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2014 DIGILAW 1765 (HP)

State of Himachal Pradesh v. Ashok Kumar Thakur

2014-11-27

DHARAM CHAND CHAUDHARY, MANSOOR AHMAD MIR

body2014
JUDGMENT : Mansoor Ahmad Mir, J. Appellants have invoked the jurisdiction of this Court by the medium of present appeal, in terms of mandate of Section 37(b) of the Arbitration and Conciliation Act, 1996, (for short, the Act), and prayed for setting aside the judgment, dated 16th July, 2013, made by a learned Single Judge of this Court in Arbitration Case No. 43 of 2010, titled as State of H.P. v. Ashok Kumar Thakur, whereby the petition filed by the appellants came to be dismissed, (for short, the impugned judgment). 2. This appeal is the outcome of a contract, which was allotted to Contractor Ashok Kumar Thakur (respondent herein), vide agreement No. 8 for 2002-2003, and the work was to be completed within the stipulated period, the details of which have been given in the award passed by the Arbitrator as well as in the impugned judgment. The allotted work was taken to its logical end by the Contractor, though not within the stipulated period, but within the extended period. The extension was sought by the Contractor in writing which was granted by the Department (appellants herein). 3. Since the work could not be completed within the stipulated period because of unavoidable circumstances, admittedly, extension was granted by the Department, vide communication dated 24th November 2003/9th December, 2003, which has been reproduced in paragraph 8 of the impugned judgment. 4. The Contractor invoked Clause 10(CC) of the agreement for revision of rates, which was rejected by the concerned Authorities, resulting into the arbitration reference. Arbitrator-cum-Superintending Engineer, Arbitration Circle, Solan conducted the arbitration proceedings and passed the award, dated 17th April, 2010, in favour of the Contractor, against the Department. Description of the claims presented by the Contractor and the amount awarded are given in paragraphs 4 and 5 of the impugned judgment, which are not being reproduced, for the sake of brevity. 5. The question to be determined is - whether the impugned judgment is well reasoned one or otherwise. 6. The Arbitrator has considered the rival contentions and recorded his findings, cannot be questioned on the ground that another view is possible. 7. 5. The question to be determined is - whether the impugned judgment is well reasoned one or otherwise. 6. The Arbitrator has considered the rival contentions and recorded his findings, cannot be questioned on the ground that another view is possible. 7. The Apex Court in latest decision rendered in Oil and Natural Gas Corporation Ltd. v. Western Geco International Ltd., 2014 AIR SCW 5727, has held that the findings recorded by the Arbitrator cannot be questioned unless it, prima facie, appears that the same are not as per the record and are not tenable. It is apt to reproduce paragraphs No. 20, 24 and 31 of the said decision hereunder: "20. From the findings of the fact recorded by the arbitrators with which we see no reason to interfere or disagree, it is evident, that the appellant-corporation was solely responsible for the delay in taking a decision in the matter between 24th October, 2001 and 26th November, 2001. The arbitrators have found and, in our opinion, rightly so that the respondent-claimant had by its letter dated 24th October, 2001 clearly informed the appellant that there was no use pursuing the matter with the U.S. Authorities any further. Even particulars regarding Canadian hydrophones were supplied to the appellant in terms of a letter dated 25th October, 2001. The arbitrators have held that delay in taking a decision whether or not any formal application should be made and a formal rejection obtained by the respondent was attributable only to the appellant-Corporation. There is, in our opinion, no legal flaw, infirmity or perversity in that finding which we hereby affirm. Deduction made by the appellant-Corporation for the First interval that comprises period between 1st November, 2001 and 25th November, 2001, both days inclusive, cannot, therefore, be sustained and the arbitral award to that extent cannot be faulted. xxxxxxxxxxxx xxxxxxxxxxxx xxxxxxxxxxxx 24. We may at this stage deal with the contention urged on behalf of the respondent that the jurisdiction of the Court to set aside an arbitral award being limited to grounds set out in Section 34 of the Arbitration and Conciliation Act, 1996, this Court ought not to interfere with the same. It was contended that none of the grounds on which a Court is authorised to interfere with an arbitral award are present in the case at hand. It was contended that none of the grounds on which a Court is authorised to interfere with an arbitral award are present in the case at hand. Alternatively, it was contended that even if a contrary view is possible on the facts proved before the Arbitral Tribunal, the Court cannot, in the absence of any compelling reason, interfere with the view taken by the Arbitrators as if it was sitting in appeal over the award made by the Tribunal. Section 34 of the Arbitration and Conciliation Act, 1996 reads: ................ xxxxxxxxxxxxxx xxxxxxxxxxxxxx xxxxxxxxx 31. Inasmuch as the arbitrators clubbed the entire period between 16th October, 2001 and 21st March, 2002 for purposes of holding the appellant-Corporation responsible for the delay, they committed an error resulting in miscarriage of justice apart from the fact that they failed to appreciate and draw inferences that logically flow from such proved facts. We have, therefore, no hesitation in rejecting the contention urged on behalf of the respondent that the arbitral award should not despite the infirmities pointed out by us be disturbed." 