Flat Owners Association of Media Magestic Tower v. Arun Kumar Bhowmik

14. Initially, in 2012, M/s Shivam Project was contracted to complete the project. However, owing to want of funds, Shivam Project abandoned the contract. Thereafter, M/s Asian Projects commenced the work, but also had to discontinue the project owing to the unfortunate demise of its proprietor. The respondent was thereafter contracted to complete the work, under an agreement dated 9 January

2018.

15. Disputes arose between the parties under the said agreement.

16. It is not necessary, given the nature of the present controversy, to refer to the pre-arbitral proceedings. Suffice it to state that, following the issuance of the requisite Section 21 notice, the dispute was referred to the Indian Council of Arbitration which appointed the learned Sole Arbitrator, who has rendered the arbitral award forming “SARFAESI Act” hereinafter subject matter of the controversy, to arbitrate on the disputes.

17. The details of the claims and counter-claims may be provided, thus.

18. The claims raised by the appellant were based on an audit verification report of M/s Adhikari Consultants which, according to the appellant, indicated that there were discrepancies in the work undertaken by the respondent. Additionally, the delay in completion of the work by the respondent rendered the respondent liable to pay penalty in terms of Clause 3 of the Agreement dated 9 January 2018. The worksheet of the claims raised by the claimant was thus provided with the statement of claim: 1 (a) Average of the two recommendations made by verifying team/ auditor for the final bill submitted by Amtech Engineers ₹ 37782230/- (b) Delay penalty 52% for delay of 104 weeks upto submission of final bill no work is complete Penalty amount ₹ 19646760/-

(c) Net payable to Amtech ₹ 18135470/-

(d) Payments made to Amtech Engineers as per summary given to them on

201) ₹ 1625000/- Total Received By Amtech ₹ 43124852/- (f) Excess payment made to Amtech 43124852/- + 18135470/- ₹ 24989382/-

2. Interest @ 12 % P.A. from 06.01.2021 to 18.10.2021 ₹ 28,49,790/- Total Claim Amount ₹ 2,78,38,172/-

19. Insofar as the counter claims of the respondent are concerned, the award of the learned Arbitrator provides the following abstract thereof:

1. Counter Claims towards escalation in construction cost due to market inflation for the work executed during the contract period and during the prolongation period of contract on the basis of 10CC as per C.P.W.D method of contract as the breach of contract was committed by the Claimant. 24,68,827/-

2. Counter Claim on account of balance payment for the work executed for Civil and Electrical works under the contract i/c additional work, extra work, and extra involvements etc. but not paid/ short paid in quantities/rate and also made illegal deductions/reductions in the bill by the Claimant. 2,88,30,924/-

3. Counter Claim against security/watch & ward during the prolongation of contract period (Reason of hindrances not attributable to the Respondent). beyond stipulated date of completion as the breach of contract committed by the Claimant. 21,58,000/-

4. Counter Claim towards on-site over heads due to damages/compensations on account of overheads, staff establishments, cost for T&P and machinery due to prolongation of contract (Reason of hindrances not attributable to the Respondent) caused by the Claimant and breach of contract committed by them. 43,61,980/-

5. Counter Claim on account of Non utilization of fund/loss of productivity/loss of profit due to delay in work for various hindrance (Reason of hindrances not attributable to the Respondent) in work as the breach of contract committed by the Claimant. 1,50,00,000/-

6. Counter Claims on account of refund of Earnest Money plus interest @18% amounting to Rs 16,23,781/- deposited at the time of submission of tender and kept as Security Deposit by the Claimant for effective prolongation of contract i.e. 502 days. 6,23,781/-

7. Counter Claim due to delay in payment of R/A Bills and Final Bill from the due date till the date of 18.10.2021 (date from which the Claimant submitted their Claim to ICA as per contract agreement clause. 1,51,25,892/-

8. Counter Claim on account of extra payment to worker employed on high rise structure i.e. on or above 30 feet height even for one hour in a day, for the work executed under Extra Item/Substitute 16,52,831/- Item/Deviated items.

