PUERTO LIFE SCIENCES PVT. LTD. v. ANCON INFRATECH

14. The award proceeds to notice that the final bill raised by the respondent claimant for a sum of Rs.60,93,767.23/-, inclusive of Central and State GST was duly accompanied by full description of the entire works undertaken, the rates thereof and the measurements. Further, the same was duly signed by the Project Management Consultant (PMC) engaged by the petitioner.

15. It is also noticed in the award that the Project Management Consultant of the petitioner had also sought to deduct an amount of Rs.28,43,402/- from the final bill for want of acceptable documents with respect to the works of (a) removal of excavated material in terms of a particular clause of the purchase order; (b) removal of excavated material in terms of another clause of the contract; and (c) dismantling of footings.

16. Paragraph 29 of the award notes that in respect of non-scheduled items for which a sum of Rs.32,55,764.30/- inclusive of central and state GST, was claimed in the Statement of Claim, the PMC of the petitioner sought to deduct a sum of Rs.4,98,960/-.

17. In Paragraph 30 of the award, it is noticed as under:-

18. Paragraph 47 of the award explains the rationale adopted by the learned Arbitrator for working out the final outstanding liability pursuant to the submissions of final bill. The same reads as under:- “47. It is necessary at this stage to understand why building contracts or works contracts provide for running account bills being raised and payments being made thereagainst even while the project is underway and far from completion. A construction project takes a long time to be completed and it would be unreasonable to expect the contractor to spend money from the contractor’s pocket and get paid only after the completion of the work. It is for such purpose that on-account payments are made against running account bills to ensure that the entire project does not require to be financed by the contractor. It is equally possible that a bar chart is prepared by the parties or milestones are set to indicate when running account bills maybe raised and payments claimed thereunder. While it is the norm in contracts as the present one for a degree of verification to be made of the work conducted for which running account bills are raised, it is open to the employer to make onaccount payments without verification since measurements can be taken after the completion of the work, depending on the nature of the work involved. However, when payment is made at a particular rate as claimed in the running account bills, at a subsequent stage the rate cannot be questioned. The quantum of work performed may be subject to final measurements, but once payment is released at a particular rate, the rate at which the bill has been raised for the particular item is deemed to have been conclusively accepted. It is, thus, that the dispute raised by the respondent, pertaining to the dismantling work undertaken by the claimant and already paid for, has to be distinguished qualitatively from the dispute pertaining to the quantum of work done which is the basis for the deductions claimed on account of excavation of earth and the removal thereof. If the payment on account of the dismantling work undertaken by the claimant had not been previously made, it would have been open to the respondent to question the rate. But once the payment was made at the rate quoted, no issue can be raised regarding the rate. Accordingly, the deduction sought by the respondent on account of the alleged high rate charged by the claimant for the dismantling work fails and the claimant is found entitled to the sum of Rs 9,77,241/- on such account.”

19. Thus, Arbitrator proceeded on the basis that it would not be apposite to reopen the rates which have been mutually adopted by the parties for the purpose of the payment of running account bills; the rate at which the bill has been raised for a particular item is deemed to have been conclusively accepted on the payment thereof by the petitioner/employer.

20. Thus, Arbitrator took the final bill amount for Rs.60,93,767.23/- as the starting point for assessing the entitlement of the respondent claimant. From the said amount, the Arbitrator assessed the deductions that were required to be made, based on the material on record.

21. Thus, the Arbitrator assessed the entitlement of the respondent claimant under the final bill in respect of scheduled items to the tune of Rs.43,71,381.23/-.

22. For non-scheduled items, the award works out the entitlement of the respondent claimant to the tune of Rs.26,66,979/- after accepting the deduction made by the PMC of the petitioner.

