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IRCON International Ltd. v/s M/s. Meumal Athwani

Company & Directors' Information:- IRCON INTERNATIONAL LIMITED [Active] CIN = U45203DL1976GOI008171

    A.P. No. 141 of 2006

    Decided On, 26 June 2020

    At, High Court of Judicature at Calcutta


    For the Petitioner: L.K. Chatterjee, K. Ghosh, R. Ghosh, Advocates. For the Respondent: Partha Sarathi Bose, Sr. Advocate, Madhusudhan Saha Roy, Debasish Sutradhar, Rivu Dutta, Advocates.

Judgment Text

1. This is an application under section 34 of The Arbitration and Conciliation Act, 1996, for setting aside of an Award dated 31st December, 2005 of a learned Sole Arbitrator whereby several of the claims of the respondent herein were allowed. The Arbitrator was appointed by an order dated 15th May, 1998 and the arbitration spanned over 214 sittings culminating in the impugned Award of December 2005. By the impugned Award, the petitioner, a Government of India enterprise, was made liable for the sums claimed by the respondent and all the three counter-claims of the petitioner were rejected.

2. The disputes between the parties arose from a contract between the parties for construction of a steel Hangar inside the Dum Dum airport at Calcutta which was to be completed within 12 months from the date of the letter of acceptance dated 23rd March 1993. The contract was for a sum of Rs. 1,63,98,300/- which according to the petitioner, included the cost for fabrication as well as transporting the materials to the site. The respondent (claimant in the arbitration) filed a Statement of Claim for 18 claims under various heads including a claim for interest together with cost of arbitration out of which 14 claims were allowed, a few in part. The disputes, in a nutshell, constituted the respondent claiming escalation and other costs for the work done beyond the contractual period which according to the respondent was caused on account of the petitioner's failure to supply necessary documents and failing to ensure that the site was made ready for the specific work. The petitioner on the other hand, attributed the delay to the respondent with the additional point that payment for the work done by the respondent was made in accordance with the measurement book maintained by the petitioner and that the additional payment demanded by the respondent was without any basis.

3. The award with regard to Claims 1,2,3,4,7,13,14 and 16 amounting to Rs. 10,17,989.15/- have not been challenged and the petitioner has already paid Rs. 26,42,970/- including interest to the respondent on account of those claims in terms of an order dated 17th March, 2010. The relevant part of the said order is set out below:

"At the outset Mr. L.K.Chatterjee, learned Advocate appearing on behalf of the petitioner submits that the petitioner is not challenging the award which was made and published on December 31, 2005 in respect of the amount awarded corresponding to Claim Nos.1,2,3,4,7,13,14 and 16. The amount awarded on these claims according to Mr.Chatterjee aggregates to Rs.10,17,989.51 ( Rupees Ten lacs seventeen thousand nine hundred eighty nine and fifty one paise only). The interest element on the aforesaid principal amount from November 27, 1996 till January 31, 2010 2 admittedly comes to Rs.16,09,780.72 ( Rupees Sixteen lacs nine thousand seven hundred eighty and seventy two paise only). Mr.Chatterjee upon instruction submits that his client is ready and willing to pay an aggregate amount of Rs.26,27,770.23(Rupees Twenty six lacs twenty seven thousand seven hundred seventy and twenty three paise only) in full and final settlement in respect of these claims only and that neither of the parties should have any claim or counter claim challenging the award in respect of Claim Nos.1,2,3,4,7,13,14 and 16 along with the accrued interest thereon.

................................................... The contesting parties are on agreement that the petitioner would pay a sum of Rs.26,42,970.34(Rupees Twenty six lacs forty two thousand nine hundred seventy and thirty four paise only ) after making requisite statutory deduction under the Income 3 Tax Act within March 22, 2010 to the respondent.


After making of such payment by the petitioner in favour of M/s. Meumal Athwani and after the respondent receives such payment, both parties will be precluded from challenging the award in respect of the Claim Nos.1,2,3,4,7,13,14 and 16 both on account of principal and/or on account of interest.


