w w w . L a w y e r S e r v i c e s . i n



Neyveli Lignite Corporation Limited, (Presently NLC India Limited), Rep. by its General Manager (Contracts) Corporate Office, Neyveli v/s M/s. TENOVA India Pvt. Ltd., Alwarpet & Others


Company & Directors' Information:- NLC INDIA LIMITED [Active] CIN = L93090TN1956GOI003507

Company & Directors' Information:- TENOVA INDIA PRIVATE LIMITED [Active] CIN = U28990TN2008PTC101179

Company & Directors' Information:- REP CORPORATION PRIVATE LIMITED [Strike Off] CIN = U26921TN2005PTC055138

Company & Directors' Information:- S K CONTRACTS PRIVATE LIMITED [Active] CIN = U45400DL1986PTC025351

Company & Directors' Information:- S. S. E. CONTRACTS PRIVATE LIMITED [Active] CIN = U74900WB2013PTC192042

Company & Directors' Information:- CORPORATE INDIA PRIVATE LIMITED [Active] CIN = U74110DL1999PTC099505

Company & Directors' Information:- A B CONTRACTS PRIVATE LIMITED [Strike Off] CIN = U74899DL2000PTC105814

Company & Directors' Information:- J D CONTRACTS PRIVATE LIMITED [Active] CIN = U45400DL2011PTC214287

Company & Directors' Information:- D H CONTRACTS PRIVATE LIMITED [Active] CIN = U45400DL2010PTC198200

Company & Directors' Information:- CORPORATE CONTRACTS PRIVATE LIMITED [Active] CIN = U74140DL2001PTC112949

Company & Directors' Information:- N J CONTRACTS PRIVATE LIMITED [Strike Off] CIN = U74210HR2011PTC042559

Company & Directors' Information:- GENERAL CONTRACTS COMPANY PVT. LTD. [Strike Off] CIN = U45201GJ1989PTC012627

    Civil Miscellaneous Appeal No. 128 of 2020 & CMP.No.863 of 2020

    Decided On, 25 September 2020

    At, High Court of Judicature at Madras

    By, THE HONOURABLE MR. JUSTICE N. SATHISH KUMAR

    For the Appellant: N. Nithianandam, Advocate. For the Respondents: Jose John for M/s. King and Patridge, Advocates.



