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2019 (11) TMI 417

..... ding Engineer - price escalation clause - Whether the levy of pre-estimated liquidated damages and reasonable compensation by the Superintending Engineer in terms of Clause 2 of the contract between the parties is “arbitrable”? - Whether the respondent-ONGC is right in contending that the levy of liquidated damages in terms of Clause 2 of the contract is final and an “excepted matter” not falling within the jurisdiction of the Arbitrator and whether the learned Arbitrator has travelled beyond the terms of the contract? HELD THAT:- A reading of Clause 2 makes it clear that the Superintending Engineer has been conferred with not only a right to levy compensation; but it also provides a mechanism for determination of the liability/quantum of compensation. The very Clause 2 itself would show that such a decision taken by the Superintending Engineer shall be final. The finality clause in the contract in terms of Clause 2 makes the intention of the parties very clear that there cannot be any further dispute on the said issue between the parties; much less before the arbitrator. The intention of the parties to exclude some of the decisions of the Superintending Eng .....

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..... 11,164/-). Total amount of compensation/liquidated damages withheld by ONGC is ₹ 66,99,117/- (₹ 36,80,142/- + ₹ 30,18,975/-). Towards satisfaction of the arbitral award, ONGC has deposited an amount of ₹ 2,10,41,965/- In compliance of the order of the Supreme Court dated 09.04.2009, the appellant has deposited ₹ 75,00,000/- before the Supreme Court and the same has been invested in a nationalised bank. The amount of ₹ 74,88,768/- along with accrued interest is ordered to be paid to the respondent-ONGC. The balance of ₹ 11,232/- (₹ 75,00,000 - ₹ 74,88,768/-) along with accrued interest be refunded to the appellant. Appeal dismissed. - CIVIL APPEAL NO. 5511 OF 2012, CIVIL APPEAL NO. 5512 OF 2012 - 8-11-2019 - JUSTICE R. BANUMATHI, JUSTICE A.S. BOPANNA And JUSTICE HRISHIKESH ROY JUDGMENT R. Banumathi, J. These two appeals arise out of the judgment dated 16.02.2009 passed by the High Court of Delhi in FAO(OS) No.6 of 2008 and FAO(OS) No.7 of 2008 in and by which the Division Bench of the High Court has set aside the order of the learned Single Judge and also of the learned Arbitrator by holding that the levy of liquidated damages is .....

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..... ed by 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% ₹ 30,18,975/- [amount that was withheld by ONGC towards liquidated damages] Amount of ₹ 30,18,975/- 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 - 8. Interest payable on withheld amount - 9. Interest payable on escalation amount - 10. Interest payable on looses and damages - 11. Interest pre-suit pendente lite and future interest @ 24% - 10% interest 12. Cost of Arbitration ₹ 1,00,000/- ₹ 2,00,000/- Total amount awarded by Ld. Arbitrator (Claim 1 + 2 + 3) ₹ 58,11,164/- Arbitral Award in Arbitration Case No.297A/2002 dated 01.07.2005 Claim No. Particulars of claim of the Petitioner before the Ld. Arbitral Tribunal Amount claimed by the Petitioner Amount awarded by Ld. Arbitrator 1. Balance payment claimed by the Petitioner towards Final Bill ₹ 25,91,225/- ₹ 24,80,142/- 2. Amount allegedly withheld by ONGC ₹ 12,00,000/-  .....

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..... r, the learned Single Judge in Arbitration Case No.297A of 2002 corrected the award amount as ₹ 66,36,252/- from ₹ 69,36,252/- which was on account of clerical mistake. 5. The respondent-ONGC filed appeals under Section 37 of the Arbitration Act, 1996 before the High Court of Delhi. The respondent contended that the pre-estimated liquidated damages of ₹ 32,79,828/- in Arbitration Case No.297A of 2002 and ₹ 42,08,940/- in Arbitration Case No.297 of 2002 claimed by the respondent-ONGC in terms of Clause 2 of the contract between the parties was wrongly disallowed by the Arbitrator presuming the same to be a penalty. 6. The issue involved before the Division Bench of the High Court was interpretation of Clause 2 of the contract regarding liquidated damages/compensation levied by the Superintending Engineer and the finality attached to it. Before the Division Bench, it was contended by the respondent-ONGC that the decision of the Superintending Engineer to levy liquidated damages under Clause 2 being final, the same was an excepted matter and not arbitrable. 7. The Division Bench set aside the findings of the award passed by the learned Arbitrator and the order .....

