TMI Blog2011 (4) TMI 1467X X X X Extracts X X X X X X X X Extracts X X X X ..... with the work even thereafter. However, as the progress was slow, the Respondents terminated the contract again on the ground of non-completion even after 35 months. The Appellant filed a writ petition, challenging the cancellation. The High Court referred the parties to arbitration. In pursuance of it, on a request by the Appellant, the Respondents appointed the arbitrator. the Appellant filed its statement of claims. the Respondents their reply and also filed their four counter claims before the arbitrator. the Arbitrator awarded a sum with interest and costs in favor of the Appellant and rejected the counter claims of the Respondents. this petition is filed by Respondents. HELD THAT:- The arbitrator has examined the said issue and has recorded a categorical finding that the Respondents were responsible for the delay in execution of the work and the contractor was not responsible. The arbitrator also found that the Respondents were in breach and the termination of contract was illegal. Therefore, the Respondents were not entitled to levy liquidated damages nor entitled to claim from the contractor the extra cost (including any escalation in regard to such extra cost) in gettin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellant in a writ petition filed before the Gawahati High Court. By judgment dated 27.9.1994, the High Court set aside the termination and directed the Respondents to grant time to the Appellant till the end of January 1995 for completion of the first phase reserving liberty to the Appellant to apply for further extension of time. As the work was not completed, the Respondents granted an extension up to 31.7.1995 by letter dated 24.8.1995, without levying any liquidated damages. The contractor proceeded with the work even thereafter. However, as the progress was slow, the Respondents terminated the contract on 14.3.1996 on the ground of non-completion even after 35 months. The Appellant filed a writ petition, challenging the cancellation. The High Court by order dated 25.6.1996, noticed the existence of the arbitration agreement and referred the parties to arbitration. In pursuance of it, on a request by the Appellant, the Respondents appointed Mr. C. Vaswani as the sole arbitrator on 14.2.1997. 3. On 17.4.1997, the Appellant filed its statement of claims. Claims 1 to 11 aggregated to ₹ 2,38,86,198.31 (subsequently, reduced to ₹ 2,06,70,495/-). Claim 12 was for inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the site, and setting-up of infrastructure required for performance of full value of work. ₹ 18,01,701 Nil 11 Claim for the loss of anticipatory profit @ 15% on the value of balance work which could not be executed due to termination of Contract ₹ 54,03,669 ₹ 39,12,000 Total ₹ 2,06,70,495 ₹ 104,58,298 Counter Claims by Respondents Counter Claim No Particulars of Counter Claim Amount claimed by Respondents Amount awarded by Arbitrator 1. Excess cost of getting the work executed through an alternative agency - recoverable as per clause (3) of the agreement ₹ 1,46,69,227 Nil 2. Liquidated damages levied under clause (2) of the agreement ₹ 56,84,998 Nil 3. Escalation that would be payable to the alternative agency in regard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as well as the order dated 12.12.2003 passed by the learned Ad hoc Additional District Judge No. 2, Kamrup, Guwahati in Misc. (Arbitration) Case No. 590/2001, are set aside. The arbitration proceeding is remitted back to the learned arbitrator for reconsideration of the counter claims of the Respondents and for passing an award by making necessary adjustment of the amount payable to the contractor/claimant against his claim Nos. 2,4,6,7,8,9 and 13 in terms of the finding recorded by this Court. 6. The Respondents' contention that the arbitrator has considered and allowed some claims which were `excepted matters' and therefore, inarbitrable, that grant of some other claims by the arbitrator violated the express provisions of Clause 10(cc) of the agreement, and that the counter-claims of Respondents have been erroneously rejected, have found favor with the High Court. The Appellant contends that the award does not violate Clauses (2) and (3) of the agreement making certain decisions of Superintending Engineer/Engineer-in-Charge final, nor Clause 10(cc) of the agreement relating to escalations. It is also contended that Respondents committed breach and the counter-claims w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the bank guarantee for ₹ 1 lakh which had been issued in lieu of security deposit and forfeited the same on the ground that the contractor was in breach. The arbitrator held the contractor was not in breach and the forfeiture was illegal and directed that the said sum of Rupees one lakh should be refunded to the contractor. 