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Tamil Nadu Maritime Board, Chennai v/s M/s. Simplex Infrastructure Limited, Chennai

    O.P. No. 232 of 2017

    Decided On, 05 August 2019

    At, High Court of Judicature at Madras

    By, THE HONOURABLE MR. JUSTICE N. SATHISH KUMAR

    For the Petitioner: S.R. Rajagopal, Additional Advocate General, Sricharan Rangarajan, Special Government Pleader (CS), Thriyambak J. Kannan, Advocate.



Judgment Text

(Prayer: Petition filed under Section 34 of the Arbitration and Conciliation Act, 1996 to set aside the Award dated 21.07.2016 passed by the Arbitrator.)

1. This Original Petition is filed under Section 34 of the Arbitration and Conciliation Act, 1996 challenging the Award passed by the sole Arbitrator in favour of the claimant. The parties are arrayed as per their own ranking before the Arbitral proceedings.

2. The brief facts leading to file this Original Petition is as follows:

2.(a) The Government of Tamilnadu has sanctioned the work of rehabilitation of the eastern bank of Kaduvayar River at Nagapattinam Port by providing a diaphragm wall to the length of 650 metres, so as to maintain the river depth and to prevent erosion of eastern river bank. By G.O.Ms.No.581 Revenue (NC.IV) Department dated 19.10.2005 a tender was called by the respondent vide Tender No.03/SE/TNMB/2006-07. After tender process, Letter of Award has been given to the Claimant by letter dated 23.04.2007 for a sum of Rs.8,63,31,677/-. Subsequently contract agreement was entered into between the parties on 26.04.2007. In the offer letter dated 19.12.2006 the claimant requested for an interest free mobilisation advance equivalent to 15% of the contract value as against the bank guarantee to be submitted by the claimant and the mobilisation advance was to be recoverable pro-rata from the running bills/final bills. As per the contract, the time for completion of the contract was given as 270 days. The claimant also received mobilisation advance of Rs.86,33,168/- and also furnished bank guarantee dated 28.04.2007 issued by ICICI Bank, Chennai valid upto 31.1.2008 towards 10% mobilisation advance paid by the Respondent.

3. The claimant sought for extension of time upto 31.7.2008 in its letter dated 22.01.2008 and the same was granted by the Respondent in its letter dated 06.02.2008. In the course of execution of the work, the claimant enclosed a certificate dated 14.2.2008 in Form-S issued by VAT Assessing Officer – CTO, Egmore II Assessment Circle, Chennai, which certified that tax need not be deducted at source under Section 13 of the TNVAT Tct, 2006 from the bills of the claimant till the completion of the project. Thus, the claimant requested the respondent not to deduct tax from 2007 to 2008 for a total sum of Rs.4,50,795/-. On 12.12.2008 the claimant submitted to the Respondent a debit note dated 12.12.2008 for Rs.25,53,720/- towards TNVAT paid by the claimant from August 2007 to October 2008 on various materials transferred as property in the execution of the works contract. On 06.01.2009 the Respondent sent a letter to the Claimant stating that the debit note sent carried no authenticity as to the remittance of the VAT to the Government. Hence the claimant was called upon to submit the authenticity for payment apart from the break up for each of the materials used for the work of further verification with respect to the agreement.

4. Similarly on 30.11.2009, the Respondent sent a letter alleging that the Principal Accountant General has raised objection as regards the payment of interest free mobilisation advance of Rs.86,33,168/- and sought for recovery of loss of interest at 9% per annum. Accordingly, the Respondent has stated that bank guarantee given for a sum of Rs.23 lakhs towards 2.5% retention/defect liability would be encashed. Further, on 19.08.2010 the claimant issued notice under Section 21 of the Arbitration Act calling upon the Respondent to pay the claimant a sum of Rs.25,53,720/- towards the amount due towards VAT, Rs.7,67,568/- towards the amount received as interest by the respondent by invoking the bank guarantee; Rs.5 lakhs towards damages on account of unlawful invocation of the bank guarantee. Hence the matter has been referred to the sole Arbitrator appointed by this Court.

5. It is the case of the Respondent that the claimant is responsible for the consequential loss due to non-attending the defects on time or non-payment of the estimated rectifying costs. It is further contention of the respondent that the agreement specifically stated that there would be no advance payment. This was accepted and signed by the claimant as such they had no legitimate right to receive the advance including the mobilisation advance from the Respondent. However, as per the request of the claimant, vide their letter dated 30.04.2007, the mobilisation advance of Rs.86,33,168/- was given on 02.05.2007. The site was handed over on 11.05.2007 and the work was completed on 31.12.2008.

