(Prayer: This Original Petition has been filed under section 34 of the Arbitration and Conciliation Act that the Award of the second respondent dated 20.10.2010 extent that it rejects the claim of the petition for cancellation charges and allows the counter claims of the first respondent may be set aside.)
Aggrieved over the Award of the Sole Arbitrator rejecting the major claim and allowing the counter claim, the present petition has been filed challenging the Award on various grounds.
2. Brief facts leading to filing of this petition is as follows :
The petitioner has been engaged in manufacturing and supply of elevators and escalators and maintenance thereon under the collaboration with Kone Corporation, Finland. The respondent approached the claimant for supply, erection and commissioning of 5 elevators and 7 escalators for their projects one at Poonam Mall and other at Multiplex complex at Wardhaman Nagar, Nagpur. After negotiation, two base agreements were entered into between the claimant and the respondent on 19.12.2005 one in respect of supply, erection and installation of one goods cum passenger elevator and 4 passenger elevators along with service specification and other in respect of supply, erection and installation of escalators. Subsequently, two supplemental agreements were entered into on 16.02.2006 both relating to the designing and supply of escalators with technical specifications and for installation, testing and commissioning.
3. As per the terms of the agreement, the contract price for 7 escalators was Rs.1,22,95,000/- and the price for 5 escalators was Rs.70,50,000/-. The payment schedule for the elevators is as follows :
(i) 30% of the Contract value fixed free advance along with order
(ii) 20% of the Contract value at the time of submission of the general arrangement drawing [GAD]
(iii) 40% of the contract value upon intimation that the materials are ready to despatch
(iv) 5% of the contract value upon commencement of intimation.
So far as escalators are concerned, the schedule of payment as per the supplemental agreed letter 31.12.2005 is as follows :
(i) 30% of the contract value as fixed free advance along with order
(ii) 60% of the contract value upon intimation that the materials are ready for despatch
(iii) 5% of the contract value upon commencement of the installation
(iv) 5% of the contract value upon completion of the installation.
In the event of the respondent's failure to make payment within the stipulated period, the respondent would be liable to pay interest % 24% p.a. from the day of default on the overdue amount .
In the event of cancellation of the contract by the respondent, the claimant would be charging the respondent as follows :
(a) 15% of the contract value, if the order is cancelled before the General Agreement Drawing is prepared.
(b) 25% of the Contract value, if the order is cancelled within one month after General Agreement Drawing is approved
(c) 80% of the Contract value, if the order is cancelled after two months of the approval of general agreement drawing
(d) 90% of the Contract value, if the Order is cancelled after intimation that materials are ready for despatch.
Accordingly, job orders were given for manufacture and supply of 7 escalators in their China Office on 28.03.2006 and which was confirmed by the Claimant's China office on 04.04.2006. The claimant completed installation and erection of elevators and the escalators at the multiplex complex site at Wardhaman Nagar. During the process of installation and erection of escalators and elevators, the claimant underwent lot of difficulties as the site was not made available by the respondent with the following defects :
(a) The margin home was not ready shaft's brick work on the ground floor was not completed
(b) shaft was not lasted and scaffolding was not provided
(c) entrance hall was not provided and three phase, two phase electric power supply was not provided.
With the above difficulties, the claimant completed the erection/instalation of 4 elevators and one escalator. However, the respondent has failed to pay a sum of Rs.54 lakhs towards part payment for the escalators at Poonam Mall.
4. The claimant addressed a letter dated 17.07.2006 for release of payment of Rs.54 lakhs so that the escalators kept ready at China factory warehouse can be shifted to India. Since the respondent did not make any payment, the claimant have been incurring loss in respect of those materials lying at the China factory warehouse. Apart from this, the claimant has been requesting the respondent to hand over the work site at Poonam Mall at North Ambazari road and intimate about the completion of the pre-requisite so that the work of erection and installation of other escalators can commence. Hence, as per the contract, in event of cancellation of the contract after intimation that materials are ready for despatch 90% of the contract value is payable by the respondent. Hence, the matter has been referred to the Arbitration.
5. It is the contention of the respondent that after negotiation, the parties have executed Agreement ‘A’ on 16.02.2006 for design and supply of escalators and the Agreement B for installation, designing and commissioning of escalators. So far as elevators are concerned, there is no specific agreement executed between the parties. However, the terms governing the contract with respect to the supply of elevators were governed by various promises and assurances given by the parties and the statement reflected from the various communications exchanged between the parties. The respondent did not accept the terms and conditions in toto as mentioned in the documents dated 19.12.2005. As per the agreement-A, with regard to 7 numbers of escalators,the respondent agreed to pay to the claimant an estimated contract value of Rs.68,02,424/-by opening an irrevocable letter of credit. So far as the agreement ‘b’ for installation and designing and commissions, the respondent agreed to pay to the claimant the estimated contract value of Rs.54,92,566/-. As per the agreement, it was specifically agreed that the respondent shall pay 50% said sum of Rs.54,92,566/- in advance, i.e., when the escalators will arrive at the site and the balance 50% of the said amount at the time when the escalators start to run. The respondent paid a total sum of Rs.56,40,000/- from time to time to the claimant particularly as and when demanded by the claimant. There is no failure on the part of the respondent to pay any amount.