9. Counter Claim on account of Goodwill and manpower & machinery remained idle at site during the period of various hindrances as the breach of contract committed by the Claimant. 60,00,000/-

10. Counter Claim on account of Non-payment of deviation, extra & substitute items on prevailing market rate at the time of execution. 10,00,000/-

11. Respondent Counter Claim pre-suit pendent lite and future interest @18%. 50,00,000/-

12. Counter Claim towards cost of arbitration proceedings as per actual as the breach of contract committed by the Claimant. 30,00,000/- Total Counter Claim Amount 8,52,22,235/-

20. Stand of the respondent with respect to the claims of the appellant and the counter claims of the respondent: 20.[1] Re: Claims of the appellant

I. Re: Delay

20.1.1The respondent contended, with respect to the appellant’s allegation that there had been delay on the respondent’s part in completion of the work, as under:

(i) Delay was attributable to the time taken by the appellant in deciding upon the additional work which the respondent was required to undertake, outside the BOQ, and deviations in quantity beyond the scope of the agreement. Extra time was required for executing such additional work. Reliance was placed, in this context, on the answers provided by CW-1 Vinod Kumar Goel, Secretary/Authorized Representative of the appellant, to Q. 14, 15 and 38 posed to him and the response of Arun Bhowmik testifying as RW-1, to Q. 48, 49, 50 and 51 posed to him in cross examination. Additionally, reliance was placed on material contained in the affidavit in evidence filed by RW-2 Vinod Gunsai, Architect. This material, it was submitted, indicated that various extra works had been given to the respondent. Additionally, the respondent placed on record a list of the extra and deviated items which were undertaken by the respondent during the subsistence of the work at the behest of the appellant. The respondent also placed material on record to indicate that at least 261 days were required for completion of the total work, including the extra work contracted by the appellant.

(ii) The work undertaken by the previous contractor was substandard. This was not known to the respondent at the time of entering into the agreement. The respondent was required to undertake extra work within 10 days of commencement. For this, the respondent had to rectify, dismantle and recast the damage column. The respondent relied on the affidavit in evidence of RW-2 as well as the response of RW-2 to Q. 5 posed to him in cross-examination, to contend that this was one of the primary reasons for failure to complete the work in a timely fashion. Reliance was also placed on Clause 10 of the agreement which provided that, if delay in execution of the work was attributable to neglect of the appellant, time for completion would be extended.

(iii) The execution of the work was also delayed on account of failure on the part of the appellant to release payments in time. It was admitted by CW-1, in his cross-examination, that interest was paid by the appellant on delayed payment. To substantiate this contention, the respondent relied on e-mails dated 22 June 2020, 24 June 2020, 20 July 2020, 23 June 2020, 21 August 2020, 22 August 2020 and a noting of 7 September

2020. It was further contended that the appellant’s stand that payments were not required to be released until RA Bills were raised was contrary to Clause 17(c) of the agreement. The respondent contended that the bills had been raised by it strictly in terms of the agreed arrangement as recorded in letter dated 11 November 2017.

(iv) Part of the work was allotted by the appellant to another agency, which also hampered progress and caused delay in execution.

(v) Delay in execution of the work was also attributed to some extent to the COVID-19 pandemic.

II. Re: Allegation of deficiencies in the work undertaken by the respondent

20.1.[2] In response to the appellant’s contention that the work undertaken by the respondent was deficient in various aspects, the respondent submitted thus:

(i) No complaint was ever received from the appellant regarding the quality of construction undertaken by the respondent.

(ii) No formal quality test was undertaken by the appellant to verify the quality of construction.

(iii) The allegation of deficiencies was based on an audit report. It was contended that the audit report was unreliable for a variety of reasons. In the first place, the agreement did not envisage audit by any third party, as was acknowledged by CW- 1 in his answer to Q. 54 in cross-examination. Besides, the auditors were on the pay rolls of the appellant, as acknowledged by CW-1 in his response to Q. 66 in cross-examination. There was also a difference of as much as ₹ 1 crore in the report of the two auditors.

