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2017 DIGILAW 205 (CAL)

Union of India v. Jasumall

2017-02-21

I.P.MUKERJI

body2017
JUDGMENT : 1. The respondent is a firm of contractors. On 25th November, 1997 the Eastern Railways under the Ministry of Railways, Government of India entered into a formal contract with them to do some earth work in embankment, compaction of blanketting material thereon, for constructing an extension of the railway bridge, for supplying materials etc. between Shaktigar and Palsit stations in the Burdwan District of this State. The letter of acceptance was issued by the petitioner railways on 25th August, 1997. The value of the work was Rs. 42,92,317 and the time to complete it was six months from the letter of acceptance i.e. 24th February, 1998. The respondent could only complete 33% to 35% of the work. The contract was terminated by the petitioner, said to be wrongfully, by the respondent, on 30th July, 2001 and the balance work got completed by them through another contractor. According to the petitioner railways the respondent was in clear breach of the contract. They failed to submit a detailed programme of the work in the form of a bar chart, failed to mobilise tools and plans for starting the work within the stipulated time of six months from the date of issue of the acceptance letter or send a representative at the site within that period. Furthermore, they did not engage any officer with an engineering degree to facilitate the work. On the other hand, the respondent alleged that the site was not handed over by the railways to them on time. Neither were any drawings. Breach was committed by the railways, as result of which the pace of work slowed down. There was no breach of contract on the part of the respondent. 2. By their letter dated 8th January, 2001 to the General Manager Eastern Railway, Kolkata, the respondent invoked the arbitration clause. The General Manager, Eastern Railways, appointed two joint arbitrators and one presiding arbitrator. 3. On 15th December, 2003, an award was made and published by the learned Arbitrators. There were nine claims before them. Five claims were fully or partly allowed by them. 4. The first claim was for works already executed including extra works amounting to Rs. 495221/-. The learned arbitrators allowed Rs. 3,66,683/-. There was practically no reason in support of this head of award. There were nine claims before them. Five claims were fully or partly allowed by them. 4. The first claim was for works already executed including extra works amounting to Rs. 495221/-. The learned arbitrators allowed Rs. 3,66,683/-. There was practically no reason in support of this head of award. This court had to literally search for some word or words in the body of the award to support the claim allowed. The award in respect of claim No. 1 was in the following terms: “AWARD: Rs. 3,66,683/- (Rupees three lakhs sixty six thousand six hundred eighty three only) since in terms of the said contract the claimant in entitled to receive payment for the works executed by them and it was reasonably established during the proceedings that this was the value of work executed by them but not paid for by the Respondents.” 5. When it was said that it was “reasonably established during the proceedings” that the respondent was entitled to Rs. 3,66,683, the court was entitled to go into the records to see if there was some justification for the award. I was handed up a booklet entitled “Claim No.1” containing details of measurements, profile graphs, calculations, bill amount due etc. In the last page of the booklet one finds that the total amount due is stated to be Rs. 3,67,976. Therefore, some justification for the terse statement contained in the award against claim no.1. that this amount was reasonably established in the proceedings was found. Thus, the award for this head of claim is upheld. 6. Claim No. 2 was for the escalation in cost amounting to Rs. 88,333.99. The learned arbitrators awarded Rs. 69,000. They advanced the following reasons. “AWARD: Rs. 69,000/- (Rupees sixty nine thousand only), since the delay on the part of the Respondents in handing over of site, approval of drawing, handing over of site in piecemeal manner, was established during the proceedings, the claimant ought to be compensated for extra expenditure incurred by them on this account. It has therefore been decided to award escalation to the claimant for the period beyond the original date of completion of the work till the last date of the extended period of the contract, and accordingly 69,000/- (Rupees sixty nine thousand only) is awarded against this claim.” 7. In my opinion, there are adequate reasons in support of the findings. It has therefore been decided to award escalation to the claimant for the period beyond the original date of completion of the work till the last date of the extended period of the contract, and accordingly 69,000/- (Rupees sixty nine thousand only) is awarded against this claim.” 7. In my opinion, there are adequate reasons in support of the findings. I am not inclined to interfere with this award. 8. The Claim No. 3 is for refund of security deposit made by the respondent by way of furnishing a bank guarantee for Rs. 2,25,000. It was held by the learned arbitrators that the petitioner committed “fundamental breach of contract” on various accounts and even the termination/closure of the instant contract by them was irregular. They ordered return of the bank guarantee for Rs. 2,25,000/-. In my opinion, there are adequate reasons in support of the award and this court is not inclined to interfere with the same. 9. The next head of the claim was on account of alleged loss of profit on unexecuted work amounting to Rs.5,47,477.35. The learned arbitrators awarded the whole claim. The purported reasons in support of the award are as follows: “Since the claimant was unable to complete the work due to failure on the part of the Railways, they are entitled to be compensated for the loss of profit on the unexecuted portion of the work. It has thus been decided to award Rs. 5,47,477/- (Rupees five lakhs forty seven thousand four hundred and seventy