4. The petitioner now challenges the Award with reference tothe following Claims:

5-Cost of development of fabrication area and ancillary facilities which was required to be done due to non-availability of fabrication yard at sight. 6-Cost of transporting steel and structural materials to the actual site allotted by the petitioner for fabrication 8- Additional expenses for implementation of complex structures as per the revised designs/drawings made over by the petitioner during execution of the work 11- Escalation costs for extension of the term of the contract beyond 12 months on account of the delay and laches on the part of the petitioner 12- Cost of additional work done by the respondent/claimant beyond the contractual period of 12 months and recovery of enhanced wages for labour, material and fuel costs 18- pendente lite and future interest on the awarded amount at 18.5% per annum.

5. Mr. L.K. Chatterjee, learned Senior Counsel appearing for the petitioner (respondent in the arbitration) submits that Clause 14 of the Special Provisions specifically provides for a 'No Escalation' clause and Clauses 26.1, 26.2 and 26.3 of the Special Provisions entered into between the parties which provides that the rates will remain fixed during the contract and the rates for items of work not included in the Schedule of rates and which the contractor (respondent) may be called upon to do may be part of a separate written agreement in the absence of which the petitioner may appoint another agency and the contractor shall have no claims on this account. Counsel further submits that the contractual period was initially extended up to 31st December, 1994 and the work was finally completed on 30th April, 1995 with the condition that the respondent contractor would not get any cost on account of escalation which would be evident from the petitioner's letters dated 21st November, 1994 and 22nd September, 1995. It is also submitted that according to the measurement book, the total work done by the respondent up to 30th April, 1995 was for Rs. 1,45,38,158/- which was paid by the petitioner. Hence the claim of the respondent that Rs. 3,50,584.50/- being due to the respondent was without basis and would also appear from the petitioner's letter dated 26th April, 1996.

6. Counsel contends that the Award in connection with Claims 5, 6 and 8 suffer from lack of evidence in support of the arbitrator's decision to allow the said claims which renders the Award perverse. An unreported judgment in Union of India vs Tapan Kumar Roy (A.P. No. 293 of 2010) is relied on in this context. Counsel assails the award in respect of Claim no.11 as being perverse since the Arbitrator failed to consider relevant documents namely the letters exchanged between the parties including the petitioner's letters of 21.11.1994 and 22.9.1995. Counsel relies on New India Civil Erectors (P) Ltd. vs ONGC reported in AIR 1997 SC 980 and Union of India vs Varindera Constructions Limited reported in (2018) 7 SCC 794. With regard to Claim no. 12, counsel submits that the respondent was not entitled to any compensation and places Clause 47 of the General Conditions of Contract (GCC) which deals with extension of time for completing the work. Hence, the award is against the specific terms of the contract. With reference to Claim no.18, it is submitted that Clause 64.5 of the Agreement prohibits payment of interest and Union of India vs Bright Power Projects (India) Private Limited (2015) 9 SCC 695 and Chittaranjan Maity vs Union of India (2017) 9 SCC 611 is relied upon. Counsel also places reliance on Associate Builders vs Delhi Development Authority (2015) 3 SCC 49 on the point of the impugned Award being contrary to justice and morality.

7. Mr. P.S. Bose, learned Senior Counsel appearing for the respondent/claimant seeks to sustain the Award by relying on the evidence considered by the Arbitrator particularly Exhibit C/156 / Exhibit K and the admissions on record of the petitioner including a letter dated 31.12.1994 which were taken into account in passing the impugned Award. Counsel submits that the Award is detailed and contains plausible reasons which a court sitting in a section 34 jurisdiction should not substitute or displace. On facts, it is submitted that the petitioner was not only responsible for the delay but also caused obstruction with access to the project site which led to the respondent extending the contractual term and in turn being entitled to compensation for the loss. It is also submitted that Clause 64.5 of the GCC does not contain an absolute bar to granting interest. On the point of the Arbitrator being the master on facts, counsel cites Associate Builders, MMTC vs Vedanta Ltd (2019) 2 CHN (SC) 129, Parsa Kente Collieries Limited vs Rajasthan Rajya Vidyut Utpadan Nigam Limited AIR 2019 SC 2908, Sutlej Construction Limited vs Union Territory of Chandigarh (2018) 1 SCC 718, National Highways Authority of India vs ITD Cementation India Ltd (2015) 14 SCC 21, National Highways Authority of India vs JSC Centrodorstroy (2016) 12 SCC 592, Navodaya Mass Entertainment Limited vs J.M.Combines (2015) 5 SCC 698, Madhya Pradesh Power Generation Co. Ltd. vs Ansaldo Energia Spa (2018) 16 SCC 661 and State of Jharkhand vs HSS Integrated SDN (2019) 6 WBLR (SC) 251. Counsel relies on State of West Bengal vs Pam Development (2017) 4 Cal LT 366 on the point of belated performance and on J.G. Engineers Private Limited vs Union of India (2011) 5 SCC 758 on excepted matters. Counsel submits that the grant of pendente lite and post-award interest is as per section 31(7) of the 1996 Act and that the respondent was entitled to interest on account of the laches on the part of the petitioner. Reliance is placed on Shahi and Associates vs State of U.P. (2019) 8 SCC 329 which reiterated the power of an arbitral tribunal to award pendente lite and post-award interest.