Judgment Text

(Prayer: The appeal filed under section 37 of the Arbitration and Conciliation Act, 1996 to set aside the Order and Decreetal Order dated 24.06.2019 passed in Arb. O.P.No.172 of 2015 on the file of Principal District Judge, Cuddalore, Cuddalore District.)This Civil Miscellaneous Appeal has been filed challenging the order of the learned Principal District Judge, Cuddalore dismissing the application filed under Section 34 of the Arbitration and Conciliation Act, challenging the award passed by the three members Arbitral Tribunal, the present appeal came to be filed under Section 37 of the Arbitration and Conciliation Act.2. The brief facts leading to file this appeal is as follows:2.a. The appellant and the respondent has entered into four contracts viz., Contract-1 for design, manufacturing and supply of MTC 4420/M3, Contract - 2 for Service , Contract – 3 for maintenance for one year during warranty and Contract -4 for maintenance for three years after warranty.2.b. As a dispute having been arisen between the parties regarding the levy and recovery of liquidated damages (in short 'LD'), the respondent/claimant referred the dispute for arbitration. Accordingly, three member Tribunal was constituted by the appellant and respondents. The claim for a sum of Rs.1,18,25,221/- made by the applicant.2.c. The learned Arbitral Tribunal after framing the issues has passed an award:“The Tribunal hereby directs that the Respondent, M/s.Neyveli Lignite Corporation, do pay to the Claimant, M/s.Takraf (India) Private Ltd., the sum of Euros 75,286.00 (Euros Seventy Five Thousand Two Hundred and Eighty Six only) and Rs.1,18,25,221 (Rupees One Crore Eighteen Lakhs Twenty Five Thousand Two Hundred and Twenty one only) within three months from the date of this Award. These amounts, if paid within three months from the date of this Award. These amounts, if paid within three months from the date of this Award, will carry no interest. If not so paid, the Respondent is directed to pay to the Claimant simple interest on the above sums at 12% p.a. on the rupee amount payable and at the rate of 6% p.a. on the amount payable in foreign currency (or such parts thereof as shall remain unpaid) from the date of this Award till the date of actual payment. The parties shall bear their own costs”2.d. The learned Arbitrators having found that the delay in not getting the Mobile Transfer Conveyor (in short 'MTC') ready for Take Over Test (in short 'TOT') by 24.08.2007 as per the contract and was achieved only on 03.08.2008, the delay was attributable only to the claimant. However, they came to the conclusion that the respondent has not suffered any legal injury to levy the liquidated damages and finally passed an award in favour of the respondent. The challenge made to such award under Section 34 in A.O.P.No.174 of 2015 before the Principal District Judge, Cuddalore also came to be dismissed on 20.06.2019. Therefore the present appeal came to be filed as against the order of the learned Principal District Judge.3. The learned counsel for the appellant has placed reliance on the Order of this Court in Asian Peroxide Limited, vs. Linde India Ltd., [O.P.No.1112 of 2018 dated 18.06.2019] wherein this court has held that when the contract is difficult to estimate the loss and parties have pre-estimated damages out of their understanding, such amount agreed certainly has to be awarded towards compensation. This Court taking note of the fact that the contract is solely technical in nature and profit or loss cannot be estimated with certainty only on that reason the parties have entered into pre-estimated damages in the contract .4. The main submission of the learned counsel for the appellant that when the parties specifically agreed to levy the liquidated damages in the event of delay on the part of the respondent, the learned Arbitrators having factually found that the entire delay is attributable to the claimant and rejected the contention of the appellant on the ground that there was no legal injuries suffered by them nor any loss suffered by them. Hence, his main contention that the learned Arbitrators having factually recorded that the appellant was not responsible for delay, ought to have held that levy of liquidated damages as per the contract is valid. Whereas, the learned Arbitrator rejecting such contention is against the well settled principal of law. Hence, prayed for allowing the appeal. He has also submitted that the learned Arbitrators also failed to consider the well settled position of law in this regard, hence, prayed for allowing the appeal.5. The learned counsel appearing for the respondent submitted that the terms of the contract clearly indicate that the respondent is not liable to pay liquidated damages. It is his contention that the test of equipments and take over test shall be performed in the manner and subject to the condition stipulated in his technical specifications and the conditions of the contract. It is his further contention that the dispute with regard to the levy of LD in respect of testing of equipments for MTC. As far as, the take over test in respect of MTC would be conducted only when the conveyor, spreader, BWE and tripper of the respective systems are ready for take over test. The four integrated system of equipments should be made ready by the respondent. If there is any delay in respect of any other equipment, the contractor shall wait for the commencement of other equipments are made ready unless the alternative arrangements could be arranged.6. Only when the four integrated systems were made ready by the appellant, in such event, the test is not completed within the stipulated period then, the LD is leviable, whereas his contention that the entire delay were attributable only to the appellant. Therefore, the levy of LD cannot be invoked in this case. It is his further contention that there is no legal injury suffered by the appellant to levy the liquidated damages, which has been factually considered by the learned Arbitrators. Therefore, this appeal is not maintainable and none of the grounds available under Section 34 of the Arbitration and Conciliation Act is made out to interfere the well reasoned award passed by the three member Tribunal.7. I have gone through the entire materials.8. The dispute pertaining to the supply of MTC 4420m3/hr (also referred as MTC-10 in the Award) which is required for Mine-II expansion project by the claimant, whereas, the respondent did not complete the TOT as per the time schedule laid down and the TOT was completed on 03.08.2008 with a delay of 11 months.9. The main ground taken by the appellant that the LD was leviable for delay in TOT. In So far as the TOT is concerned due to the delays caused by the claimant from the initial stages, the TOT was delayed about 11 months. Therefore, the LD has been recovered from the claimant in terms of the provision of the contract. The learned three member Arbitrators in one of the issues particularly with regard to the delay in conducting TOT has rejected the contention of the respondent. However, the learned Arbitrator found that there is no legal injuries suffered by the NLC namely the appellant herein and passed an award and rejected the contention of the appellant for levying the liquidated damages.10. It is well settled law that an arbitral award can be interfered only on the grounds under Section 34 of the Arbitration and Conciliation Act. In a given case, the dispute mainly seems to be with regard to levying of the liquidated damages.11. The specific contention of the claimant that the delay in TOT was attributable to the NLC as they are not ready with the integrated equipments namely the conveyor, tripper, DWE and spreader of the respective system for similar take over test. As a dispute is only with regard to the levy of liquidated damages for delay in TOT, it is relevant to extract the contract dealing with the contract specifying the parties.Time schedule for the essence of the contract in Clause 6.2 and clause 6.3 reads as follows:“ Clause 6.2“The time and the date of completion of the 'works' as stipulated in the Contractor's proposal and accepted by the Purchaser shall be deemed to be the essence of the Contract. The Contractor shall so organise his resources and perform this work as to complete it not later than the date agreed to. The time to complete the 'Works' contracted for, shall be reckoned from the date of issue of the “Letter of Award” to the Contractor.6.3. The Contractor shall manufacture and supply the machinery within the period mentioned below reckoned from the date of Letter of Award (ie) 25.02.2005.”12. As per the contention of the claimant that MTC 4420m3/hr capacity, the erection was completed on 20.09.2007. The other conveyor 2400 and conveyor 2100 MM were not made ready on that particular date. Therefore, the delay was attributable to the appellant herein.The clause for Liquidated Damages is as follows:“Clause 