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..... ₹ 32,79,828/- in Arbitration Case No.297A of 2002 and ₹ 42,08,940/- in Arbitration Case No.297 of 2002 presuming the same to be a penalty. The learned ASG further contended that the learned Arbitrator travelled beyond the terms of the contract and disallowed the liquidated damages to the respondent even though it was an excepted matter , not falling within his jurisdiction. It was submitted that the Division Bench of the High Court has rightly held that the imposition of liquidated damages by the respondent was not a counter-blast or an afterthought and prayed for dismissal of the appeals. 10. We have carefully considered the contentions of both sides and perused the impugned judgment and materials on record. The following points arise for consideration in these appeals:- (i) Whether the levy of pre-estimated liquidated damages and reasonable compensation by the Superintending Engineer in terms of Clause 2 of the contract between the parties is arbitrable ? (ii) Whether the respondent-ONGC is right in contending that the levy of liquidated damages in terms of Clause 2 of the contract is final and an excepted matter not falling within the jurisdiction of the Arbitrator .....

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..... of 640 days. The respondent was responsible for only 160 days of delay whereas the claimant was responsible for delay of 371 days. It is not understood how the respondent has quantified the delay imputed to either of the parties. 13. By upholding the award of the learned Arbitrator, the learned Single Judge held that the delay in completion of the work was on account of both parties and by applying the equitable principles, the learned Single Judge held that the damages were payable by either of the parties. 14. The learned Single Judge, in our view, failed to note the implication of Clause 2 of the contract and also various correspondences between the parties, while affirming the award passed by the learned Arbitrator. In terms of Clause 2 of the agreement dated 05.02.1996 between the parties, the contractor is to proceed with the work with due diligence throughout the contract period. In case of delay or failure to ensure good progress during execution of the work, Clause 2 of the agreement provides for determination/quantification of compensation for delay or certain inactions, on the part of the contractor. In terms of Clause 2 of the agreement, the Superintending Engineer shal .....

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..... k as shown in the tender. [Emphasis added] A reading of Clause 2 makes it clear that the Superintending Engineer has been conferred with not only a right to levy compensation; but it also provides a mechanism for determination of the liability/quantum of compensation. The very Clause 2 itself would show that such a decision taken by the Superintending Engineer shall be final. The finality clause in the contract in terms of Clause 2 makes the intention of the parties very clear that there cannot be any further dispute on the said issue between the parties; much less before the arbitrator. 16. Clause 25 of the agreement - Settlement of disputes by Arbitration, reads as under:- Clause 25 - Settlement of disputes by Arbitration If any dispute, difference, question or disagreement shall, at any time, hereafter arises between the parties hereto or the respective representatives or assigns in connection with or arising out of the contract, or in respect of meaning of specifications, design, drawings, estimates, scheduled, annexures, orders, instructions, the construction, interpretation of this agreement, application of provisions thereof or anything hereunder containing or arising hereun .....

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..... very prayer to declare the amount levied by the Superintending Engineer as illegal is against the tenor of the terms of the contract (Clause 2) between the parties. By virtue of the finality clause in the contract, any decision taken by the Superintending Engineer in levying compensation cannot be referred to an arbitrator. The parties have consciously agreed to have finality to the decision of the Superintending Engineer and the same cannot be frustrated by challenging the same as illegal. Any other meaning to the finality clause in the contract and allowing further adjudication by another authority would make the agreed Clause 2 and Clause 25 of the agreement meaningless and redundant. 17. As held by the Division Bench of the High Court, whether there was delay in completion of work and the levy of liquated damages, could not have been determined by the arbitrator. Vide letters dated 08.12.1999, 09.12.1999, 17.12.1999, 11.02.2000 and 17.04.2000, ONGC called upon the respondent/contractor to remove the defects failing which it would get the defects remedied at his cost. According to ONGC, the completion time was extended without prejudice to the right of ONGC to recover compensati .....