(iv) The Work Experience Certificate dated 1 August 2019, which was provided by the appellant and signed by its authorized representative CW-1 clearly stated that the delay was occasioned on account of delay in approval of the decision by the appellant. All other parameters were found satisfactory. 20.[2] Re. Counter claims raised by the respondent

I. Re. Counter claim 1 – escalation in construction cost due to

20.2.[1] The respondent claimed ₹ 24,68,827/- towards escalation in construction cost owing to market inflation. Reliance was placed, by the respondent, on Clause 14 of the agreement which explicitly contemplated such escalation and allowed for revision of agreed rates if market conditions changed by more than 10%. In working out the escalation, the respondent submitted that it had applied the formula envisaged in Clause 10CC of the General Clauses of Contract of the Central Public Works Department. Delay in execution of the work had been occasioned owing to breaches and hindrances committed by the appellant. As such, the respondent submitted that it was entitled to additional payment on account of escalation.

II. Re: Counter claim 3 – claim relating to watch and ward services provided during extended period of work 20.2.[2] The respondent submitted that, under the agreement, it was responsible to provide watch and ward services for the stipulated period of nine months within which the contract was to be completed. The detailed computation of the actual expenses incurred during the said period was provided by the respondent. As there was no requirement, in the agreement, for providing watch and ward services for extended periods of work, this constituted an extra item which was claimed by the respondent in counter claim 3.

III. Re: Counter claim 5 – for loss of profit and productivity during extended period of work 20.2.[3] The respondent contended that, owing to the extension in the period of work at the request of the appellant, the manpower and machinery of the respondent could not be employed elsewhere resulting in loss of profit suffered by the respondent. Reliance was placed, in this context, on the response of RW-1 to Q. 20 posed to him in cross-examination. ₹ 1.[5] crores was claimed on this ground.

IV. Re: Counter claim 7 – interest for delay in release of payment against the RA Bills and Final Bill from the due date till the date of the Section 21 notice 20.2.4For this claim, the respondent relied on Clause 17(c) of the agreement which required payment of submitted bills to be made within 7 to 10 days with mandatory penal interest at the rate of 15% per annum in the case of delay beyond the said period. It was pointed out that the respondent had addressed emails to the appellant on 22 June 2020, 23 June 2020, 24 June 2020, 20 July 2020, 21 August 2020, 22 August 2020 and 5 October 2020 followed by a legal notice dated 7 September 2020 for timely release of payment, to no avail. The fact that payments could not be released within the stipulated time was in fact acknowledged by the appellant, for which purpose, the respondent relied on the minutes of the Executive Committee held on 5 July 2020 and 11 July 2020.

V. Re: Counter claim 8 – extra payment to workers employed on high rise structures above 30 feet 20.2.5The respondent submitted that the extra work which the appellant required the respondent to undertake involved deployment of workers at heights of over 30 feet. As per notification dated 19 January 2017 of the Ministry of Labour and Employment, workers employed at such heights were required to be paid 20% extra wages. An amount of ₹ 16,52,831/- was claimed under this head.

VI. Re: Counter claim 9 –idling of manpower and machinery during extended time. 20.2.6During the period for which the performance of the contract was extended at the instance of the appellant, the respondent had to incur expenses towards labour etc. Referring the emails dated 22 June 2020, 24 June 2020 and 22 August 2020, addressed by the respondent to the appellant in this regard, a claim was raised for labour and machinery which remained idle during the extended period.

21. Observations and Conclusions of the learned Arbitrator Having thus set out the various contentions advanced by the respondent to dispute the appellant’s claim and in support of the counter claims raised by it, it becomes necessary, at this juncture, to refer to the “Observations and Conclusion of the Tribunal” as contained in the arbitral award, whichcommenced with the following observations on the aspect of whether the contract was an item-wise contract or a lumpsum contract.

22. Thereafter, the learned Arbitrator, for no clearly discernible reason, refers to the judgment of the High Court of Calcutta in Johnson Control Hitachi Air Conditioning India Ltd v. Shapoorji Pallonji & Co. P. Ltd[4], Lord Hoffman's opinion in Premium Nafta Products Ltd. v Fili Shipping Co. Ltd.5, the judgment of the Supreme Court in Chloro Controls India (P) Ltd. v. Severn Trent Water Purification lnc.[6] and the judgments of the High Court of Calcutta in Mohd Malik Chauhan v. Tata Steel Utilities and Infrastructure Services Ltd[7]. and Godrej & Boyce Mfg. Co. Ltd. v. Shapoorji Pallonji & Co. P. Ltd.8. MANU/WB/0938/2025 MANU/UKHL/0067/2007

No such judgement could be found. The extract in the award appears to be from Johnson Controls Hitachi Air Conditioning India Ltd. v. Shapoorji Pallonji And Company Pvt Ltd., MANU/WB/0938/2025

23. Somewhat strangely, after the reference to the judgment of the High Court of Calcutta in Mohd Malik Chauhan, there is again an extract from the statement of Lord Hoffman with no context.

