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Union of India, through the Director, General Naval Project DGNP (MB) v/s M/s. Suraj Infrastructures Pvt. Ltd. & Another

    Arbitration Petition No. 324 of 2009

    Decided On, 17 September 2012

    At, High Court of Judicature at Bombay


    For the Petitioner: Y.S. Bhate with Mrs. Purnima Awasthi, Advocates. For the Respondents: R1, Rahul Chitnis a/w Rajiv singh i/by M/s. Crawford Bayley & Co., Advocates.

Judgment Text

The Petitioner, by the present Petition under Section 34 of the Arbitration and Conciliation Act, 1996 (for short, the Arbitration Act), has challenged the awards.

2 The basic facts are as under:-

On 16 March 1999, the Petitioner invited Tenders for provision of Civil Works for Non Weapon Repair Facility for Naval Dockyard, Mumbai (NWRF) vide Tender Notice. On 26 July 1999, the Petitioner issued tender documents to all shortlisted Contractors, including Respondent No.1 herein.

3 On 8 March 2000, the Petitioner accepted the offer of Respondent No.1 for a sumpsum amount of Rs.4,55,60,775.24. The contract Agreement ('the agreement') was entered into between the parties on 31 May 2000. M/s. Moti Enterprises was subsequently reconstituted and renamed as M/s. Suraj Infrastructures Pvt. Ltd.

4 On 28 August 2003, an Amendment No. I to the Agreement, dated 31 May 2000 was issued with regard to the building in respect of Item No.1 of Schedule A part I. The scheduled date of completion for Phase-II was revised as per Amendment No. I, to 8 August 2004. On 28 October 2005, an extension of time upto 10 August 2005 was granted.

5 On 3 October 2006, Respondent No.1 disputed certain issues. Therefore, Respondent No.1 referred the alleged dispute to the Additional Secretary, Ministry of Defence, Government of India, New Delhi the Appointing Authority to appoint the Sole Arbitrator to adjudicate the disputes in terms of Condition No.70 of the General Conditions of Contract IAFW-2249. Respondent No.1 raised a total number of 10 Claims vide List of Claims, which was Appended to Respondent No.1's letter dated 3 October 2006.

6 On 14 December 2006, Shri S.K. Gupta, Chief Engineer (QS & C) was appointed as the Sole Arbitrator in respect of all disputes listed along with letter dated 14 December 2006. On 11 July 2007, Respondent No. 1 filed its Statement of claim along with annexures and exhibits. On 14 December 2007, Respondent No.1 filed its pleading in defence. The parties filed reply and rejoinder also and made their submissions. No oral evidence lead by the parties. On 29 September 2008, the learned Arbitrator published the award which was received by the Petitioner on 10 October 2008. On 5 November 2008, Respondent No.1 filed its application under Section 33 of the Arbitration Act for correction of the typographical/computational errors/discrepancies in the award. On 10 November 2008, the learned Arbitrator has amended the award, which was received by the Petitioner on 24 November 2008. On 28 January 2009, the Petitioner challenged both the awards.

7 Admittedly, the work was for NWRF, for Naval Dockyard, Mumbai. The tender was issued on 26 July 1999 and the same was accepted on 8 March 2000. The amount of contract was Rs.4,55,60,775. The date of commencement, as per work order No. 1, was 23 March 2000. It was, supposed to be completed on 22 March 2002 (24 months). Even as per the amendment to the work dated 28 August 2003, the date of commencement was 23 March 2000 and the date of completion was 23 March 2002 (Phase-I). The amended work to be completed by 8 August 2004 for Phase-I, the actual date of completion was 20 March 2002 and for Phase-II 10 August 2005. The final bill was not paid. Therefore, the dispute. The contractor has not challenged any part of the award.

8 The clause 11 (A), (B) and (C) is referred and relied by the parties. It principally deals with the aspects of time, delay and extension. The time was the essence of the contract as per Clause (A). The conditions for no claim in respect of the compensation and/or otherwise and the result of extension granted under these conditions has been elaborated. Clause 11(C) is reproduced as under:-

(c) No claim in respect of compensation or otherwise, however arising, as a result of extensions granted under Conditions (A) and (B), above shall be admitted.'

There is nothing referred and pointed out that the present case falls within the ambit of those prohibited conditions as described in Clause 11 (A), (B) and (C). Clause 70 of General conditions deals with the aspect of Arbitration.

