 2012 SC 2829 : (2012) 2 ARBLR 171 : (2012) 191 ECR 269 : (2012) 3 RCR(Civil) 720 : (2012) 4 SCALE 588 : (2012) 5 SCC 306 : (2012) 26 STR 289 : (2012) 50 VST 443 : (2012) AIRSCW 2713 to substantiate his submission in regard to the scope of interference under Section 30 of the Arbitration Act and the scope of interference in matters where two views are possible. The learned counsel also relied on the judgment of the Hon''ble Supreme Court, reported in J.C. Budhraja Vs. Chairman, Orissa Mining Corporation Ltd. and Another, AIR 2008 SC 1363 : (2008) 1 ARBLR 238 : (2008) 1 JT 514 : (2008) 1 SCALE 597 : (2008) 2 SCC 444 : (2008) AIRSCW 800 to canvass that the rejection of the counter claim on the ground of limitation was just and proper.

On hearing the learned counsel for the parties and on a perusal of the awards of the Arbitrator and the common judgment of the trial Court as also the record and proceedings of the Arbitrator, it appears that the Arbitrator has misconducted himself by considering the documents and clauses supporting the case of the civil contractor for awarding the claim while ignoring and refusing to consider the relevant and vital documents tendered by the appellant-company to substantiate its case. The claim of the civil contractor was mainly based on the delayed supply of electricity, which was according to the civil contractor, delayed by a period of nearly one year. It would be necessary to refer to Condition No. 5 of the work order which reads thus -

Condition No. 5. "Electricity required for the work will be supplied at one convenient point near the work site from where you will have to make your own arrangements for carrying it to other places. Energy consumed will be charged at prevalent rates fixed by the department. Energy meter has to be provided by you. However, no claim shall be entertained on account of any delay in providing electric connection."

(Emphasis supplied)

Though it is clearly pleaded by the appellant-company in the written statement that Condition No. 5 is the relevant condition that bars a claim against the delayed supply of electricity and though Condition No. 5 was reproduced in the written statement and emphasis was supplied to the last part of Condition No. 5, whereby a claim in respect of delayed supply of electricity was barred, this clause has not been even looked into, by the Arbitrator while considering whether the claim of the civil contractor in respect of the delayed supply of electricity could have been entertained or not. Though this condition is reproduced by the Arbitrator in Clause 6.2.1 of the award, the same is not considered by the Arbitrator at all. The Arbitrator has merely reproduced Condition No. 5, but has not considered the last part of the same which could have dis-entitled the civil contractor from making a claim on account of delay in providing electric connection. The claim on the basis of the delay in providing electricity could not have been entertained by the Arbitrator without first deciding whether the civil contractor was entitled to make a claim in respect of the delay in supply of electricity. It is surprising that the Arbitrator considered only a part of Condition No. 5 to hold that it was obligatory on the part of the appellant-company to provide electricity to the civil contractor. The material and vital clause in the work order in respect of the claim due to delay in supply of electricity has not been considered by the Arbitrator. Also, we find that the Arbitrator has referred to the three extension letters only for the purpose of holding that the appellant-company had, by the said communications, extended the period of contract without considering that the contract was extended only on the condition that the escalation towards increase in minimum wages of labour, increase in prices of steel as per JPC rates, etc. would be paid to the civil contractor for the increase that had occurred up to 30/07/1990 i.e. the date of completion of the contract as per the work order. The contents of the extension letters which could have prohibited the civil contractor from claiming the escalation towards the aforesaid items till the final extension, were not considered by the Arbitrator at all, while granting the escalation towards increase in the aforesaid items till the last date of final extension. The condition in the extension letters should have been noted by the Arbitrator even for considering whether such a condition could have been imposed or not. We find that the most important and vital documents, which could have thrown much light on the material issues that were involved in the dispute were not looked into, by the Arbitrator. This is not a case where on the same set of documents, that are considered by the Arbitrator, a second view is possible. This is a case where the Arbitrator has grossly misconducted himself by only referring to the documents supporting the case of the civil contractor while refusing to consider or even look at the documents tendered by the appellant-company. We find that voluminous documents were tendered by the appellant-company for proving that the delay was on the part of the civil contractor and time and again the contractor was asked to accelerate the work so that the contract could be completed within a reasonable time. We find that communications, dated 15/11/1989, 03/12/1989, 02/04/1990, 30/05/1990, 05/06/1990, 06/06/1990, 17/06/1990, 09/07/1990, 13/07/1990, 02/08/1990, 20/10/1990, 09/06/1990 and 17/06/1991 are a part of the record and proceedings of the Arbitrator. By these communications, time and again the Deputy Chief Engineer (Civil) had informed the civil contractor that there was delay on the part of the contractor, for the reasons mentioned in each of the communications. Some times the contractor-claimant was asked to increase the number of gangs, some times the civil contractor was asked to complete the work of fabrication or erection as early as possible, as the said work was undertaken at a very slow pace. It appears from the communications that the civil contractor was informed about the lack of proper planning in the construction work and the slow progress due to the inadequacy of labour and the number of fabrication gangs. These documents ought to have been at least referred to, by the Arbitrator before holding that the delay was solely on the part of the appellant-company. While the Arbitrator considered some of the documents tendered by the civil contractor in support of its claim based on delay on the part of the appellant-company, none of the documents tendered by the appellant-company was even referred in the awards. We do not find any merit in the submission made on behalf of the civil contractor that these documents were not looked into because they were tendered along with the counter claim. The aforesaid submission is liable to be rejected for more reasons than one. Firstly, some other documents tendered by the appellant-company, including the three extension letters filed along with the counter claim have been considered by the Arbitrator for holding that there was an extension of contract in favour of the civil contractor and that there was delay on the part of the appellant-company. Secondly, the counter claim is not dismissed only on the ground of limitation, but is also dismissed on merits. A finding is recorded by the Arbitrator in clause 8.1 of the award, that for the reasons discussed in the earlier part of the award, the entire delay in performance of the contract was attributable to the appellant-company and not to the civil contractor and hence, the counter claim for damages, by the appellant-company, is not tenable. If the counter claim of the appellant-company is rejected on merits, it was all the more necessary for the Arbitrator to have considered the documents tendered along with the counter claim. We have said that earlier and we reiterate on a perusal of the record and proceedings that the Arbitrator has considered only the documents that supported the case of the civil contractor and had refused to consider the documents that supported the case of the appellant-company. We also find that Clause No. 6 of the work order has not been look into, by the Arbitrator while granting the claim in respect of escalation for cast iron though Clause No. 6 provides that no claim for price adjustment or escalation could be granted except for labour, steel material, royalty and aluminium sheets.

