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2017 DIGILAW 941 (GUJ)

Borough Municipality v. Manubhai B. Patel

2017-05-02

RAJESH H.SHUKLA

body2017
JUDGMENT : Rajesh H. Shukla, J. 1. The present First Appeal is filed by the Appellant/Original Defendant No. 1 under Section 39(1) (vi) of the Arbitration Act being aggrieved with the judgment and order passed by the learned Civil Judge (SD), Palanpur in Special Civil Suit No. 13 of 1979 filed under Section 20 of the Arbitration Act, by which the reference was made. However, thereafter a new Arbitrator was appointed and the said Arbitrator filed an award on 25.9.1984 in the court of learned Civil Judge, Palanpur vide Exh. 61 which is challenged by the Appellant on the grounds stated in the Appeal. 2. The background of the facts as stated are that the work for construction of the school was given to Respondent No. 1 - Manubhai B. Patel & Co. After the initial construction, the work was not as per the requirement of Respondent No. 2 - J.P. Parekh & Sons, resulting in dispute, for which, the arbitration was made, including the issues about the quality of the work. Therefore, Special Civil Suit No. 13 of 1979 was filed under Section 20 of the Arbitration Act. The Arbitrator was appointed and thereafter another Arbitrator one Shri Desai was appointed who made an award. Clause 37 of the Arbitration Agreement produced on record provide for Arbitration. The Arbitrator and the person nominated by the architect would be binding to both the sides. It is in these circumstances, the aspect of delay and quality is required to be considered. Learned Advocate Ms. Sairica Raju for the Appellant referred to the arbitration agreement produced on record with specific reference to Clause 29 which referred to failure by contractor to comply with Architect's instructions. She therefore submitted that Clause 34 provide that the contractor shall immediately make good at his cost to the satisfaction of the Architect about any shortcomings or the defects. The Respondent had failed to comply with the same. Learned Advocate Ms. Raju has also referred to paragraph 9 of the General Specification for the Works referred to with agreement and submitted that it is clearly provided: "Notwithstanding the approval by the Architect and R.C.C. Specialist and the local Municipality, the contractor shall be responsible for all defects in the work and the defective work shall be immediately replaced by the contractor at his cost. The design of the reinforcement shall be as required by local Municipal bye-laws supplemented, where necessary, by Indian standard code and shall satisfy all the standard tests. Test will be taken by the Architect as decided by him for materials, mixtures and finished work." Learned Advocate Ms. Raju therefore submitted that it was the responsibility of the contractor. She also referred to special condition of the contract and submitted that it provided that the work will have to be started within a week from the issuance of the work order and it was required to be completed within twelve months and the time was the essence of the contract. Learned Advocate Ms. Raju submitted that admittedly the time scheduled has not been adhered to in spite of repeated requests and reminders. Moreover, as the work was not completed, it was got done by the Appellant. Learned Advocate Ms. Raju also referred to the papers at length to support her contention that even the quality of the work was not improved in spite of repeated requests made. Learned Advocate Ms. Raju pointedly referred to the communication by the Appellant dated 5.11.1977, thereafter 30.1.1978 and also dated 29.4.1978. Learned Advocate Ms. Raju submitted that the communication dated 29.4.1978 which was sent to the contractor by registered letter clearly suggest that the work was stopped and some defects were required to be removed by removal of defective construction. She also submitted that, as stated, repeated notices were given, but the work was not started and there was no progress, and therefore, the notice was given as to why the contract should not be terminated. In spite of that, as it was not responded, another communication dated 2.9.1978 was addressed asking the contractor to remain present for an explanation and thereafter the contract was terminated. Learned Advocate Ms. Raju submitted that the work which was not carried out as per the terms and conditions was not approved by the Appellant. She therefore submitted that the award making a rule of the court for making the payment to the contractor is erroneous and without appreciating the relevant factors and material and evidence on record. 3. One Manubhai B. Patel, who was the partner in the firm, has remained present as party-in-person and he is permitted to argue the matter as per the High Court Rules. 4. 3. One Manubhai B. Patel, who was the partner in the firm, has remained present as party-in-person and he is permitted to argue the matter as per the High Court Rules. 