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M/s. Karismaa Foundations Pvt. Ltd., Rep. by its Director, C. Rajesh v/s M/s. Olympia Tech Park (Chennai) Pvt. Ltd., (Respondent is substituted in place of M/s. Olympia Infratech Pvt. Ltd. M/s. Opaline Hotels Pvt. Ltd. based on the memo filed)

    OSA Nos. 102, 2 & 3 of 2021 & CMP Nos. 4837, 81 & 75 of 2021

    Decided On, 23 September 2021

    At, High Court of Judicature at Madras

    By, THE HONOURABLE CHIEF JUSTICE MR. SANJIB BANERJEE & THE HONOURABLE MR. JUSTICE P.D. AUDIKESAVALU

    For the Appellant: Nithyaesh Natraj, Advocate. For the Respondent: AR.L. Sundaresan, Senior Counsel, C.T. Murugappan, Advocate.



Judgment Text

(Prayer: Appeals filed Order XXXVI Rule 11 of O.S. Rules read with Section 37 of the Arbitration and Conciliation Act, 1996, against the common order of this Court dated 08.05.2020 passed in O.P.Nos.435 and 633 of 2019 on the file of original side of this court.)

Common Judgment:

Sanjib Banerjee, CJ.

The dispute falls within a very limited ambit. Both parties to the arbitral reference have carried appeals from the rejection or partial rejection of their petitions under Section 34 of the Arbitration and Conciliation Act, 1996.

2. There were several agreements between the parties, seven work orders in all, for the construction of several lots of villas. The appellant in OSA Nos.2 and 3 of 2021 is the owner and the appellant in OSA No.102 of 2021 is the contractor. Under a common order passed in respect of the arbitration clauses contained in the seven work orders, a sole Arbitrator was appointed by the Chief Justice's Designate on April 29, 2018. Despite such order and it being apparent that there would be a single reference in respect of the entirety of the work, the owner continued to initially contend before the Arbitrator that the several work orders had to be treated distinctly. An objection on such count has been carried even up to this stage. Indeed, the owner filed a limited counter-claim at the initial stage before filing the further counter-claim in 2018, which has prompted a minor point to be taken by the contractor on the ground of limitation. But there is no merit in the owner's suggestion that the claims under the seven perceived independent work orders had to be dealt with distinctly nor in the contractor's objection on the ground of limitation.

3. The Arbitrator, in course of rendering the award of April 8, 2019, held that the reference had always been taken up pertaining to the entirety of the work, notwithstanding the initial murmurs to the contrary on the part of the owner. The Arbitrator also noticed that a combined counter-claim was fashioned by the owner towards the end of the reference where all the heads of counter-claim were clubbed. As to the ground of limitation taken by the contractor, there does not appear to be any discussion in the award. However, it is evident that the owner called upon the contractor to agree to refer the balance claims of the owner pertaining to some of the work orders by a writing which the contractor received in or about March, 2018. Upon the contractor’s failure to act in terms of the request, the owner applied under Section 11(6) of the said Act and obtained an ex parte order, which was subsequently recalled and the owner was permitted to carry a counter-claim to the continuing arbitral reference. It was in such circumstances that the counter-claim came to be filed late in 2018.

4. Thus, for the purpose of assessing whether the additional counter-claim which was carried by the owner to the reference in 2018 was barred by limitation, it is necessary to see whether there was a live claim possible as on the date of the receipt of request for the reference in or about March, 2018 since such is the date which is relevant under Section 21 of the Act and the clock of limitation stops upon the request being received. It is evident from the correspondence exchanged between the parties that at least in respect of one head of claim, pertaining to defects being rectified, there were acknowledgments in writing on behalf of the contractor executed on or about June 13, 2015. Since the request for the reminder of the disputes to be carried to arbitration was received by the contractor within three years of such date of June 13, 2015, it is evident that no part of the counter-claim carried by the owner to the reference was barred by limitation.

5. As to the merits of the matter, it is evident that the contractor, as the claimant in the reference, made a total claim of Rs.2,39,97,236/- comprising a claim in excess of Rs.95 lakh on account of retention money; another Rs.7.40 lakh on account of non-conformity report; a third head of Rs.1.40 lakh on account of penalty; a further amount in excess of Rs.55 lakh for cement coefficient and an ex-gratia amount in excess of Rs.45 lakh apart from the two amounts on account of final bills for sums in excess of Rs.25 lakh and Rs.7.65 lakh. The counter-claim was in respect of two heads: penalty at the rate of 2.5 per cent of the value of the work for the period of delay amounting to Rs.79,20,738/-; and, defective work which required to be attended to by a third party for rectification for a sum of Rs.63,72,000/-.

6. The Arbitrator awarded a net amount of Rs.1,18,56,028/- in favour of the contractor after allowing both heads for which counter-claim had been filed by the owner, albeit a reduced amount on account of penalty for the delayed completion of the work. The award also provided for interest at 12 per cent per annum on the principal sum awarded with pendente lite interest and interest at the same rate on the total amount with effect from April 1, 2019.