8. I have heard learned counsel appearing for the parties and considered the submissions. Before assessing the legality of the award under section 34 of the Act, the brief statement of how the claims were decided in the impugned Award is necessary. It should be mentioned that an order by a Learned Judge of this Court on 17th March 2010 records that the petitioner was not challenging the impugned Award in respect of Claims 1,2,3,4,7,13,14 and 16 and that the petitioner is ready to pay Rs. 26,42,970.34/- in full and final settlement in respect to these claims. The order records that the amount indicated the total value of the Claims along with the accrued interest from 27.11.1996 to 31.1.2010.

9. With regard to Claim no.5 which was for cost of development of fabrication area and ancillary facilities which were required to be done by the respondent, the arbitrator awarded Rs. 70,000 to the respondent out of a total claim of Rs 1,30,636/-. The respondent/claimant's argument was that while the contract stipulated that the respondent was to perform certain activities only at site i.e. at the anchor site but at the time of execution of the work, the site was occupied by some other civil contractor by reason of which the respondent was directed to do the fabrication work at a different location which was at a considerable distance from the site and which was not known to the respondent at the time of submission of the offer. The respondent also relied on documents signed by the engineer-in-charge of the petitioner which recorded admission of the claim. Oral evidence was also led by the respondent to corroborate the facts supporting the claim. The petitioner on the other hand argued that it was the respondent's responsibility to inspect the site and also referred to Clause 4 and 8.1 of the GCC with regard to liability of the respondent in this connection. With regard to exhibit C/156 signed by the engineer-in-charge of the petitioner, the petitioner's case was that the engineer-in-charge was not a competent person to take a decision on the matter besides the contention of the claim falling within excepted matters. Upon considering the submissions of the parties, the arbitrator accepted a factual position put forward by the respondent that the site fabrication yard was given at a different place and having regard to the clauses of the contract, the respondent/claimant was only liable for costs with regard to the site of work agreed upon by the respondent and not if the site was at a different location. The arbitrator accordingly awarded part of the claim of the respondent, i.e., a sum of Rs. 70,000/-.

10. With regard to claim No. 6 of Rs.15,69,726.75/- for transportation of materials to the new fabrication site which was allotted by the petitioner to the respondent and as a result of which the respondent had to incur huge expenses, the respondent's contention was that the considerable distance between the original site which had been agreed upon and the new site necessitated the respondent carrying all structural materials to the new site and that clause 2.1.3 of the special provisions was only restricted to the original site which had been agreed upon and did not take into account the additional handling and transportation charges for the new site. The respondent also relied on Exhibit K (C/156) with regard to the factual correctness of the respondent's contentions. The arbitrator was of the view that the claim neither comes within the ambit of excepted matters nor is barred by limitation and more importantly, the additional expenses incurred by the respondent were deemed to be included outside the contract since the original site was changed, hence the respondent was accordingly awarded part of the claim for a sum of Rs. 7,50,000/-.