8. Similar view has been taken by the Apex Court in M/s J.G. Engineers Pvt. Ltd. v. Union of India and Anr., 2011 AIR SCW 2849. It is apt to reproduce paragraphs 14, 15 and 17 of the said decision hereunder: "14. Thus what is made final and conclusive by clauses (2) and (3) of the agreement, is not the decision of any authority on the issue whether the contractor was responsible for the delay or the department was responsible for the delay or on the question whether termination/rescission is valid or illegal. What is made final, is the decisions on consequential issues relating to quantification, if there is no dispute as to who committed breach. That is, if the contractor admits that he is in breach, or if the Arbitrator finds that the contractor is in breach by being responsible for the delay, the decision of the Superintending Engineer will be final in regard to two issues. The first is the percentage (whether it should be 1% or less) of the value of the work that is to be levied as liquidated damages per day. The second is the determination of the actual excess cost in getting the work completed through an alternative agency. The first is the percentage (whether it should be 1% or less) of the value of the work that is to be levied as liquidated damages per day. The second is the determination of the actual excess cost in getting the work completed through an alternative agency. The decision as to who is responsible for the delay in execution and who committed breach is not made subject to any decision of the respondents or its officers, nor excepted from arbitration under any provision of the contract. 15. In fact the question whether the other party committed breach cannot be decided by the party alleging breach. A contract cannot provide that one party will be the arbiter to decide whether he committed breach or the other party committed breach. That question can only be decided by only an adjudicatory forum, that is, a court or an Arbitral Tribunal. In State of Karnataka v. Shree Rameshwara Rice Mills, 1987 (2) SCC 160 : AIR 1987 SC 1359 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. .................. xxxxxxxxx xxxxxxxxx xxxxxxxxxx 17. In view of the above, the question whether appellant was responsible or respondents were responsible for the delay in execution of the work, was arbitrable. 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 (including any escalation in regard to such extra cost) in getting the work completed through an alternative agency. 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 (including any escalation in regard to such extra cost) in getting the work completed through an alternative agency. Therefore even though the decision as to the rate of liquidated damages and the decision as to what was the actual excess cost in getting the work completed through an alternative agency, were excepted matters, they were not relevant for deciding claims 1, 3 and 11, as the right to levy liquidated damages or claim excess costs would arise only if the contractor was responsible for the delay and was in breach. In view of the finding of the arbitrator that the appellant was not responsible for the delay and that the respondents were responsible for the delay, the question of respondents levying liquidated damages or claiming the excess cost in getting the work completed as damages, does not arise. Once it is held that the contractor was not responsible for the delay and the delay occurred only on account of the omissions and commissions on the part of the respondents, it follows that provisions which make the decision of the Superintending Engineer or the Engineer-in-Charge final and conclusive, will be irrelevant. Therefore, the Arbitrator would have jurisdiction to try and decide all the claims of the contractor as also the claims of the respondents. Consequently, 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." 9. Thus, the learned Single Judge has rightly recorded that the Arbitrator has made the finding correctly, cannot be questioned and set aside. 10. It is also moot question whether question of fact can be raised while determining a petition under Section 34 of the Act or while determining the appeal under the Act. Keeping in view the mandate of the provisions of Section 34 of the Act, read with the ratio laid down by the Apex Court in the decisions referred to supra, that cannot be done unless the findings are perverse. Keeping in view the mandate of the provisions of Section 34 of the Act, read with the ratio laid down by the Apex Court in the decisions referred to supra, that cannot be done unless the findings are perverse. The learned Single Judge has rightly recorded that the findings of the Arbitrator are not perverse in any way. 11. It is also another moot question whether the Arbitrator has exceeded his jurisdiction while granting claim for escalation of costs. The answer is in the negative in view of the judgment made by the Apex Court in K.N. Sathyapalan (dead) by LRs. v. State of Kerala and another, (2007) 13 SCC 43 . It is apt to reproduce paragraphs No. 31, 32, 33 and 34 of the said decision hereunder: "31. The question which we are called upon to answer in the instant appeal is whether in the absence of any price escalation clause in the original agreement and a specific prohibition to the contrary in the supplemental agreement, the appellant could have made any claim on account of escalation of costs and whether the arbitrator exceeded his jurisdiction in allowing such claims as had been found by the High Court. 