6. As per G.O.Ms.No.445, Finance (Salary) Department, dated 26.09.2000 mobilisation advance sanctioned to the contractor shall be recovered along with interest. Hence, the claimant was liable to pay interest to the Petitioner/Respondent. Thus, the Respondent called upon the Claimant through its letter dated 30.11.2009 to pay the interest on the mobilisation advance received. It is stated that all other contractors of the Petitioner/Respondent except the Claimant had remitted the interest charged on the mobilisation advance given to them. Hence, his contention that the claimant was not entitled to receive the mobilisation advance and the the claim made by the Petitioner/claimant for Rs.7,67,568/- is not maintainable.

7. Similarly, as regards the claim for refund of VAT, for a sum of Rs.25,53,720/- there is no break up details for each and every item of material used. Since there was no reply from the claimant, the claimant is not entitled for the return of amount paid towards VAT. Besides it is the contention of the respondent that the claimant had not attended the defects within the defect rectification period. Therefore, the Respondent has suffered a sum of Rs.30 lakhs towards the cost of the defect. Though last five years the Respondent estimated a loss of Rs.5,18,40,000/-, they restricted the compensation only for a sum of Rs.1 crore towards loss of reputation and business, and raised counter claim for Rs.1,30,00,000/-.

8. Based on the rival contentions the following issues were framed by the learned Arbitrator:

1. Whether the Respondent is entitled to invoke the bank guarantee for the interest free mobilisation advance?

2. Whether the Claimant is entitled to return of Rs.7,67,568?

3. Whether the Respondent is entitled to claim interest?

4. Whether the Claimant is entitled for damages of Rs.5,00,000/- for wrongful invocation of bank guarantee?

5. Whether the claimant is entitled to reimbursement of Rs.25,53,729/- towards VAT?

6. Whether the counter claim is barred by limitation?

7. Whether the respondent is entitled for Rs.30.00 lakhs for rectification work?

8. Whether the Respondent is entitled for Damages/nominal compensation of Rs.1.00 crore?

9. Whether the claimant is entitled to interest, if so, from which period?

10. Costs.

9. The learned Arbtrator has allowed the claims as follows:

The claimant is entitled to Rs.7,67,568/- towards the amount received as interest by the respondent by invoking the bank guarantee; Rs.1,00,000/- towards damages for wrongful invocation of the bank guarantee; Rs.25,53,720/- towards reimbursement of VAT with interest at 12% p.a., and interest on Rs.25,36,730/- at 12% p.a.from the date of claim i.e.,12.12.2008 till 30.11.2015 the date of filing of claim petition and directed the Respondent to pay the above amount within three months from the date of Award, failing which, claimant will be entitled to interest at the rate of 18% from the date of award till the date of payment. The Arbitrator negatived the counter claim raised by the respondent. Aggrieved over the above order the present original petition has been filed by the respondent/petitioner herein challenging the Award of the Arbitrator.

10. It is the main contention of the learned Additional Advocate General appearing for the Petitioner, that the entire work was completed in the year 2008 and the defect liability period was also over in the year 2009. On 14.12.2009 itself the Petitioner has invoked the bank guarantee for recovery of interest on the mobilisation advance. As against which Section 9 application was also filed by the Claimant/Respondent in the year 2009. Further it is his contention that an application has been filed under Section 11 of the Act only in April 2013 to appoint an Arbitrator to refer the matter for disposal. Though the cause of action arose in the year 2008 and bank guarantee was invoked 11.12.2009 the respondent has not approached the court within a period of three years. The same clearly indicates that the claimant have no intention to arbitrate the dispute. Three year period of limitation has already been over before the Claimant/Respondent invoking the jurisdiction of the Court under Section 11 of the Act. Hence, it is the main contention of the learned Additional Advocate General that the entire claim is barred by limitation. It is his further contention that contract data does not provide for payment of interest, pre-advance and mobilisation advance. When the contract itself does not provide for interest free advance, the Claimant/Respondent cannot seek refund of amount which was required as interest. Similarly in respect of VAT also the Claimant has not authenticated the particulars. Hence, it is the contention that the entire claim of the petitioner is barred by limitation and the learned Arbitrator ought to have rejected the claim. Learned Arbitrator having rejected the counter claim on the ground of limitation, the same yardstick ought to have been applied to the Respondent/Claimant. Hence, the entire Award is liable to be set aside.

