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2018 DIGILAW 837 (GUJ)

Indian Oil Corporation Ltd v. Kicons Ltd.

2018-07-09

AKIL KURESHI, B.N.KARIA

body2018
JUDGMENT & ORDER : AKIL KURESHI, J. 1. The appeal is filed by Indian Oil Corporation Limited. ("IOCL" for short) challenging the judgment of the District Court rejecting the application of the IOCL for setting aside arbitral award. 2. Brief facts are as under. IOCL had awarded a contract for supply, installation, testing and commissioning of fire fighting system to the present respondent (here-in-after referred to as "the contractor") at a permanent jetty at Kandla for a total estimated cost of Rs. 3,08,82,510.96. As per the contract between the parties, date of completion of contract was nine months from the date of handing over the site. Site was handed over on 11.7.1999. Date of completion was therefore, 10.4.2000. According to IOCL, there was much delay in completion of work. IOCL therefore, in terms of the agreement invoked penalty clause and recovered from the running bills and security deposit of the contractor, a sum of Rs. 31,09,414/-. Contractor had disputes about this recovery. During the course of execution of the work, admittedly, IOCL had asked the contractor to carry out extra work. According to IOCL at the prescribed rates, the contractor was reimbursed for such extra work also. However the contractor disputed this aspect. In terms of arbitration agreement both these issues were referred to an arbitrator appointed by IOCL. 3. Arbitrator rendered his award on 16.08.2007. In such award with respect to the penalty imposed by IOCL on the contractor, the arbitrator found that sum of Rs. 16,82,672/- was refundable. Penalty of Rs. 14,26,741/- was confirmed. Regarding the extra work, the arbitrator accepted the contractor's reduced claim of Rs. 5,80,900/-. The arbitrator therefore, directed IOCL to refund sum of Rs. 16,82,672/- with 6% interest and also directed payment of a further sum of Rs. 5,80,900/- with similar interest. 4. Iocl thereupon approached District Court requesting for setting aside the arbitral award. District Court rejected such application by impugned judgment, upon which this appeal has been filed. 5. Disputes are in narrow compass. Only two contentious claims of the contractor need to be examined. With respect to the penalty imposed by IOCL, counsel for the IOCL contended that there was long delay in completion of work by the contractor. IOCL was entitled to invoke the penalty clause. Arbitrator erroneously recomputed such penalty and granted partial relief to the contractor. Only two contentious claims of the contractor need to be examined. With respect to the penalty imposed by IOCL, counsel for the IOCL contended that there was long delay in completion of work by the contractor. IOCL was entitled to invoke the penalty clause. Arbitrator erroneously recomputed such penalty and granted partial relief to the contractor. Regarding the excess work, counsel submitted that as and when the contractor had carried out work in addition to the awarded work as per the work order, payments at the agreed rates were made. Arbitrator failed to examine these aspects. At any rate, this was not an arbitrable issue. Our attention was drawn to various clauses contained in the said agreement between the parties and in particular the arbitration clause in this respect. 6. On the other hand, learned counsel for the contractor opposed the appeal contending that the arbitrator has passed a well-reasoned award. Scope of interference with such arbitral award is extremely narrow. District Court having examined the issues had rejected the application of IOCL. First Appeal is required to be rejected. 7. With respect to the penalty for delayed completion of the project, following aspects emerge from the record. The work order dated 3.3.1999 was given to the contractor on 3.6.1999. As per the findings of the arbitrator, site was handed over on 10.7.1999 and in fact, the contractor started his work on such date. Though the arbitrator has made a passing reference to some of the peripheral facilities not being provided along with handing over the site, he has not pushed back the date of handing over the site from 10.7.1999 on such basis and in fact, noted that the contractor also started work on such date. We have therefore, proceeded on such basis. Agreement envisaged that work would be completed within nine months from handing over the site. Due date of completion of work was therefore, 10.4.2000. The arbitrator also recorded that work was not completed by such date. It has also come on record that even as per the contractor's own admission, entire work was completed on 13.8.2000. In fact, arbitrator has come to the conclusion that even on 31.8.2000, the work was not entirely finished. Due date of completion of work was therefore, 10.4.2000. The arbitrator also recorded that work was not completed by such date. It has also come on record that even as per the contractor's own admission, entire work was completed on 13.8.2000. In fact, arbitrator has come to the conclusion that even on 31.8.2000, the work was not entirely finished. Despite these findings, arbitrator proceeded to reduce penalty imposed by IOCL by making the following observations : "The Respondent did not produce documentary proof for handing over the site by Respondent to Claimant. Claimant received the work order on 03.06.99 and the starting date of work was 10.07.99 and completion date was 10.04.2000. However, claimant completed the 91% work worth Rs. 2,80,44,453/- on 10.4.2000. The respondent in his written submission stated that claimant did not complete few minor jobs. Therefore, the delay is of 4 weeks and LD works out to (Rs. 2,80,44,543 x 4%) + (Rs. 3,10,94,141 - 2,80,44,543) x 10% = 11,21,7817.70 + (3,04,959.70) =14,26,741.40 as against deduction of Rs. 31,09,414/-. Hence refundable LD amount works out to Rs. 16,82,672.60." 