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TMI Blog2011 (4) TMI 1467X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 (i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Appellant 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 f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 to execution of remaining work (tentative). ₹ 75,00,000 Nil 4. Cost of Arbitration ₹ 1,00,000 Nil Total ₹ 2,79,54,225 Nil The Arbitrator awarded to the contractor, simple interest @ 9% per annum on ₹ 38,21,298 for the period 14.9.1996 to 31.3.1997 and simple interest @ 15% per annum on ₹ 1,04,58,298 for the period 1.4.1997 to date of payment (under Claim No. 12). The Arbitrator also awarded ₹ 39,610/-towards costs (under Claim No. 13). All the counter claims of Respondents were rejected. 5. On 12.12.2001, the Respondents filed an application (Misc. Arbn. Case No. 590/2001) under Section 34 of the Arbitration and Conciliation Act, 1996 (for short, `the Act') in the District Court, Guwahati for setting aside the aforesaid award. The Respondents filed an additional petition in the said proceedings, under Section 34 of the Act on 27.1.2003, raising additional grounds of challenge. The learned District Judge, Guwahati dism ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... breach and the counter-claims were rightly rejected. The Appellant contends the award is legal and not open to challenge under any of the grounds under Section 34 of the Act. Questions for consideration 7. A Civil Court examining the validity of an arbitral award under Section 34 of the Act exercises supervisory and not appellate jurisdiction over the awards of an arbitral tribunal. A court can set aside an arbitral award, only if any of the grounds mentioned in Sections 34(2)(a)(i) to (v) or Section 34(2)(b)(i) and (ii), or Section 28(1)(a) or 28(3) read with Section 34(2)(b)(ii) of the Act, are made out. An award adjudicating claims which are `excepted matters' excluded from the scope of arbitration, would violate Section 34(2)(a)(iv) and 34(2)(b) of the Act. Making an award allowing or granting a claim, contrary to any provision of the contract, would violate Section 34(2)(b)(ii) read with Section 28(3) of the Act. On the contentions urged, the following questions arise for our consideration: (i) 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'? (ii) Whether the Hig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its, which the contractor would have earned but for the wrongful termination of the contract by the Respondents. 11. As per the arbitration agreement (contained in Clause 25 of the contract) all questions and disputes relating to the contract, execution or failure to execute the work, whether arising during the progress of the work or after the completion or abandonment thereof, "except where otherwise provided in the contract", had to be referred to and settled by arbitration. The High Court held that claims 1, 3 and 11 of the contractor were not arbitrable as they related to excepted matters in regard to which the decisions of the Superintending Engineer or the Engineer-in-Charge had been made final and binding under Clauses (2) and (3) of the agreement. 12. We may refer to the relevant provisions of the said contract document, that is, clauses 2, 3(Part) and 25 (Part) to decide whether the claims 1, 3 and 11 were excepted matters, excluded from Arbitration: Clause (2): 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 essence of the contract and shall be reckoned from the tenth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... med in any inefficient or other improper or unworkmanlike manner, shall omit to comply with the requirements of such notice for a period of seven days thereafter or if the contractor shall delay or suspend the execution of the work so that either in the judgment of the Engineer-in-charge (whose decision shall be final and binding) he will be unable to secure completion of the work by the date of completionor he has already failed to complete the work by that date.... (ii) x x x x (not relevant) (iii) If the contractor commits breach of any of the terms and conditions of this contract. (iv) If the contractor commits any acts mentioned in Clause 21 hereof. When the contractor has made himself liable for action under any of the cases aforesaid, the Engineer-in-Charge on behalf of the President of India shall have powers: (a) To determine or rescind the contract as aforesaid (of which termination or rescission notice in writing to the contractor under hand of the Engineer-in-Charge shall be conclusive evidence) upon such determination or rescission the security deposit of the contractor shall be liable to be forfeited and shall be absolutely at the disposal of Government. (b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... head of the said C.P.W.D. at the time of such appointment. It will be no objection to any such appointment that the arbitrator so appointed is a Government servant, that he had to deal with the matters to which the contract relates and that in the course of his duties as Government servant he has expressed views on all or any of the matters in dispute or difference. (emphasis supplied) 13. Clauses (2) and (3) of the contract relied upon by the Respondents, no doubt make certain decisions by the Superintending Engineer and Engineer-in-Charge final/final and binding/final and conclusive, in regard to certain matters. But the question is whether Clauses (2) and (3) of the agreement stipulate that the decision of any authority is final in regard to the responsibility for the delay in execution and consequential breach and therefore exclude those issues from being the subject matter of arbitration. We will refer to and analyze each of the `excepted matters' in Clauses (2) and (3) of the agreement to find their true scope and ambit: (i) Clause (2) provides that if the work remains uncommenced or unfinished after proper dates, the contractor shall pay as compensation for every day& ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the execution of the work, are not matters in regard to which the decision of Engineer-in-Charge is made final. (iv) The second part of Clause (3) of the agreement provides that where the contractor had made himself liable for action as stated in the first part of that clause, the Engineer-in-Charge shall have powers to determine or rescind the contract and the notice in writing to the contractor under the hand of the Engineer-in-Charge shall be conclusive evidence of such termination