11. In support of his contention, the learned Additional Advocate General has relied upon the following judgments:-

1. S.Rajan vs. State of Kerala and Ors. [AIR 1992 SC 1918]

2. Panchu Gopal Bose vs. Board of Trustees for Port of Cancutta [(1993) 4 SCC 338]

3. Union of India vs. Momin Construction Company [AiR 1995 SC 1927]

4. State of Orissa vs. Damadar Das [(1996) 2 SCC 216]

5. S.B.P.and Co vs. Patel Engineering Ltd., and Ors. [(2005) 8 SCC 618]

6. Shree Ram Mills Ltd., Vs. Utility Premises P. Ltd., [(2007) 4 SCC 599]

7. The Madras Metropolitan Water Supply and Sewerage Board and Ors. vs. Ramakrishna Reddy and others [1995 (2) CTC 373]

8. Adinath Sahakari Sakhar Karkhana vs. Triveni Engineering and Industries Ltd., [2007 SCC Online Bom 938]

9. Rajesh Kumar Garg vs. MCD and Ors [2008(2) ABBLR 107 (Delhi)]

10. National Insurance Co. Ltd., Vs. Sujir Ganesh Nayak and Co. and Ors. [AIR 1997 SC 2049]

11. H.PO.State Forest Co. Ltd., Vs. United India Insurance Co. Ltd., [(2009) 2 SCC 252]

12. Esha Battacharjee Vs. Managing Committee of Raghunathpur Nafar Academy and others [(2013) 12 SCC 649]

13. Delhi Development Authorityh vs. Durga Constrcution Co. [2013 (139) DRJ 133 (DB)]

14. Food Corporation of India vs. Pratap Rice and General Mills [ILR(2014) II Delhi]

15. INX News Pvt Ltd., vs. Pier One Contruction Pvt. Ltd., [ILR (2014) II Delhi 965]

16. R. Sathyamurthy vs. R.Krishnamurthy [SLP(C) No.16843-46/18 dated 27.07.2018 Supreme Court of India]

17. Vikas Electrical Service Rep by its Proprietor vs. Karnataka Electricity Board, O and M Division [AIR 2008 Kar 88]

18. Highway Engineering Pvt. Ltd., v. Union of India and others [19096 SCC Online Del 552]

19. Vasudeo Harchand Kolhe and Ors v. Bhaulal Nadar Singh Rajpurt and Ors. [AIR 1994 Bom 24]

20. Firm Ashok Traders and another vs. Gurumurk das Saluja and others [(2004) 3 SCC 155]

21. Archer Power Systems Private Limited vs. Kohli Ventures Limited and others [2018 (2) CTC 241]

12. It is the contention of the learned counsel for the Respondent that the debit note for VAT issued on 12.12.2008 and the work completed on 31.12.2008. The Petitioner has denied the return of VAT only on 6.1.2009. The Claimant/Respondent has invoked Section 11 application on 09.08.2010 within a period of three years. Hence, it is the contention that the plea of limitation cannot be raised at this stage. Even before the Arbitrator such plea has not raised. At any event the claim has made well within the period of limitation. It is his further contention that with regard to the interest on the mobilisation advance Letter of Acceptance is also a part of the agreement. The Respondent has requested mobilisation advance which has been paid by them without any demur. Only on the objection raised by the Audit Department in the later stage, Bank Guarantee was invoked. Hence it is his contention that the Learned Arbitrator has considered the entire aspect and passed Award. Therefore, there is no ground made out to interfere the Award.