4. Shri Manubhai B. Patel referred to the papers including the agreement and submitted that the Appellant has not given the necessary drawing material and the delay is not at the instance of the contractor. Similarly, he submitted that the quality of the work was up to the mark and whatever defects were there, were carried out as suggested. He therefore submitted that the grievance made or the contentions which have been raised referring to the quality of work may not be believed. He submitted that as the Appellant had failed to appreciate this aspect about the work carried out by the Respondents, they had to refer the matter to the Arbitrator. He referred to the background of the facts and submitted that the Arbitrator has considered the loss and profit as well as the loss of damages, and therefore, the award is for recovery of the amount. He also referred to the papers and submitted that the Respondents are not having any knowledge about the complaint regarding the quality of work. He submitted that the Respondent do not agree with the same that it was a inferior quality work. He also referred to the papers and submitted that the Arbitrator has, after considering the details, has passed the award. He referred to the material and evidence on record, including the award and submitted that the contention about the poor quality of work is an afterthought. He also submitted that the liquidated damages have also been considered and on that basis loss of profit has to be awarded. He submitted that the issue about the quality of the work could be examined for which he referred to page 54 and 55 and submitted that the grievance about the quality of work is not justified. Similarly he submitted that the Appellant was to supply the steel and other material. There was some delay and still the efforts were made to continue the work. 5. Learned Advocate Ms. Raju however submitted that there is apparent violation of terms and conditions of the agreement both with regard to the time schedule and the quality of the work which is borne out from the record. There was some delay and still the efforts were made to continue the work. 5. Learned Advocate Ms. Raju however submitted that there is apparent violation of terms and conditions of the agreement both with regard to the time schedule and the quality of the work which is borne out from the record. She submitted that the contractor did not even respond to the repeated reminders to correct the mistake and set the things right and improve the quality of work. In fact in spite of repeated reminders, the work did not start again resulting in delay. Therefore she submitted that whatever the bills which were submitted have been approved and the payments have been made and therefore now the claim for loss of profit may not be entertained. Learned Advocate Ms. Raju referred to the minutes of the Public Works Committee Meeting dated 13.7.1978 and submitted that as recorded in detail, in spite of the repeated reminders when the contractor did not respond to the suggestions made and stopped the work, the decision was taken to terminate the contract and the defects were removed and construction was made again departmentally. Therefore, the decision which was taken was conveyed by communication dated 29.4.1978 to the Respondent - contractor about termination of the agreement and he was also asked to represent and remain present. Learned Advocate Ms. Raju therefore submitted that in light of this, the judgment and award is erroneous and requires to be quashed and set aside. 6. In view of the rival submissions, it is required to be considered whether the present First Appeal deserve consideration. 7. In the background of the facts as stated above, the work of construction of the school was given to Respondent No. 1 - Manubhai B. Patel & Co. As it has been referred to by both the sides there were some issues, and ultimately, the Arbitrator has been appointed as per Clause 37 of the Arbitration Agreement. The agreement therefore has to be considered to find out whether the present Appeal filed by the Appellant - Municipality could be entertained. 8. As it appears from the background of the facts which have been referred to by both the sides at length, the Respondent had not carried out the work as per schedule. Moreover, the quality of the work was also not to the satisfaction. 8. As it appears from the background of the facts which have been referred to by both the sides at length, the Respondent had not carried out the work as per schedule. Moreover, the quality of the work was also not to the satisfaction. It appears from the record that in spite of repeated reminders to correct the mistake and set the things right, the quality of work has not been up to the satisfaction as agreed. Though the contentions have been raised that the poor quality of work is an afterthought, the record clearly suggest that it was pointed out at the relevant time. In fact, according to the say of the Respondents themselves, they have made the correction also and carried out the modification, meaning thereby there was some scope for complaint for the quality of work. Be that as it may, the Appeal has been preferred by the Appellant - Municipality being aggrieved with the order of the court making the award as rule of the court. However, the moot question which is required to be considered is whether the award could be sustained when full payment has been made. The award is with regard to the loss of profit which does not figure in the agreement. In fact the tender agreement between the Appellant - Municipality and the Respondents on the contrary provide that if there is any defect in the work then the President of the Nagar Palika will decide and his decision shall be final as stated in Clause 8 of the agreement. The amount of all the bills have been paid. Therefore, the moot question is whether the arbitrator could have awarded the loss of profit. The provisions of the agreement i.e. the tender agreement or the arbitration does not specify any such provision. All the outstanding bills have been paid including the final bill. The issue in the present Appeal challenging the order of the court making the award as the rule of the court is with regard to the loss of profit which