CHIEF ENGINEER, WRO. , P. W. D. , MADURAI REGION v. CHANDAGIRI CONSTRUCTION COMPANY
2009-01-19
S.RAJESWARAN
body2009
DigiLaw.ai
Judgment S. Rajeswaran, J. The petitioners are challenging the award dated 30.11.2006 passed by the second respondent/arbitrator under Section 34 of the Arbitration and Conciliation Act, 1996. The brief facts are as under : The petitioners invited bids for the work of Formation of Earth Dam, Uncontrolled Spillway, Canal Sluice and River Sluices for Kodumudiyar Reservoir Project. The bid of the first respondent was accepted by the petitioners and the letter of acceptance was issued on 04.01.2000 and an agreement was also entered into on 24.01.2000. The value of the contract was Rs. 16,09,52,881. The period of contract was 19 months and it was subsequently extended several times up to 31.03.2003, on which date, the work was completed. During execution of the contract, certain disputes arose between the petitioners and the first respondent. The first respondent sent notice to the petitioners demanding arbitration by appointing their arbitrator and requesting the petitioners to appoint their arbitrator or to concur with the appointment of the sole arbitrator. The first petitioner by letter dated 17.12.2004 refused to appoint the arbitrator on the ground that the first respondent ought to have approached the adjudicator as per the agreement. According to the first respondent, though a name was nominated as adjudicator, actually there was no adjudicator and hence, there was no occasion for them to refer the dispute to the adjudicator. Therefore, the first respondent approached this court under Section 11 of the Arbitration and Conciliation Act, 1996, for appointment of arbitrator to the dispute between the parties. This court, by order dated 30.06.2005, made in OP No. 361 of 2005, was pleased to appoint the second respondent as the sole arbitrator with a direction to issue notice to the parties, enquire into the matter and decide the disputed issue by way of arbitration in accordance with the provisions of the Act. Pursuant to the appointment as sole arbitrator, the second respondent entered upon the reference on 07.07.2005 and issued notice to both the parties. The claim statement was filed by the first respondent on 20.08.2005. The petitioners filed an application under Section 16 of the Arbitration and Conciliation Act, 1996 stating that the procedure of approaching the adjudicator was not followed by the respondent and non-adherence to such a procedure disqualified them from making the claim to maintain the arbitration proceedings.
The claim statement was filed by the first respondent on 20.08.2005. The petitioners filed an application under Section 16 of the Arbitration and Conciliation Act, 1996 stating that the procedure of approaching the adjudicator was not followed by the respondent and non-adherence to such a procedure disqualified them from making the claim to maintain the arbitration proceedings. The second respondent/arbitrator by order dated 28.01.2006, rejected the application filed under Section 16 of the Act. Thereafter, statement of defence was filed by the petitioners herein on 14.05.2006. Before the second respondent/arbitrator, eleven claims were raised by the respondent and the second respondent/arbitrator by the award under challenge, allowed five claims namely Claim Nos. 2, 3, 5, 7 and 8, amounting to a total sum of Rs. 1,65,47,308. The arbitrator also allowed the counter-claim of the petitioners amounting to a sum of Rs. 3.0 lakhs and finally an award of sum of Rs. 1,62,47,308 was passed by the arbitrator with interest at the rate of 9% p.a. on the part of the award, i.e. for a sum of Rs. 61,29,403 from 28.10.2004 till the date of the award and interest at the rate of 18% p.a. on the award amount of Rs. 1,62,47,308 from the date of the award to the date of payment. Aggrieved by the award of the second respondent dated 30.11.2006, the above original petition has been filed by the petitioners under Section 34 of the Arbitration and Conciliation Act, 1996. Heard the learned Additional Government Pleader (Civil Side) for the petitioners and Thiru Vijayanarayanan, the learned senior counsel for the first respondent. I have also gone through the entire materials and judgments cited by both the parties. According to the learned Additional Government Pleader (Civil Side), appearing on behalf of the petitioners herein, the claim submitted by the first respondent before the second respondent, is time barred and the claim is beyond the limitation as prescribed under Clause 4.9 of the Special Conditions of Contract (SCC). According to Clause 4.9 of SCC, neither party is entitled to bring the claim to arbitration unless the same is made before the expiration of 30 days after the defect liability period. The learned Additional Government Pleader (Civil Side) contends that the works were completed by the first respondent on 30.03.2003 and the defect liability period is for 365 days from the date of completion.