or rescission. This does not make the decision of the Engineer-in-Charge as to the validity of determination or rescission, valid or final. In fact it does not make any decision of Engineer-in-Charge final at all. It only provides that if a notice of termination or rescission is issued by the Engineer-in-Charge under his signature, it shall be conclusive evidence of the fact that the contract has been rescinded or determined. (v) After determination or rescission of the contract, if the Engineer-in-Charge entrusts the unexecuted part of the work to another contractor, for completion, and any expense is incurred in excess of the sum which would have been paid to the original contractor if the whole w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at is, a court or an Arbitral Tribunal. In State of Karnataka v. Shree Rameshwara Rice Mills MANU/SC/0177/1987MANU/SC/0177/1987 : 1987 (2) SCC 160 this Court held that adjudication upon the issue relating to a breach of condition of contract and adjudication of assessing damages arising out of the breach are two different and distinct concepts and the right to assess damages arising out of a breach would not include a right to adjudicate upon as to whether there was any breach at all. This Court held that one of the parties to an agreement cannot reserve to himself the power to adjudicate whether the other party has committed breach. This Court held: Even assuming for argument's sake that the terms of Clause 12 afford scope for being construed as empowering the officer of the State to decide upon the question of breach as well as assess the quantum of damages, we do not think that adjudication by the other officer regarding the breach of the contract can be sustained under law because a party to the agreement cannot be an arbiter in his own cause. Interests of justice and equity require that where a party to a contract disputes the committing of any breach of conditions the ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther by the Appellant/BSNL or by anybody who has been authorized on the terms of the agreement. Reading Clause 15 and 16 together, it is apparent that Clause 16.2 will come into operation only after a finding is entered in terms of Clause 15 that the supplier is liable for payment of liquidated damages on account of delay on his part in the matter of making delivery. Therefore, Clause 16.2 is attracted only after the supplier's liability is fixed under Clause 15.2. It has been correctly pointed out by the High Court that the question of holding a person liable for Liquidated Damages and the question of quantifying the amount to be paid by way of Liquidated Dmages are entirely different. Fixing of liability is primary, while the quantification, which is provided for under Clause 16.2, is secondary to it. Quantification of liquidated damages may be an excepted matter as argued by the Appellant, 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntly, 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. Re: Question (ii) 18. The arbitrator had considered and dealt with claims (1), (2, 4 and 5), (6), (7 and 8), (9) and (11) separately and distinctly. The High Court found that the award in regard to items 1, 3, 5 and 11 were liable to be set aside. The High Court did not find any error in regard to the awards on claims 2, 4, 6, 7, 8 and 9, but nevertheless chose to set aside the award in regard to these six items, only on the ground that in the event of counter claims 1 to 4 were to be allowed by the arbitrator on reconsideration, the Respondents would have been entitled to adjust the amounts awarded in regard to claims 2, 4, 6, 7, 8 and 9 towards the amounts that may be awarded in respect of counter claims 1 to 4; and that as the award on counter claims 1 to 4 was set aside by it and remanded for fresh decision, the award in regard to claim Nos. 2, 4, 6, 7, 8 and 9 were also liable to be set aside. It is now well-settled that if an award deals with and decide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c) of the agreement reads thus: Clause 10(cc) subject to the condition that such compensation for the escalation in prices shall be available only for work done during the stipulated period of the contract including such period for which the contract is validly extended under the provisions of Clause 5 of the contract without any action under Clause 2 and also subject to the condition that no such compensation shall be payable for a work for which the stipulated period of completion is 6 months or less Thus, escalation in price shall be available only for the work done during the stipulated period of contract including such period for which the contract was validly extended under the provisions of Clause (5) of the contract, without any action under Clause (2) of the contract. The Respondents contend that as the Superintending Engineer levied penalty (at 10% of the estimated cost of the work) for the period 10.1.1995 to 14.3.1996 under Clause (2) of the contract, the contractor was not entitled to payment of escalation under Clause 10(cc). The arbitrator held that the contractor was not responsible for the delay and the Respondents were responsible for the delay. If so, the cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inding on consideration of the evidence/material, that the contractor was not responsible for the delay and that the termination was wrongful and that the Respondents were liable for the consequences arising out of the wrongful termination of contract, the question of Respondents claiming any of the following from the contractor does not arise: (i) Extra expenditure incurred in getting the balance of work completed through another contractor under Clause 3 of the agreement (counter claim (1) for ₹ 1,46,69,277). (ii) Levy of liquidated damages under Clause 2 of the agreement at 10% of estimated cost of work for the delay between 10.1.1995 to 14.3.1996 [counter claim No. (2) for ₹ 56,84,998]. (iii) Claim on account of expected demand for escalation in rates payable to the alternative contractor in getting the work completed, in addition to the extra expenditure claimed under counter claim No. 1 [counter claim No. (3) for tentative sum of ₹ 75 lakhs to be ascertained after the work was actually completed and the bill of the new agency is settled]. (iv) Claim for cost of arbitration (counter claim No. (4) for ₹ 100,000/-). The High Court proceeded on the er ..... X X X X Extracts X X X X X X X X Extracts X X X X
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