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TMI Blog2019 (11) TMI 417X X X X Extracts X X X X X X X X Extracts X X X X ..... water tank etc. and other work for ONGC. The appellant-claimant raised certain claims which were refuted by the respondent and thus, the claimant invoked the arbitration Clause 25 of the General Conditions of the contract vide letter dated 07.09.2001. The appellant-claimant had also entered into a contract dated 05.01.1996 bearing No.DHL/Civil/NOIDA/5/94 for construction of Multi-storeyed Residential flats 20 Nos. 'B' type for ONGC. The appellant-claimant raised certain claims which were refuted by the respondent and here again, the claimant invoked the arbitration Clause 25 of the General Conditions of the contract vide letter dated 07.09.2001. 3. The designated authority vide its order dated 03.01.2002 appointed Justice P.K. Bahri (Retd.) as the sole Arbitrator to adjudicate upon the claims of the parties. The learned Arbitrator vide award dated 01.07.2005 allowed the claim of the claimant and disallowed the liquidated damages/compensation and rejected the counter claim of respondent-ONGC. Various claims made by the contractor and the amount awarded by the learned Arbitrator in both the arbitration cases are as under:- Arbitral Award in Arbitration Case No.297/2002 dated 01.0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Ld. Arbitrator 6. Declaration sought by the Petitioner that the penalty under Clause 2 imposed by ONGC was illegal and unwarranted and the amount withheld by ONGC was payable to the Petitioner with interest @ 24% Rs. 36,80,142/- [amount that was withheld by ONGC towards liquidated damages] Amount of Rs. 36,80,142/- withheld by ONGC as liquidated damages was to be refunded and adjusted towards payment of Claim No.1 and 2 7. Interest payable on final bill Rs. 9,84,680/- - 8. Interest payable on withheld amount Rs. 6,36,000/- - 9. Interest payable on escalation amount Rs. 18,91,910/- - 10. Interest payable on looses and damages Rs. 40,39,666/- - 11. Interest pre-suit pendente lite and future interest @ 24% - 10% interest 12. Cost of Arbitration Rs. 1,00,000/- Rs. 2,00,000/- Total amount awarded by Ld. Arbitrator (Claim 1 + 2 + 3) Rs. 66,36,252/- The learned Arbitrator allowed the claim of the claimant and disallowed the liquidated damages/compensation of Rs. 32,79,828/- in Arbitration Case No.297A of 2002 and Rs. 42,08,940/- in Arbitration Case No.297 of 2002 presuming the same to be a penalty. 4. Challenging the award, the respond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xclude the issue of "excepted matter" from the scope of the arbitration, the Arbitrator ought not to have dealt with the same and passed the award. The Division Bench has also pointed out that when the respondent- ONGC first gave notices to the appellant-contractor to rectify the defects and thereafter, gave a notice to levy liquidated damages on 15.05.2001 followed by the letter dated 25.05.2001 to the appellantcontractor that the final bill was ready and that the appellant was required to reconcile the final bill to ensure the settlement of the account, it cannot in such circumstances be said that the liquidated damages were imposed as a counter blast to the appellant's claim. With those findings, the Division Bench reversed the findings of the learned Single Judge and set aside the award. 8. Assailing the above judgment of the Division Bench, Mr. Bipin Prabhat, learned counsel for the appellant contended that the High Court failed to appreciate that Clause 25 of the contract which authorises the quantum of reduction as well as the reduction of rates for substantive works cannot be construed to empower the Superintending Engineer to determine the issue of levy of liquidated dam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tration Case No.297/2002, the work was to commence on 21.02.1996 and was stipulated to be completed by 21.08.1997. But the work was completed only on 24.05.1999. In its statement of defence, the respondent-ONGC asserted that there has not been any significant delay caused by the respondent-ONGC which could delay the work of the claimant. In its statement of defence, the respondent-ONGC mentioned that total delay which has occurred was 640 days out of which claimant is responsible for the delay of 39 weeks (39 x 7 = 273 days) and on this account, the claimant is liable to pay compensation in terms of Clause 2 of the contract which stipulate compensation payable @ ½% per week subject to maximum 10% of the cost of the executed work and the decision of the Superintending Engineer in this regard is final. The respondent- ONGC has thus claimed Rs. 32,79,828/- in Arbitration Case No.297A of 2002 and Rs. 42,08,940/- in Arbitration Case No.297 of 2002 recoverable from the claimant as compensation for the delay caused by the claimant in completing the work. 12. After reference to various correspondences between the respondent-ONGC and the appellant and after a detailed discussion, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is necessary to refer to Clause 2 of the agreement which reads as under:- "Clause 2: Compensation for Delay The time allowed for carrying out the work as entered in the tender shall be strictly observed by the contractor and shall be deemed to be the essence of the contract on the part of the contractor and shall be reckoned from the 15th day after the date on which the order to commence the work is issued to the contractor. The work shall throughout the stipulated period of the contract be proceeded with all due diligence and the contractor shall pay compensation on amount equal to ½ % per week as the Superintending Engineer (whose decision in writing shall be final) may decide on the amount of the contract, value of the whole work as shown in the agreement, for every week that the work remains uncommenced, or unfinished, after the proper dates. After further to ensure good progress during the execution of the work, the contractor shall be bound in all cases in which the time allowed for any work exceeds, one month (save the special jobs) to complete one-eighth of the work, before one-fourth of the whole time allowed under the contract has elapsed and three-eights ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rbitration of the person appointed by a Director of ONGC Ltd. at the time of dispute. There will be no objection to any such appointment that the arbitrator so appointed is an employee of ONGC Ltd. or that he had to deal with the matters to which the contract relates and that in the course of this duties as ONGC Ltd. employees, lie had expressed views on all or any of the matters in dispute or difference. If the arbitrator to whom the matter is