The learned Additional Government Pleader (Civil Side) contends that the works were completed by the first respondent on 30.03.2003 and the defect liability period is for 365 days from the date of completion. As such, 365 days period ended on 31.03.2004. Therefore, claims, if any, should have been made by the first respondent within 30 days from 31.03.2004, i.e. on or before 30.04.2004. But, the first respondent raised their claim by letter dated 20.10.2004, which was despatched on 28.10.2004 and the same was received by the petitioners on 01.11.2004. Hence, it is argued with vehemence by the learned Additional Government Pleader (Civil Side) that the entire claims are beyond the limitation as described under the agreement and, therefore, the award is to be set aside on this ground alone. The learned Additional Government Pleader (Civil Side) further pointed out that the first respondent herein made a deliberate false statement in the claim petition stating that the defect liability period was unilaterally extended for an additional period of six months. But, it is contended by the learned Additional Government Pleader (Civil Side) that there was no such extension of defect liability period by the petitioners beyond 31.03.2004. Hence, according to him, the entire claim is time barred and the award passed by the arbitrator disregarding Clause 4.9 of the Special Conditions of Contract is vitiated and is liable to be set aside. The learned Additional Government Pleader (Civil Side) further urged that Claim No. 2 made by the first respondent relates to the excess of quantities which exceeded the agreed quantities to 125% and on that basis made a claim at Rs. 65.74 per c.m., which is not maintainable as per Clause 40.5 and Clause 40.2 of the contract, according to which, the contractor shall not be entitled for additional payment for cases which could have been avoided by giving early warning. The learned Additional Government Pleader (Civil Side) further assailed the entire award on merits also by contending that the learned arbitrator has not adverted to the relevant clauses contained in the contract and in fact, the arbitrator went to the extent of deciding the disputes which were not at all raised initially by the first respondent.
The learned Additional Government Pleader (Civil Side) further assailed the entire award on merits also by contending that the learned arbitrator has not adverted to the relevant clauses contained in the contract and in fact, the arbitrator went to the extent of deciding the disputes which were not at all raised initially by the first respondent. A number of judgments have been relied on by the learned Additional Government Pleader (Civil Side) in support of his submissions and I shall refer to a few of them at the appropriate time. Per contra, the learned senior counsel for the first respondent submits that the department granted extension of time up to 31.03.2003. It is admitted by the learned senior counsel that the defect liability period is 365 days and it should be calculated from the completion date, if calculated from 31.03.2003, it would expire on 31.03.2004. However, the correction of defects was provided for in Clause 35 of the General Conditions of Contract and a reading of Clauses 35.1 and 35.2 of the General Conditions of Contract will make it clear that the defect liability period shall be extended as long as the defects remained to be corrected. According to the learned senior counsel, whenever a notice is given for correction of defects, the defect liability period automatically gets extended and in this case, the petitioners issued a notice on 23.03.2005, to correct certain defects. If that being so, the defect liability period was automatically extended and, therefore, the claim filed by the petitioners was well within the time. The learned senior counsel further contends that even assuming that Clause 4.9 of the Special Conditions of Contract is a bar for making the claim, Clause 4.9 would be void being opposed to public policy, as it alters the limitation prescribed under the Limitation Act. The learned senior counsel has also submitted that apart from the ground of limitation, all other grounds raised by the petitioners herein do not come within the scope of Section 34 of the Act and, therefore, the original petition is to be dismissed. Insofar as the additional claims considered by the second respondent/arbitrator are concerned, the learned senior counsel submitted that those claims were not outside the ambit of the arbitration. He relied on a few decisions in support of his submissions which would be referred to, if necessary.
