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ORDINARY ORIGINAL CIVIL JURISDICTION
APPEAL NO. 26 OF 2006
IN
ARBITRATION PETITION NO. 449 OF 2003
Larsen & Tourbo Limited ….Appellant
:
Hindustan Petroleum Corporation Ltd and Anr. ….Respondents
IN
ARBITRATION PETITION NO. 449 OF 2003
Hindustan Petroleum Corporation Limited ….Appellant
:
Larsen & Tourbo Limited & Anr. ….Respondents
Mr. Kedar Wagle with Mr. Sagar Wagle, Mr. Kashyap Samant and Ms. Lisa Rasquinha, for Appellant in Appeal No. 26/2006 and for Respondent in Appeal No. 14/2006.
Mr. Javeed Hussein with Mr. Mubashir Hussein, Mr. Munzir Hussein and Mr. Munibah Iram i/b Hussein & Co., for the Appellant in Appeal
No.14/2006 and for the Respondent in Appeal No. 26/2006.
JUDGMENT
1) These are cross appeals filed under provisions of Section 37 of the Arbitration and Conciliation Act, 1996 (the Act) challenging the judgment and order dated 16 November 2005 passed by learned Single Judge of this Court in Arbitration Petition No. 449 of 2003. Arbitration Petition No. 449 of 2003 was filed by Hindustan Petroleum Corporation Limited (HPCL) challenging the award made by the Arbitral Tribunal on 4 July 2003 by which, various claims raised by the original claimant-Larsen and Turbo Limited (L&T) were granted. By the impugned order dated 16 November 2005, the learned Single Judge has set aside the award qua Claim Nos. 1, 2, 4, 9, 15, 16, 21(1), 21(3) and 21(4) awarded by the Arbitral Tribunal. The learned Single Judge has retained the award only to the extent of Claim No. 19. Accordingly, original Claimant-L&T has filed Appeal No. 26 of 2006 to the extent of setting aside the award qua Claim Nos. 1, 2, 4, 9, 15, 16, 21(1), 21(3) and 21(4) whereas the original Respondent-HPCL has filed Appeal No. 14 of 2006 to the extent of the learned Single Judge maintaining the award qua Claim No. 19. Facts
2) A tender was floated by HPCL for executing the work of laying, testing, pre-commissioning and commissioning of 18 inch diameter and 350 kilometers pipeline from Vishakhapatnam to Vijaywada, including temporary cathodic protection and optical fiber cable work (Work). L&T submitted its bid in pursuance of the tender on 23 April 1996. HPCL issued Letter of Intent, followed by Letter of Allotment, in favour of L&T for execution of the work at a contract price of Rs. 53,64,39,858/- on 25 November 1996. The contractual date for commencement of work was 10 December 1996 and the completion date was 25 November 1997. Engineers India Limited was appointed as Engineer-in-Charge in respect of the work. On 23 September 1997, L&T applied for further extension up to 31 March 1998. The Engineer-in-Charge extended the period for completion of work up to 30 April 1998 with the consent of HPCL. L&T could not complete the work by 30 April 1998 and hence sought further extension up to 30 June 1998. The Engineer-in-Charge, however, refused to grant an extension beyond 30 April 1998. According to L&T, it released the entire pipeline from Vishakhapatnam to Vijaywada for water filling (Hydrotesting) on 10 May 1998. It is claimed by L&T that on 11 May 1998, HPCL pumped water/project through pipeline. Work Completion Certificate was issued on 20 August 1998 by HPCL.