6. The subsequent claim of huge amount by the claimant under the pretext that the escalators were ready for despatch in China factory is totally unjustified since the claimant did not submit designs and general arrangement drawing for the approval of the respondent. When this has not been done, it is not possible for the claimant to proceed with the manufacture of the escalators. Consequently, the question of making any further payment to the claimant do not arise. The respondent completed the requisite civil works necessary for the escalation and installation of elevators and escalators in time. Therefore, negligence was on the part of the claimant whose technical persons did not guide the respondent properly which lead to damage to finished work. The respondent did not receive a general agreement drawings in respect of 6 escalators and as such question of approval and manufacturing thereon and any advance payment in respect of those 6 escalators did not arise. The respondent did not cancel the agreement orally.
7. The claim that the respondent was required to make payment of 90% of the contract value before commencing of installation of the elevators. Since the demand for Rs.54 lakhs in respect of 6 escalators was unjustified, the respondent did not pay the same. As far as rejection of one escalator and 4 elevators are concerned, they are said to be completed after causing a delay of about 3 to 6 months. The respondent always extended its cooperation in the matter of installation of escalators and elevators. The sites were made ready and also made available to the claimant. The delay is only due to negligence on the part of the claimant who did not give proper instructions for the prior works to be carried for the installation of escalators. The technical person of the claimant who claims to have visited the site since January 2006, could have given prior instructions. Instead by letter dated 24.06.2006, the claimant asked the respondent to provide 60 mm hole in the ceiling and in the bottom portion. The delay is on the part of the claimant. Since the job was not completed as per the contract, the claimant is not entitled to the entire amount of Rs.72,33,049/-.
8. Besides the respondent also raised a counter claim for an award of compensation of Rs.11,98,44,385/- with 24% interest from the date of filing of the statement of claim. The claim of a sum of Rs.3,14,44,385/- for the loss of business income because of the delay in supply of the elevators and escalators and a sum of Rs.84,00,000/- for loss on non-supply of 1 escalator at Wardaman Nagar project and a loss of business income of Rs.6,00,00,000/- for non supply of 6 escalators at the VIP Nagar project and for mental agony and harassment caused because of the break down and non-operation of elevators and escalators and for the deficiency in service by the claimant a sum of Rs.1 crore for loss and the injury to the goodwill and the reputation a sum of Rs.1 crore totaling a sum of Rs.11,98,44,385/-.
9. Based on the above pleading the following issues have been framed :
(i) Whether the claimant is entitled to recover the balance amount of Rs.1,93,54,904/- due to the claimant under the Agreements dated 19.12.005 and 16.02.2006?
(ii) Whether the respondent has committed default in making payment to the Claimant as per the terms agreed in Agreement A & B dated 16.02.2006 in respect of the escalators?
(iii) Whether the respondent failed to fulfill any of the obligations under the agreements?
(iv) Whether respondent was required to make payment of 90% of the contract value before the commencement of the installation of elevators and escalators?
(v) Whether the claimant is entitled to balance amount for the supply and installation of 4 elevators and 1 escalator?
(vi) Whether the claimant is entitled for the cancellation charges of 90% of the contract price i.e. Rs.1,09,00,359/- as per clause 4.1 of the Agreement dated 19.12.2005 in respect of 6 escalators and 1 elevator?
(vii) Whether the respondent cancelled the order of supply of the 5th elevator orally?
(viii) Whether the counter claim raised by the respondent is barred under the terms of the contract or under Section 73 of the Contract Act?
(ix) Whether the counter claim raised by the respondent is beyond the scope of reference and consequently outside the jurisdiction of the Arbitration?
(x) Whether the counter claim numbers 3 and 4 are tortuous in nature and therefore not maintainable?
(xi) To what reliefs the parties are entitled to?
10. The Arbitrator has allowed the claim for a sum of Rs.15,93,490/- towards balance consideration for the goods supplied and and a sum of Rs.7,65,875/- towards interest thereon, totally a sum of Rs.23,58,635/- and allowed the counter claim for a sum of Rs.3,60,30,700 with future interest at the rate of 9% per annum from the date of Award. Though the Award has been challenged on various grounds, the main focus of challenge is only in respect of the claim of the claimant seeking cancellation charges of 6 escalators and one elevator of Rs.1,09,00,359 with interest thereon and the counter claim allowed in favour of the respondent.