seven only) on this account as reasonable and just compensation for the loss suffered by the claimants.” Are these reasons sufficient? In my opinion absolutely not. 10. The value of the work was Rs. 42,92,317/-. Only 33% to 35% work was completed by the respondent contractor, as submitted at the bar. 11. Mr. Justice S. Rajendra Babu delivering the judgement of the Supreme Court in Bharat Coking Coal Ltd. v. L.K. Ahuja reported in (2004) 5 SCC 112 remarked as follows: “11. There are limitations upon the scope of interference in awards passed by an arbitrator. When the arbitrator has applied his mind to the pleadings, the evidence adduced before him and the terms of the contract, there is no scope for the court to reappraise the matter as if this were an appeal and even if two views are possible, the view taken by the arbitrator would prevail. When the arbitrator has applied his mind to the pleadings, the evidence adduced before him and the terms of the contract, there is no scope for the court to reappraise the matter as if this were an appeal and even if two views are possible, the view taken by the arbitrator would prevail. So long as an award made by an arbitrator can be said to be one by a reasonable person no interference is called for. However, in cases where an arbitrator exceeds the terms of the agreement or passes an award in the absence of any evidence, which is apparent on the face of the award, the same could be set aside. 24. Here when the claim for escalation of wage bills and the price formaterials compensation has been paid and compensation for delay in the payment of the amount payable under the contract or for other extra works is to be paid with interest thereon, it is rather difficult for us to accept the proposition that in addition 15% of the total profit should be computed under the heading “Loss or Profit”. It is not unusual for the contractors to claim loss of profit arising out of diminution in turnover on account of delay in the matter of completion of the work. What should have established in such a situation is that had he received the amount due under the contract, he could have utilised until same for some other business in which he could have earned profit. Unless such a plea is raised and established, claim for loss of profits could not have been granted. In this case, no such material is available on record. In the absence of any evidence, the arbitrator could not have awarded the same. This aspect was very well settled in Sunley (B) & Co, Ltd. v. Cunard While Star ltd. by the Court of Appeal in England and reported in (1940) 1KB 740. Therefore, we have no hesitation in deleting a sum of Rs. 6,00,000 awarded to the claimant.” 12. According to the view of the Supreme Court a head of damage cannot be awarded by the arbitrator unless loss is established by the claimant. I also note the dictum of the Bombay High Court in Municipal Corporation of Greater Mumbai v. Prestress Products (India) reported in 2003 (2) Arb. 6,00,000 awarded to the claimant.” 12. According to the view of the Supreme Court a head of damage cannot be awarded by the arbitrator unless loss is established by the claimant. I also note the dictum of the Bombay High Court in Municipal Corporation of Greater Mumbai v. Prestress Products (India) reported in 2003 (2) Arb. LR 624 (Bombay) that an arbitrator with a technical background cannot be expected to write out and deliver an award with the precision and the reasoning process of a Judge. If some intelligible reasons are indicated, however short, it would be enough. While awarding this head of claim the learned arbitrator, no doubt, came to the finding that the respondent was unable to complete the work due to the failure on the part of the railways. Therefore, it is a finding that the railways were in breach of the contract. But the learned arbitrators had given no reasons whatsoever as to why they were allowing the entire claim of Rs. 5,47,477/-. What was the breach or the nature thereof has not been specified. How much work the respondent completed, how much they were paid for and how much was outstanding have not been elaborated. Neither is there any evidence in support of the actual loss of profit suffered by the respondent. The Arbitrators do not seem to have applied their mind to the evidence or to the terms of the contract, in making this part of the award. In those circumstances, the award with regard to claim-5 is without ascertainment of the actual loss suffered by the respondent and is devoid of any reasons. It cannot stand. The said head of the award is accordingly set aside. 13. Claim No.8 related to interest. It was claimed from 26th July, 2000 till the date of payment or decree @ 18% p.a. The learned arbitrators awarded interest on claims 1 and 2 from 26th July, 2000 till 10th December, 2002 refusing only pendentelite interest. The contract between the parties was governed by the general conditions of contract of the railways. Clause-16 (2) of the said conditions of contract prohibited grant of interest against the railways. Therefore, the learned arbitrators could not have granted interest for the pre-reference period from 26th July, 2000 till 10th December, 2002. I note that the learned arbitrators have not granted any pendentelite interest. Clause-16 (2) of the said conditions of contract prohibited grant of interest against the railways. Therefore, the learned arbitrators could not have granted interest for the pre-reference period from 26th July, 2000 till 10th December, 2002. I note that the learned arbitrators have not granted any pendentelite interest. Therefore, the award with regard to pre-reference interest is set aside. However, the petitioner will be entitled to interest @ 18% p.a. simple interest from the date of the award 15th December, 2003 till payment. 14. In summary the award with regard to claim no. 5 is set aside. The award with regard to interest from 26th July, 2000 till 10th December, 2002 is set aside. The rest of the award is upheld. 15. This application is partly allowed. 16. Certified photocopy of this Judgment and order, if applied for, be supplied to the parties upon compliance with all requisite formalities.