9 The Arbitrator has dealt with the pleadings based upon the material placed on record by the parties in detail and passed the reasoned order by partly granting the claims made by the Respondents. There were 10 claims, of the Respondents. The counter-claim of the Petitioner was only for the costs. The time was extended by consent of the parties.

10 The Petitioner objected to the arbitrability of claim Nos. 4, 6 and 7 by referring to condition 11((C) by invoking Section 16 of the Arbitration Act. A strong reliance was placed on a judgment of Supreme Court. (Ramnath International Construction Private Limited Vs. Union of India and Anr.) - (2007(2) SCC 453).

11 The contention was that the said claims are barred as per the agreed conditions itself, and therefore, it is outside of the jurisdiction of the Arbitrator. There is no dispute that, as per condition 70 (General Conditions) to the contract, forming part of the contract agreement, permits the parties to settle their dispute through the sole Arbitrator after due written notice to either side of the party except the dispute for which the decision of CWE or any other person by the contract expressed to be final and binding. The Arbitral Tribunal needs to consider the nature of the claim so raised. In this case, those claims are for damages and losses as contemplated under Section 73 of the Indian Contract Act, 1872 caused to the claimants, consequent to the original Respondent's breaches and non-payment for the work done.

12 The conditions so referred above in 11 (A) to (C), in the facts and circumstances are not applicable, as the findings are clearly given even by the Arbitral Tribunal that the Petitioner-Original Respondent was responsible for the delay. Their default, just cannot be overlooked while considering the disputes and the claims so raised by the Contractor-Respondents, based upon the same. All these claims basically revolved around the losses suffered by the contractor due to the prolongation of the contract on a foundation of delay and default by the Petitioner's officials. The damages/losses, therefore, claimed. Such claims, in my view, also no way falls within the restriction and/or prohibition area of these conditions. The arbitrability of claim and admissibility thereof, has rightly observed, are two distinct and distinguishable issues. The claims may be arbitrable, but not admissible and therefore to say that the matter should not be even proceeded further for want of jurisdiction and/or arbitrability, that itself is not sufficient, unless the Arbitrator, by giving hearing to all the parties decide and/or come to a particular conclusion (UP Seeds Corporation Vs. Mishra and Co.) – (AIR 1997 Allahabad 206). The decision, therefore, so given by the learned Arbitrator, at least on this issue, is well within the framework of law and the record.

13 In the present case, important aspect is the delay and default caused by the Petitioner. The finding is given by the learned Arbitrator, based upon the material available, that there was substantial delay caused by the Petitioner, though the time was the essence of the contract. The work was supposed to be completed within 24 months, therefore, the basic requirement of availability of the site and commencement of the work ought to have commenced simultaneously. There was delay on the part of the Petitioner to hand over the site because of pending demolition of the buildings, where new construction work under the contract was proposed. The site was with full of obstructions. The revised technical requirements referring to letter dated 12 October 2000 were also pointed out. The relevant design, drawings and approval could not be obtained. The mode of pricing for the revised scope and period of completion was also subjected to the negotiations. Finally the contractor was directed to commence the work at serial Item No.1 schedule 'A' as per revised drawings on 9 August 2002. In view of the amendment (Phase-II of the contract), the revised period of completion of 24 months directed to be commence from 9 August 2002. Amendment No.1 dated 29 August 2003 was finalized on 29 August 2004. The date was further extended up to 10 August 2005. The work of phase-II of the contract was completed and certified accordingly on 29 August 2005. There are letters and documents and material on record to show and support the various details and hindrances, which resulted for prolongation of the contract work. The contractor, therefore, divided their claims with the details, as considered by the Arbitrator in 4 parts i.e. (a), (b), (c) and (d).

14 Certain delay, even if any, on the part of the Respondents, in these backgrounds, the Arbitrator has considered and adjudicated the claim and restricted the amount. The Arbitrator, in fact, rejected number of claims and partly granted certain claims. The reference was also made to the various documents on record to show the delay on the part of the Respondents. The Arbitrator has recorded that admission given by the Petitioner that the prolongation of contract by one year were beyond the control of both the parties. To say that, the contractor was aware of the site problem on the date of contract and the correspondences were exchanged accordingly, in no way sufficient to accept the case, in the facts and circumstance that the contractor was bound by the original rate and contracted amount in every aspects. The exchange of correspondences for extension, in these backgrounds, is therefore, no way sufficient to accept the case of the Petitioner and to overlook the fact that the contract was admittedly not proceeded because of the Petitioner's defaults and also in view of the amendment and the change in the scope of the contract and the extension of the period accordingly.