7.1 The Contractor shall strictly adhere to the time schedule indicated and deliver the equipment within the time stipulated in the clause 'Time Schedule' of the Contract.7.2 The CONTRACTOR shall promptly notify the PURCHASER any event or condition which may delay the agreed time schedule in accordance with the approved PERT schedule and the steps being taken to remedy such situation.7.3. The time stipulated in the contract for execution and completion of contract shall be deemed to be the essence of the Contract. In the event the CONTRACTOR fails to execute, complete and deliver the equipment within the time specified then the CONTRACTOR shall pay to the PURCHASER as and by way of Liquidated Damages not as penalty as indicated below.7.3.1. If the satisfactory completion of Take Over Test in the manner prescribed is delayed beyond the stipulated dates, Liquidated Damages shall be payable at the rate of 0.5% per week or part thereof on the total Contract Price unit wise for supply and services (Contract I & II) subject to a maximum of 10% of the total contract price unit wise for supply and services (Contract I & II). However, as a precaution the amount equivalent to the maximum L.D leviable would be withheld from the running bills at the stage where the balance payments may not be able to cover the L.D. and other obligations as per the provisions of the Contract. In case the Contractor faces difficulty in cash flow and progress of work, an amount upto 90% of the withheld amount shall be released to the Contractor against a Bank Guarantee for 100% of the withheld amount, if requested by the Contractor.7.3.2. For delay in completion of supply of spares and special maintenance tools beyond the stipulated dates Liquidated Damages shall be payable at the rate of 0.5% per week or part thereof on the value of contract price for spares and special maintenance tools respectively of the undelivered portion subject to a maximum of 10% on the value of contract price of undelivered portion of spares and special maintenance tools respectively.”13. The above clause makes it very clear that if there is a delay on the part of the contractor, the liquidated damages shall be payable at the rate of 0.5% per week or part thereof on the value of the contract price on spares and specific maintenance tools respectively on the un delivered portion of spares maximum 10% of the value of the contract.Clause 15.1; 15.1.1; 15.1.2 deals with testing of equipment which as follows:“Clause 15.1 Take Over Test for rated capacity of equipment.15.1.1 The 'Take Over Test' of the equipment shall be performed in the manner and subject to the conditions stipulated in “Technical Specifications and Conditions of Contract. The 'Take Over Test' will be to prove the rated capacity of the equipment.15.1.2 After the successful performance of the 'Take Over Test' the equipment shall be taken over by the PURCHASER.”14. The above clause makes it very clear that after the successful performance of the TOT, the equipment shall be taken over by the purchaser.15. Section-E of testing of equipment makes it very clear that the take over test in respect of MTC will be conducted only when the conveyors, tripper, PWE and spreader of the respective system are ready for similar take over test. If there is any delay in respect of other equipments, the contractor shall wait for the commencement of the test till the other equipments are made ready unless alternative arrangements could be arranged.16. Testing of equipments for MTC-4420 Cu.M/Hr. is as follows:'”a. TAKE OVER TESTThe completion of erection includes successful completion of functional test and weighting of the machine at the erection site and certification to move the machine to Mines.The functional test shall be conducted by the contractor in the Erection yard. The contractor shall be responsible for the correctness of erection and conducting the functional tests. The functional test shall be the testing of the machine in no load run in the Erection Yard.During the functional test, all limit and safety switches will be tested by the contractor and all other protocols necessary as per purchaser will be prepared and signed by the contractor.On completion of erection as mentioned above, the equipment will be moved to Mines. The equipment would be subjected to trial operation in three shift system and adjustment/modification necessary for smooth operation would be carried out. After the equipment is prepared for take over test as above, certification will be done for readiness of equipment for conducting take over rest.The take over test in respect of MTC would be conducted only, when the conveyors, tripper, BWE. And spreader of the respective system are ready for similar take over test. If there is any delay in respect of other equipment, the contractor shall wait for the commencement of test till the other equipment's are made ready, unless alternative arrangement could be arranged. As soon as the equipment is ready for tests, the test will be made by the Contractor's personnel, to prove that an average overburden output of not less than 1875 m3 (solid) per hour is achieved during a continuous period of 8 effective working hours (for purpose of this clause, continuous 8 hours means a period of 8 effective working hours excluding minor stoppages). However the entire test shall be completed within 12 hours from the time of starting of the test including minor stoppages. If the total duration of the test exceeds 12 hours, the test shall be repeated. If any major stoppage such as failure of critical components or parts occur during the test, the test will be repeated until the test result is satisfactory provided that test does not extend beyond a period of 12 weeks from the date of completion of erection of the last equipment of the integrated system. If the test is not completed satisfactorily within this period and reasons for the delay are not attributable to the purchaser, the test shall be nevertheless conducted immediately thereafter. However the purchaser shall be entitled to recover from the contractor compensation at 0.5% or part there of for such delay on the total contract prices unit wise for supply including escalation and services subject to a maximum of 10% of the total contract prices unit-wise for supply including escalation and services as provided in the special conditions of contract.”The above technical specification for taking over test, it is very clear that for successful taking over test, the integrated system of equipment should be made ready, when such equipments are made ready, if the test is not completed satisfactorily within the period as stipulated in the contract, then, the LD is leviable.17. It is admitted fact that TOT was not completed within a period of 30 months from the date of LOA that is by 24.08.2007 but was completed 11 months thereafter.18. The learned Arbitrator having found that there is a specific clause in the contract in para 146 has held that though the main clause mandates the use of matching SMEs of the same system for conducting the TOT, the only interpretation that can be placed under words “unless alternative arrangements can be arranged” can be that they can give a liberty to NLC to conduct the TOT of MTC, as soon as it is ready, putting to use, not necessarily the same matching equipment as has been ordered for Mine II Expansion, but even any other similar equipment as may be available with NLC and could be placed at the disposal of the claimant for conducting the TOT and also recorded that both party seems to have proceeded on the footing that this was permissible under the contract and held that the delay could not be attributable to NLC.19. Having recorded such finding in para 146, the learned Arbitrators also have factually found that the respondent namely, the appellant has not suffered any loss or damage or any legal injuries.20. As indicated above, having held the delay was attributable to the claimant in paragraphs 166,167,168 and finally in para 171 has held that the appellant has not produced the convincing details to establish the project could have got to a start even without some or all machines and rejected the contention of the appellant in para 172 also recorded the factual finding as to the rest of the equipments were ready much latter than 03.08.2008 and it is true that the MTC was not ready till August 2008 but NLC would be able to perform his mining operations as per the contract only till much latter and was, therefore, not hindered in any way by the absence of MTC-10 much earlier. Having recorded the above factual findings the learned Arbitrators held that they have not established any sustainable liquidated damages or legal injury also.21. The learned Arbitrators also factually recorded in Para 126 TOT of MTC to be conducted only when all other SMEs of all other systems are ready. Therefore, merely because, the learned Arbitrators have recorded that