10. Claim No. 11 was for ₹ 54,03,669 being the loss of anticipated profit in regard to the value of the unexecuted work which would have been executed by the contractor if the contract had not been rescinded by the Respondents. The contractor contended that the termination was in breach of the contract and but for such termination the contractor would have legitimately completed the work and earned a profit of 15%. The arbitrator held that the Respondents were responsible for the delay, that the contractor was not in breach and the termination was therefore illegal. He held that the value of the work which could not be executed by the contractor due to wrongful termination, was ₹ 3,91,21,589 and 10; thereof would be the standard estimate of the loss of profits and consequently awarded ₹ 39,12,000/- towards the loss of profits, which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the contractor failing to comply with this condition, he shall be liable to pay as compensation an amount equal to one percent or such small amount as the Superintending Engineer (whose decision in writing shall be final) may decide on the said estimated cost of the whole work for every day that the due quantity of work remains incomplete. Provided always that the entire amount of compensation to be paid under the provisions of this clause shall not exceed ten per cent, on the estimated cost of the work as shown in the tender. Clause 3: The Engineering-in-charge may without prejudice to his right against the contractor in respect of any delay or inferior workmanship or otherwise or to any claims for damage in respect of any breaches of the contract and without prejudice to any rights or remedies under any of the provisions of this contract or otherwise and whether the date of completion has or has not elapsed by notice in writing absolutely determine the contract in any of the following cases: (i) If the contractor having been given by the Engineer-in-charge a notice in writing to rectify, reconstruct or replace any defective work or that the work is being performed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er any of provisions aforesaid. The contractor shall not be entitled to recover or be paid any sum for any work thereof or actually performed under this contract unless and until the Engineer-in-Charge has certified in writing the performance of such work and the value payable in respect thereof and he shall only be entitled to be paid the value so certified. Clause 25: Except where otherwise provided in the contract all questions and disputes relating to the meaning of the specifications, designs, drawings, and instructions hereinbefore mentioned and as to the quality of workmanship or materials used on the work or as to any other question, claim, right, matter or thing whatsoever in any way arising out of or relating to the contract designs, drawings, specifications, estimates, instructions, orders or these conditions or otherwise concerning the works or the execution of failure to execute the same whether arising during the progress of the work or after the completion or abandonment thereof shall be referred to the sole arbitration of the person appointed by the Chief Engineer, C.P.W.D. in charge of the work at the time of dispute or if there be no Chief Engineer the adm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (that is, the quantum) to be levied and not on the question as to whether the contractor had failed to complete the work or the portion of the work within the agreed time schedule, whether the contractor was prevented by any reasons beyond its control or by the acts or omissions of the Respondents, and who is responsible for the delay. (iii) The first part of Clause (3) provides that if the contractor delays or suspends the execution of the work so that either in the judgment of the Engineer-in-Charge (which shall be final and binding), he will be unable to secure the completion of the work by the date of completion or he has already failed to complete the work by that date, certain consequences as stated therein, will follow. What is made final by this provision is the decision of the Engineer-in-Charge as to whether the contractor will be able to secure the completion of the work by the due date of completion, which could lead to the termination of the contract or other consequences. The question whether such failure to complete the work was due to reasons for which the contractor was responsible or the department was responsible, or the question whether the contractor was ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her termination/rescission is valid or illegal. What is made final, is the decisions on consequential issues relating to quantification, if there is no dispute as to who committed breach. That is, if the contractor admits that he is in breach, or if the Arbitrator finds that the contractor is in breach by being responsible for the delay, the decision of the Superintending Engineer will be final in regard to two issues. The first is the percentage (whether it should be 1% or less) of the value of the work that is to be levied as liquidated damages per day. The second is the determination of the actual excess cost in getting the work completed through an alternative agency. The decision as to who is responsible for the delay in execution and who committed breach is not made subject to any decision of the Respondents or its officers, nor excepted from arbitration under any provision of the contract. 