3) In the above background, disputes arose between HPCL and L&T and L&T invoked the arbitration clause on 22 August 2000 and called upon the Marketing Director of HPCL to nominate an Arbitrator. HPCL appointed its General Manager to act as the sole arbitrator on 21 September 2000. Both the parties agreed that no oral evidence would led and that they would be represented by their functional department officers and/or law officers. The Arbitrator made the award on 4 July 2003. Out of total 30 Claims of Rs. 27,82,74,107/-, only 16 Claims were allowed for an aggregate amount of Rs. 7,43,66,444/-. Proceedings under Section 34 4) Aggrieved by the award of the Arbitral Tribunal dated 4 July 2003, HPCL filed Arbitration Petition No. 449 of 2003 before the learned Single Judge of this Court, challenging the award under the provisions of Section 34 of the Act. The learned Single Judge has substantially set aside the award of the Arbitral Tribunal by its order dated 16 November 2005. Expect Claim No. 19, the rest of the Claims awarded by the Arbitrator are set aside by the learned Single Judge. Only Claim No. 19, relating to the release of the withheld amount against liquidated damages of Rs.2,01,60,000/-, is retained by the learned Single Judge. Accordingly, L&T has filed Appeal NO. 26 of 2006 challenging the order of the learned Single Judge dated 16 November 2005 to the extent of rejection of rest of the Claims by the learned Single Judge. HPCL, on the other hand, has filed Appeal No. 14 of 2006 challenging order dated 16 November 2005 to the extent of maintaining Claim No. 19 by the learned Single Judge. Previous Round In Present Appeals 5) The appeals were disposed of by a Bench of this Court vide Judgment and Order dated 16 September 2016 by setting aside the Judgment and order dated 16 November 2005 passed by the learned Single Judge, while maintaining the order on Claim No. 19. Arbitration Petition No. 449 of 2003 was restored and remanded to the learned Single Judge for reconsideration. The Judgment dated 16 September 2016 was challenged by HPCL before the Supreme Court by filing Special Leave Petition Nos. 35937 and 35938 of 2016. By order dated 5 April 2023, the Supreme Court held that the Division Bench had fell into error in discussing of Claims by not rendering specific findings while accepting Claim No. 19. The Supreme Court, therefore, observed that instead of remitting the matter for fresh consideration under Section 34 of the Act, it would be appropriate for the Division Bench to examine the matter afresh. Accordingly, the Judgment and Order dated 16 September 2016 was set aside and the present appeals were remitted for fresh consideration by keeping open all rights and contentions. The appeals are, therefore, taken up for analogous hearing. Submissions on behalf of L&T in Appeal No. 26 of 2006 6) Mr. Wagle, the learned counsel appearing for L&T would submit that the learned Single Judge had grossly erred in setting aside the arbitral award qua Claim Nos. 1, 2, 4, 9, 15, 16, 21(1), 21(3) and 21(4). That the learned Single Judge has traveled beyond the scope of powers under Section 34 of the Act while passing the impugned order. That interpretation of a contract is a matter left to the Arbitrator and even if the Arbitrator’s view is not considered to be correct, and if another view is possible, it would be impermissible for a Court exercising power under Section 34 of the Act to set aside the award. When parties appoint an Arbitrator having expert knowledge, the Arbitrator can put to use his expert knowledge to decide the disputes. In support of his submissions, he would rely upon judgments in Municipal Corporation of Delhi Versus. Jagan Nath Ashok Kumar and another[1], Jagdish Chander Versus. Hindustan Vegetable Oils Corporation and another[2] and Rajesh Khanna Versus. Government of NCT of Delhi and Others[3]. AIR 1987 SC 2316 AIR 1990 Del 204 2005 (1) Arb. LR 247 (Delhi)
7) That the learned Arbitrator has recorded findings of fact, which have been erroneously interfered with by the learned Single Judge, as if it acted as Appellate Authority over the award. That if the Arbitrator is a layman not familiar with legal expressions, the award cannot be set aside only on account of non-recording of legally acceptable reasons. That the Court should approach an award with desire to support it if it is reasonably possible, rather than destroying it. That the scheme of Arbitration Act gives freedom to parties to agree on procedure to be followed by the Arbitral Tribunal which includes power to determine the admissibility, relevance, materiality and weight of any evidence. That therefore findings recorded by acceptance of evidence cannot be disturbed in exercise of jurisdiction under Section 34 of the Act. That parties have agreed neither to lead oral evidence nor to be represented by Advocates, and therefore, it was impermissible for HPCL to cry foul and contend that strict rules of evidence were not followed. It is not necessary for an expert Arbitrator to articulate his views and findings with precision as expected from a judicially trained person.
8) In support of his contention that the Arbitrator has jurisdiction to decide merits of the claim notwithstanding clauses providing for finality of decision of Engineer-in-Charge, reliance is placed on judgment in State of Orissa Versus. Dandasi Sahu[4]. In support of his contention that Section 34 Court does not have jurisdiction to go into the issue of quantification of the damages made by the Arbitrator on the basis of guesswork, reliance is placed on judgment in Mahanagar Gas Ltd., Mumbai Versus. Babulal Uttamchand and Co., Mumbai[5]. In support of the contention that
(2013) 5 Bom.C.R. 756 Section 34 Court cannot interfere in interpretation of the contract by the Arbitrator based on plausible view Mr Wagle has relied on Apex Court judgment in U.P. Hotels and others Versus. U.P. State Electricity Board[6]. In support of the contention that clauses of contract must be read as whole, reliance is placed on judgment of Associate Builders Versus. Delhi Development Authority[7] the Courts must always support Arbitral Award, reliance is placed on judgments in Santa Sila Devi and another Versus. Dhirendra Nath Sen and others[8] and Bijendra Nath Srivastava (Dead) through LRs Versus. Mayank Srivastava and others[9] findings of fact cannot be disturbed in exercise of jurisdiction under Section 34 of the Act. Reliance in placed on the judgment in Venkatesh Construction Company Versus. Karnataka Vidyuth Karkhane.