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the alternative arrangements could also be made instead of matching the equipments, other equipments could also be used for testing. It cannot be said that the NLC has provided all the matching equipments as stipulated in the Section E of the TOT.22. When the Arbitral Tribunal has considered the entire factual matrix and arrived at a conclusion not only on the basis of factual backgrounds but also recorded his findings. Merely, some findings are recorded that there was no delay attributable to the NLC. It cannot be said that LD could be levied. Such findings recorded cannot be read in isolation that has to be read in entirety.23. Considering the entire contract, admittedly, the appellant is also not provided with the matching equipments that has been clearly recorded by the Arbitral Tribunal. Such view of the matter merely because some finding has recorded as to the delay on the part of the respondent in TOT, the levy of LD is not an automatic.24. The learned Arbitrators has factually found that there is no legal injury or liquidated damages suffered by the Respondents, in fact, matching equipments were not at all been provided by NLC. Such view of the matter, merely on some delay as there was no evidence even to indicate any loss or legal injury, the finding of the Arbitrators in that aspect does not suffer from any infirmities as not go against any of the grounds set out under Section 34 of the Arbitration and Conciliation Act.25. The Principal District Court has also considered this aspect and rejected the application. Therefore, merely the submission that the findings has not been challenged and levy of the liquidated damages has to be upheld cannot be countenanced.26. Accordingly, this Court finds that no merits in this appeal to interfere in the well reasoned award and the order of the learned Principal District Judge.27. In view of the above, the Civil Miscellaneous Appeal is dismissed. Consequently, connected Civil Miscellaneous Petition is closed. No costs.
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