is beyond the scope of reference. It is well accepted that for the purpose of ascertaining the loss for the purpose of compensation, there has to be material and evidence on the basis of which the assessment could be made. As could be seen from the award, the Arbitrator has awarded without any reference to any material. It is well accepted that for the purpose of ascertaining the loss for the purpose of compensation, there has to be material and evidence on the basis of which the assessment could be made. As could be seen from the award, the Arbitrator has awarded without any reference to any material. In fact the claim is made by the Appellant regarding violation of the terms and conditions of tender agreement as discussed above. Moreover, the tender agreement refer to the conditions of contract providing for various details including the quality of the work, the manner in which it shall be carried out and also the clause for the arbitration. It does not provide for any reference to the Arbitrator for the award for the damages. It is also evident that the parties have not led any evidence before the Arbitrator and therefore there is no evidence. It is in this background the Arbitrator could not have awarded the loss of profit as it would amount to going beyond the scope of reference as it was never within the scope of reference or a dispute. Assuming that the Arbitrator could award, there has to be material for the purpose of assessment or there has to be clause specifying about the manner in which the compensation should be assessed. There is nothing which would justify such award. 9. It may not justify to interfere with the award based on material and evidence even if the other view is possible. However, if the Arbitrator has misdirected in arriving at a conclusion and has proceeded towards the erroneous decision or a conclusion not permitted or warranted by the agreement, then it cannot be sustained. When the arbitration agreement does not provide for any such items providing for compensation for loss of profit, no award could have been made. As stated above, no evidence has been led by both the sides before the Arbitrator. Therefore, it was all the more difficult for the Arbitrator to come to any conclusion or make any guess regarding the loss of profit as there was no stipulation in a contract to provide for compensation in certain eventuality, then it could be assessed on that basis. Therefore, it was all the more difficult for the Arbitrator to come to any conclusion or make any guess regarding the loss of profit as there was no stipulation in a contract to provide for compensation in certain eventuality, then it could be assessed on that basis. However, when the contract is not providing or stipulating for any such loss of profit and when there is no material and evidence to arrive at the nature of loss or the material to quantify the loss, it could not have been awarded. There has to be some material for alleged loss and profit for which the damage is claimed. Some evidence may provide for calculation or the assessment of the loss by making some computation. However, in the absence of any material, no such award for loss of profit could have been made particularly when full and final payment has been made which has been accepted by the Respondent contractor. 10. The Hon'ble Apex Court in a judgment in case of Wild Life Institute of India, Dehradun v. Vijay Kumar Garg reported in 1997 (10) SCC 528 has also made the observation that after receiving the amount in full and final settlement no claim could be made as it would discharge the liability under the contract. Similarly, a reference can be made to the judgment of the Hon'ble Apex Court in a judgment in case of M/s. Ravindra Kumar Gupta and Company v. Union of India reported in AIR (2010) SC 972. It is required to be stated that the statement by the Respondent contractor refers to the loss of profit on the ground that the work to the tune of Rs. 6 lacs was awarded whereas he could perform the work to the extent of Rs. 2 lacs only resulting in loss. This could not be a criteria for the damages without having regard to the background and conduct of the contractor himself as discussed above. However, as the record clearly reveal that only the Respondent contractor was responsible for quality of the work, the delay, which led to the termination of agreement after the notice. 2 lacs only resulting in loss. This could not be a criteria for the damages without having regard to the background and conduct of the contractor himself as discussed above. However, as the record clearly reveal that only the Respondent contractor was responsible for quality of the work, the delay, which led to the termination of agreement after the notice. Further, as discussed above, after the sufficient opportunity, ultimately the notice for termination was given, and therefore, any such award made by the Arbitrator towards the loss of profit cannot be sustained and the award made by the Arbitrator which has been made rule of the court cannot be sustained. In fact, the termination coupled with the lapse and shortcomings on part of the Respondent would dis-entitle him for any such claim for loss of profit. Again, the amount for the work carried out has been paid which has been accepted by the Respondents in full and final settlement. 11. It is in these background the present Appeal filed by the Appellant deserve to be allowed. The impugned judgment and order passed by the learned Civil Judge (SD), Palanpur in Special Civil Suit No. 13 of 1979 deserves to be quashed and set aside and is hereby quashed and set aside.