23. Thus, the total principle amount awarded to the respondent as outstanding payment for the work performed is tune of Rs.70,38,360.59/-. On the said amount, interest at the rate of 15% per annum was awarded till the date of the award. In addition, the Arbitrator awarded a sum of Rs.14 lakhs to the claimant/respondent towards loss of profit. The rationale for working out the said amount is contained in paragraph 62 of the award, which reads as under:-

would not altogether disentitle the claimant from seeking damages on account of loss of profit for an extended period. The claimant has contended that a minimum profit margin of about 10% ought to be read into the claimant’s bid. Since the purchase order of March 17, 2019 appearing at page 36 of the statement of claim indicates the total amount of job based on the BOQ to be of value of approximately Rs.5.66 crore, an approximate estimation of the damages suffered by the claimant because of the project running into more than 26 months against the contemplated nine, may be made. It is clarified that in assessing damages there is always an element of approximation or guesswork that is involved, particularly, if there is no genuine pre-estimation thereof by way of liquidated damages or the like. There is no doubt that a dispassionate assessment of the rival conduct of the parties would lead to the conclusion that it was the respondent that was largely to blame for the delay. It has also to be taken into consideration that though the work continued through the year 2020, for most part there was a lockdown in place due to the pandemic and neither party can be held responsible on such account. On a rough estimation after discounting any claim on account of rise in labour cost, a quarter of the quantum of profit that the claimant expected to earn from the project must be awarded by way of damages for the delay in the completion of the project between October, 2019 and the middle of March, 2021. Since it is the claimant’s case that the profit component would have been a tenth of the value of the agreement or about Rs.14 lakh would appear to be a justified measure of damages to compensate the claimant for the extended period of work It is recorded that no document has been shown by either party of the nature of a formal request for extension of time or of unilateral extension by the employer. At the same time, it is unmissable that the claimant continued to carry on the construction beyond the stipulated date and the respondent acquiesced therein.”

24. Both the counter-claims were rejected. Counter-Claim No.1 was rejected on the premise that the deductions to which the petitioner was entitled were duly accounted for while assessing the total outstanding amount payable to the petitioner.

25. Counter-claim No.2 was rejected on the premise that (i) the claimant/respondent did not bill for any work which it had not done; (ii) the petitioner had not been able to adduce evidence to the effect that the unfinished work was done at rates higher than what had been stipulated in the BOQ (the reasoning in this regard is contained in paragraph 56 of the Award).

26. An application under Section 33 of the A&C Act came to be filed before the Arbitrator on the basis that the amount of retention money to which the claimant/respondent was entitled had been omitted from the award. The said application came to be disposed of by the learned Arbitrator vide order dated 23.07.2024 holding as under:- APPLICATION UNDER SECTION 33 OF THE A&C ACT

summary of the final bill, that the final bill value is said to be Rs. 5,84,53,916.89 p and from such sum the value of the previous bills of Rs. 5,32,89,707.37 p has been deducted to arrive at the net final bill value of Rs. 51,64,209.52 p. To such net amount goods and services tax, both central and local, have been added to arrive at the total final bill value of Rs. 60,93,767.23 p. It is apparent that the total value of the works executed was indicated in the final bill and the total value of the previous bills raised deducted from such amount to arrive at a net figure.

6. Thus, the retention money which would have been a part of the value of the previous bills was not included in the net amount claimed in the final bill. It was a clear error of computation that was committed while rendering the award. As the aforesaid two sentences quoted from the award would reveal, the erroneous understanding was that the retention money was part of the net amount claimed in the final bill. It has now been demonstrated that the retention money was not included in the net amount claimed in the final bill. Accordingly, the award is liable to be corrected by awarding the amount on account of retention money to the claimant.

7. In further support of the claim on account of retention money, the claimant refers to page 29 of the statement of defence and the table appearing there at where there is clear reference of five per cent of retention money of Rs. 35,03,195/-.

8. According to the respondent, if at all, the alleged error may be said to be an error of judgment and not a computation error that is capable of correction under Section 33 of the Act. The respondent asserts that minor corrections, arithmetical errors and claims not considered may be taken up under Section 33 of the Act but an error of judgment cannot be corrected under such provision. The respondent submits that it was the Arbitrator’s understanding that the retention money was included in the final bill and if it was an error of understanding, that would be an error of a judgment and not a computation error. Such argument is not tenable since the error appears from the face of the record and cries out loud to be corrected.