11. The learned Senior Counsel Mr.Murari, appearing for the petitioner has focused his argument only in respect of nonpayment of 90% of the contract value for 6 escalators and one elevator, also allowing the counter claim of the respondent is without any basis. It is his main contention that the Arbitrator has gone beyond the terms of the contract. The subsequent contracts are not separate contracts and it is only an addition to the earlier contract which has not been taken note by the arbitrator. The finding of the Arbitrator to the effect that the subsequent contract supersedes the previous contract is nothing but against the contract and it fall within the mischief of patent illegality. The learned Arbitrator has found that the subsequent contract has superseded the earlier contract. Hence, it is his contention that dismissing the claim of the claimant beyond the contract is liable to be interfered.
12. Whereas, the contracts governing the parties clearly stipulate 90% of the contract value in the event of cancellation of the contract by the respondent. Admittedly, 6 escalators and one elevator is not taken by the respondent despite the materials are kept and intimated. Further, it is his contention that the damages itself is prohibited in the contract. When the contract prohibits claiming of consequential damages, Awarding damages by the Arbitrator is certainly illegal as held in J.G. Engineers Private Limited Vs. Union of Inida and another reported in 2011 (5) Supreme Court Cases 758 2011 (5) SCC 758. It is his main contention that the subsequent agreements are only addition of the earlier contract. Hence, the terms contained in the earlier contract is not binding on the parties and the same has not been taken note by the Arbitrator. It is his further contention that the counter claim has been awarded without any evidence. The alleged damages have not been proved and there is no evidence to show that the respondent has taken any steps to mitigate the damages. Besides loss of profit is also not established. The alleged lease deed relied upon by the respondent is no way connected to the particular period and that should not have been taken note by the Arbitrator for awarding the counter claim. Even if the lease deed relied upon by the Arbitrator is taken into consideration, the amount will come only around Rs.54 lakhs and not as calculated by the Arbitrator. Hence, it is his contention that when the contract itself prohibits for any damages, allowing of the counter claim is not according to law. It is the further contention of the learned Senior Counsel that the Arbitrator has not gone into Issue No.8 and without discussing the issue, he has allowed the counter claim, which is contrary to law. Hence, prayed for setting aside the Award. In support of his contentions, he has relied upon the following judgments :
New India Civil Erectors (P) Ltd. Vs. Oil and Natural Gas Corporation reported in 1997 (11) SCC 75
Grid Corporation of Orissa Ltd. and another Vs. Balasore Technical School reported in 2000 (9) SCC 552
Oil & Natural Gas Corporation Ltd. Vs. Saw Pipes Ltd. reported in 2003 (5) Supreme Court Cases 705
Hindustan Zinc Ltd. Vs. Friends Coal Carbonisation reported in 2006 (4) Supreme Court Cases 445
Delhi Development Authority Vs. R.S.Sharma and Co., New Delhi reported in Manu/SC/3624/2009
J.G. Engineers Private Limited Vs. Union of Inida and another reported in 2011 (5) Supreme Court Cases 758
MSK Projects India (JV) Limited Vs. State of Rajasthan and another reported in 2011 (10) Supreme Court Cases 573
Oil and Natural Gas Corporation Limited Vs. Western Geco International Limited reported in 2014 (9) Supreme Court Cases 263
Associate Builders Vs. Delhi Development reported in 2015 (3) Supreme Court Cases 49
Muridhar Chiranjilal Vs. Harishchandra Dwarkadas and another reported in AIR 1962 SC 366
M.Lachia Setty and Sons Ltd. Coffee Vs. Coffee Board, Bangalore reported in 1980 (4) SCC 636
Bharat Coking Coal Ltd. Vs. L.K.Ahuja reported in 2004 (5) SCC 109
Mukesh Kumar Singhal Vs. Nagar Palika Parishal reported in Manu/MP/0754/2006
13. The learned counsel appearing for the respondent submit that subsequent contract between the parties dated 16.02.2006 supersedes the earlier contract. Therefore the claimant cannot base his claim based on the earlier contract. However, it is his contention that the Arbitrator has factually considered the entire aspects and allowed the counter claim. When the facts are analysed and a finding has been recorded, the scope of interference of such an Award under section 34 of the Arbitration and Conciliation Act is limited and this Court cannot reappreciate the entire evidence. Hence, it is his contention that this petition is liable to be dismissed.
