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2013 DIGILAW 831 (HP)

State of H. P. v. Elechmech Engineers

2013-09-21

RAJIV SHARMA

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JUDGMENT Justice Rajiv Sharma, Judge. These objections have been filed under section 34 (2) of the Arbitration and Conciliation Act, 1996 against the award dated 19.5.2012 passed by the Arbitrator, Superintending Engineer, H.P.P.W.D. Arbitration Circle, Solan. 2. “Key facts” necessary for the adjudication of these objections are that the work of C/O Minister/Administrative Block at Vidhan Sabha was awarded to the respondent-contractor against agreement No. 61 of 1997-98 vide letter dated 17.9.1997. The work was to be completed within a period of 12 months. The work was to be completed upto 30.9.1998. However, the same was completed on 29.9.2001. He was also granted extension upto 30.9.2001 under clause 5 of the contract agreement No.61 of 1997-98. According to the contractor, final bill was required to be paid to him within six months after the completion of work and he was entitled to escalation under clause 10-CC of the contract. He was also entitled to be paid for extra and substituted works in terms of clause 12 (v) of the contract. A dispute arose between the parties and Superintending Engineer, Arbitration Circle, HPPWD, Solan was appointed as Sole Arbitrator. Arbitrator entered into reference on 2.11.2005. Claim was filed by the contractor. Arbitrator passed an award on 19.5.2012. Hence, these objections. 3. Mr. Neeraj K. Sharma, learned Deputy Advocate General has vehemently argued that award dated 19.5.2012 is against the well settled position of law. According to him, award is based on conjecture and surmises. He also contended that the award is against the public policy. He has further argued that the Arbitrator has exceeded his jurisdiction while deciding claim No.3 as per clause 10-CC. He lastly contended that interest at the rate of 7.5% pendente lite is also wrongly made in favour of the contractor. 4. Mr. T.S. Bhogal has supported the award dated 19.5.2012. 5. I have heard the learned counsel for the parties and have perused the pleadings carefully. 6. The final bill of the work was submitted by the Executive Engineer for gross amount of Rs. 1,74,55,297 and net amount payable was Rs. 1,55,917/-. However, in the final bill prepared by the Executive Engineer, recovery on penal rate has been made. Conditions regarding the return of material were governed under clause 42 (i). It specified that a notice in writing was to be issued by the Engineer-in-Charge under his hand. 1,74,55,297 and net amount payable was Rs. 1,55,917/-. However, in the final bill prepared by the Executive Engineer, recovery on penal rate has been made. Conditions regarding the return of material were governed under clause 42 (i). It specified that a notice in writing was to be issued by the Engineer-in-Charge under his hand. However, in the instant case, no such notice was ever issued by the Executive Engineer. In view of this, Arbitrator has rightly come to the conclusion that the penal rate was not justified. 7. Non- scheduled items were to be executed as per clause 12 (v) of the agreement. According to this clause, the contractor, within seven days from the receipt of order, was to claim revision of rates supported by proper analysis in respect of such items. However, the Executive Engineer was at liberty to cancel his order to carry out such increased quantities of work by giving notice in writing to the contractor and arrange to carry it out in such manners as may be considered advisable. In the case in hand, Executive Engineer had not cancelled the order for execution of these items. The rates demanded by the contractor were deemed to have been approved as per pleading of the contractor. Arbitrator has rightly interpreted clause 12 (v) that the rates demanded by the contractor were justified and prevalent in the market. He has not erred in law by taking into consideration the rates recommended by the Executive Engineer as justified market rates of these items. The Executive Engineer has recommended the amount for items strictly as per clause 12 (v) as Rs. 80,97,743 against demanded amount of Rs. 85,26,136/-. He has thus correctly awarded the amount for extra and substituted items. 8. The contractor has demanded Rs. 69,84,157/- for the rates of extra items under clause 12-A whereas the Department had agreed for total claim of Rs. 58,17,031/-. Clause 12-A of the contract stipulates that the contractor, within seven days from the receipt of order, claim revision of rates supported by proper analysis in respect of such items. However, Executive Engineer is at liberty to cancel the order to carry out such increased quantities of work by giving notice in writing to the contractor and arrange to carry it out in such manner as may be considered advisable. However, Executive Engineer is at liberty to cancel the order to carry out such increased quantities of work by giving notice in writing to the contractor and arrange to carry it out in such manner as may be considered advisable. In the instant case, the Executive Engineer has not cancelled the order for these items. Thus, in view of this, the rates recommended by the Executive Engineer can be considered as justified market rates for these items. Arbitrator has awarded a sum of Rs. 2,48,871/- in respect of deviated quantities. 9. Mr. Neeraj Sharma, learned Deputy Advocate General has vehemently argued that the contractor was not entitled to escalation under clause 10-CC. However, it is evident from the award that the Executive Engineer has duly checked and approved Rs. 41,734/- under clause 10CC of the contract. 10. Now, the Court will advert to the rate of interest awarded by the Arbitrator. The work was to be completed as per agreement on 30.9.1998. However, it was actually completed on 29.9.2001. Thereafter, final bill was submitted. According to clause 7 of the agreement, the final bill was to be submitted by the contractor within one month of the date fixed for completion of the work and the payment was to be made within six months, if the amount was more than two lakhs. In view of this, payment of final bill was required to be made before 29.4.2002. Arbitrator has only awarded interest @ 7.5% for a period of 8½ years. This cannot be said to be exorbitant rate of interest. It is strictly as per section 31 (7) of the Arbitration and Conciliation Act, 1996. 11. Their Lordships of the Hon’ble Supreme Court in State of Haryana and others vs. S.L. Arora and company, (2010) 3 SCC 690 have held that section 31 (7) of the Arbitration and Conciliation Act, 1996 merely authorizes the Arbitral Tribunal to award interest in accordance with the contract and in the absence of any prohibition in the contract and in the absence of specific provision relating to interest in the contract, to award simple interest at such rates as it deems fit from the date on which the cause of action arose till the date of payment. Their Lordships have held as under: “34. Their Lordships have held as under: “34. Thus it is clear that Section 31(7) merely authorises the Arbitral Tribunal to award interest in accordance with the contract and in the absence of any prohibition in the contract and in the absence of specific provision relating to interest in the contract, to award simple interest at such rates as it deems fit from the date on which the cause of action arose till the date of payment. It also provides that if the award is silent about interest from the date of award till the date of payment, the person in whose favour the award is made will be entitled to interest at 18% per annum on the principal amount awarded, from the date of award till the date of payment. The calculation that was made in the execution petition as originally filed was correct and the modification by the respondent increasing the amount due under the award was contrary to the award.” 12. Arbitrator has passed a speaking order. It is not against the public policy of India. Arbitrator has rightly interpreted clauses 7, 10-CC, 12 (i) to (v) and 12-A of the agreement. 13. Accordingly, there is no merit in these objections and the same are dismissed, so also the pending application(s), if any. No costs.