IN THE HIGH COURT OF JUDICATURE AT MADRAS
Dated : 25.02.2010
Coram
The Honourable Mrs.Justice CHITRA VENKATARAMAN
O.P.No. 188 of 2005
The Board of Trustees of the
Chennai Port Trust rep.
by its Chairman, Rajaji Salai
Chennai 1 ...Petitioner
-vs-
1. M/s. Amudha Engineering Company
Private Limited rep.by its
Managing Director, R.Ayyaswamy
2. Mr. K.Natarajan
Presiding Arbitrator
3. Mr.R.Rajagopalan
Retired District Judge
4. Mr.T.Umapathy
Retired Chief Engineer, Civil Designs ...Respondents
Petition under Section 34 of the Arbitration and Conciliation Act to set aside the the award of the Arbitrators dated 3.5.2004.
For Petitioner : Mr.R.Karthikeyan
For Respondents : Mr.N.Anand Venkatesh for
Mr.Rajaraman for R1
ORDER
This petition is filed against the award passed by the Arbitral Tribunal dated 3.5.2004. The petitioner herein was the respondent before the Arbitral Tribunal.
2. The petitioner herein awarded a contract to the first respondent in the matter of construction of eastern side wall of the Boat Basin of Chennai Port Trust. The work was awarded on 31.8.1994 at a ceiling price of Rs.2,57,21,122.50 and to be completed within 18 months. The petitioner herein terminated the contract under notice dated 8.9.1998 by invoking Clause 5(a) of Schedule C, ordered forfeiture of security deposit and blacklisted the first respondent for three years as well as for recovery of mobilisation advance, apart from encashing the bank guarantee. On 27.3.1999, the petitioner herein caused paper publication calling for fresh tender in respect of the unfinished work for a sum of Rs.2.49 crores. The first respondent moved this Court for an interim injunction against the petitioner calling for fresh tender as well as for a direction to the petitioner to issue the work order to the first respondent in respect of the balance of work, apart from certain monetary claims. The prayer was, however, rejected. In the meantime, the award in respect of the claim on the work done were made. The petitioner challenged the awards passed which, however, were rejected by this Court in O.P.Nos.425 of 1999 and 305 of 1999 on 31.1.2000. As against the same, the appeal filed by the petitioner in O.S.A.Nos.160 and 161 of 2000 were also rejected and the same is reported in 2004 (4) CTC 721 THE CHIEF ENGINEER, CHENNAI PORT TRUST v. AMUDHA ENGINEERING CO., LTD. As against the termination ordered, the first respondent invoked the arbitration clause.
3. The present award now under challenge relates to a question of termination of the contract. The first respondent herein made a claim under seven heads, as regards which, the learned Arbitrator raised the following issues for its decision;-
“(1) Who committed the breach of contract of Agreement No. 14/96; Whether the claimant or the respondent?
(2) Is the order of termination of contract dated 8.9.98 valid and legal?
(3) Whether the claimant is entitled to the amounts claimed under the Heads ‘A’ to ‘E’ and ‘G’ to ‘J’ and if so, to the what amount?
(4) Whether black listing the claimant by the respondent is proper and valid? If not, whether the claimant is entitled to any compensation on the head under claim ‘F’? If so, to what amount?.
(5) Whether the earlier Award dated 24.4.99 is binding on this Tribunal?
(6) Whether the Respondent is entitled to the counter claim? If so, to what amount?
(7) To what other reliefs are the parties entitled to?”
4. The Arbitral Tribunal granted a unanimous award as regards Issues 1, 2, 3, 5 and 6. However, as regards the relief granted under Issue 4 relating to the Claim F and H, one of the members of the Tribunal rejected the plea of the first respondent.