14. The challenge is only with regard to the dismissal of the claim of 90% of the contract value for non taking delivery of one elevator and 6 escalators and allowing the counter claim. As the contracts are not disputed by the parties, it is relevant to refer to the terms of the contract. On 19.02.2015, two contracts one for supply, erection and installation of passengers and goods cum passengers elevators in reference No.KEI/0035/200512/20 has been entered into between the parties. On the same day, a similar contract in respect of reference No. KEI/0035/20051/20 was entered between the parties. The terms and conditions of the contract for supply of escalators are relevant to be extracted below :
A) Standard Collapsible Gate Apartment Elevators :
(i) 30% of the contract value of as interest – free advance along with the order.
(ii) 60% of the contract value upon intimation that materials are ready for despatch
(iii) 5% of the contract value upon commencement of installation
(iv) 5% of the contract value upon completion of installation.
The levator will then be handed over along with key and Warranty Number allotted.
B) Other types of elevators :
(i) 30% of the contract value as intrest free advance along with the order
(ii) 20% of the contract value at the time of submission of the General Arrangement Drawings.
(iii) 40% of the contract value upon intimation that materials are ready for despatch
(iv) 5% of the contract value upon commencement of installation
(v) 5% of the contract value upon completion of installation
The Elevator will then be handed over long with key and Warranty Number alloted.
In the event of failure to make such payments within the stipulated period, as mentioned above, you shall be liable to pay interest at the rate of 24% per annum from the day of default.
For the purpose of payment, each elevator will be treated as a separate contract.
We do not accept responsibility for not specifying all the clarifications from your specifications. Please note that in case of conflict between your specification and this proposal, the specification, terms and conditions of our proposal shall only prevail. Elevator will be deemed to have been completed regardless of availability of permanent power supply.
Cancellation of Contract
In the event of cancellation of contract, we shall be charging you as follows :
a. 15% of the contract value, if the order is cancelled before the General Arrangement Drawing is prepared.
b. 25% of the contract value, if the order is cancelled within one month after the General Arrangement Drawing is approved.
c. 80% of the contract value, if the order is cancelled after two months of the approval of General Arrangement Drawing.
d. 90% of the contract value, if the order is cancelled after intimation that materials are ready for despatch.
Price Variation Clause
The prices are subject to IEEMA Price Variation Clause. If, however, there is any change/modification in the Price Variation Clause between the date of quotation and date of order, the Price Variation Clause as is effective on the date of order, shall apply.
15. Thereafter, agreement 'A' dated 16.02.2006 was entered between the parties. The specific terms of the agreement is as follows :
“1. The following documents shall be deemed to form and be read and constitute as part of this Agreement, viz., KEI offer letter – KEI/0035/200512/20
2. In consideration of the payments to be made by the Owner of the Contract, as hereinafter mentioned, the Contractor hereby covenants with the Owner to complete the Design & supply of seven numbers of Escalators in conformity in all respects with the provisions of the contract. The technical specification of the Escalators would be as per Annexure I of this Agreement.
3. The Owner hereby covenants to pay to the Contractor in consideration of the Design and supply of escalators, an estimated Contract Value of Rs.68,02,424/- by Opening an irrevocable Letter of Credit through a Nationalized Bank, as per LC Conditions mentioned in Annexure III of this Agreement. The LC shall be a period of 4 months for shipping and 2 months thereafter for negotiation. The LC opening charges and any Amendment charges shall be to owner, Account. Any delay in receipt of payment over 7 days from the date of negotiation of LC by Kone to its bank, either due to owner, or its bank shall attract interest % negotiation of LC by Kone to its Bank, either due to owner, or its bank shall attract interest @
4. 11% p.a. and is payable immediately. The Unit wise split of the Price of Escalators is given in Annexure II of this Agreement is confirmed by both parties that the Sale of Escalators shall take place as a High Seas Sales transaction and both parties agree to enter into High Seas Sales Agreement at the required time that will be forming part of the agreement.
5. The owner would give the necessary letter for Customs for clearance by the Nominated Clearing Agent and would pay the Customs Duty required to clear the Escalators from Customs at Actual to the Customs authorities based on the Assessment.
6. The Owner agrees to deliver the Exchange control copy of the Bill of Entry to Kone within 7 days of the Customs clearance of the Escalators.
7. The Owner agrees to pay all cost towards freight, insurance, Customs Duty and Clearance Charges and Local Transportation and Unloading etc. to the Frieght and Forwarding agent (nominated by KONE) as and when demanded, who will help in all documentation and submit his bills to owner, for payments towards the expenses mentioned above.
8. Any delay in releasing any of the payments in full resulting in demurrage of delay in start of erection will be to Indo Pacific Software & Entertainment Ltd., account it may also effect commissioning of Escalators before the stipulated period.
9. The Agreement between the parties revokes and supersedes all previous correspondence, representations, arrangements or agreements between the parties concerning the matters covered herin whether written or oral or implied.