32. Ordinarily, the parties would be bound by the terms agreed upon in the contract, but in the event one of the parties to the contract is unable to fulfil its obligations under the contract which has a direct bearing on the work to be executed by the other party, the arbitrator is vested with the authority to compensate the second party for the extra costs incurred by him as a result of the failure of the first party to live up to its obligations. That is the distinguishing feature of cases of this nature and Alopi Parshad case and also Patel Engg. case. As was pointed out by Mr. Dave, the said principle was recognised by this Court in P.M. Paul where a reference was made to a retired Judge of this Court to fix responsibility for the delay in construction of the building and the repercussions of such delay. case. As was pointed out by Mr. Dave, the said principle was recognised by this Court in P.M. Paul where a reference was made to a retired Judge of this Court to fix responsibility for the delay in construction of the building and the repercussions of such delay. Based on the findings of the learned Judge, this Court gave its approval to the excess amount awarded by the arbitrator on account of increase in price of materials and costs of labour and transport during the extended period of the contract, even in the absence of any escalation clause. The said principle was reiterated by this Court in T.P. George case. 33. We have intentionally set out the background in which the arbitrator made his award in order to examine the genuineness and/or validity of the appellant's claim under those heads which had been allowed by the arbitrator. It is quite apparent that the appellant was prevented by unforeseen circumstances from completing the work within the stipulated period of eleven months and that such delay could have been prevented had the State Government stepped in to maintain the law and order problem which had been created at the work site. It is also clear that the rubble and metal, which should have been available at the departmental quarry at Mannady, had to be obtained from quarries which were situated at double the distance, and even more, resulting in doubling of the transportation charges. Even the space for dumping of excess earth was not provided by the respondents which compelled the appellant to dump the excess earth at a place which was faraway from the work site entailing extra costs for the same. 34. In the aforesaid circumstances, the arbitrator appears to have acted within his jurisdiction in allowing some of the claims on account of escalation of costs which was referable to the execution of the work during the extended period. In our judgment, the view taken by the High Court was on a rigid interpretation of the terms of contract and the supplemental agreement executed between the parties, which was not warranted by the turn of events." 12. Learned counsel for the appellants argued that Clause 10(CC) of the Agreement cannot be referred to the Arbitrator for arbitration. In our judgment, the view taken by the High Court was on a rigid interpretation of the terms of contract and the supplemental agreement executed between the parties, which was not warranted by the turn of events." 12. Learned counsel for the appellants argued that Clause 10(CC) of the Agreement cannot be referred to the Arbitrator for arbitration. It is apt to reproduce relevant portion of Clause 10(CC) of the Agreement hereunder: "Clause 10CC: If the prices of material (not being materials supplied or services rendered at fixed price by the Dept. in accordance with Clause 10 and 34 hereof) and/or wages of labour required for execution of the work increase, the contractor shall be compensated for such increase as per provisions detailed below and the amount of the contract shall accordingly be varied, subject to the condition that such compensation for escalation in prices shall be available only for the 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. Such compensation for escalation in the prices of materials and labour, when due, shall be worked out based on the following provision:" 13. The argument is devoid of any force in view of the judgment of the Apex Court in J.G. Engineers Private Limited (supra). It is apt to reproduce paragraphs 19, 22 and 23 of the said decisions hereunder: "19. In fact the question whether the other party committed breach cannot be decided by the party alleging breach. A contract cannot provide that one party will be the arbiter to decide whether he committed breach or the other party committed breach. That question can only be decided by only an adjudicatory forum, that is, a court or an Arbitral Tribunal. xxxxxxxx xxxxxxxxxxxxx xxxxxxxxxxxxx 22. In view of the above, the question whether appellant was responsible or respondents were responsible for the delay in execution of the work, was arbitrable. 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. In view of the above, the question whether appellant was responsible or respondents were responsible for the delay in execution of the work, was arbitrable. 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 (including any escalation in regard to such extra cost) in getting the work completed through an alternative agency. Therefore even though the decision as to the rate of liquidated damages and the decision as to what was the actual excess cost in getting the work completed through an alternative agency, were excepted matters, they were not relevant for deciding claims 1, 3 and 11, as the right to levy liquidated damages or claim excess costs would arise only if the contractor was responsible for the delay and was in breach. 23. In view of the finding of the arbitrator that the appellant was not responsible for the delay and that the respondents were responsible for the delay, the question of respondents levying liquidated damages or claiming the excess cost in getting the work completed as damages, does not arise. Once it is held that the contractor was not responsible for the delay and the delay occurred only on account of the omissions and commissions on the part of the respondents, it follows that provisions which make the decision of the Superintending Engineer or the Engineer-in-Charge final and conclusive, will be irrelevant. Therefore, the Arbitrator would have jurisdiction to try and decide all the claims of the contractor as also the claims of the respondents. Consequently, 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." 14. Having said so, no interference is made out. Accordingly, the appeal is dismissed. Appeal Dismissed.