Insofar as the additional claims considered by the second respondent/arbitrator are concerned, the learned senior counsel submitted that those claims were not outside the ambit of the arbitration. He relied on a few decisions in support of his submissions which would be referred to, if necessary. I have considered the rival submissions with regard to facts and citations. First, let me consider the ground of limitation which was forcibly put forward by the learned Additional Government Pleader (Civil Side) to assail the award under challenge. In fact, according to the learned Additional Government Pleader (Civil Side), this ground should be considered first, that too, as a preliminary issue before considering the other grounds, as according to the learned Additional Government Pleader (Civil Side), the award is clearly barred by limitation as per Clause 4.9 of Special Conditions of Contract. In this regard, it is not in dispute that the period of contract was 19 months and it was subsequently extended several times up to 31.03.2003, on which date, the work was completed. It is necessary to refer to Clause 4.9 of Special Conditions of Contract, on which, much reliance was placed by the learned Additional Government Pleader to contend that the entire claim is barred under that clause. Clause 4 reads as under : "4.1. If either party is dissatisfied with the decision of the adjudicator, the party concerned, may within thirty days after receiving the decision of the adjudicator shall notify to the Chief Engineer, who is having jurisdiction over the work, of his intention to go in for arbitration. Within 30 days of receipt of notice from the contractor/employer of his intention to refer the dispute to arbitration the Chief Engineer who is having jurisdiction over the work shall send to the contractor/employer a list of five officers of the rank of a Superintending Engineer or of a higher rank who are not connected with the work for selection and appointment of arbitrators. 4.2. In case of dispute or difference arising between the employer and a domestic contractor relating to any matter arising out of or connected with this agreement. Such disputes or difference shall be settled in accordance with the Arbitration and Conciliation Act, 1996. The arbitral tribunal shall consist of 3 arbitrators one each to be appointed by the employer and the contractor. The third arbitrator being presiding arbitrator.
Such disputes or difference shall be settled in accordance with the Arbitration and Conciliation Act, 1996. The arbitral tribunal shall consist of 3 arbitrators one each to be appointed by the employer and the contractor. The third arbitrator being presiding arbitrator. In case of failure of the two arbitrators appointed to the appointment of the presiding arbitrator, the presiding arbitrator shall be appointed by Indian Council of Arbitration. 4.3. In case of dispute with a foreign contractor the dispute shall be settled in accordance with provisions of UNCITRAL (United Nations Commission on International Trade Law) Arbitration Rules. The arbitral tribunal shall consist of three arbitrators one each to be appointed by the employer and the contractor. The third arbitrator shall be chosen by the two arbitrators so appointed by the parties, and shall act a presiding arbitrator. In case of failure of the two arbitrators appointed by the parties to reach upon a consensus within a period of 30 days from the appointment of the arbitrator appointed subsequently, the presiding arbitrator shall be appointed by the President of Institution of Engineers (India) Chennai. 4.4. If one of the parties fails to appoint its arbitrator in pursuance of sub-clauses (a) and (b) above within 30 days after receipt of the notice of the appointment of its arbitrator by the other party, then the presiding arbitrator shall be nominated by Indian Council of Arbitration both in cases of the foreign contractor as well as the President of Institution of Engineers (India), Chennai such an appointment shall be furnished to each of the parties. 4.5. Arbitration proceedings shall be held at Palayamkottai, Tamil Nadu, India, and the language of the arbitration proceedings and that of all documents and communications between the parties shall be English. 4.6. The decision of the majority of arbitrators shall be final and binding upon both parties. The cost and expenses of arbitration proceedings will be paid as determined by the arbitral tribunal. However, the expenses incurred by each party in connection with the preparation, presentation, etc. of its proceedings as also the fees and expenses paid to the arbitrator appointed by such party or on its behalf shall be borne by each party itself. 4.7. In the event value of the contract is up to Rs. 50 million the disputes or difference arising shall be referred to the sole arbitrator.