8. Clause (6) of the contract pertained to compensation for delay for unfinished work. Clause (a) thereof provides interalia that without prejudice to the rights and remedies of the Corporation against the contractor, if the contractor failed to complete the work within the time fixed and did not complete the entire work on the stipulated date, Corporation would recover an amount calculated at the rate of 1% for every week or part thereof of the delay beyond the stipulated date on account of any item which is not completed or finished and delivered completely to the Corporation, subject to maximum of 10% of the total contract value. Essentially therefore, this clause envisaged that in case entire work is not completed within stipulated date, for every week of delay, the Corporation would recover from the contractor a sum equivalent to 1% of the total value of the contract, subject to a ceiling of 10% thereof. Stress is on completion of entire work and not part thereof. On the date envisaged for completion of the work, therefore, what percentage of work was completed was not of any relevance. What had to be ascertained was whether entire work was completed or had lingered beyond the date of completion. Stress is on completion of entire work and not part thereof. On the date envisaged for completion of the work, therefore, what percentage of work was completed was not of any relevance. What had to be ascertained was whether entire work was completed or had lingered beyond the date of completion. Even otherwise, this is a reasonable interpretation since the Corporation would award work with stipulated date of completion with the penalty clause so that execution of the contract does not linger indefinitely delaying important projects. The Contractor cannot press in defence the ground that substantial or even major part of the work was completed before the date of completion and therefore, recovery can be levied only on the value of the component which has not been finished. This would be wholly erroneous interpretation of this clause. As long as the work is not completed and the site with installed plant and machinery or building as the case may be is handed over to IOCL, the Corporation cannot implement its further projects. What portion of work was completed on the due date would therefore be of importance to IOCL. This is what precisely the arbitrator had done. If we peruse his conclusion reproduced above, he split the computation of recovery in two parts. According to him 91% of the work worth Rs. 2,80,44,453/-was completed on the due date. The remaining work remained unfinished for a long period. On this remaining 9% of the value of the contract, he computed recovery at the rate of 10%. What is not possible for us to understand is that if the arbitrator was of the opinion that 91% of the work order was completed within time stipulated and therefore according to him, on such amount of work, recovery could not be made, why did he then impose penalty at the rate of 4% on the sum of Rs. 2,80,44,453/-. 9. Be that as it may, we fundamentally oppose the arbitrator splitting the work between the finished and unfinished as on the last date of completion for computing the recovery in terms of clause 6(a) of the agreement. As discussed earlier, if the work was unfinished, whatever portion thereof, the penalty would attach at prescribed rate for the entire amount. 9. Be that as it may, we fundamentally oppose the arbitrator splitting the work between the finished and unfinished as on the last date of completion for computing the recovery in terms of clause 6(a) of the agreement. As discussed earlier, if the work was unfinished, whatever portion thereof, the penalty would attach at prescribed rate for the entire amount. The Corporation was therefore, correct in levying penalty which was frozen at 10% of the total value of the contract since the completion date was well beyond 10 weeks of the date for such completion. 10. Coming to the question of excess work, we may record that the agreement contained arbitration clause in the following terms : "18. Except in respect of "Excepted Matters" referred to in clause 17 hereof, all questions, issues, disputes and difference between the Corporation and the Contractors (whether relating to the Contractor's claim against the Corporation or vice-versa relating to any clause or provision of this contract including those relating to General Conditions and special conditions as provided in work order) or any interpretation thereof of the right or liability of any party or as to any act or omission etc. of either party whether arising during the course of the work or after the completion or abandonment thereof, its termination, expiry or otherwise howsoever relating to the said work order and this contract shall be referred by any aggrieved party to the contract which term will include the Corporation to the sole arbitration of the ED WR of the Corporation. If such ED WR is unable or unwilling to act as the sole arbitrator, the matter shall be referred to the sole arbitration of some other person