originally referred dies or refuses to act or resigns for any reason from the position of arbitrator, it shall be lawful for the Director of ONGC Ltd. to appoint another person to act as arbitrator in the manner aforesaid. Such person shall be entitled to proceed with the reference from the stage at which it was left by his predecessor if both the parties consent to this effect, failing which the arbitrator will be entitled to proceed de-novo. ........... It is also a term of the contract that if the contractor(s) do/does not make any demand for arbitration in respect of any claim(s) in writing within 90 days of receiving the intimation from the corporation that the bill is ready for payment, the claim of the contractor(s) will be d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... compensation is levied on him for the period of 39 weeks at half per cent per week subject to maximum of 10% of the contract value and that the actual amount of compensation shall be worked out on checking the final bill and the same shall be recovered by ONGC from the final bill. By the subsequent letter dated 25.05.2001, the claimant was informed that the final bill is ready and the claimant was required to reconcile the final bill after adjusting the compensation. 18. A reading of the other terms of the contract would further indicate that under Clauses 13 and 14 of the agreement, the parties have agreed for payment of compensation and non-payment of compensation in certain situations. Significantly, Clauses 13 and 14 of the agreement do not have any finality clause which indicates that any dispute arising out of such clauses may be a dispute referable to arbitration. However, in respect of levy of compensation for the delay, Clause 2 of the agreement specifically makes the decision of the Superintending Engineer, final. The entire contract between the parties and the terms thereon have to be read as a whole to decide the rights and liabilities of the parties arising out of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herwise provided in the contract" would become meaningless. We are therefore inclined to hold that the opening part of clause 25 clearly excludes matters like those mentioned in clause 2 in respect of which any dispute is left to be decided by a higher official of the Department. Our conclusion, therefore, is that the question of awarding compensation under clause 2 is outside the purview of the arbitrator and that the compensation, determined under clause 2 either by the Engineer-in-charge or on further reference by the Superintending Engineer will not be capable of being called in question before the arbitrator. 10. ....... But we should like to make it clear that our decision regarding non-arbitrability is only on the question of any compensation which the Government might claim in terms of Clause 2 of the contract. We have already pointed out that this is a penalty clause introduced under the contract to ensure that the time schedule is strictly adhered to. It is something which the Engineer-in-charge enforces from time to time when he finds that the contractor is being recalcitrant, in order to ensure speedy and proper observance of the terms of the contract. This is not an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iction to entertain an application for reference to arbitration as regards the disputes arising therefrom and it has been the consistent view that in the event of the claims arising within the ambit of excepted matters, the question of assumption of jurisdiction of any arbitrator either with or without the intervention of the court would not arise. The parties themselves have decided to have the same adjudicated by a particular officer in regard to these matters; what these exceptions are however are questions of fact and usually mentioned in the contract documents and form part of the agreement and as such there is no ambiguity in the matter of adjudication of these specialised matters and being termed in the agreement as the excepted matters. ........ 9. ......... The Food Corporation, therefore, as a matter of fact desired an adjudication of their claim to the extent of Rs. 1,89,775 together with interest at the rate of 18 per cent per annum from the civil court rather than relying on the adjudicatory process available in the contract itself through their own Senior Regional Manager. The agreement as noticed above expressly provides that the adjudication shall be effected ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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. ........... 26. Quantification of liquidated damages may be an excepted matter as argued by the appellants, under Clause 16.2, but for the levy of liquidated damages, there has to be a delay in the first place. In the present case, there is a clear dispute as to the fact that whether there was any delay on the part of the respondent. For this reason, it cannot be accepted that the appointment of the arbitrator by the High Court was unwarranted in this case. Even if the quantification was excepted as argued by the appellants under Clause 16.2, this will only have effect when the dispute as to the delay is ascertained. Clause 16.2 cannot be treated as an excepted matter because of the fact that it does not provide for any adjudicatory process for decision on a question, dispute or difference, which is the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liquidated damages/compensation is adjustable against the final bill payable to the appellant. The impugned judgment does not therefore, suffer from any infirmity warranting interference. 26. As per the chart filed by the respondent-ONGC, total amount awarded by learned Arbitrator in favour of the appellant is Rs. 1,24,47,416/- (Rs. 66,36,252/- + Rs. 58,11,164/-). Total amount of compensation/liquidated damages withheld by ONGC is Rs. 66,99,117/- (Rs. 36,80,142/- + Rs. 30,18,975/-). Towards satisfaction of the arbitral award, ONGC has deposited an amount of Rs. 2,10,41,965/-. As per the order of the Division Bench of the Delhi High Court, the appellant was directed to refund an amount of Rs. 74,88,768/- (amount withheld by ONGC + accrued interest). In compliance of the order of the Supreme Court dated 09.04.2009, the appellant has deposited Rs. 75,00,000/- before the Supreme Court and the same has been invested in a nationalised bank. The amount of Rs. 74,88,768/- along with accrued interest is ordered to be paid to the respondent-ONGC. The balance of Rs. 11,232/- (Rs. 75,00,000 - Rs. 74,88,768/-) along with accrued interest be refunded to the appellant. 27. In the result, the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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