15 The reference to RamnathInternational Construction Private Limited (Supra), just cannot be applicable in these backgrounds. The facts and circumstances were totally distinct and distinguishable. One must look into the purpose and object of such construction contract between the parties and basically when both the parties' obligations play important role. The moment terms and conditions are agreed, both the parties are under obligations to perform their part. Any delay on the part of one party, definitely delays the whole project. It is difficult to accept the case of the Petitioner that irrespective of these circumstances, the contractor bound to complete the work as agreed, and even if time was granted, there was no question of any claim on the ground of delay and no question of escalation and/or increase in the price. Admittedly, the project was delayed at least for one year and there were amendment and revision of rates, as recorded above, to say that still the Contractor should not and/or not entitle to claim any damages or compensation on these grounds, in my view, is unacceptable.

16 It is relevant to note the basic observations as recorded by the learned Arbitrator, which are as under:-

'(a) Hudson, on the topic of 'Obligations of the Employer' on page 317 (Sec 2) quotes from a case law as under:-

'I think the contract clearly involves that the building owner shall be in a position to hand over the whole site to the builder immediately upon the making of the contract. I think that there is an implied undertaking on the part of the building owner, who has contracted for the buildings to be placed by the plaintiff on his land, that he will hand over this land for the purpose of allowing the plaintiff to do that which he has bound himself to do.'

And then goes on to say:-

'There must be implied term that site will be handed over to the contractor within a reasonable time of signing of the contract and, in most cases, it is submitted, a sufficient degree of uninterrupted and exclusive possession to permit the contractor to carry out his work unimpeded and in the manner of his choice. This must be so when a date of completion is specified in contract documents'.

And, further

'If in the contract one finds the time limited within which the builder is to do the work, that means not only that he is to do it within that time, but it also means that he is to have that much time within which to do it'.

(b) Gajaria, in his book, describes the obligations of the employer while writing on 'Performance of Contractor' on page 330 as under:-

'The possible obligations of the building owner apart from payment may be summarized under the following heads:-

i) to give possession of the site.

ii) To make payment

iii) -----

iv) -----

v) To supply necessary plants, drawings, etc. required for the work.

vi) Not to interfere with the progress of work.

vii) to permit the contractor to carry out the whole of the work.

And then goes on to state:-

'If there is a definite obligation to hand over the site on a given date, and the employer fails or refuses to do so, or, if in the absence of any fixed date, he fails to hand over within a 'reasonable time', his conduct would constitute a breach of contract and entitled the contractor to damages'.

(c) Gajaria on page 359 of his book further states that:-

'In the absence of express stipulation, a building owner has no right to dictate the order in which the works will be carried out except possibly to the extent that may be necessary for the safety or proper execution of the works, and if he interferes with progress of the works by refusing to allow the contractor to carry out the works in the order of his choice, the contractor will be entitled to damages for breach of contract and possibly, depending on the terms of variation clause, to extra payment on that ground'.

17 The learned Arbitrator in the present case, considering the facts and material on record, has observed as under:-

'(a) Site was not handed over on 23 mar 2000 (Exhibit C-7 refers).

(b) Two buildings for demolition were handed over on 21 Jun 2000 (Exhibit C-12 refers).

(c) Date of commencement was though fixed as 23 Mar 2000, the site for Non Weapon Repair Facility (NWRF) building constituting 85% of the contract was not available and obstructions existed at site on the said date Exhibits CV-6, C-10, C-16, C-37, C-41, C-43, C-62 and C-65 refer in this connection.

(d) Union of India decided to reduce the size of the NWRF building from 2911.31 Square meters to 2512 square meters (Exhibit C-19 refers).

(e) Date of commencement for NWRF building was fixed by Respondents as 09 Aug 2002, nearly 5 months after the original date of completion. Revised drawings for pile foundations were provided on 12 Sep 2002 and those for new building about 80 nos were provided on 03 Mar 2003. Exhibit C-40 & C-45 refer in this connection. Thus drawings for NWRF building constituting 85% of contract were made available three years after commencement of 02 years duration contract.

(f) Union of India failed to arrange and issue stores worth Rs.43.27 lakhs under Schedule 'B' and this liability was also passed on to claimants who were forced to procure the same taking additional burden at their own investment.

(g) Add back Dos as well as various other deviations were not finalized as per the agreed conditions of contract.