designated by such ED WR in his place, who is willing to act as such sole arbitrator. It will be no objection to any such appointment that the arbitrator so appointed is a Government servant on deputation with the Corporation or the employee or the officer of the Corporation or that in the course of his duties as employee or the officer of the Corporation, he had to deal with the matters to which the contract relates or that he had expressed his views on all or any of the matters in dispute or difference. The arbitrator to whom the matter is originally referred whether the ED WR the employee or officer or Government servant on deputation as the case may be, on his being transferred or vacating his office or being unable to act for any reason the ED WR shall designate any other person to act as arbitrator in accordance with the terms of the contract and such person shall be entitled to proceed with the reference from the stage at which it was left by his predecessor. It is also the terms of this contract that no person other than the ED WR or the person designated by the ED WR as aforesaid should act as arbitrator. The award of the arbitrator so appointed shall be final, conclusive and binding on all the parties to the contract and provisions of the Arbitration and Conciliation Act, 1996 or any statutory modification or reenactment thereof and the Rules made there under and for the time being in force shall apply to the arbitration proceedings under this clause. It is known to the parties herein that the arbitrator appointed hereunder is an employee of the Corporation and he is a share holder of the Corporation." 11. This arbitration clause thus would include all disputes arising between the parties out of the work order in question, except for the excepted matter as referred to in clause 17 which reads as under : "17. All disputes or differences of any kind whatever arising out of or in connection with the contract whether during the progress of the work or after its completion and whether before or after determination of the contract, shall be referred by the Contractors to the Corporation and the Corporation shall within reasonable time after their presentation make and notify decisions thereon in writing. The decisions, directions and certificates with respect to any matters, decision of which is specially provided for by these conditions given and made by the Corporation or by the Dy. G.M. (Engg.) on behalf of the Corporation, which matters are referred to hereinafter as Excepted Matters shall be final and binding upon the Contractors and shall not be set aside or attempted to be set aside on account of any informality, omission, delay or error in proceeding in or about the same on any other ground or for any other reason and shall be without appeal. 12. 12. Clause 8(a) of General Terms of contract pertains to execution of additional work and provides inter-alia that if the rates for addition, alteration or substitution work are not specifically provided in the work order, then the same to the extent possible, be derived from the rates for a similar class of work, if specified in the work order or in absence thereof, the rates for such part will be determined by the Deputy General Manager on the basis of present market rates and his decision shall be final and binding on the contractor. 13. Combined reading of these relevant clauses would show that as per clause 8(a) of the general terms, additional work would be of two kinds. In a case where work is of the nature where for same or similar work, rates are already mutually agreed upon, contractor would be reimbursed at the same rate. However, if work is of nature where no rates have been agreed previously, Deputy General Manager on the basis of market rate for procuring the item of work and labour charges involved in execution and reasonable margin, would decide the rates. Decision of Deputy General Manager in this respect would be binding. As per clause 17 of the work order, the issues where the decisions, directions and certificates of the Deputy General Manager are final and binding to the contractors, would be treated as excepted matters. Clause 18 starts with the expression except in respect of Excepted Matters referred to in clause 17, all questions, issues, disputes and difference would be referred for arbitration. In the present case, if we peruse the award of the arbitrator, the case of the contractor himself was that the extra work was in relation to the items for which there was no previous agreement and the rates therefore, had to be fixed afresh. That being the position, the Corporation would be correct in contending that by virtue of clause 8(a) of General terms of tender and clauses 17 and 18 of the work order, same was excepted matter and outside the purview of the arbitrator. 14. In the result, impugned award of the arbitrator and decision of the Civil Court are set aside. Appeal of the ONGC is allowed. Amount deposited by ONGC before this Court shall be returned with accrued interest if any. First Appeal is disposed of accordingly. 15. 14. In the result, impugned award of the arbitrator and decision of the Civil Court are set aside. Appeal of the ONGC is allowed. Amount deposited by ONGC before this Court shall be returned with accrued interest if any. First Appeal is disposed of accordingly. 15. Nothing stated in this order would preclude the contractor from seeking such remedy in law as may be available, if so still surviving with respect to the payments for extra items.