11. Claim No.8 was towards additional costs incurred by the respondent towards fabrication involving complex designs which was a departure from the original contract involving simple structures. The respondent's contention was that since the offer submitted by the respondent and the consideration for such was changed by the petitioner in altering the nature of the designs which the respondent was expected to execute, the respondent was entitled to payment of extra expenses for executing fabrication and erection work. The petitioner on the other hand relied upon clauses 26.1 and 26.2 under which the respondent would provide and maintain items of work which were required at no extra cost and contended therefore that this claim falls beyond the terms of the contract. The arbitrator was of the view that the nature of the structure which the respondent was finally directed to execute was not within the knowledge of the respondent during submission of the offer and therefore the rate applicable for fabrication and erection for normal structure as per the tender underwent a radical change in view of the change in design which was not part of the normal revision drawings. Hence the respondent was entitled to extra expenses for fabrication. The arbitrator was also of the view that no extra expenses on account of erection had been incurred by the respondent. The respondent was therefore only awarded additional expenses for fabrication and not for erection. The respondent was awarded a sum of Rs 4,94,593/-out of a total claim of Rs.7,36,484.50/-.

12. With reference to claim number 11 and the present case, the original term was extended beyond the stipulated period on account of the laches on the part of the petitioner and the respondent relied on the first extension which was granted upto 31.12.1994 without imposing any penalty which indicated that the petitioner had accepted that the respondent was not accountable for the delay. The respondent also relied on introduction of additional scope of work, delay in approval of certain items of work, labour agitation at site etc. because of which the respondent could not complete the work within the extended period of time and had to ask for another extension up to 30.4.1995. The respondent relied on several documents to show that the petitioner put several hurdles in the path of the respondent which prevented the latter from completing the work even within the first extended period of time up to 31.12.1994 and a letter of 20.11.1992 by which the respondent agreed to claim price escalation one year after issue of the letter of acceptance. The petitioner's case was that escalation cost is not payable to the respondent particularly for the period beyond 31.12.1994 also because of the fact that the work done was defective and the respondent therefore lost its right to recover any amount for escalation. On considering the arguments of the parties, the arbitrator held that denial of escalation cost to the respondent was not acceptable and that the respondent is entitled to recover escalation as the said claim is not covered under excepted matters and that conditions imposed after completion of work was beyond the terms of the agreement which cannot amount to a waiver in recovering payment for the work done by the respondent. The respondent was accordingly awarded Rs. 15,68,227.15/-on account of this claim.

13. With reference to Claim No. 12 which was for compensation on account of on-site and off-site overhead and establishment charges due to the directory tactics on the part of the petitioner, the respondent's case was that because of the delay over and above the contract period, for about 13 months, the respondent had to bear additional charges and incurred additional work. The respondent led oral evidence to corroborate this point namely for recovery of enhanced rate of wages of workers, materials and fuel. The respondent also produced detailed statements contained in books of accounts which was approved through its witness. The petitioner refused such allegations on the ground of lack of evidence and under clause 56.3 of the contract which covered excepted matters. The arbitrator held that after considering all the materials including the exhibits, out of the total delay of 13 months, 9 months was on account of laches of the petitioner which amounted to breach of the agreement as a consequence of which the respondent was entitled to compensation for on-site and off-site overhead expenses for nine months. The arbitrator was also the view that the claim was not barred under excepted matters nor by the laws of limitation and the respondent was therefore entitled to a sum of Rs. 4,50,000 in place of Rs. 7,50,000.

14. On Claim No. 18 related to interest, the respondent prayed for pendente lite and future interest on the award amount at the rate of 18% per annum. According to the respondent, Clause 64(5) of the GCC had no manner of application in connection with this claim and relies on section 21 of the 1996 Act in contending that the date on which the arbitration was invoked would be the date of commencement of proceeding which is to be taken as the date of commencement of pendent lite interest, i.e. from 27th November, 1996 to the date of signing of the award and that future interest would commence from the date of signing of the award that is 31 December, 2005 until the date of realisation of the said amount. On the other hand, it was the petitioner's position that by reason of clause 64(5), pendente lite interest cannot be awarded and further that the rate of 18% per annum should be reduced to a reasonable figure. Upon considering the submissions of the parties, the arbitrator held that the respondent is entitled to pendente lite interest on the total awarded amount at 12% per annum from 27 November, 1996 till the date of award that is 31st December, 2005 and future interest on the awarded amount at 12% per annum until the date of realisation.

