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2011 (4) TMI 1467 - SC - Indian LawsArbitration Proceedings - Delay in execution of the work - termination of contract - liability to pay liquidated damages - the Respondents awarded the work of extension of terminal building at Guwahati airport to the Appellant. As per the contract the date of commencement of work and the period of completion of the work was 21 months to be completed in different stages. As the Appellant ( contractor ) did not complete the first phase of the work within the stipulated time the Respondents terminated the contract. The termination was challenged by the Appellant in a writ petition filed before the Guwahati HC. the HC set aside the termination and directed the Respondents to grant time to the Appellant till the end of January 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 without levying any liquidated damages. The contractor proceeded 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 getting the work completed through an alternative agency. 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 as also the claims of the Respondents. Consequently the award of the Arbitrator on items 1 3 and 11 has to be upheld and the conclusion of the High Court that award in respect of those claims had to be set aside as they related to excepted matters cannot be sustained. No part of the decision of the High Court is sustainable. The appeal is therefore allowed the impugned order of the High Court is set aside and the order of the District Court is restored.
Issues Involved:
1. Whether the High Court was justified in setting aside the award in respect of claims 1, 3, and 11 on the ground that they related to 'excepted matters'. 2. Whether the High Court was justified in setting aside the award in regard to Claim Nos. 2, 4, 6, 7, 8, and 9. 3. Whether the High Court was justified in holding that claim 5 for escalation was barred by Clause 10(cc) of the contract. 4. Whether the High Court was justified in setting aside the award rejecting counter-claims 1 to 4. Detailed Analysis: Issue 1: Claims 1, 3, and 11 as 'Excepted Matters' The High Court held that claims 1, 3, and 11 were not arbitrable as they related to excepted matters where the decisions of the Superintending Engineer or Engineer-in-Charge were final and binding under Clauses (2) and (3) of the agreement. However, the Supreme Court analyzed the relevant clauses and found that: - Clause (2) made the decision of the Superintending Engineer final only in regard to the percentage of compensation for delay, not on the responsibility for the delay. - Clause (3) made the Engineer-in-Charge's decision final only in regard to the potential inability to complete the work by the due date, not on the reasons for the delay or the validity of termination. - The Supreme Court concluded that the decision on who was responsible for the delay was arbitrable and upheld the arbitrator's finding that the Respondents were responsible for the delay and the termination was illegal. Thus, the award on claims 1, 3, and 11 was upheld, and the High Court's conclusion was set aside. Issue 2: Setting Aside Awards on Claims 2, 4, 6, 7, 8, and 9 The High Court set aside these claims on the ground that if counter-claims 1 to 4 were allowed, Respondents would be entitled to adjust the amounts awarded. The Supreme Court noted that: - The awards on claims 2, 4, 6, 7, 8, and 9 were upheld by the civil court and the High Court did not find any infirmity in them. - The Supreme Court held that if an award deals with several claims separately and distinctly, the court should segregate and uphold the award on items that do not suffer from any infirmity. - Therefore, the judgment of the High Court setting aside these claims was unsustainable, and the award on claims 2, 4, 6, 7, 8, and 9 was upheld. Issue 3: Claim 5 and Clause 10(cc) of the Contract The High Court set aside the award on claim 5, holding that it violated Clause 10(cc) of the contract. The Supreme Court found that: - Clause 10(cc) allowed for escalation in prices only for work done during the stipulated period or validly extended period without any action under Clause 2. - The arbitrator found that the contractor was not responsible for the delay and was entitled to a valid extension without penalty. - The Supreme Court concluded that the contractor was entitled to escalation for the work done from 1.8.1995 to 14.3.1996, and the High Court erred in setting aside the award on claim 5. Issue 4: Rejection of Counter-Claims 1 to 4 The High Court assumed that Clauses (2) and (3) made the decisions on liability to pay liquidated damages and extra costs final and inarbitrable. The Supreme Court held that: - The arbitrator's findings that the contractor was not responsible for the delay and the termination was wrongful were not open to challenge. - Consequently, the Respondents were not entitled to claim extra costs or levy liquidated damages. - The rejection of the counter-claims by the arbitrator was upheld, and the High Court's finding was unsustainable. Conclusion: The Supreme Court allowed the appeal, set aside the impugned order of the High Court, and restored the order of the District Court dated 12.12.2003.
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