The finding of the Arbitrator giving a break up of the delay as 12 months for non supply of electric connection, 4-5 months due to delayed payments of R.A. bills and one and half months due to short supply of cement appears to be perverse. Also, the finding of the Arbitrator in respect of the delay in making payment of each running bill suffers from an error on the face of it. As per the condition in the work order, the R.A. bills were required to be paid to the civil contractor within one month. The Arbitrator has held that in respect of first R.A. bill the delay is 20 days, second R.A. bill was delayed by 10 days, fifth R.A. bill was delayed by 8 days, sixth R.A. bill was delayed by 20 days and so on.

By way of example, the date of submission of some of the R.A. bills and the date of receiving the cheque by the civil contractor are stated as under :-

Though there is no delay whatsoever while making payment in respect of any of the aforesaid R.A. bills, except a delay of 10 days in making payment of 11th R.A. bill, the Arbitrator has committed an apparent error in holding in para 6.3.4 of the award that there was delay in payment of R.A. bills as per the figures, shown in the brackets - 1st R.A. bill (20 days), 2nd R.A. bill (10 days), 5th R.A. bill (8 days), 6th R.A. bill (20 days), 7th R.A. bill (7 days), 8th R.A. bill (29 days), 9th R.A. bill (32 days), 10th R.A. bill (18 days), 11th R.A. bill (26 days), 12th R.A. bill (12 days) etc. It is apparent from the aforestated dates of submission of bills and the receipt of cheques, that almost every bill was paid within a period of one month, as provided in the work order. The above referred delay as shown in the brackets is imaginary and there is an error apparent on the face of it, in the said finding. In the circumstances of the case, it is necessary to hold that the Arbitrator has misconducted himself, in the proceedings. The judgments relied on by the counsel for the civil contractor cannot be applied to the facts of this case.

Though the Arbitrator has misconducted himself, the entire awards cannot be set aside. Claim in the final bill, to the extent of Rs. 2,35,894.52 paise in respect of the contract for construction of stores and to the extent of Rs. 1,45,057.51 paise in respect of construction of machine shop was admitted by the appellant-company. There was no dispute to the aforesaid extent. The Arbitrator was not required to arbitrate on the admitted claim. Hence, though the Arbitrator has misconducted himself, the award to the aforesaid, admitted extent needs to be confirmed. A part of the award that is valid and separate could be upheld. It would be worthwhile to refer to the judgment of the Hon''ble Supreme Court reported in J.C. Budhraja Vs. Chairman, Orissa Mining Corporation Ltd. and Another, AIR 2008 SC 1363 : (2008) 1 ARBLR 238 : (2008) 1 JT 514 : (2008) 1 SCALE 597 : (2008) 2 SCC 444 : (2008) AIRSCW 800 in this regard. Only the amounts awarded by the Arbitrator against the admitted claims could be considered as award validly made in arbitration.

Hence, for the reasons aforesaid, the first appeals are partly allowed. The common judgment of the trial Court and the awards of the Arbitrator, dated 06/09/1995 are hereby modified. The awards and the judgment and decree in respect of the admitted claim for the stores to the extent of Rs. 2,35,894.52 paise and Rs. 1,45,057.51 paise in respect of the machine shop with interest at the rate of 17% per annum are confirmed. The Awards and the decree in respect of the rest of the claims are set aside. The appellant-company is permitted to encash the bank guarantee furnished by the civil contractor in pursuance of the interim order passed in the appeals. Since the civil contractor has received the amount with interest at the rate of 17% per annum, the civil contractor is directed to refund the amount to the appellant-company with 17% interest from the date of receipt of the amount till the date of repayment. In the circumstances of the case, there would be no order as to costs.

At this stage, the learned counsel for the respondent-civil contractor seeks a stay to the encashment of the bank guarantee for a period of six weeks. In the circumstances of the case, we reject the prayer made by the counsel for the respondent-civil contractor.

Order accordingly.