62. Contractor relied upon Hon'ble Supreme Court judgment in case of M/s. Hind Construction Versus State of Maharashtra AIR 1979 SC 72 wherein it has been held as under:-

'The question whether or not time was of the essence of the contract would essentially be a question of the intention of the parties to be gathered from the terms of the contract'.

And further

'Even where the parties have expressly provided that time is the essence of the contract such a stipulation will have to be read along with other provisions of the contract and such other provisions may, on construction of the contract, exclude the inference that the completion of the work by a particular date was intended to be fundamental, for instance, if the contract were to include clauses providing for extension of time in certain contingencies or for payment of fine or penalty for every day or week the work undertaken remains unfinished on expiry of the time provided in the contract such clauses would be construed as rendering ineffective the express provision relating to time being of the essence of contract'.


This is considered as a breach of contract conditions on the part of Union of India and any breach calls for compensation of damages in terms of Section 73 of Indian Contract Act, 1872. It is also an admitted fact that there have been certain delays on the part of contractor as well in progressing the work with due diligence but major reason for prolongation has been on account of reduction in size of Non Weapon Repair Facility building and its detailed design which was handed over to contractor almost after one year of original date of completion of the work.

67. In view of the above claim of contractor is partially sustained and I award a sum of Rs.14,80,725.00 (Rupees fourteen lacs eighty thousand seven hundred and twenty five only) in favour of the contractor against this claim.'

18 The learned Arbitrator, in fact, rejected the claim of loss of profit during the prolongation of contract, has stated to be covered while awarding claim No.4. It is relevant to note that the Respondents have not pressed and withdrawn various claims.

19 In RamnathInternational (Supra), the contracts were terminated. In the present case, the work was completed. The award was passed, based upon the facts and circumstances. There is material against the Petitioner for delay and default on their side. Nothing is pointed out that the present case falls under clause 11(a) and/or 11(b) and therefore, clause 11(c) is applicable. In view of the Arbitration clause, the Respondent proved the case and after completion of the work raised the claims. There is no case even made out that the claim so raised by the Respondent falls within the ambit of 'excepted matters'. The Tribunal proceeded after completion of the wok, by treating it to be arbitrable. The award so passed, therefore, based upon the material, the contention of the Petitioner that they are not liable to pay on the ground of extension, is untenable. The normal delay cannot be equated with such delay and/or hindrance caused by the Petitioner.

20 In RamnathInternational (Supra), the Supreme Court Judgment of K.N. Sathyapalan (Supra) was not referred and/or considered where, the Apex Court has held that if there is delay in execution of contract due to the conduct of the Respondent, that itself is arbitrable matter and he shall be liable for consequences of delay namely, increasing in price. The claim so raised, cannot be stated to be beyond the purview of contract.

21 In McdermottInternational Inc. Vs. Burn Standard Co. Ltd. and Ors (2006(2) ARBLR 498 (SC), the Apex Court has accepted the grant of compensation on the ground of delay. The Bombay High Court in Union of India Vs. Moti Enterprises and Another (2003(2) Arb. LR 229 (Bombay), in similar situation maintained the grant of compensation in view of delay caused by the Petitioner-Respondent-Employer.

22 Strikingly, the Apex Court, in Ravindraand Associates Vs. Union of India (2010) 1 SCC 80)referring to the similar position and clause 11(c) in question has specifically maintained the award passed by the Arbitrator. It is observed that no case to overlook the delay caused by the Union of India. This subsequent judgment not referred RamnathInternational (Supra) though it was in different context, in no way sufficient to interfere with the reasoned award passed by the Arbitrator. I am inclined to follow, the subsequent judgment directly on the issue referring to clause 11(c) and the grant of compensation for delay and default caused by the Petitioner-Respondent.

23 It is relevant to note here, the recent Supreme Court Judgment in RashtriyaIspat Nigam Limited Vs. Dewan Chand Ram Saran (2012) 5 SCC 306), where the Apex Court reiterated that on facts and circumstances, the possible view and the interpretation given by the Arbitrator, need not be interfered by the Court. Therefore, taking over all view of the matter, I am declined to interfere with the award, in view of the subsequent judgment of the Apex Court, in Ravindraand Associates (Supra).