5. On issues 1, 2 and 4 as to who committed the breach of Contract; whether the termination order passed was valid and legal and that whether black-listing of the first respondent was valid, learned Arbitral Tribunal pointed out that the contention of the petitioner that the letter between the parties showed that the first respondent had brought in technical staff to the work spot while the work was going on. While the contract itself was for 18 months, the petitioner took 17 months for approval of the changes in the drawing and the delay on the part of the petitioner was one for which the first respondent could not be held responsible. The Tribunal further pointed out to the inordinate delay of four months on the part of the petitioner in supply of the electricity connection in carrying out the work. The arbitral Tribunal pointed out that the total extent of work was 325 metres stretch. However, the same was reduced to 60 metres stretch 60 metres unilaterally on trial basis and later to 30 metres stretch. At every stage, there was hindrance from the petitioner for the smooth carrying of the work. The first respondent did have sufficient technical staff. The petitioner could have terminated the contract at an early stage, had there been any dissatisfaction. Yet the petitioner permitted the first respondent to get along with the work. Having regard to the same and the fact that the tender was granted after entering satisfaction about the bid of the first respondent, the petitioner had no justifiable reason to treat inexperience as a ground for termination. The Tribunal pointed out that even though the first respondent had completed the formalities for the bills submitted, there was delay in making the payment that fell due for the completed work. On a consideration of the materials, the Tribunal held that the petitioner committed breach of contract and prolonged the issue.
6. Learned counsel for the petitioner contended that having regard to the fact that the breach was committed by the first respondent herein, the Arbitral Tribunal committed an error in its view, holding otherwise. There are no contra materials placed to contend that the findings are perverse and not based on materials. A reading of the award clearly shows that the finding that the petitioner had committed breach of contract is based on the documentary evidence. Consequently, I do not find any merits to interfere with the award passed by the arbitral Tribunal on this issue.
7. As regards the issue as to whether the termination was valid in law and on facts, the Tribunal pointed out that there was no opportunity granted to the first respondent before the order of termination was passed by the petitioner. In terms of the contract given, the first respondent had to moblise men and materials and had invested large sums of money; that the invoking of Clause 5(a) of Schedule C of the Agreement by the petitioner was not in tune with the terms of the contract on termination. The Tribunal pointed out that on the very same date of termination of the contract viz., 8.9.1998, the Chief Engineer issued another letter dated 8.9.1998, wherein it was stated as follows:
“…………. In spite of repeated meetings, discussions, instructions and reminders, you have not carried out the work in the 30 m stretch. Eventhough sufficient time has been given, you have not restarted the work. In view of the above reasons, work comprising of construction of Eastern Side Wall of Boat Basin awarded to you under Agreement No. 14 of 1996 is terminated forthwith invoking Clause 5(a) of Schedule ‘C’ of the agreement. ”
8. The Tribunal pointed out to the two contradictory letters on the very same date i.e., 8.9.1998, one in respect of allowing the contractor to proceed with the construction of 30m stretch and the other for termination of the contract. This clearly demonstrates that the Chief Engineer had failed to apply his mind while issuing the two conflicting letters on the same date. Consequently, the Tribunal held that the termination was not justified. It also held that the blacklisting was bad.
9. As regards the claim for compensation on blacklisting, the first respondent claimed a sum of Rs.4,50,000/- as compensation. However, having regard to the order passed dated 13.2.2003 in WP.No.14297 of 1998, setting aside the order on blacklisting, the prayer was not granted. The Tribunal held that having regard to the mental agony suffered, the first respondent deserved to be paid a compensation of Rs.10 lakhs.
10. The minority member, however, rejected the same that the first respondent could not seek remedy on this issue before the Arbitral Tribunal, as the dispute was not covered under this head. After the order of this Court in the writ proceedings cancelling the blacklisting, no further action was taken by the petitioner.
11. Learned counsel for the petitioner pointed out that during the execution of the work, dispute arose between the parties as regards the delay caused in the execution of the work. As such, the dispute was referred to the Arbitral Tribunal, which passed an award in favour of the first respondent herein. As against the same, the Chief Engineer, Chennai, came before this Court by filing O.P.No.305 of 1999 as against the interim award passed by the Arbitral Tribunal and O.P.No.518 of 1999 against the final award. By a common order dated 31.1.2000, this Court dismissed both the petitions. As against the same, the petitioner herein preferred appeals in O.S.A.Nos.160 and 161 of 2000. The Division Bench of this Court dismissed the appeals preferred by the petitioner herein and the same is reported in 2004 (4) CTC 721 THE CHIEF ENGINEER, CHENNAI PORT TRUST, v. AMUDHA ENGINEERING CO. LTD. The Division Bench of this Court confirmed the claim of the first respondent herein made under different heads. This Court also found that the revising of the scope of work led to enlarging the dimensions of the components of the berth. This resulted in higher costs that justified the award of a sum of Rs.8.97 lakhs to the Contractor. This Court confirmed the findings of the Arbitral Tribunal in this regard. As regards the claim in respect of the expenditure involved in execution, the cost of difference in liner plates, pending bills and payment of interest, the Division Bench confirmed the findings of the Arbitrators as the delayed execution was attributable to the petitioner.