9. In the application, the amount claimed on account of retention amount is Rs. 31,26,502/-. Though five per cent of the value of the previous bills as indicated in the final bill at page 98 of the statement of claim would come to a lesser figure, it has also to be taken into account that there would be a goods and services tax component in respect thereof. Further, since the amount of retention money appearing at page 29 of the statement of defence is shown to be in excess of Rs. 35 lakh, the claim of Rs. 31,26,502/- on account of retention money is allowed and is added to the amount already awarded on May 15, 2024. Interest will also operate on such amount in terms of the award. The 60-day period to make the payment in terms of the award will begin after today.

10. The claimant’s application under Section 33 of the Act, 1996 is allowed to the extent indicated. The error on the part of the Arbitrator should not have happened and is regretted.” SUBMISSIONS

27. In the above conspectus, the present petition under Section 34 of the A&C Act has been filed by the petitioner. The learned counsel for the petitioner has submitted as under:-:i. There is no basis for awarding a sum of Rs.14 lakhs to the claimant/respondent on account of alleged loss of profit due to the protracted/extended performance of the Contract; ii. It is submitted that the learned Arbitrator in the guise of exercising jurisdiction under Section 33 of the A&C Act has substantially added to the amount awarded to the claimant/respondent. It is submitted that while purporting to deal with an application under Section 33 of the A&C Act, it is not permissible to modify the award in the manner sought to be done; iii. It is contended that the award suffers from patent illegality inasmuch as it fails to notice that in respect of the debit note of Rs. 51,32,409/- (counter-claim no.2) elaborate evidence was submitted in the form of documents showing that the claimed amounts were duly incurred by the petitioner. Yet, the said documentary evidence is stated to have been ignored/disregarded in the impugned award.

28. Learned counsel for the respondent has refuted the said submissions. It is submitted that the impugned award discloses a cogent basis for adjudicating/ working out the amounts to which the claimant/respondent is entitled. It is pointed out that bulk of the amount claimed by the claimant/respondent has not been awarded by the learned Arbitrator. It is emphasized that no infirmity can be found with the learned Arbitrator working out the entitlement of the parties based on the running account bills (on the basis of which the final bill was drawn up).

29. Further, it is submitted that the award particularly paragraph 40 and 54 reveals that the Arbitrator returned a finding in favour of the claimant/respondent as regards the entitlement towards the retention money, however, the same was inadvertently not accounted for in the final award. Hence, appropriate directions were issued while disposing of the application under Section 33 of the A&C Act.

30. It is submitted that the learned Arbitrator is well within its power to rectify the inadvertent error while exercising jurisdiction under Section 33 of the A&C Act.

31. It is further submitted that the learned Arbitrator has rightly applied the principle of approximation and guess work for the purpose of awarding damages to the extent of Rs.14 lakhs to the claimant/ respondent.

32. It can be seen from a perusal of the award that the same analyses threadbare the respective claims and counter-claims of the parties. The award discloses the basis for adjudging the entitlement of the REASONING AND ANALYSIS claimant/respondent.

33. The rationale for working out the respective entitlement of the parties has been disclosed in paragraph 47 of the award. The same clearly states that when payment has been made at a particular rate in the running account bills, it is impermissible for either party to question the said rate at a subsequent stage.

34. It was noticed that all the running account bills were accounted for in the final bill that was raised by the claimant/respondent.

35. The Arbitrator took cognizance of the deduction that was sought to be contemporaneously made by the PMC of the petitioner, from the amount claimed in the final bill and has largely allowed the same except for a sum of Rs.8,800/- plus Rs.1,34,975/- (the rationale for which has been explained in paragraph 49 of the award).

36. Likewise, with regard to the non-scheduled items, the impugned award takes note of the deduction sought to be contemporaneously made by the PMC of the petitioner and has awarded the balance amount.

