2010 (9) TMI 1245 - HC - Indian Laws

Summary

Issues Involved:
1. Constitution of the arbitral tribunal.
2. Quality of the Respondents' work.
3. Termination of the Respondents' services.
4. Claims for refund of retention money and bank guarantee.
5. Claims for charges incurred for extension of the bank guarantee.
6. Claims for house rent, salary, and bonus for the engineer.
7. Claims for rent/compensation for loss of opportunities.
8. Claims for loss of profit due to abrupt stoppage of work.

Detailed Analysis:

1. Constitution of the Arbitral Tribunal:
The Appellant challenged the constitution of the arbitral tribunal on the basis that the presiding arbitrator was appointed more than 30 days after the appointment of the arbitrator by the Appellant, arguing that only the Chief Justice or his designate could appoint the presiding arbitrator in such a case, as per section 11 of the Arbitration and Conciliation Act, 1996. The court disagreed, stating that section 11(4)(b) uses the term "fail to agree" rather than "fail to appoint," indicating that the provision applies only when there is a disagreement between the two arbitrators about the third arbitrator's appointment. Since neither arbitrator proposed a third arbitrator within the 30-day period, there was no failure to agree, and thus, the arbitrators retained the power to appoint the presiding arbitrator beyond the 30 days.

2. Quality of the Respondents' Work:
The arbitral tribunal found in favor of the Respondents, concluding that the Appellant had not established that the Respondents' work was unsatisfactory. This conclusion was based on several factors, including the Appellant's continuation of the Respondents' services without termination and the lack of convincing evidence from the Appellant. The court upheld this finding, noting that mere allegations in correspondence were insufficient to overturn the tribunal's decision.

3. Termination of the Respondents' Services:
The Appellant's claim that the Respondents' services were terminated was rejected. The arbitral tribunal found that the Appellant had only instructed the Respondents to stop work, which did not constitute a termination of the contract. The court agreed, emphasizing that previous instructions to stop work due to external factors (lockout and cyclone) did not imply termination of the agreements.

4. Claims for Refund of Retention Money and Bank Guarantee:
The arbitral tribunal awarded the Respondents the refund of the retention money/security deposit and the amount received by the Appellant upon invoking the bank guarantee. The tribunal concluded that the invocation of the bank guarantee was wrongful, as there were no defects in the Respondents' performance. The court upheld this award.

5. Claims for Charges Incurred for Extension of the Bank Guarantee:
The arbitral tribunal awarded the Respondents Rs. 2,500 against their claim of Rs. 7,500 for charges incurred for the extension of the bank guarantee. The court found this award justified.

6. Claims for House Rent, Salary, and Bonus for the Engineer:
The arbitral tribunal awarded the Respondents amounts for house rent, salary, and bonus paid to the engineer during the extended period of the contract. The court upheld this award, noting that the presence of the engineer at the site was established, and it was reasonable to presume that he had been paid as per his appointment letter.

7. Claims for Rent/Compensation for Loss of Opportunities:
The arbitral tribunal found that the Respondents' claim for rent/compensation for loss of opportunities was not fully substantiated by evidence. However, it awarded damages based on a return of 9% per annum on the value of the material detained, which was established at Rs. 10,69,685. The court upheld this approach, finding it reasonable and justified.

8. Claims for Loss of Profit Due to Abrupt Stoppage of Work:
The arbitral tribunal awarded the Respondents Rs. 15,00,000 for loss of profit due to the abrupt stoppage of work. The tribunal computed the incomplete work at Rs. 31,69,120 and determined the profit margin at 15% of the value of the work. The court upheld this award, noting that the Respondents had pleaded and provided evidence for a 15% profit margin, and the tribunal's reliance on relevant Supreme Court judgments was appropriate.

Conclusion:
The court upheld the judgment of the District Court and the arbitral award, dismissing the appeal with costs fixed at Rs. 10,000. The judgment was stayed until 31st October 2010 to allow the Appellant to challenge the same.