10. The Contractor agrees, subject to the terms and conditions of the Agreement to perform efficiently and faithfully all the work to design, manufacture, supply on CIF basis all offshore equipment for Escalators systems for or incidental to the successful completion of the Works under Contract B.
11. If at any time during the term of this agreement the performance in whole or in part of either party of any obligation under this agreement (other than the making of a payment) is prevented or delayed by reason of Force Majeure.
No party shall be liable for any delay or failure for the performance of any of its obligations under this agreement to the extent that such delay or failure is caused by Force Majeure provided that the party whose performance is prevented or delayed by such Force Majeure shall make every good faith effort to overcome or dispel the event of Force Majeure.
12. Should any part of this agreement be declared illegal or non-enforceable or any governmental authority changes the terms of this agreement, the parties will co-operate and take all appropriate steps to amend, modify or alter this agreement without changing the spirit of intent of this agreement.
13. If any term or provision of this agreement, shall be hereafter, declared by a final adjudication of any tribunal or court of competent jurisdiction or statutory authority to the illegal, such adjudication shall not alter the validity or enforceability of any other term or provision unless the terms and provisions shall be one as expressly defined as a condition precedent or as of the essence of this agreement, or comprising an integral part of, or inseparable from the remainder of this agreement.
14. All disputes and differences of any kind whatever arising out of or in connection with this agreement shall be amicably settled at the first instance mutually by Indo Pacific Software & Entertainment Ltd. and Kone. If no such amicable solution at the first instance, then the dispute or differences shall be referred to the arbitration and will be dealt according to the provisions of Arbitration and Conciliation Act, 1996.
15. The Contractor understands and agrees that he is fully responsible for the Works to be executed under Contract B.
16. This Contract is enforceable and construed under the laws of the Republic of India. The agreement shall be executed in duplicate and the original shall be retained by Kone, the duplicate by the Owner.
16. Similarly agreement 'B' was executed between the parties. The Arbitrator considering the agreement dated 16.02.2006 has held that the document dated 16.02.2006 superseded the earlier contract namely Ex.C.2 and rejected the contention of the claimant that the contract dated 16.02.2006 marked as Ex.C.4 and Ex.C.5 are modified form of the agreement dated 16.02.2006 and is only modified form of Ex.C.2. It is to be noted that the clause 11 in the subsequent agreement dated 16.02.2006, has not been considered by the Arbitrator. Clause 11 reads as follows:
“11. This Contract is enforceable and construed under the laws of the Republic India.”
The above clause deemed to be read as a part of the agreement reference No. KEI/0035/200512/20 dated 16.02.2006. The Arbitrator has only taken note of the clause 7 in the subsequent agreement and has held that the earlier contract superseded the contract. Having held that, the Arbitrator ought not have decided the issue of delay on the ground of the terms of the contract in allowing the counter claim.
17. A careful perusal of the Clause 1 in the subsequent agreement referred above make it clear that the subsequent agreement will form part of the original agreement dated 19.12.2005. The above clause being the dominant clause in the subsequent agreement, the finding of the Arbitrator to the effect that the earlier agreement has superseded cannot be countenanced. It is also to be noted that this issue was raised before this Court while Arbitrator was appointed and this Court has held that both the agreements have to be read in their context and the subsequent agreement dated 16.02.2006 shall form part of the original agreement dated 19.12.2005 and that the commercial agreements are to be read with broad common sense and in a manner they are understood by ordinary men in the world of trade and commerce. Infact, this Court has gone to the extent to hold that the arbitral clause in the original agreement must prevail and govern the relationship between the parties. When the reference itself has been made based on the original agreement as per the Orders of this Court, the learned Arbitrator going beyond the terms of the contract and coming to the conclusion that the subsequent contract superseded the previous correspondences, arrangements and agreements, is totally against the contract itself. When the contract is already interpreted by the Court of law and the above finding has not been challenged and the reference was made only based on the construction of the above agreements by the Court and that the arbitration clause in the original agreement, governs relationship between the parties and the learned arbitrators going beyond the terms of the reference, certainly contrary to the settled provisions of law.
18. The contract provides 90% of the cost of escalators and elevators after intimation of the readiness of the materials, in the event of cancellation or termination of the contract by the respondent. The learned Arbitrator in this regard relying upon the terms of the contract has held that there is no piece of evidence for cancellation of the agreement by the respondent. Considering the oral and documentary evidence, the learned arbitrator has factually found that the respondent has not cancelled or terminated the agreement for escalators or elevators. The respondent has only expressed their grievance in respect of the contract and therefore, such grievance cannot be termed as termination of the contract. Hence, the Arbitrator has factually arrived at a finding that there is no evidence for termination or cancellation of the Agreements A and B in respect of the escalators and the claimant is not entitled for cancellation charges of 90% of the value of the contract. Similarly, with respect to the oral termination of the elevators also, the Arbitrator has found that there is no evidence to prove such termination. Hence, rejected the claim of the claimant claiming cancellation charges of 90% of the cost of the materials.