24. We agree with the learned Single Judge, in the impugned judgment, that the reference to the aforesaid decisions which basically deal with consolidation of arbitral proceedings, does not seem to have any connection with the dispute at hand. Indeed, the arbitral award, too, does not indicate why reference has been made to these decisions.

25. Thereafter, the observations and conclusions of the learned Arbitrator conclude with the following three paragraphs:

26. This is followed by the “Issue-wise Finding” of the learned Arbitrator, which already stands reproduced in para 7 supra.

27. The learned Single Judge holds, in the impugned judgment, that the arbitral award is completely unreasoned, save and except with respect to the finding that the contract was a lump-sum contract – which finding, too, as per the impugned judgment, was incorrect on facts and in law. The learned Single Judge has observed that Clause 16 of the Agreement specifically envisaged payment by the respondent to the appellant as per finally agreed item rates:

Additionally, notes the learned Single Judge, CW-2, in his answer to Q.[8] posed to him in cross-examination, in which it was specifically queried as to whether the contract was for payment on item rates, responded in the affirmative. The learned Single Judge notes that the learned Arbitrator has overlooked these vital pieces of evidence while arriving at the finding that the contract was not an item rate contract. Non-consideration of material evidence, as per the impugned judgment, renders the arbitral award bad on the ground of publicity, as held by the Supreme Court in Associate Builders v. DDA[9].

28. Apart from this, notes the learned Single Judge, there is no reasoning in support of any of the other findings of the learned Arbitrator. Para 6 of the arbitral award, as the learned Single Judge notes, contains omnibus observations to the effect that all the claims and counter-claims had not been proved, some were frivolous and unfounded and that the parties were entitled to partial relief. Specifics of the claims and counter-claims to which this paragraph refers, are not to be found in the arbitral award.

29. With respect to the findings of the learned Arbitrator on the individual issues, the learned Single Judge holds thus:

28. The contention of learned counsel for the respondent that guesswork is also a valid way of ascertaining the figure and reliance on Cobra Instalaciones10 and related cases is misplaced as rough and ready estimate method can only be available in facts of a particular case when exact loss cannot be ascertained. The relevant finding of Cobra Instalaciones (Supra) read as under: “32.[2] … It is when such circumstances are present in a given case, that the court could proceed based on “guesswork” with regard to the quantum of compensation to be allowed to the aggrieved party. The following observations made in the Construction and Design Services case being apposite are set forth hereafter: “15. Once it is held that even in absence of specific evidence, the respondent could be held to have suffered loss on account of breach of contract, and it is entitled to compensation to the extent of loss suffered, it is for the appellant to show that stipulated damages are by way of penalty. In a given case, when highest limit is stipulated instead of a fixed sum, in absence of evidence of loss, part of it can be held to be reasonable, compensation and the remaining by way of penalty. The party complaining of breach can certainly be allowed reasonable compensation out of the said amount if not the entire amount. If the entire amount stipulated is genuine pre-estimate of loss, the actual loss need not be proved. Burden to prove that no loss was likely to be suffered is on party committing breach, as already observed. *****

17. Applying the above principle to the present case, it could certainly be presumed that delay in executing the work resulted in loss for which the respondent was entitled to reasonable Cobra Instalaciones Y Servicos, SA v. Haryana Vidyut Prasaran Nigam Ltd, 2024 SCC OnLine Del compensation. Evidence of precise amount of loss may not be possible but in absence of any evidence by the party committing breach that no loss was suffered by the party complaining of breach, the Court has to proceed on guess work as to the quantum of compensation to be allowed in the given circumstances. Since the respondent also could have led evidence to show the extent of higher amount paid for the work got done or produce any other specific material but it did not do so, we are of the view that it will be fair to award half of the amount claimed as reasonable compensation.”