37. Nothing untoward or perverse can be found in the manner in which the learned Arbitrator has proceeded in the matter.

38. Likewise, the award of interest at the rate of 15% per annum on the principle amounts so assessed (with effect from February 01, 2022 till the date of award) is within the domain of the Arbitrator and does not brook any interference.

39. There is no gain saying that the scope of interference with an arbitral award in these proceedings is quite narrow and circumscribed. Recently, the Supreme Court in OPG Power Generation Private Limited v. Enexio Power Cooling Solutions India Private Limited & Anr, 2024 INSC 711 has observed as under – “Scope of interference with an arbitral award

68. The aforesaid judicial precedents make it clear that while exercising power under Section 34 of the 1996 Act the Court does not sit in appeal over the arbitral award. Interference with an arbitral award is only on limited grounds as set out in Section 34 of the 1996 Act. A possible view by the arbitrator on facts is to be respected as the arbitrator is the ultimate master of the quantity and quality of evidence to be relied upon. It is only when an arbitral award could be categorized as perverse, that on an error of fact an arbitral award may be set aside. Further, a mere erroneous application of the law or wrong appreciation of evidence by itself is not a ground to set aside an award as is clear from the provisions of subsection (2-A) of Section 34 of the 1996 Act.

69. In Dyna Technologies (supra), a three-Judge Bench of this Court held that Courts need to be cognizant of the fact that arbitral awards are not to be interfered with in a casual and cavalier manner, unless the court concludes that the perversity of the award goes to the root of the matter and there is no possibility of an alternative interpretation that may sustain the arbitral award. It was observed that jurisdiction under Section 34 cannot be equated with the normal appellate jurisdiction. Rather, the approach ought to be to respect the finality of the arbitral award as well as party's autonomy to get their dispute adjudicated by an alternative forum as provided under the law.”

40. The same principle has also been reiterated in numerous other judgments[1]

41. The contention that the learned Arbitrator has modified the award while dealing with an application under Section 33 of the A&C Act and, thereby, transgressed the limits of Section 33 of the A&C Act also appears to be without any substance..

42. A perusal of the award, particularly paragraph 54 thereof, reveals that Punjab State Civil Supplies Corporation Limited & Anr. V. M/S Sanman Rice Mills & Ors., 2024 INSC 742, Associate Builders v. DDA, (2015) 3 SCC 49 for the purpose of the inter-se accounting, the impugned award unmistakably purported to account for the retention money component. The award proceeds on the basis that the retention money component is included in the final bill and restitution thereof is taken care of by awarding the principle amount due to the respondent claimant. It has been specifically observed in paragraph 54 as under:- “54....... Secondly, the retention money component is included in the final bill and if the principal amount due in respect of the final bill, after providing for permissible deductions, is allowed, the retention money would have been allowed.................”

43. While disposing the application under Section 33 of A&C Act, the learned sole Arbitrator notes that the final bill value of Rs.60,93,767.23/- (which was a starting point for assessing the entitlement of the claimant/respondent) was arrived at by working out the difference between the final bill value of Rs.5,84,53,916.89/- and the total value of previous bills amounting to Rs.5,32,89,707.37/- (resulting in the net final bill value of Rs.51,64,209.52/-) and adding Goods and Service Tax both central and local to the said net final bill value. In this manner, the final bill amount of Rs. 60,93,767.23/- was worked out.

44. From the said amount, the learned Arbitrator proceeds to work out the deductions which are to be made. However, the award dated 15.05.2024 omits to take note of the fact that the amount of Rs.5,32,89,707.37 would also include the retention money which is liable to be refunded to the respondent claimant. The same was not accounted for while working out the entitlement of the claimant/respondent in the award dated 15.05.2024.

