Both these Appeals arise out of the same order and were therefore heard
together and are being disposed off by a common order. Appeal No. 121 of 2009
is filed by the Union of India (UOI) challenging the order passed by the Learned
Single Judge refusing to set aside some of the claims awarded in favour of the
Respondent. Appeal No. 782 of 2010 has been filed by the Contractor challenging
the Order passed by the Learned Single Judge setting aside one of the claims
awarded by the Arbitrator in favour of the Contractor. Since these are cross
appeals, we will refer to the parties as 'the contractor' and 'UOI'.
2. On 21 December 1995 UOI invited tenders for replacing of BER A.C Plant at
NAD, Karanja. The Contractor submitted its tender on 5 February 1996. UOI
issued an acceptance letter on 9 April 1996 in favour of the Contractor. The
contract was awarded at Rs.86,13,066/-. The date of commencement as provided
in the Work Order was 24 April 1996 and the stipulated date of completion was
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23 July 1997. The period of completion provided was 15 months. Work was
actually completed on 29 July 1999.
3. Various running account bills were submitted by the Contractor from time
to time. According to the Contractor, UOI was responsible for delay in completion
of the work causing loss. According to the UOI, the Contractor was responsible
for delay and for causing loss.
4.
On 17 July 2002, the Contractor submitted a final bill. UOI returned the
final bill on 31 July 2002. On 20 August 2002, the Contractor issued a notice for
referring the dispute to arbitration as per Condition 70 of the General Conditions
of Contract. UOI did not appoint the arbitrator on the ground that the work was
not completed and the notice was premature.
5. By an order dated 31 January 2003 the Engineer-in-Chief, Army Head
Quarters was directed to appoint a sole arbitrator to decide the claims and
counter claims of the parties arising out of the contract including the issue as to
whether the arbitral clause could be invoked considering the contention that the
work had not been completed. Pursuant to the said Order, Shri T.K.Saha, C.E. was
appointed as the sole arbitrator by the Lieutenant General Engineer-in-Chief. The
Contractor filed a Statement of Claim. UOI filed Written Statement and Counter
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Claim. None of the parties lead oral evidence before the Learned Arbitrator.
6. By an Award dated 29 March 2004, the Arbitrator granted partial relief to
both the parties and directed the UOI to pay a sum of Rs.27,55,350/- with interest
at the rate of 12% per annum w.e.f. 1 July 2004 till payment. The Arbitrator
rejected the claim for arbitration costs claimed by both the parties. The
Contractor did not challenge the Award. UOI filed an Arbitration Petition (355 of
2004) for challenging a part of the award. By Judgment dated 25 April 2007, the
Learned Single Judge was pleased to set aside part of the award in so far as the
claim for compensation in the sum of Rs. 6,23,875/- was awarded by the
Arbitrator under claim (Serial A, Item 4 : Simple Interest on Rs.19,93,000/-) (VII
RAR). The Contractor has challenged this part of the Judgment in Appeal (782 of
2010). UOI filed an appeal (121 of 2009) challenging the remaining part.
7. Counsel appearing for the UOI submits as under :-
The Learned Arbitrator ought to have allowed the
claim of UOI for compensation against the
contractor for delay in completion of work beyond
period of two years. Findings of the Learned
Arbitrator that the Contractor was not responsible
for delay and was attributable to the UOI is
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incorrect. The rejection of various claims made by
UOI is not proper.
8. On the other hand, Counsel appearing for the Contractor submits as
under :-
(a) The Arbitrator has given findings of fact in
so far as delay in execution of work is concerned
against the UOI and this Court cannot interfere
with the findings of fact under Section 34 of the
Arbitration and Conciliation Act, 1996.
(b) The Arbitrator has not allowed all the
claims made by the Contractor but has awarded a
reasonable amount allowing part of the claims
made by both parties based on documents
submitted by both the parties. No ground is made
out under Section 34 of the Act for challenging
such part of the award.
(c) The Single Judge was not justified in setting
aside the claim for compensation awarded by the
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Arbitrator as the same was towards financial loss
suffered by the Contractor in the form of payment
of interest made by the Contractor to the Bank on
the loans taken from the bank so as to finance
progressive work under the contract. The claim
was allowed by the Arbitrator in view of the UOI
making default in making payment which was
contractually due to the Contractor as per the
provisions contained in Condition No.64 of the
General Conditions of the Contact. It is submitted
that this claim was rightly allowed by the
Arbitrator and did not warrant any interference by
the Single Judge.
9. Clauses 67(a) and (b) of the General Conditions of the Contract reads as
under :-
67. Recovery from contractor :- (a) Whenever
any claim (s) for payment of sum of money
arise(s) out of or under this contract against the
contractor, the contractor shall on demand make
the payment of the same or agree for effecting
adjustment from any amounts due to him by the
Government. If, however, he refuses or neglects to
make the payment on demand, or does not agree
for effecting adjustment from any amount due to
him, Govt shall be entitled to withhold an amount
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not exceeding the amount of the claim(s), from
any sum when due or which any time there after
may become due the contractor, under this or any
other contract with the Govt or from any other
sum due to the contractor from the Govt (which
may be available with the Govt) or from the
contractor's security deposit or security bond
amount, and retain the same by way of lien till
such claim payment is made by the contractor or
till the claim(s) is/are settled or adjudicated upon,
or till the contractor, at his expense furnishes fixed
deposit receipt(s) duly endorsed as directed by the
Accepting Officer, or a guarantee bond from a
Scheduled Bank for an amount equal to the
amount of the claim(s), in the form as directed by
Accepting Officer.