13. In support of his contention the learned counsel for the Claimant/Respondent relied on the following judgments:

1. Kanpur Jal Sansthan and Anr. v. Bapu Construction [(2015) S SCC 267]

2. State of Punjab v. Om Prakash Baldev Krishnan [(1988) Supp SCC 722]

3. Associate Builders v. Delhi Development Authority [(2015) 3 SCC 49]

4. Cruz City Mauritius Holdings v. Unitech Ltd., [(2017) 239 DLT 649]

5. Indershigh Rekhi v. Delhi Development Authority [(1988) 2 SCC 338]

6. Shankar Dastidar v. Banjulla Dastidar and Ors. [(2006) 13 SCC 470]

7. National Insurance Co. Ltd., v. Boghara Polyfab Pvt. Ltd., [(2009) 1 SCC 267]

8. Satinder Kumar v. Municipal Corporation of Delhi [MANU/DE/0385/2010]

9. State of Goa v. Praveen Enterprises [(2012) 12 SCC 581]

10. Voltas Ltd. vs. Rolta India Ltd., [(2014) 4 SCC 516]

11. Delhi Development Authority v. Joint Action Committee and Ors. [(2008) 2 SCC 672]

12. B.L.Sreedhar and Ors. v. Munireddy and Others [(2003) 2 SCC 355]

13. R.Chinnasamy v. T. Ponnusamy [2018 SCC Online Mad 1446]

14. As per G.O.Ms.No.581 Revenue (NC.IV) Department dated 19.10.2005, as part of rehabilitation and reconstruction programme undertaken by the Government "Rehabilitation the eastern bank of Kaduvaiyur river at Nagapattinam Port by providing a diaphragm wall to a length of 650m so as to maintain the river depth and to prevent erosion river bank." has been sanctioned by Tamilnadu Government. The respondent was become a successful bidder. On 23.4.2007 letter of acceptance was issued to the Petitioner requesting them to furnish Performance Security at 10% value of the contract i.e., for Rs.86,33,168/- within 14 days in accordance with the condition of the contract. This Original Petition is filed with regard to levy of interest and advance payment. The relevant clause of contract 14(2) is read as follows:

14.2. Advance Payment:

The Employer shall make an advance payment, as na interest-free loan for mobilisation, when the Contractor submits a guarantee in accordance with this Sub-Clause. The total advance payment, the number and timing of instalments (if more than one) and the applicable currencies and proportions, shall be as stated in the Contract Data.

Unless and until the Employer receives this guarantee, or if the total advance payment is not stated in the Contract Data, this Sub-Clause shall not apply.

The Engineer shall issue and Interim Payment Certificate for the first instalment after receiving a Statement (under Sub-Clause 14.3 [Application for interim payment certificates) and after the Employer receives (i) the Performance Security in accordance with Sub-Clause 4.2 [Performance Security] and (ii) a guarantee in amounts and currencies equal to the advance payment. This guarantee shall be issued by an entity and from within a country (or other jurisdiction) approved by the Employer and shall be in the form annexed to the Particular Conditions or in another form approved by the Employer.

The Contractor shall ensure that the guarantee is valid and enforceable until the advance payment has been repaid, but its amount may be progressively reduced by the amount repaid by the Contrator as indicated in the Payment Certificates, if the terms of the guarantee specify its expiry date, and the advance payment has not been repaid by the date 28 days prior to the expiry date, the Contractor shall extend the validity of the guarantee until the advance payment hs been repaid.

Unless stated otherwise in the Contract Data, the advance payment shall be repaid through percentage deductions from the interim payments determined by the Engineer in accordance with Sub-Clause 14.6 [issue of interim payment certificate] as follows:

(a) deductions shall commence in the next interim Payment Certificate following that in which the total of all certified interim payments 9excluding the advance payment and deductions and repayments of retention) exceeds 30 percent of the Accepted Contract Amount less Provisional sums; and

(b) deductions shall be made at the mobilisation rate stated in the Contract Data of the amount of each interim payment certificate (excluding the advance payment and deductions and repayments of retention) in the currencies and proportions of the advance payment until such time as the advance payment has been repaid; provided that the advance payment shall be completely repaid prior to the time when 80 percent of the Accepted Contract Amount less Provisional sums has been certified for payment.

If the advance payment has not been repaid to the issue of the Taking-Over Certificate for the Works or prior to termination under Clause 15 [Termination by Employer], Clause IC [Suspension and Termination by contractor] or Clause 19 [Force Majeure] (as the case may be), the whole of the balance then outstanding shall immediately become due and payable by the Contractor to the Employer."