45. The same was duly taken note of while disposing of the Section 33 application and the retention money amount claim was added to the amount awarded to the claimant/respondent. In doing so, the learned Arbitrator merely corrected an arithmetical / computational/clerical error. It cannot be said that the order under Section 33 awards an altogether new claim to the claimant/respondent. The unmistakable intent to include the retention money as part of the entitlement of the respondent claimant is evident from paragraph 54 of the award.

46. The Supreme Court in Gyan Prakash Arya V. Titan Industries Limited, 2021 SCC OnLine SC 1100 “….Only in a case of arithmetical and/or clerical error, the award can be modified and such errors only can be corrected….” while determining the scope of power under Section 33 of A & C Act has clarified that the arbitrator has power to rectify clerical/ arithmetical errors. The relevant portion of the judgment is reproduced as under –

47. In State of Arunachal Pradesh v. Damani Construction Co, (2007) 10 SCC 742, the Supreme Court has observed as under -

48. This Court in Great Eastern Energy Corporation Limited v. Sopan Projects, 2023 SCC OnLine Del 2555 has observed as under –

aggrieved, give an interpretation of a specific point or part of the Award. The Arbitral Tribunal may also make an additional Award on the claim presented in the arbitral proceedings but omitted from the Arbitral Award. The said power, however, does extend to review of the Award on merit.”

49. Given that the order under Section 33 seeks to rectify only an arithmetical/ clerical omission, it cannot be said that the same is beyond the the scope and ambit of the statutory prescription. As such, the challenge to the order dated 23.07.2024 passed by the learned sole Arbitrator under Section 33 of the A&C Act is rejected.

50. Lastly, comes the award in respect of “loss of profit”.

51. The impugned award itself notes the following contractual stipulations:- “Escalation: The rates quoted by the contractor in the contract documents shall be final and shall not be subjected to any change due to the increase in labour wages or inflation in the cost of materials or any other price variations due to any reason during the stipulated time period of the contract or during the extended time period of completion.”

52. On the basis of the aforesaid clause, it was noticed in the impugned award itself that the same is in the nature of embargo on claiming additional amounts in the guise of escalation in material cost or labour cost. However, the award proceeds to observe that the same does not preclude the claimant/respondent from claiming damages on account of loss of profit for extended period.

53. The award thereafter itself proceeds to work out the loss of profit based on “approximation or guess work”. Thereafter, the award notices that a tenth of the value of the agreement i.e., Rs. 56 lakhs can be reckoned to be profit component in respect of the Contract in question. Thereafter, the award proceeds to award 1/4th

54. Firstly, a claim for loss of profit is materially different from a claim for compensation on account of escalation in the cost of work, what was claimed by the respondent claimant. thereof to the claimant/respondent. There are several difficulties in the manner in which the aforesaid amount of Rs.14 lakhs has been awarded in the guise of loss of profit.

55. Secondly, the profitability of the instant contract does not necessarily have any nexus with the loss of profit (if any) of the amount of loss suffered by the respondent claimant. The same is a function of various things such as the number of contracts in the market for which the respondent claimant would have been able to bid but for protracted engagement in the instant Contract etc.

56. Thirdly, there is no basis for awarding Rs.14 lakhs to the respondent claimant; the same is essentially an ad-hoc amount which has no nexus with the claim actually advanced before the Tribunal nor has there any rationale for theoretically presuming that the same represents the amount of loss of profit suffered by the respondent claimant. As such, the award on this count is clearly unsustainable. In Five Star Construction Private Limited v. Orchid Infrastructure Developers Private Limited, 2024 SCC OnLine Del 41, has observed as under -

relief. The learned arbitrator's conclusions could have been based only on the claims raised by the parties. An arbitrator cannot award an amount that he may feel is just to a party in the interest of justice, when there is no specific claim in that regard 31.. The learned arbitrator thus, has exceeded his mandate and jurisdiction by awarding a sum of Rs 4,33,877. Not only has the learned arbitrator given an award for a non-existent claim, but has also contrived a value and manufactured a claim for the work done from 14-1-2013 till 7-5-2013, for which no logic, rationale or calculation exists. It has been explained in SsangyongEngg. & Construction Co. Ltd. v. NHAI that a decision which is perverse, may no longer be a ground for challenge under “public policy of India” but would certainly amount to patent illegality appearing on the face of the award. A finding based on no evidence at all or an award which ignores vital evidence in arriving at its decision would be perverse and liable to be set aside on the ground of patent illegality

32. Further, in PSA SICAL Terminals (P) Ltd. v. V.O. Chidambaranar Port Trust, the Supreme Court held that an award based on no evidence, shall be perverse..