12. Issue No.3 contains 10 claims. As far as Claim A is concerned, the first respondent made a claim of Rs.62,65,981/- as damages at 15% on the revised value of work. The claim was towards damages for loss of profit in respect of the unfinished work on account of the breach committed by the petitioner. The Tribunal pointed out to the pendency of the O.S. Appeal before the Division Bench; yet, it held that the value of the work not allowed to be completed on account of the illegal termination of the contract worked out to Rs.2,18,96,349/-; after the work, the petitioner had gone on re-tendering for a sum of Rs.2.49 crores. The claim herein in the present case by way of compensation was only for a sum of Rs.2,18,96,349/-. Referring to the decision of the Supreme Court reported in AIR 1984 SC 1703 (A.T.Brij Paul Singh and others Vs. State of Gujarat), the Tribunal held that the petitioner would be entitled to a claim of Rs.32,71,445/- with interest at 18% per annum payable from the date of award till the date of realisation.
13. As regards Claim B relating to the invoking of bank guarantee in respect of mobilisation advance for a sum of Rs.23 lakhs with interest at 19.38% per annum, the Tribunal held that the mobilisation advance was given by the petitioner herein to the first respondent. In the circumstances, there was no justifiable reason to sustain the claim of the first respondent. At best, it could only cover an interest charged by the guarantor bank at the rate of 19.38% per annum with quarterly rests from 17.11.1998 to 19.2.2002 and thereafter at 18% simple interest till the date of realisation. Thus the first respondent was granted interest alone. In all other respects, the claim was disallowed.
14. As regards Claim C in respect of invoking of bank guarantee given in respect of site installation charges, the claim was for a sum of Rs.9 lakhs with interest at 19.38% per annum from 17.11.1998 to 19.2.2002 with quarterly rests. This amount was received by the petitioner from the guarantor Bank. The Tribunal held that a sum of Rs.10 lakhs was paid by the petitioner herein and Rs.1 lakh was recovered from the first respondent as per the terms of the contract. For the balance amount of Rs.9 lakhs with interest, the Tribunal pointed out that it was to be reimbursed by the petitioner to the claimant/first respondent. It is the earlier claim for interest. It is stated that the petitioner had collected back the amount and adjusted the same on the mobilisation advance given. Having regard to the termination of the contract, the bank guarantee was closed. Hence this claim.
15. Learned counsel for the petitioner submitted that the site installation charges were paid in full by the petitioner. On the termination of the contract, there could be no refund as per the contract Hence, the direction of the Arbitral Tribunal for refund of the amount is not sustainable. He pointed out that when the petitioner had granted the amount, it stands to reason that the question of payment of Rs.9 lakhs, which is already there with the first respondent, would amount to double payment. I agree with the submission of the petitioner. It is not denied by the first respondent that the petitioner had, in fact, paid Rs.10 lakhs towards site installation charges and that they already refunded Rs.1 lakh and hence, there is no reason for withholding of this amount by the first respondent herein.
16. As regards Claim D in respect of invoking of bank guarantee given as security deposit, the first respondent submitted that for a sum of Rs.3,25,890/-, bank guarantee was given. The termination of contract was on 08.09.1998. Hence, the validity of the bank guarantee was upto 30.9.1998. Going by the finding that the termination of the contract was not valid, the Tribunal held that it was not proper for the petitioner to appropriate this amount from the bank guarantee. The petitioner had also informed the first respondent about the encashing of the bank guarantee. In the light of the finding that the termination is illegal and not valid, the Tribunal held that the first respondent would be entitled to interest. The Tribunal granted the first respondent interest at 18% per annum from the date of appropriation i.e., 17.9.1998, till the date of reference i.e., 19.2.2002 and from the date of the award till the date of payment. Except for Claim C, the award on interest in respect of the bank guarantee relating to the mobilisation advance as well as in respect of the claim on the encashment of the bank guarantee and security deposit, rests on the finding of illegal termination. Having regard to the fact that this Court agrees with the finding of the Tribunal on the issue of illegal termination, I uphold the award as regards this issue.