19. Further the Arbitrator has recorded in para 10.20 of the Award that there is no evidence to show that the escalators were ready at China for Export and no communication with regard to readiness of the escalators at China factory has been filed. Therefore, the Arbitrator has factually found that the claimant is not entitled to 90% of the value of the material cost of 6 escalators and one elevator. Since the Arbitrator rejected the claim on factual basis, though the Arbitrator had interpreted the subsequent agreement otherwise, the fact remains that the entitlement of 90% of cost of 6 escalators and one elevator, has been factually found that there is no evidence to show that the respondent has cancelled the contract or terminated the contract. Further, there is no evidence to show that materials were made ready at China office. In view of such factual finding and rejecting the claim, this Court cannot interfere with the finding of the arbitrator rejecting the claim of the claimant for cancellation charges of 90% of cost of 6 escalators and one elevator.
20. Now, it has to be analysed with regard to the counter claim of Rs.3,60,30,700/- towards loss of business. The Arbitrator has awarded such compensation on the ground that there was some delay on the part of the claimant in the supply of remaining 6 escalators and one elevator either for the value of the goods and escalators to be supplied and held that the because of delay in work by the claimant, the prospective lessees had to cancel the lease agreement thereby, the respondent has been put to loss and held that respondent sustained loss. The Arbitrator had arrived at such a finding on his own inference. In the earlier part of the issue, the Arbitrator has factually found that for the rejected materials, the respondent did not pay the balance amount of Rs.15,93,490/- and held that the because of the misunderstanding, the respondent has withheld the value of 4 elevators and and one elevator supplied already. The Arbitrator has held that the subsequent agreement is binding on the parties and has failed to look into the conditions in the subsequent agreement. Absolutely, there is no term fixing the period in which the materials have to be supplied. Having ignored the previous contract and the terms, the Arbitrator has gone on to record that there was a delay in supplying 6 escalators and one elevator. However, there is no evidence available to show the nature of the delay in respect of the supply of 6 escalators and one elevator. The Arbitrator has recorded that there is some delay in respect of other projects. The Arbitrator has factually found in para 10.18 that even though site is not ready, material could have been brought in and the erection could have been commenced after the site was made ready as mentioned in Ex.C.11 as far as one elevator at Wardhaman Nagar.
21. Similarly, as far as 6 escalators are concerned, the learned Arbitrator has specifically in para 10.20 held that the respondent apprehends delay and therefore, payment was not made. Having found the fact that no payment has been made by the respondent for supply of escalators as per the contract, the finding of the Arbitrator that the delay in supply of the escalator lead to the loss cannot be sustained, as the finding of the Arbitrator goes against his own finding. It is to be noted that as already held, both the original terms of the contract and the subsequent agreement are to be read together. In this regard, the terms in the original contract is certainly binding on the parties. Clause B(6) of the original terms of the contract reads as follows :
Unless otherwise specified in our confirmation of order, all machinery and equipment will be of our standard design and manufacture and will be carefully inspected before despatch from our works. All machinery and equipment of our manufacture is guaranteed to be of first class material throughout and of good workmanship. We undertake to correct and made good any defect which may develop under normal and proper use within the guarantee period hereinafter mentioned and which is solely due to faulty design, material of workmanship provided that we are notified immediately after the defect is discovered unless otherwise arranged.
The guarantee period is
a. 18 months from thedate of despatch of the last of the following major components 1) machine 2) controller 3) car & car frame 4) 'T' guides, etc.
b. 12 months from the date of handing over of the Elevator, whichever is earlier.
Availability from our part ceases at the termination of guarantee period in the case of goods not of our manufacture, the buyer will be entitled to the benefit of any guarantee held by us in respect thereof. Our liability in respect of any order confirmed by us is limited as specified in these conditions and does not include consequential damages, either direct or indirect, no expenses for repairs or replacement or otherwise paid or incurred without our authority. We accept no liability for defects or depreciation caused by wear and tear, accidents, lightning, dampness, neglect, misuse or other abnormal conditions resulting directly or indirectly due to circumstances beyond our control.”
22. The above clause makes it clear that the contract prohibits any consequential damages either direct or indirect. In this regard, the apex Court in J.G. Engineers Private Limited Vs. Union of India and another reported in 2011 (5) Supreme Court Cases 758 in para 28 as held as follows :
28. It is well-settled that where the contract in clear and unambiguous terms, bars or prohibits a particular claim, any award made in violation of the terms of the contract would violate section 28(3)of the Act, and would be considered to be patently illegal and therefore, liable to be set aside undersection 34(2)(b) of the Act. Claim No.(5) is for payment of escalation under clause 10(cc) of the contract for work done beyond July, 1995 till the date of termination. Clause 10(cc) of the agreement reads thus:
Clause 10(cc) "... subject to the condition that such compensation for the escalation in prices shall be available only for work done during the stipulated period of the contract including such period for which the contract is validly extended under the provisions of clause 5 of the contract without any action under clause 2 and also subject to the condition that no such compensation shall be payable for a work for which the stipulated period of completion is 6 months or less".