15. The above clause makes it clear that if the total advance payment not stated in the contract data. Employer to make advance payment as an interest free loan for mobilisation does not arise. Therefore, the above clause makes it very clear that to claim interest free mobilisation advance there must be necessary entry in the contract data as to the nature of the advance, etc., The contract data admittedly did not contain the total advance payment to be payable. Section 8 of the particular condition of the contract clearly show that contract data did not have any mention about the advance payment as interest free loan for mobilisation. The contract data silent about payment of interest free loan for mobilisation. Clause 14.2 of the contract makes it clear, to claim interest free advance payment for mobilisation necessary entry must be in the contract data. Admittedly, in the given case, there is no such entry found in the contract data. Therefore, the Petitioner claiming interest on the mobilisation advance does not arise at all. No doubt the Petitioner has claimed interest free mobilisation advance equivalent to 15% of the contract value as against the bank guarantee to be submitted by the claimant and the mobilisation advance was to be recoverable pro-rata from the running bills/final bills. Though such letter was given on 19.12.2006, the Petitioner accepted the above offer and issued an order dated 23.04.2007 in which the claimant was directed to furnish the Performance Security at 10% value of contract i.e., Rs.86,33,168/- .

16. The learned Arbitrator considering the letter by the Claimant/Respondent requesting mobilisation advance and subsequent letter of the Petitioner/Respondent dated 23.04.2007, directed the Petitioner to refund the interest amount encashed through bank guarantee. It is to be noted that when the contract itself stipulated that as long as the free of interest mobilisation advance is not possible, the Arbitrator ought not to have gone beyond the terms of contract. Accordingly, the learned Arbitrator's Award with regard to a sum of Rs.7,67,568/- is certainly liable to be interfered.

17. As far as the Award with regard to refund of VAT, in para 123 of the Award the learned Arbitrator recorded her finding factually and held that VAT paid by the Claimant/Respondent is liable to be refunded. In fact the learned Arbitrator has also considered the entire evidence and perusing the various documents and factually found that there is no dispute with regard to the reimbursement of the VAT. It is admitted by both parties that the rate quoted by the claimant/Respondent was accepted by the Petitioner. Clause 14.2.(b) is very specific about this. Initially in the defence it is stated that the respondent has only raised authenticity of the certificate whereas the learned Arbitrator found from the other documents particularly Ex.C.22 and held that the amount has been paid by the Claimant/Petitioner. Accordingly, learned Arbitrator passed Award for reimbursement of the amount paid towards VAT.

18. It is the contention of the learned counsel appearing for the petitioner that the claim is barred by limitation. It is to be noted that it is the admitted case that on 12.12.2008 debit note for VAT was issued by the Respondent/Petitioner and the work was completed on 31

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.12.2008. Only on 6.1.2009 a denial made by the Petitioner/Respondent by letter dated 6.1.2009. On 19.8.2010 the claimant issued notice under Section 21 of the Arbitration Act calling upon the Respondent/Petitioner to pay the Claimant a sum of Rs.25,53,720/- towards amount due to VAT and also Rs.7,67,568/- towards amount received by the respondent for unlawful invocation of the Performance BG, and Rs.5,00,000/- damages towards unlawful invocation of the Performance BG. The Petitioner sent a letter denying liability. Thereafter, though the claimant nominated the Arbitrator on 12.08.2015 the Petitioner declined and intimated vide letter dated 16.11.2010. From the date of reply viz., 3.9.2010 within three years an application under Section 11 has been filed by the Claimant/Respondent i.e., on 30.4.2013 to appoint an Arbitrator. Since the Claimant/Respondent evinced no interest in appointing an Arbitrator, the Arbitrator was appointed in the year 2015. As steps have been taken within the period of three years to nominate the Arbitrator, it cannot be said that the entire claim is barred by limitation. The contention of the learned counsel for the petitioner cannot be countenanced. 19. It is further to be noted that this aspect never raised in the defence. Though the legal plea can be raised at any stage as per Section 34 of the Act, it is to be noted that limitation is always mixed the question of law and facts. When the facts are also relevant to decide the limitation and such plea has not taken in the initial stage, now it cannot be pressed into service. At any event Section 11 Application filed within the period of three years from the date when the right to sue accrued to the claimant/respondent. Therefore, the contention of the petitioner that the Arbitrator ought not to have awarded the amount cannot be countenanced. Accordingly, this Court hold that the Arbitrator's finding directing the Petitioner to return of Rs.7,67,568/- towards interest on mobilisation advance is liable to be set aside since it is beyond contract. Accordingly it is set aside. In respect of other aspects the Award is confirmed. 20. In the result, the Original Petition is partly allowed. The Arbitrator's finding in issue No.2, directing the Petitioner to return Rs.7,67,568/- is set aside. In all other aspects, the findings of the Arbitrator is confirmed. No costs.
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