29. The case of Cobra Instalaciones (Supra) does not sanction arbitrary quantification of damages in every case. On the contrary, the judgment carefully confines the use of such estimation to a narrow category of cases namely where a contract stipulates a sum by way of liquidated damages or prescribes a maximum limit for damages, and where the Court finds that the stipulated amount is partly penal.

30. In the present case, the Sole Arbitrator has not held that the evidence was insufficient to arrive at a loss figure or that liquidated damages clause being Clause 3 of the Agreement is partly penal. Instead, it has rejected the contractual figure outrightly and substituted it with an ad-hoc number of its own invention. This constitutes an impermissible rewriting of the contract and falls within the scope of interference under Section 34 of the Act.

31. While deciding whether the delay or prolongation of the Contract was attributable to the claimant/respondent, under Issue 8 it is clear that the findings recorded under this head are themselves premised on assumptions rather than concrete evidence.

32. The observations that “the Claimant Society did not approve the drawings,” or that “the Committee did not clarify the doubts and issues raised by the Contractor,” or that “verification of work was not carried out with due promptitude,” and that “nonpayment of Running Bills in time perhaps compelled the Contractor to leave the work incomplete,” clearly indicate that the conclusions are speculative. The use of expressions such as “perhaps” further demonstrates that the findings are not based on proven facts.

33. Likewise, in relation to the counterclaims, while the Sole Arbitrator summarily grants Rs. 1 crore “on a fair and reasonable basis,” it expressly dismisses the remaining counterclaims on the ground of “no evidence,” without explaining which evidence was lacking, how the burden of proof was discharged or not discharged, or how the contradictory finding that many extra works were in fact executed was reconciled with this conclusion.

34. Thus, a reading of the issue-wise findings shows that the Sole Arbitrator has delivered conclusions without reasons, inasmuch as there is no discussion of how the evidence supports each finding, which clauses are applicable, no application of law to the facts, and no rational basis disclosed for the amounts awarded, rendering the Award unreasoned and contrary to the requirements of Section 31(3) of the Act as explained and reinforced by the Hon'ble Supreme Court in Dyna Technologies11 and reiterated in the OPG12.

30. We entirely agree.

31. We find the view of the learned Single Judge, that the arbitral award is vitiated both on the ground of vagueness as well as complete want of application of mind to the various contentions advanced before the Tribunal, to be justified both on facts as well as in law. Additionally, the award is unreasoned and all the counter claims of the respondent have been rejected with an umbrella observation that there was no evidence in support thereof.

32. The Supreme Court has held that the requirement of providing reasons for the conclusion arrived at by the learned arbitrator is fundamental to any valid arbitral award. Additionally, the arbitrator is required to address the various contentions advanced before her, or him, failing which the award is liable to be set aside even on this Dyna Technologies (P) Ltd. v. Crompton Greaves Ltd., (2019) 20 SCC 1 OPG Power Generation (P) Ltd. v. Enexio Power Cooling Solutions (India) (P) Ltd., (2025) 2 SCC ground. Reliance may be placed on the following paragraphs from the judgments of the Supreme Court in Dyna Technologies, OPG Power Generation, Som Datt Builders Ltd. v. State of Kerala13 and I-Pay Clearing Services (P) Ltd. v. ICICI Bank Ltd.14 From Dyna Technologies