Therefore, when the contract itself prohibits consequential damages, this Court is of the view that the allowing the counter claim by the Arbitrator is beyond the terms of the contract.
23. It is also to be noted that the Arbitrator has considered only two lease deeds and calculated an amount of Rs.1,10,30,700/-. This is also factually incorrect. The above lease deeds if taken into consideration, accumulated amount will come around Rs.54,00,000/- and not more than that. The Arbitrator also ignored the very pleadings of the respondent in the counter and that no demand has been made in respect of 6 escalators as per the contract. It is specifically stated that it is a collaboration contract of escalators and elevators and payments were made by the respondent and the respondent has made the payment only on demand. The counter clearly indicate that no payments whatsoever, as per the contract, has been paid for the remaining escalators. This aspect also ignored by the Arbitrator. When the relevant materials have been ignored by the Arbitrator and the Arbitrator has ignored certain aspects, awarding counter claim certainly falls within the judgment of the Apex Court in Ssangyong Engineering & Construction Co. Ltd., Vs. National Highways Authority of India (NHAI) reported in 2019 SCC OnLine SC 677, wherein, in para 13, the Apex Court has held as follows :
Applicability of the Arbitration and Conciliation (Amendment) Act, 2015
10. Since the Section 34 petition in the present case is dated 30.07.2016, an important question as to the applicability of the parameters of review of arbitral awards would arise in this case. More particularly, radical changes have been made by the Arbitration and Conciliation (Amendment) Act, 2015 [“Amendment Act, 2015”] with effect from 23.10.2015 – in particular, in the “public policy of India” ground for challenge of arbitral awards. The question which arises is whether the amendments made in Section 34 are applicable to applications filed under Section 34 to set aside arbitral awards made after 23.10.2015. This Court, in Board of Control for Cricket in India v. Kochi Cricket (P.) Ltd. and Ors., (2018) 6 SCC 287 [“BCCI”], has held that the Amendment Act, 2015 would apply to Section 34 petitions that are made after this date. Thus, this Court held:
“75. Shri Viswanathan then argued, relying upon R.Rajagopal Reddy v. Padmini Chandrasekharan [R.Rajagopal Reddy v. Padmini Chandrasekharan, (1995) 2 SCC 630], Fuerst Day Lawson Ltd. v. Jindal Exports Ltd. [Fuerst Day Lawson Ltd. v. Jindal Exports Ltd., (2001) 6 SCC 356], SEDCO Forex International Drill Inc. v. CIT [SEDCO Forex International Drill Inc. v. CIT, (2005) 12 SCC 717] and Bank of Baroda v. Anita Nandrajog [Bank of Baroda v. Anita Nandrajog, (2009) 9 SCC 462 : (2009) 2 SCC (L&S) 689] , that a clarificatory amendment can only be retrospective, if it does not substantively change the law, but merely clarifies some doubt which has crept into the law. For this purpose, he referred us to the amendments made in Section 34 by the Amendment Act and stated that despite the fact that Explanations 1 and 2 to Section 34(2) stated that “for the avoidance of any doubt, it is clarified”, this is not language that is conclusive in nature, but it is open to the court to go into whether there is, in fact, a substantive change that has been made from the earlier position or whether a doubt has merely been clarified. According to the learned Senior Counsel, since fundamental changes have been made, doing away with at least two judgments of this Court, being Saw Pipes Ltd. [ONGC Ltd. v. Saw Pipes Ltd., (2003) 5 SCC 705] and Western Geco [ONGC Ltd. v. Western Geco International Ltd., (2014) 9 SCC 263 : (2014) 5 SCC (Civ) 12], as has been held in para 18 in HRD Corpn. v. GAIL (India) Ltd. [HRD Corpn. v. GAIL (India) Ltd., (2018) 12 SCC 471], it is clear that such amendments would only be prospective in nature. We do not express any opinion on the aforesaid contention since the amendments made to Section 34 are not directly before us. It is enough to state that Section 26 of the Amendment Act makes it clear that the Amendment Act, as a whole, is prospective in nature. Thereafter, whether certain provisions are clarificatory, declaratory or procedural and, therefore, retrospective, is a separate and independent enquiry, which we are not required to undertake in the facts of the present cases, except to the extent indicated above, namely, the effect of the substituted Section 36 of the Amendment Act.” xxx xxx xxx
“78. The Government will be well-advised in keeping the aforesaid Statement of Objects and Reasons in the forefront, if it proposes to enact Section 87 on the lines indicated in the Government’s Press Release dated 7-3-2018. The immediate effect of the proposed Section 87 would be to put all the important amendments made by the Amendment Act on a back-burner, such as the important amendments made to Sections 28 and 34 in particular, which, as has been stated by the Statement of Objects and Reasons,“... have resulted in delay of disposal of arbitration proceedings and increase in interference of courts in arbitration matters, which tend to defeat the object of the Act”, and will now not be applicable to Section 34 petitions filed after 23-10-2015, but will be applicable to Section 34 petitions filed in cases where arbitration proceedings have themselves commenced only after 23-10-2015. This would mean that in all matters which are in the pipeline, despite the fact that Section 34 proc