17. With reference to the claim on the refund of security deposit deducted from the bills, the Tribunal held that under the terms of the contract, the Chief Engineer is empowered to order forfeiture of the amount on account of the contractor’s delay in the progress of the work. The Chief Engineer exercises his right only after calling for explanation and after entering his decision on the explanation offered by the contractor. The Tribunal found that there was no explanation called for in the case. Having regard to the above-said fact, on the finding of the illegal termination, the Tribunal upheld the claim of Rs.1,65,119/- with interest at 18% per annum from 8.9.1998 till 19.2.2002 and from the date of the award to the date of payment.
18. As regards Claim G on the expenditure made in securing men and materials which could not be utilised by the first respondent on account of the earlier termination of the contract, the Tribunal, however, rejected the claim of the first respondent that no materials were placed before the Tribunal to substantiate the claim that the first respondent incurred loss. So too on Claims H, I and J. The award that had gone against the first respondent has become final, there being no petition from the first respondent.
19. As regards Issue No.5, the Tribunal noted that the Tribunal considered the issues independent of the earlier award.
20. Issue No.6 relates to a counter claim made by the petitioner for a sum of Rs.2,32,000/- that the first respondent did not vacate the shed put up by him in the site. The Tribunal rejected the claim as it lacked evidence and no prior notice was issued raising a dispute on this.
21. It is seen from the award that one of the members dissented from the view of the other two majority Arbitrators with reference to the claim for damages that it was not based on materials. The dissenting Member awarded a sum of Rs.21,89,635/- under Issue No.4, Claim A, as against the majority members awarding a sum of Rs.32,71,445/-; that the value of the incomplete work was to the tune of Rs.2,18,96,349/-; after working out 10% on the incomplete balance of work, the damage would be Rs.21,89,635/-. So too, in respect of Claim B on the mobilisation advance, the Tribunal pointed out that Rs.23 lakhs was admittedly the amount advanced by the petitioner to the first respondent. The amount was used by the first respondent, for which he executed a bank guarantee. Hence, the question of grant of interest did not arise. In the circumstances, the dissenting Member felt that the first respondent was not entitled to interest under Claim B.
22. A reading of the order of the Tribunal as far as this issue is concerned shows that barring Issue No.4, Claim C, the other claims related to the question of termination of the contract. As far as mobilisation advance is concerned, the said amount was deducted from the bills of the first respondent. To utilise the same, the petitioner had secured bank guarantee from the first respondent. Hence, the amount thus given already taken in for deduction in the bills, the bank guarantee taken by the first respondent thus relating to the advance given, the interest thereon was certainly on the first respondent and with the cause of the termination attributed to the petitioner and the advance having gone for adjustment from the bills, rightly the Tribunal granted the relief to the first respondent .
23. The award under challenge amply demonstrates that uninfluenced by the earlier award, the Tribunal had considered the claims with reference to the materials placed by the parties herein. There are no materials to show that the Tribunal blindly followed the earlier award, ignoring the merits of the present claim. In the above circumstances, I do not find any error or perversity in the view of the Tribunal granting the relief to the petitioner. Consequently, this Original Petition has to be allowed.
24. Going by clause 21 of the agreement, I do agree with the submission of the learned counsel for the petitioner that the Arbitral Tribunal committed an error in its reasoning on the aspect of the damages granted for the termination and on the finding on termination. In the circumstances, the award granted to the extent of Rs.9 lakhs with interest at 19.38% stands set aside.
25. As regards the claim of blacklisting, learned counsel for the first respondent submitted that a writ petition in W.P.No.14291 of 1998 was filed and this Court, by order dated 13.2.2003, allowed the writ petition by setting aside the order of the Tribunal as regards blacklisting of the first respondent. In the above circumstances, the question of granting any relief under this head does not arise. Consequently, taking note of the decision of this Court in W.P.No. 14291 of 1998, the relief granted under this head is set aside.