15. The next point is whether the Award impugned in this proceeding is liable to challenge on any of the grounds available under section 34 of the Act. In order to embark on that enquiry, the reasons given by the arbitrator for allowing the claims which are the subject matter of challenge should be seen. Since the Learned Arbitrator has considered the individual claims and given reasons for the award of the specific amount in relation to that particular claim, the reasons given in support of the particular claim must be seen in isolation instead of considering the award in totality.

16. In a nutshell, the Arbitrator has given reasons for the awards in relation to Claims 5, 6, 8, 11 and 12, even if the reasons fall short of elaboration. For Claim 18 (for interest) however, no reason has been given for awarding pendente lite interest to the respondent at 12 % (instead of the 18 % claimed) per annum from 27.11.1996 to the date of the Award and future interest at 12% till the date of realisation. The requirement of intelligible and adequate reasons has been settled in numerous decisions of the Supreme Court and this Court has also found that the mandate under section 31(3) of the 1996 Act for providing reasons is a mandatory obligation unless the parties decide otherwise. Although several decisions have underscored the importance of reasons other than the customary reference to pleadings, evidence etc., as held in State of West Bengal vs Bharat Vanijya Eastern Private Limited (2019 SCC Online Cal 3605); as long as there is a logical link between the manner in which the facts are recorded and the decision on such facts, reasons can be implied even in the absence of a full explanation/elaboration of the reasons given (refer Dyna Technologies vs Crompton Greaves Ltd. 2019 SCC OnLine SC 1656). In the present case, apart from Claim 18 which suffers from a total absence of reasons, the other Claims refer to the relevant facts and the clauses in the contract/GCC preceding the Arbitrator's views on the particular Claim. Whether the Arbitrator failed to consider the entries in the Measurement Book for Claim nos. 5, 6 and 8 to assess the quantum of the work done by the respondent is not a question which a court in a section 34 jurisdiction should engage in bearing in mind the embargo contained in the proviso to section 34 (2-A) which is set out below:

34. (2-A) An arbitral award arising out of arbitrations other than international commercial arbitrations, may also be set aside by the Court, if the Court finds that the award is vitiated by patent illegality appearing on the face of the award:

Provided that an award shall not be set aside merely on the ground of an erroneous application of the law or by reappreciation of evidence.

Similarly, after the Arbitrator has come to a finding as to who was responsible for extending the contractual time-limit, this Court can scarce revisit the issue unless the finding is hopelessly contrary to the evidence. It is well-settled by now that an arbitrator is the last word on facts including the quantity and quality of evidence (ref: Associate Builders, Parsa Kente Collieries); unless the appreciation of the facts or the conclusions drawn therefrom defies logic or is such that no reasonable person would arrive at, an Award should be allowed to rest in peace, irrespective of the temptation to create benchmarks of sufficiency in the appreciation of evidence.

17. It must be mentioned that the impugned Award is of considerable length and a substantial part comprises of the submissions made by the parties which have been recorded in great detail. The reasoning portion, on the other hand, does not measure up to the length or details in which the submissions have been recorded, at least in terms of particulars. The arbitrator has proceeded to award certain amounts on being convinced of the arguments made on behalf of the respondent and appeared to be inclined to award a claim or a part thereof.