7. Both parties were aggrieved by the award. The contractor was dissatisfied that the counter-claim had been allowed. The principal complaints of the employer were in respect of the amounts awarded under the heads of non-conformity, ex-gratia and cement coefficient. By the common judgment and order dated May 8, 2020, the arbitration court set aside the award of the sum claimed by the owner on account of defect rectification on the ground that there was no proof of the amount and no evidence on the basis of which the sum was claimed or awarded.

8. In course of the hearing at this appellate stage, the owner refers to the arbitral award and the recognition therein that the claim on account of defective work had been admitted by the contractor through an employee by the name of Jaganathan. It is evident from the award that though the contractor had claimed that the documents in support of the claim on account of defective work were forged and fabricated, such documents carried the signature of Jaganathan. Despite Jaganathan being the contractor's employee, he was not called upon to disown his apparent signature or discredit the three documents. Thus, there was sufficient basis indicated in such regard to award the amount on account of defect rectification. The court of the first instance was clearly mistaken in perceiving Jaganathan to be the owner's employee.

9. As for the sums awarded in favour of the contractor, the owner limits the challenge to the three heads of the non-conformity report, the ex-gratia amount and the cement coefficient.

10. In the award, the Arbitrator alludes to a document marked as Ex.C9 in the reference to indicate that the ex-gratia amount had been agreed to be paid. The documents pertaining to the claim on account of ex-gratia reveal a promise made by the owner to the contractor to release the additional amount and, to such extent, the claim can be seen to have been admitted. However, the owner suggests that the amount was payable subject to the project being completed within time and since the Arbitrator ultimately held that there was a delay in the completion of the project for which the Arbitrator awarded a sum in excess of Rs.53 lakh in favour of the owner and such part of the award has not been interfered with by the arbitration court, there was no question of the contractor being entitled to the ex-gratia payment. However, it is apparent that the overall rate was enhanced and that was referred to as “ex-gratia” in the relevant correspondence between the parties.

11. As for the non-conformity report, the Arbitrator indicated some reasons in support of the rather meagre amount of Rs.7.40 lakh.

12. As to the payment claimed on account of cement coefficient, there is a document exhibited and described as Ex.C24 in the award which, according to the Arbitrator, amounted to an admission of the relevant head of claim. At the highest, the document can be seen to be an admission that a claim could be made by the contractor against the owner on account of cement coefficient, but the relevant document does not indicate any figure for the Arbitrator to arrive at the conclusion that the contractor was entitled to a sum of Rs.55,29,397/- on such account.

13. It is elementary that in respect of claims in engineering contracts or works contracts, the head of claim has first to be justified before the quantum is assessed and a figure arrived at. Merely because the head of claim is admitted, it would not justify the making of the award without ascertaining the quantum that the claimant is entitled to in respect of such head of claim. Though such aspect of the matter did not fall for scrutiny before the arbitration court, it is evident that the Arbitrator erred in treating the admission in principle to an admission on quantum and making the award for a sum in excess of Rs.55 lakh without any shred of evidence in such regard or any reason indicated in support thereof.

14. The arbitration court, of course, committed an error in regarding Jaganathan to be an employee of the owner rather than of the contractor. Upon perceiving Jaganathan to be an employee of the owner, the arbitration court concluded that the claim on account of the defect rectification had not been proved. However, the owner has referred to the relevant documents, marked as Ex.B2, Ex.B7 and Ex.B10 in the reference and all three documents carry the signature alleged to be of Jaganathan on behalf of the vendor as indicated in the documents. It is the admitted position that Jaganathan was an employee of the contractor at the relevant point of time.

15. In view of the above, the interference by the arbitration court with the amount awarded by the Arbitrator on account of defect rectification in favour of the owner cannot be sustained. At the same time, the award, to the extent of Rs.55,29,397/- in principal on account of cement coefficient can also not be accepted as there does not appear to have been any evidence in support thereof nor any reason indicated in support of the quantum in the award itself.

16. As regards the claim on account of cement coefficient, the court enquired of the parties that if the dispute in respect of the head of claim pertaining to cement coefficient could be resolved, w

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hereupon counsel appearing for the parties have accepted the court's suggestion that a principal sum of Rs.25 lakh be paid and received on such account without the matter being carried any further and given a closure at this stage. Counsel have agreed to such suggestion upon instructions for which time was afforded by the court in course of hearing. 17. Accordingly, the judgment and order dated May 8, 2020 is set aside insofar as it interdicted the award on the head of defect rectification in favour of the owner to the extent of Rs.63,72,000/-. Further, the award is modified by reducing the amount awarded on account of cement coefficient from Rs.55,29,397/- to Rs.25,00,000/-, by consent of the parties. 18. Since sufficient reasons have been indicated in the award in respect of the other heads of claim and the quantum of interest has been awarded at a reasonable rate of 12 per cent per annum, the award does not call for any further interference. OSA Nos.102, 2 and 3 of 2021 are disposed of. CMP Nos.4837, 81 and 75 of 2021 are closed. In view of the fair stand taken by the parties at this stage, no costs are awarded.
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