24 I have in PuyvastChartering B.V. Vs. KEC International Ltd. (MANU/MH/0901/2011) observed as under:-

'26 The arbitration agreement, sufficient to cover the dispute and differences arising out of the parties in view of the contract in question. The claim, as well as, the counter claim so filed were arising out of the contract between the parties. Therefore, the submission that the Arbitrator had gone beyond the point of reference is unacceptable, in the present facts and circumstances of the case The Apex Court in McDermott International Inc. V. Burn Standard Co. Ltd. MANU/SC/8177/2006 : (2006) 11 SCC 181, referring to Sections 16, 23 and 34 of the Arbitration Act observed as under:

101.... It may also be of some interest to note that this Court even prior to the enacement of a provision like Section 16 of the 1996 Act in Waverly Jute Mills Co. Ltd. V. Raymon & Co. (India) (P) Ltd. MANU/SC/0004/1962 : AIR 1963 SC 90, Dharma Prathishthanam v. Madhok Construction (P) Ltd. MANU/SC/0936/2004 : (2005) 9 SCC 686, clearly held that it is open to the parties to enlarge the scope of reference by inclusion of fresh disputes and they must be held to have done so when they filed their statements putting forward claims not covered by the original reference.

McDermott International Inc.'s principle has been followed by a Division Bench of this Court in Biwater Penstocks Ltd. Vs. Municipal Corporation of Gr. Bombay 2011(1) Bom. C.R. 622 maintaining the award so passed on the basis of additional claims raised before the Arbitrator.'

25 In every matter, it is difficult to say that the Tribunal and/or the Court is prohibited totally to grant the compensation, if the case is made out and proved that the delay for execution of the work was due to conduct and/or act of other side. The Apex Court in number of judgments including, K.N. Sathyapalan Vs. State of Kerala (2006 (4) Arb.L.R. 275 (S.C.) reiterated as under:-

'27. …..

Once it was found that there was delay in execution of the contract due to the conduct of the respondent, the respondent was liable for the consequences of the delay, namely, increase in prices. It was held that the claim was not outside the purview of the contract and arose as an incidence of the contract and the arbitrator had jurisdiction to make such award.'

'34 Ordinarily, the parties would be bound by the terms agreed upon in the contract, but in the event one of the parties to the contract is unable to fulfill its obligations under the contract which has a direct bearing on the work to be executed by the other party, the arbitrator is vested with the authority to compensate the second party for the extra costs incurred by him as a result of the failure of the first party to live up to its obligations. That is the distinguishing feature of cases of this nature and M/s. Alopi Parshad's case and also Patel Engg.'s case. As was pointed out by Mr. Dave, the said principle was recognized by this court in P.M. Paul's

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case, where a reference was made to a retired judge of this court to fix responsibility for the delay in construction of the building and the repercussions of such delay. Based on the findings of the learned judge, this court gave its approval to the excess amount awarded by the arbitrator on account of increase in price of materials and costs of labour and transport during the extended period of the contract, even in the absence of any escalation clause.' '35 The said principle was reiterated by this Court in T.P. George's case. '37. In the aforesaid circumstances, the arbitrator appears to have acted within his jurisdiction in allowing some of the claims on account of escalation of costs which was referable to the execution of the work during the extended period. In our judgment, the view taken by the High Court was on a rigid interpretation of the terms of contract and the supplemental agreement executed between the parties, which was not warranted by the turn of events.' 26 The Apex Court in J.G. Engineers Private Limited Vs. Union of India & Anr.(2011) 5 SCC 758), referring to Section 34 read with the provisions of Contract Act observed as under:- 'Once it is held that the issues relating to who committed breach and who was responsible for delay were arbitrable, the findings of the arbitrator that the contractor was not responsible for the delay and that the termination of contract is illegal are not open to challenge.' In the result, the escalation price so awarded on the basis of delay and consequential termination of contract by the employer upheld. 27 The findings, therefore, so given noway can be stated to be perverse and/or bad in law, so far as the grant, as well as, rejection of certain claims. There is no serious challenge to the amount so awarded against some claims or in part. 28 So far as the interest part is concerned, I am inclined to interfere with the rate of interest so granted, as admittedly, it was construction contract. I have already observed in Union of India Vs. Arctic India and Anr. (2011(3) Bom.C.R. 647), based upon the Supreme Court Judgment (Krishna Bhagya Jala Nigam Ltd. Vs. G. Harischandra Reddy & Anr., (2007 AIR SCW 527) and even otherwise considering the present economic and banking rates, the rate of interest is restricted to 9% instead of 12% in all respect and for all stages. 29 In the result, the award is modified to the above extent only. Rest of the award, as recorded above, is maintained. The Petition is accordingly dismissed except the rate of interest, so awarded. There shall be no order as to costs.