18. Continental Construction v State of Madhya Pradesh AIR 1988 SC 1166 relied on by the petitioner was a case where the contractor/appellant had claimed rates which were at variance with the contractual stipulation which the Supreme Court found to be inequitable and expressed its mind on the right of a contracting party to resile from the performance of a contract. The facts therefore were wholly different in that case. Varindera Constructions was concerned with a contractor claiming an increased rate of minimum wages during the subsistence of the contract by reason of a subsequent Notification issued by the State of Haryana, which the Supreme Court held to be inconsistent with the contractual terms. On the other hand, paragraph 33 of Associate Builders exhorting courts not to set the benchmark for assessment of evidence to that of a trained legal mind is a reference point together with "Once it is found that the arbitrators approach is not arbitrary or capricious, then he is the last word on facts." In the present case, it cannot be said that the views of the Arbitrator fall foul of either of the categories mentioned in Associate Builders. The same leeway in the matter of an arbitrator's construction of the terms of a contract has been sounded in Parsa Kente Collieries, JSC Centrodorstroy, ITD Cementation on the note of caution against a court sitting in a section 34 jurisdiction acting as a court of appeal followed by MMTC vs Vedanta, Sutlej Construction and Navodaya Mass Entertainment in the same vein. The Division Bench judgment of this Court in Union of India vs Industrial Laminated (India) Pvt Ltd 2017 SCC OnLine Cal 169 reiterates the test as to whether the award is so unreasonable that no prudent person when presented with the facts and the applicable law could have rendered such an award. As to 'excepted matters', the decision of the Supreme Court in J.G.Engineers has put the decision on such matters within the exclusive domain of the arbitrator besides raising a more fundamental question as to the unilateral and iniquitous nature of such clauses.

19. On the point of interest, the petitioner has based its case on Sri Chittaranjan Maity of the Supreme Court where a two member Bench disagreed with the applicability of an earlier decision of a 3-member Bench in Ambica Construction vs Union of India AIR 2017 SC 2586 on an identical contention raised by the contractor that pendente lite interest awarded by the Arbitrator would not be ousted by a clause in the contract prohibiting the same. In Ambica Construction, the Supreme Court relying upon a Constitution Bench judgment in Irrigation Department, State of Orissa v G.C.Roy (1992) 1 SCC 508 held that a bar to award interest on the amounts payable under the contract would not

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be sufficient to deny payment of pendente lite interest. Incidentally, both Chittaranjan Maity as well as Ambica Construction went to the Supreme Court from Division Bench judgments of this Court. Counsel appearing for the parties have joined issue on whether Chittaranjan Maity can be cited at all since it disagreed with a larger Bench on the same issue. G.L.Batra vs State of Haryana (2014) 13 SCC 759 and Sundeep Kumar Bafna vs State of Maharashtra (2014) 16 SCC 623 have been cited for the Rule of per Incuriam and certainty of law. Bright Power Projects reinforces the importance of the parties agreeing to awarding of interest under section 31(7)(a) of the 1996 Act while State of West Bengal vs Pam Developments (2017) 4 Cal LT 366 found nothing wrong with the award of interest by the arbitrator. The decision of this Court in Union of India vs Tapan Kumar Roy will have to be seen in the context of a later decision in B.B.R Construction Company vs Union of India (2020 SCC OnLine Cal 566) where this Court held that Clause 64(5) of the GCC would not apply to post-award interest. The language of Clause 64(5) itself indicates that any bar which may operate against payment of interest would only be in place till the date on which the Award is made. It is made clear however that although this Court is in agreement with the law laid down in Ambica Construction and that Clause 64(5) cannot curb the arbitrator's power to grant interest post-award, the total absence of reasons either by way of the adjudication or the quantum of interest awarded in respect of Claim 18 cannot be accepted or upheld. 20. With regard to the Cost of Arbitration awarded at Rs. 11,77,000/-, which the petitioner has also challenged, this Court does not see any reason for interfering with the same as the Award specifically records that both parties had agreed to the discretion of the Arbitrator in this regard. Besides, the costs awarded have been specifically itemised including fees paid to the Arbitrator and her staff per sitting, the number of days etc. The costs part is therefore upheld. 21. In light of the above reasons, the impugned Award to the extent of Claim Nos. 5, 6, 8, 11 and 12 is upheld and the Award in relation to Claim no. 18 is set aside. 22. With reference to the order dated 17th March, 2010 which has been mentioned above, it should be noted that there is no subsequent order which records that the petitioner has made over the amount agreed to be given to the respondent. Notwithstanding this Judgment, the respondent should ensure that the petitioner complies with the directions as recorded in the order dated 17th March, 2010, in the event the petitioner has not paid the amount to the respondent. 23. A.P. No. 141 of 2006 is disposed of in terms of the above. Urgent Photostat certified copy of this Judgment, if applied for, be supplied to the parties upon compliance of all requisite formalities.