of its proceedings as also the fees and expenses paid to the arbitrator appointed by such party or on its behalf shall be borne by each party itself. 4.7. In the event value of the contract is up to Rs. 50 million the disputes or difference arising shall be referred to the sole arbitrator. The sole arbitrator should be appointed by agreement between the parties, failing such agreement by the appointing authority, i.e. the President of Institution of Engineers (India) Chennai. 4.8. Performance under the contract shall continue during the arbitration proceedings and payments due to the contractor by the owners shall not be withheld, unless they are the subject-matter of the arbitration. Proceedings such as, but not limited to matters related to quality of work. 4.9. Neither party is entitled to bring claim to arbitration unless the same is made before the expiration of 30 days after defect liability period." Clause 1.1 of the Special Conditions of Contract is also relevant to decide the issue, according to which, the special conditions of contract shall supplement the conditions of contract and whenever there is a conflict, the provisions herein shall prevail over the conditions of contract and/or those elsewhere. The defect liability period is defined in Clause 1.1 of the conditions of contract, according to which, the defect liability period is the period named in the contract of data and calculated from the conclusion of data. It is also necessary to refer to Clause 35 of the conditions of contract, which was relied on by the learned senior counsel for the first respondent to contend that the defect liability period in this case was extended automatically as the petitioners issued a notice on 23.03.2005 to correct certain defects. Clause 35 reads as under : "35.1. The Engineer shall give notice to the contractor of any defects before the end of the defect liability period, which begins at completion and is defined in the contract data. The defect liability period shall be extended for as long as defects remained to be corrected. 35.2.
Clause 35 reads as under : "35.1. The Engineer shall give notice to the contractor of any defects before the end of the defect liability period, which begins at completion and is defined in the contract data. The defect liability period shall be extended for as long as defects remained to be corrected. 35.2. Every time notice of a defect is given, the contractor shall correct the notified defect within the length of time specified by the Engineer's notice." From the above Clause 35, it is clear that the Engineer shall give notice to the contractor of any defects before the end of the defect liability period and the defect liability period shall be extended as long as the defects remained to be corrected. In the case on hand, the entire work was completed on 31.03.2003 and the defect liability period of 365 days is to be calculated from 31.03.2003 and, therefore, the defect liability period expired on 31.03.2004. If that being so, 30.04.2004 is the last date for making any claims by the first respondent. Admittedly, the first respondent sought for the appointment of arbitrator by letter dated 20.10.2004 which was despatched on 28.10.2004 only. The case of the first respondent is that, a notice was issued by the petitioners on 23.03.2005 and, therefore, the defect liability period got extended automatically and hence, the claim made before the second respondent/arbitrator is well within the time. I am unable to accept the submissions made by the learned senior counsel in this regard. There is no dispute that the special conditions of contract shall prevail over the conditions of contract whenever there is a conflict. Here, I do not find any conflict between Clause 35 of the conditions of contract and Clause 4 of the Special Conditions of Contract. In fact, Clause 25.3 of the conditions of contract will make it very clear that the arbitration shall be conducted in accordance with the arbitration procedure stated in the special conditions of contract. That being so, I find Clause 4.9 will prevail over any other clauses contained elsewhere in the contract and according to Clause 4.9 of the Special Conditions of Contract, neither party is entitled to bring claim to arbitration unless the same is made before the expiration of 30 days after the defect liability period.
That being so, I find Clause 4.9 will prevail over any other clauses contained elsewhere in the contract and according to Clause 4.9 of the Special Conditions of Contract, neither party is entitled to bring claim to arbitration unless the same is made before the expiration of 30 days after the defect liability period. Before the second respondent/arbitrator, it was not established by the first respondent herein with acceptable evidence to contend that the notice was given by the petitioners before the end of the defect liability period, i.e. on or before 31.03.2004 and the defect liability period was automatically extended. Further, even assuming that the Clauses 35.1 and 35.2 of the conditions of the contract, extend the contract period automatically, still that clause will not prevail over Clause 4.9 of the Special Conditions of Contract, according to which, the claim is to be made before the expiration of 30 days after the defect liability period. If that being so, as rightly pointed out by the learned Additional Government Pleader, the entire claim is barred by limitation as per the special conditions of contract and the award passed by the second respondent/arbitrator without adhering to Clause 4.9 of the Special Conditions of Contract, is definitely a ground as set out under Section 34 of the Act and accordingly, I have no hesitation in setting aside the award as the same has been passed on the basis of the stale claim which is not in accordance with the special conditions of the contract. In (2001) 6 SCC 347 = 2001 (2) Arb. LR 650 (SC) - Ispat Engineering & Foundry Works, B.S. City, Bokaro vs. Steel Authority of India Ltd., B.S. City, Bokaro the Hon'ble Supreme Court observed that when the arbitrator abdicated the agreement and went much beyond the scope of the agreement, the award disclosed an error apparent on the face of the record and the same is to be set aside. In (2002) 6 SCC 201 = 2002 (2) Arb. LR 641 (SC) - Shyama Charan Agarwala & Sons vs. Union of India the Hon'ble Supreme Court observed that when the conditions in the agreement specifically prohibited granting of claim, it is not open to the arbitrator to ignore the said conditions which are binding on the contracting parties and by ignoring the same, the arbitrator acted beyond the jurisdiction conferred on him.