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eedings have been initiated only after 23-10-2015, yet, the old law would continue to apply resulting in delay of disposal of arbitration proceedings by increased interference of courts, which ultimately defeats the object of the 1996 Act. [These amendments have the effect, as stated in HRD Corpn. v. GAIL (India) Ltd., (2018) 12 SCC 471 of limiting the grounds of challenge to awards as follows: (SCC p. 493, para 18) “18. In fact, the same Law Commission Report has amended Sections 28 and 34 so as to narrow grounds of challenge available under the Act. The judgment in ONGC Ltd. v. Saw Pipes Ltd., (2003) 5 SCC 705 has been expressly done away with. So has the judgment in ONGC Ltd. v. Western Geco International Ltd., (2014) 9 SCC 263. Both Sections 34 and 48 have been brought back to the position of law contained in Renusagar Power Plant Co. Ltd. v. General Electric Company, 1994 Supp (1) SCC 644, where “public policy” will now include only two of the three things set out therein viz. “fundamental policy of Indian law” and “justice or morality”. The ground relating to “the interest of India” no longer obtains. “Fundamental policy of Indian law” is now to be understood as laid down in Renusagar, 1994 Supp (1) SCC 644. “Justice or morality” has been tightened and is now to be understood as meaning only basic notions of justice and morality i.e. such notions as would shock the conscience of the Court as understood in Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204. Section 28(3) has also been amended to bring it in line with the judgment of this Court in Associate Builders, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204, making it clear that the construction of the terms of the contract is primarily for the arbitrator to decide unless it is found that such a construction is not a possible one.”] It would be important to remember that the 246th Law Commission Report has itself bifurcated proceedings into two parts, so that the Amendment Act can apply to court proceedings commenced on or after 23-10-2015. It is this basic scheme which is adhered to by Section 26 of the Amendment Act, which ought not to be displaced as the very object of the enactment of the Amendment Act would otherwise be defeated.” (emphasis supplied) 24. There is no evidence available on record to show that the respondent has mitigated the damages. Further the damages has not been proved except filing some documents to show that the so called rental agreements were cancelled. Those facts have not been proved before the Arbitrator. Further, when the contract itself prohibits consequential damages as indicated above, the Award certainly is not according to law and it is particularly beyond the terms of the contract between the parties. Further, the reference was made only in respect of the original contract and both the contracts have to be read together and the Arbitrator has in fact ignored the earlier admitted contract between the parties. When the Award goes beyond the reference and the counter claim is allowed, the Award is certainly liable to be set aside. It is open to the Court to interfere such an award. 25. In Grid Corporation of Orissa Ltd. and another Vs. Balasore Technical School reported in 2000 (9) SCC 552, the Apex Court has held that if the Award goes beyond the reference or error apparent on face of the Award, it is open to the Court to interfere with such an Award. In Hindustan Zinc Ltd. Vs. Friends Coal Carbonisation reported in 2006 (4) Supreme Court Cases 445, the Apex Court has held that if the Award is contrary to the terms of the contract, the Award is liable to be set aside. Further, it is also well settled that to prove loss of profit, the party is required to produce evidence. If the evidence is totally lagging and the Award is based on the inference, the loss of profit awarded by the Arbitrator is also not under the settled position of law. In State of Rajasthan and another Vs. Ferro Concrete Construction Private Limited reported in 2009 (12) SCC 1 in para 55 the Apex Court has held that if there is no evidence and the Arbitrator passes an Award made in the claim merely on the basis of the claim statement, it has to be held that on that account, the Award would be invalid. Hence, the quantity modified by the Arbitrator based on the annexures is without any proof and is certainly liable to be interfered. Considering the above aspects, the counter claim awarded by the Arbitrator is liable to be interfered. 26. Accordingly, this petition is allowed in part and the Award in respect of the Counter claim is set aside and the rest of the Award is confirmed. No cost.