26. As regards the claim for damages, learned counsel for the petitioner submitted that in the absence of any material to show that the first respondent had suffered loss on account of the termination, the question of payment on damages does not arise. A perusal of the award shows that the evidence placed by the first respondent showed that he had suffered a loss. However, there was no material to link this to the termination suffered by the contractor. In calculating the damages suffered on account of the premature termination, the Tribunal pointed out to the value of the contract, given the balance of work to be executed and the value of the work unfinished on account of the termination. Further, the Tribunal relied on the decision of the Apex Court reported in AIR 1984 SC 1703 – A.T.BRIJ PAUL SINGH AND OTHERS Vs. STATE OF GUJARAT and held that the quantum of compensation was worked out at 15% towards loss of profits on account of the illegal termination of contract. This was worked out taking note of the value of the unfinished work.
27. Learned counsel for the petitioner placed reliance on the decisions of the Apex Court reported in (1984) 4 SCC 59 A.T.BRIJ PAUL SINGH v. STATE OF GUJARAT as well as (2001) 5 SCC 629 – SIKKIM SUBBA ASSOCIATES v. STATE OF SIKKIM to substantiate his case that in the absence of any proof, the grant of relief was arbitrary. I do not agree with the said submission of the learned counsel for the petitioner. Learned counsel for the first respondent submits that when the fact remains that the breach of contract was found as on account of the petitioner, the loss suffered has to be necessarily compensated. Hence, going by the decision reported in 2003 (2) CTC 282, – OIL AND NATURAL GAS CORPORATION LTD. Vs. SAW PIPES LTD., learned counsel for the petitioner submitted that the loss suffered by the contractor could be estimated either on the basis of the percentage of work which went out of the contract or on the percentage that would be attributable to the value of the work to be executed. As far as this case is concerned, the Tribunal took note of both these aspects and ultimately drew support of the decision of the Apex Court reported in AIR 1984 SC 1703 – A.T.BRIJ PAUL SINGH AND OTHERS Vs. STATE OF GUJARAT to grant the relief at 15% to the petitioner herein and the said fact cannot be taken as arbitrary. I agree with the submission of the first respondent. The Tribunal took note of the value of the subsequent tender at Rs.2.49 crores as well as the work, which, but for the termination, would have been executed by the first respondent. Thus taking note of the petitioner’s role in terminating the contract, applying the law declared by the Apex Court reported in AIR 1962 SC 366 MURLIDHAR CHIRANJILAL Vs. HARISHCHANDRA DWARKADAS AND ANOTHER), the Tribunal favoured compensation at 15% as compensation for termination on the balance of work which would have been executed, but for the termination. When the award is thus based on the decision of the Apex Court and that the Tribunal had given the basis for working out the relief which is not arbitrary, the view of the Tribunal in this regard, hence, merits acceptance by this Court. In awarding damages for the breach of contract, the party not in default should be compensated, as far as it is possible, by placing him in the same position as he would have been in, if the contract had been performed.
28. The Tribunal pointed out that as against the claim of Rs.62,65,981/-, the first respondent would be entitled to Rs.32,71,445/-. Learned counsel for the petitioner pointed out that this Court had already considered the grant of relief to the petitioner in respect of interest and hence the first respondent was not entitled to further interest. It must be noted that in the first round of litigation of the parties herein reported in 2004 (4) CTC 721 THE CHIEF ENGINEER, CHENNAI PORT TRUST v. AMUDHA ENGINEERING CO., LTD. relating to the very same contract herein, this Court granted relief to the first respondent in respect of the delayed execution, the delay being attributable to the petitioner. As far as the present case is concerned, THE damages granted by the Tribunal was in relation to the termination of the contract which has nothing to do with the earlier dispute. In the circumstances, I do not find that the petitioner’s contention based on the earlier decision that the direction to make the payment in respect of the present dispute would amount to double payment to the first respondent herein, could be sustained on any basis.
29. In the circumstances, I confirm the award to the extent indicated above and hereby set aside the award, particularly with reference to the Clause C under Issue No.4 as well as on the question of blacklisting. Barring that, the award stands confirmed.
Index: Yes / No Internet: Yes / No 25.02.2010 bg/ksv CHITRA VENKATARAMAN,J. bg/ksv O.P.No.188 of 2005 Dated: 25.02.2010