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..... (1989) 1 SCC 657, the Supreme Court held as under:- 8. ……… As we see it, clause 2 contains a complete machinery for determination of the compensation which can be claimed by the Government on the ground of delay on the part of the contractor in completing the contract as per the time schedule agreed to between the parties. The decision of the Superintending Engineer, it seems to us, is in the nature of a considered decision which he has to arrive at after considering the various mitigating circumstances that may be pleaded by the contractor or his plea that he is not liable to pay compensation at all under this clause. In our opinion the question regarding the amount of compensation leviable under clause 2 has to be decided only by the Superintending Engineer and no one else. 9. ……..After referring to certain judicial decisions regarding the meaning of the word final in various statutes, the Division Bench concluded that the finality cannot be construed as excluding the jurisdiction of the arbitrator under Clause 25. We are unable to accept this view. Clause 25 which is the arbitration clause starts with an opening phrase excluding certain matter .....

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..... oth the learned Single Judge as well as the Division Bench have also approached the question. Reading clauses 2 and 25 together we think that the conclusion is irresistible that the amount of compensation chargeable under clause 2 is a matter which has to be adjudicated in accordance with that clause and which cannot be referred to arbitration under clause 25 . [Underlining added] The ratio of the above decision squarely applies to the present case. Once the parties have decided that certain matters are to be decided by the Superintending Engineer and his decision would be final, the same cannot be the subject matter of arbitration. 20. In this regard, reliance was also placed upon Food Corporation of India v. Sreekanth Transport (1999) 4 SCC 491 wherein, the Supreme Court interpreted Clause 12 of the agreement thereon. Clause 12 of the agreement in Food Corporation of India reads as under:- The decisions of the Senior Regional Manager regarding such failure of the contractors and their liability for the losses etc. suffered by the Corporation shall be final and binding on the contractors…. . 21. While interpreting the clause on excepted matters , in Food Corporation of Indi .....

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..... d agreement submitted that for quantification of liquidated damages, first of all, there has to be a delay and for ascertaining as to who was responsible for the delay, such an issue will be within the jurisdiction of the arbitrator. The learned ASG however, submitted that in the present case, Clause 2 of the agreement is not only a mechanism for quantification of liquidated damages, but Clause 2 also makes the contractor liable for payment of the same and in terms of Clause 2 of the agreement, the decision of the Superintending Engineer is final and the present case is therefore, distinguishable from BSNL s case. 23. As rightly contended by the learned ASG, in BSNL s case, Clause 16(2) of the agreement does not create any kind of liability to pay liquidated damages; but only provides for entitlement of BSNL to collect the damages in case of any delay in supply on the part of the supplier under Clause 16(2). While interpreting Clause 16(2) and Clause 21 of the contract which was under consideration in BSNL s case, in paras (23) and (26), the Supreme Court held as under:- 23. The question to be decided in this case is whether the liability of the respondent to pay liquidated damages .....

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..... f liability and when such compensation is levied by the Superintending Engineer, the same is final and binding. The parties have also consciously agreed that for the delay caused, the Superintending Engineer shall levy the compensation of the amount equal to half per cent and the said amount shall not exceed from 10% of the cost of the work and the determination by the Superintending Engineer is final and cannot be the subject matter of arbitration. In claim No.6, the prayer sought for by the contractor to declare the compensation levied by the Superintending Engineer as illegal is contradictory to the agreed terms between the parties. So far as the liquidated damages determined and levied, by virtue of Clause 2, is out of the purview of the arbitration especially in view of the fact that under the very same clause, the parties have agreed that the decision of the Superintending Engineer shall be final. 25. Learned Single Judge erred in proceeding under the presumptive footing that the compensation levied by the Superintending Engineer was in the nature of penalty. It was actually levy of liquidated damages/compensation in terms of Clause 2 of the agreement. Levy of compensation of .....

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