78. As to the form of a reasoned award, in Russell on Arbitration (24th Edn., p. 304) it is stated thus: “6.032. No particular form is required for a reasoned award although ‘the giving of clearly expressed reasons responsive to the issues as they were debated before the arbitrators reduces the scope for the making of unmeritorious challenges’. When giving a reasoned award the Tribunal need only set out what, on its view of the evidence, did or did not happen and explain succinctly why, in the light of what happened, the Tribunal has reached its decision, and state what that decision is. In order to avoid being vulnerable to challenge, the Tribunal's reasons must deal with all the issues that were put to it. It should set out its findings of fact and its reasoning so as to enable the parties to understand them and state why particular points were decisive. It should also indicate the Tribunal's findings and reasoning on issues argued before it but not considered decisive, so as to enable the parties and the court to consider the position with respect to appeal on all the issues before the Tribunal. When dealing with controversial matters, it is helpful for the Tribunal to set out not only its view of what occurred, but also to make it clear that it has considered any alternative version and has rejected it. Even if several reasons lead to the same result, the Tribunal should still set them out. That said, so long as the relevant issues are addressed there is no need to deal with every possible argument or to explain why the Tribunal attached more weight to some evidence than to other evidence. The Tribunal is not expected to recite at great length communications exchanged or submissions made by the parties. Nor is it required to set out each step by which it reached its conclusion or to deal with each and every point made by the parties. It is sufficient that the Tribunal should explain what its findings are and the evidential route by which it reached its conclusions.” From Som Datt Builders “25. The requirement of reasons in support of the award under Section 31(3) is not an empty formality. It guarantees fair and legitimate consideration of the controversy by the Arbitral Tribunal. It is true that the Arbitral Tribunal is not expected to write a judgment like a court nor is it expected to give elaborate and detailed reasons in support of its finding(s) but mere noticing the submissions of the parties or reference to documents is no substitute for reasons which the Arbitral Tribunal is obliged to give. Howsoever brief these may be, reasons must be indicated in the award as that would reflect the thought process leading to a particular conclusion. To satisfy the requirement of Section 31(3), the reasons must be stated by the Arbitral Tribunal upon which the award is based; want of reasons would make such award legally flawed.” From I-Pay Clearing Services “41. Under the guise of additional reasons and filling up the gaps in the reasoning, no award can be remitted to the arbitrator, where there are no findings on the contentious issues in the award. If there are no findings on the contentious issues in the award or if any findings are recorded ignoring the material evidence on record, the same are acceptable grounds for setting aside the award itself. Under the guise of either additional reasons or filling up the gaps in the reasoning, the power conferred on the Court cannot be relegated to the arbitrator. In absence of any finding on contentious issue, no amount of reasons can cure the defect in the award.

42. A harmonious reading of Sections 31, 34(1), 34(2-A) and 34(4) of the Arbitration and Conciliation Act, 1996, make it clear that in appropriate cases, on the request made by a party, Court can give an opportunity to the arbitrator to resume the arbitral proceedings for giving reasons or to fill up the gaps in the reasoning in support of a finding, which is already rendered in the award. But at the same time, when it prima facie appears that there is a patent illegality in the award itself, by not recording a finding on a contentious issue, in such cases, Court may not accede to the request of a party for giving an opportunity to the Arbitral Tribunal to resume the arbitral proceedings.”

33. We are of the opinion that the arbitral award passed by the learned Arbitrator was liable to be set aside as violating the principles contained in the aforesaid decisions. It is entirely bereft of reasons, relies on judgments which have nothing to do with the controversy at hand, thereby reflecting non-application of mind, and does not address any of the contentions advanced by learned Counsel for the respondent either by way of contest to the claims of the appellant or while pressing its counter claims.

34. Section 31(3)16 of the 1996 Act requires every arbitral award to contain the reasons for the findings returned therein.

35. We have not deemed it necessary to enter into the rival contentions of learned Counsel before us. Suffice it to state that learned Counsel for the appellant was unable to satisfy us that the arbitral award contains reasons as required by Section 31(3) of the 1996 Act.

36. If an arbitral award contains reasons, the extent to which the Court, under Section 34 of the 1996 Act, would second-guess or examine the justifiability thereof may be considerably circumscribed, confined within the peripheries of Section 34 of the Act as interpreted by the Supreme Court in a wide plethora of decisions. However, an arbitral award without reasons, or relying on material which is extraneous to the issue at hand, and which does not address any of the contentions advanced by the parties, is not merely perverse; it is no (3) The arbitral award shall state the reasons upon which it is based, unless— (a) the parties have agreed that no reasons are to be given; or (b) the award is an arbitral award on agreed terms under Section 30. award in the eyes of law, as it breaches Section 31(3).

37. We, therefore, find no reason to interfere with the impugned judgment of the learned Single Judge which is upheld in its entirety.

38. The appeal is dismissed.

C. HARI SHANKAR, J.

OM PRAKASH SHUKLA, J. JULY 01, 2026