The Hon'ble Supreme Court further held that it is settled law that the arbitrator derives authority from the contract and if he acts in manifest disregard of the contract, the award given by him would be arbitrary one. In (2003) 5 SCC 705 = 2003 (2) Arb. LR 5 (SC) - Oil & Natural Gas Corporation Ltd. vs. Saw Pipes Ltd. the Hon'ble Supreme Court reiterated the principle that if the award passed by the arbitral tribunal is in contradiction of the provisions of the Act or any other substantive law governing the parties or is against the terms of the contract, court can set aside the award under Section 34(2) of the Act. In 2006 (3) CTC 794 - Chennai Metropolitan Water Supply & Sewerage Board vs. Aban Constructions Pvt. Ltd. and others this court held that when an award passed by an arbitrator is contrary to the agreement between the parties and the same is not in accordance with the terms of the contract, the award is liable to be set aside. The same principle was again reiterated by the Hon'ble Supreme Court in (2006) 4 SCC 445 = 2006 (2) Arb. LR 20 (SC) - Hindustan Zinc Ltd. vs. Friends Coal Carbonisation, by holding that if the arbitral tribunal ignores the terms of the contract, the award would be patently illegal which could be set aside under Section 34 of the Act. In 2007 (4) MLJ 1210 = 2007 (4) Arb. LR 228 (Mad.) (DB) - Crompton Greaves Ltd., Chennai vs. Dyna Technologies Pvt. Ltd. a Division Bench of this court held that an arbitrator cannot travel beyond the contract to award compensation. In 2007 (4) MLJ 73 (SC) = 2007 (2) Arb. LR 74 (SC) - Food Corporation of India vs. Chandu Construction and another, the Hon'ble Supreme Court observed that the arbitrator being a creature of the agreement between the parties, he is to operate within the four corners of the agreement and if he ignores the specific terms of contract, it would be a question of jurisdictional error on the face of the award.
From the above judgments and other judgments cited on behalf of the petitioners herein, it is very clear that the arbitrator cannot ignore the specific condition contained in the contract and if an award is passed not adhering to such a condition, the award is liable to be set aside under Section 34 of the Act. This is a settled legal principle and no authority is needed to drive home this point. Further, as a number of judgments have been cited on behalf of the petitioners, I have referred to a few of the same. In the case on hand, admittedly, the award has been passed by the second respondent/arbitrator in total disregard of Clause 4.9 of the SCC and, therefore, the petitioners herein have made out a case under Section 34 of the Act. In fact, I find from the award that this ground was not at all properly considered by the second respondent/arbitrator and it was taken for granted that the defect liability period was extended automatically and, therefore, the claim petition was filed in time. It is also well settled that limitation is a question that should be gone into by a presiding officer of a tribunal or a court, even if the same has not been specifically raised, as no tribunal or court can venture to decide the stale claims. In the light of the above, I have no hesitation in setting aside the award passed by the second respondent/arbitrator on 30.11.2006. As I have set aside the award on the first ground of limitation itself, it is not necessary to consider the other grounds raised by the petitioners herein and accordingly, they have not been considered and the award is set aside on the first ground of limitation as stipulated by Clause 4.9 of the Special Conditions of Contract. In the result, the original petition is allowed by setting aside the award of the second respondent/arbitrator. No costs.