33. Thus, even if for the sake of arguments; it is accepted that the claim for work done till 7-5-2013 had existed, there is no basis to presume that the value of the work allegedly performed from 14-1-2013 till 7-5-2013 would be Rs 4,33,877, especially when Five Star in its statement of claims had specifically made a claim of Rs 29,60,466 for the work executed till 14-1-2013 which included Rs 4,33,877.

34. In Satluj Jal Vidyut Nigam Ltd. v. Jaiprakash Hyundai Consortium, it was held that financial claims based on novel mathematical derivations without proper foundation in the pleadings and/or without any cogent evidence in support thereof can cause great prejudice to the opposite party, colouring the award with perversity. Therefore, the learned arbitrator, in the present case, had awarded a sum that was for a nonexisting claim, based on no cogent reasoning or evidence.”

57. Furthermore, the Supreme Court, in Unibros v. All India Radio, 2023 SCC OnLine SC 1366, has laid down specific conditions that must be satisfied for a claim of loss of profit to be granted. The relevant extract from the judgment is reproduced below-

58. Similarly, this Court in Municipal Corporation Of Delhi v. Sh. Satya Pal Gupta, 2024:DHC:8968DB, has observed as under –

While a sum of Rs 12,00,000 would be the appropriate entitlement, he held that a sum of Rs 6,00,000 would be appropriate. He also awarded interest on the amounts payable at 15% per annum.

24. Here when claim for escalation of wage bills and price for materials 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 he should establish in such a situation is that had he received the amount due under the contract, he could have utilised the 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 White Star Ltd. [(1940) 1 KB 740: (1940) 2 All ER 97 (CA)] by the Court of Appeal in England. Therefore, we have no hesitation in deleting a sum of Rs 6,00,000 awarded to the claimant.”

28. It is apparent from the above that the Arbitral Tribunal has awarded claim for loss of profit for the period the Contract was prolonged without any evidence or material to support the claim. Thus, the impugned award is vitiated by patent illegality. In view of the above, the impugned award to the extent that the Arbitral Tribunal has awarded the Contractor’s Claim No.5 is set aside.” As such, the award in respect of “loss of profit” cannot sustain.

59. As regards the contention of the petitioner that its counter-claim no.2 has been wrongly rejected, the same is found to be devoid of any merit.

60. The impugned award notices in paragraph 56 that “the claimant has not billed for the work that it has not done”. Further, the award take note of the fact that there is no cogent evidence to establish that the unfinished work was got done by the respondent at rates higher than what has been stipulated under the BOQ appended to the purchase order.

61. In these proceedings, the petitioner has sought to contend that documents were placed to establish that additional work was performed which was the subject matter of counter-claim no.2, however, it is noticed that the said invoices sought to be referred to by the petitioner, although filed along with an application dated 13.04.2024 filed before the learned Arbitrator, the said application does not contain any detailed averment/s as regards the purport of the expenditure allegedly covered by the invoices sought to be relied upon. It has also been rightly pointed out by the learned counsel for the respondent that these documents were not referred to in the respondent’s affidavit of evidence. As such, this Court is not inclined to interfere with the impugned arbitral award on the basis of the said additional documents.

62. In the circumstances, the impugned award is sustained except to the extent it awards a sum of Rs.14 lakhs to the respondent claimant under the head “loss of profit”.

63. The petition is disposed of in the above terms. The pending application also stands disposed of.

SACHIN DATTA, J MAY 13, 2025/r, sv