67 (b) :- It is an agreed conditions of this contract
that the sum of money so withheld or retained as
and by way of lien under this condition by the
Govt, will be kept with held are retained as such
by the Govt, till the claim(s) arising out of or
under this contract is/are settled or adjudicated
upon and that the contractor will have no claim
for interest or damages whatsoever on any account
in respect of such sum so withheld.
10. The award indicates that the Arbitrator has given findings of fact that the
UOI was responsible for delay in execution of the work. UOI had taken one year
eight and a half months to communicate a firm decision regarding change in
scope of work. UOI had not taken a final and binding decision on various issues.
Most of the claims allowed by the Arbitrator in favour of the Contractor, as well as
in favour of UOI are based on agreed liability towards each other. The Arbitrator
after giving a finding of fact about delay against UOI has rightly rejected the claim
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of compensation made by the UOI. The other claims awarded in favour of the
Contractor and rejection of claim made by UOI is also based on pure findings of
fact. It is not for the court to sit as a court of appeal on the findings of the
Arbitrator which had been arrived at after going through the material placed on
record before him. Once it is held that the issue relating to who had committed
breach and who is responsible for delay was referred to the arbitrator, the finding
of fact given by the arbitrator that the contractor was not responsible for delay is
not open to challenge. We, therefore, do not find any reason to interfere with the
finding of fact given by the Arbitrator as canvassed by the Counsel appearing for
the UOI.
11. As far as the claim of Rs.6,23,875/- allowed by the Arbitrator in favour of
the Contractor is concerned, the record indicates that UOI had deducted a sum of
Rs.6,48,504.70 towards compensation on the ground that the work was delayed
by the Contractor and an amount of Rs.10,18,707.75 was deducted due to alleged
defects in work executed by the Contractor under CA No. CENM-26 of 96-97 with
another GE(NW) Kunjali in Mumbai. The UOI deducted these amounts relying
upon Clause 67 of General Conditions of Contract. The Arbitrator gave a finding
that the claim of UOI for such deduction had not been legally established and thus
the Contractor was deprived of Rs.14.30 lacs for 7th RAR for the period starting
from 1 September 1999 to 15 July 2002 and thus entitled to get compensation
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due to financial loss suffered for not getting his legitimately due payments under
this contract. The Arbitrator allowed compensation at the rate of 15.5.% per
annum relying upon Section 70 of Indian Contract Act by directing UOI to pay a
sum of Rs.6,23,875/-.
12. The Learned Single Judge has set aside this claim awarded by the Arbitrator
on the ground that the claim was contrary to the contract and the Arbitrator had
exceeded jurisdiction by allowing a prohibited claim. Relying upon the
Judgments of the Supreme Court in Oil and Natural Gas Corporation Ltd. vs.
SAW Pipes Ltd.,1 and in Ramnath International Construction Pvt. Ltd. vs.
Union of India and Anr.,2 the Learned Single Judge set aside this claim.
13. Clauses 67 (a) and (b) show that if any claim for payment arises out of or
under the contract against the contractor and if the same is not paid by the
contractor or he does not agree for effecting adjustment from any amount due to
him by the Government, Government shall be entitled to withhold an amount not
exceeding the amount of the claim, from any sum when due or which may at any
time thereafter become due to the contractor, under this or any other contract
with the Government or from any other sum due to the contractor from the
Government and retain the same by way of lien till such payment is made by the
1 AIR 2003 SC 2629
2 2007 (2) Supreme Court Cases 453
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contractor or till the claims are settled or adjudicated upon. It is further provided
that the sum of money so withheld or retained as and by way of lien under this
condition by Government, will be kept withheld as such by the Government till
the claims arising out of or under the contract are settled or adjudicated upon and
the contractor will have no claim for interest or damages whatsoever on any
account in respect of such sum so withheld.
14. It is thus clear that the UOI had withheld part of the bill amount due and
payable to the Contractor on the ground that the UOI had to recover certain
amount in the other work or on account of compensation recoverable by the UOI
in this work. Clause 67 (a) read with (b) clearly provides that the contractor will
have no claim for interest or damage whatsoever in any amount in respect of such
sum so withheld.
15. In our view, the Arbitrator by allowing claim for compensation has
exceeded his jurisdiction and has decided contrary to the terms of the contract.
When such a claim was prohibited under the terms of the contract, the Arbitrator
could not grant it even though it was referred to him and therefore this part of the
award suffered from jurisdictional error. By allowing such a prohibited claim, the
Arbitrator has decided contrary to the terms of the contract and the award is thus
in violation of Section 28(3) of the Act and is thus in conflict with public policy
under Section 34(2) (b) of the Act.
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16. Hence, the Learned Single Judge was right in setting aside this part of the
Award. We do not find any infirmity with the order passed by the Learned Single
Judge.
17. Both the Appeals are dismissed.
18. There shall be no order as to cost.
DR.D.Y.CHANDRACHUD, J.
R.D. DHANUKA, J.