15. In fact the question whether the other party committed breach cannot be decided by the party alleging breach. A contract cannot provide that one party will be the arbiter to decide whether he committed breach or the other party committed breach. That question can only be decided by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is whether the liability of the Respondent to pay liquidated damages and the entitlement of the Appellant, to collect the same from the Respondent is an excepted matter for the purpose of Clause 20.1 of the General Conditions of contract. The High Court has pointed out correctly that the authority of the purchaser (BSNL) to quantify the liquidated damages payable by the supplier Motorolla arises once it is found that the supplier is liable to pay the damages claimed. The decision contemplated under Clause 16.2 of the agreement is the decision regarding the quantification of the liquidated damages and not any decision regarding the fixing of the liability of the supplier. It is necessary as a condition precedent to find that there has been a delay on the part of the supplier in discharging his obligation for delivery under the agreement. It is clear from the reading of Clause 15.2 that the supplier is to be held liable for payment of liquidated damages to the purchaser under the said clause and not under Clause 16.2. The High Court in this regard correctly observed that it was not stated anywhere in Clause 15 that the question as to whether the supplier had caused any delay in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a cost) in getting the work completed through an alternative agency. Therefore even though the decision as to the rate of liquidated damages and the decision as to what was the actual excess cost in getting the work completed through an alternative agency, were excepted matters, they were not relevant for deciding claims 1, 3 and 11, as the right to levy liquidated damages or claim excess costs would arise only if the contractor was responsible for the delay and was in breach. In view of the finding of the arbitrator that the Appellant was not responsible for the delay and that the Respondents were responsible for the delay, the question of Respondents levying liquidated damages or claiming the excess cost in getting the work completed as damages, does not arise. Once it is held that the contractor was not responsible for the delay and the delay occurred only on account of the omissions and commissions on the part of the Respondents, it follows that provisions which make the decision of the Superintending Engineer or the Engineer-in-Charge final and conclusive, will be irrelevant. Therefore, the Arbitrator would have jurisdiction to try and decide all the claims of the contractor a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt in Oil and Natural Gas Corporation Ltd. v. Saw Pipes Ltd. MANU/SC/0314/2003MANU/SC/0314/2003 : 2003 (5) SCC 705 held that a court can set aside an award under Section 34(2)(b)(ii) of the Act, as being in conflict with the public policy of India, if it is (a) contrary to the fundamental policy of Indian Law; or (b) contrary to the interests of India; or (c) contrary to justice or morality; or (d) patently illegal. This Court explained that to hold an award to be opposed to public policy, the patent illegality should go to the very root of the matter and not a trivial illegality. It is also observed that an award could be set aside if it is so unfair and unreasonable that it shocks the conscience of the court, as then it would be opposed to public policy. 20. 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 under Section 34(2)(b) of the Act. Claim No. (5) is for payment of escalation under Clause 10(cc) of the contract for work done bey ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t levy of penalty. In fact, having extended the time till 31.7.1995 without any levy of liquidated damages, the Respondents could not have retrospectively levied liquidated damages on 30.9.1999 from 10.1.1995. Be that as it may. 22. We extract below the reasoning of the Arbitrator for grant of escalation for the work done from 1.8.1995 to 14.3.1996 under Clause 10(cc) of the contract: The escalation up to July'95 has been covered under claim No. 1. The Respondent has not paid any further escalation beyond July, 95, since the extension thereafter has not been granted and the contract was rescinded.... The Respondent has denied the claim as the escalation is payable only for the stipulated period and period extended without levy of penalty. As I have already decided that the action of rescission of the contract and the action of levying the compensation/penalty under Clause 2 by the Respondent is incorrect and the claimant was not responsible for the delay, the escalation for the total work done, automatically becomes payable. The High Court therefore committed an error in setting aside the award in regard to claim No. 5 on the ground that it violates Clause 10(cc) of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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