9) Mr. Wagle would then take us through the findings recorded by the Arbitral Tribunal and by the learned Single Judge qua each claim and would canvass following submissions:i. Claim No. 1: Execution of additional work is not disputed on account of which readiness to pay amount of Rs. 4,86,280/- was shown by HPCL. That it was erroneously contended by HPCL that the valuation of Engineer-in-Charge was final and binding and that Claim No. 1 is an ‘excepted matter’. That what is given by Engineerin-Charge is mere opinion and not a decision. That there is distinction between two terms and in support, he would rely upon definitions of the two terms in the Law Lexicon, Encyclopedic Law Dictionary.
AIR 1963 SC 1677 AIR 1994 SC 2562
Applying the principle of contra proferentem, he would submit that if clauses in the contract use different terminologies, they have to be construed strictly and in favour of the contractor even if the two terms are to be used interchangeably. That the “opinion” of Engineerin-charge is based on cost of similar works. He would take us through clauses 5.j.2, 5.j.[3] and 5.j.[4] and submit that what is expressed in 5.j.[3] is mere ‘opinion’ as against the ‘decision’ in para 5.j.4. That dispute between the parties before Arbitrator was not concerned with whether or not the rates can be reasonably derived from the items in the contract. That decision of the Arbitrator awarding Claim of Rs. 10 lakhs is based on rates derived from similar items in the contract and quantity of work executed in Arbitrator’s assumption. That therefore the award of Claim No. 1 by use of expert knowledge by the learned Arbitrator could not have been set aside by the learned Single Judge. ii. In respect of Claim No.2, it is submitted that there is no dispute between the parties about requirement of repairs of pipes and that L&T actually prepared the same. That Arbitrator being General Manager, Engineering and Project used his own knowledge in the field to conclude that the damages are attributed to the wrong design choice made by HPCL by not choosing PERP 5 coated pipes which were having superior benefits. That only 33% of the claim is allowed. That the learned Single Judge has erred in holding that L&T did not lead evidence in respect of the actual incurring of expenses. That the Arbitrator was dealing with two kinds of defects, first being damage to the pipes and the second one resulting due to Coal Tar Enamel (CTE) coating failure. The damages for the former defect are rejected by the Arbitrator retaining the damages only in respect of the second defect. That Arbitrator had rightly blamed HPCL for choosing CTE coating as design criteria, which has led to incurring of additional expenditure by L&T to cure defect. iii. In respect of Claim No.4, it is submitted that there is no dispute about execution of additional work of tree cutting and sizing of stem for being handed over to the nursery. That the learning Single Judge failed to appreciate that the Arbitrator had applied well recognised principle of de minimis considering the size of the contract as compared to claim amount of only Rs.2,40,724/-. That finding of fact of execution of work and incurring of expenditure could not have been reversed by the Section 34 Court. iv. In respect of Claim No.9, it is submitted that the claim arose due to supply of Optical Fibre Cable (OFC) of shorter length required in additional joints resulting in extra expenditure. That the learning Single Judge has erroneously interfered with the findings of the Arbitrator on the ground of absence of evidence without appreciating the position that joining of OFC at interval of every 1 km. is an admitted fact. That documentary evidence was produced before the learned Arbitrator to demonstrate extra work arising out of short length of OFC. That the finding of fact recorded by the Arbitrator based on documentary evidence could not have been reversed by the learned Single Judge. The claim was not for damages but for increase in work and incurring of additional expenses. v. In respect of Claim No.15, it is submitted that the learned Single Judge has entered into the realm of reappreciation of evidence by taking into consideration new material in the form of drawing produced by HPCL directly before the learned Single Judge. The civil and mechanical work pertaining to isolation valve was outside the battery limit which is the finding of fact recorded by the Arbitrator which could not be reversed in exercise of power under Section 34 of the act. vi. In respect of Claim No.16, it is submitted that award of claim for additional work for laying of pipeline for Pullivagu canal has been erroneously set aside by the learned Single Judge by recording unacceptable finding of non-application of mind which is beyond the scope of jurisdiction under Section 34 of the Act. That the Arbitrator recorded a finding of fact that Pullivagu is a canal crossing which could not be interfered in exercise of power under Section 34 by the re-appreciating the evidence. That HPCL itself has admitted that Pullivagu was a crossing and had also admitted amount of Rs. 4,67,245/- as reasonable as per the recommendation of Engineer Incharge while discussing Claim No.1. That the learned Single Judge has erroneously gone into the issue of permission of Competent Authority as there was no occasion for the Competent Authority to grant any such permission. vii. In respect of Claim No.21(1), it is submitted that the claim arose on account of HPCL withholding an amount of Rs. 6,48,013/on account of deviation proposed by L&T for use of different electrode. That both the types of electrodes were manufactured by M/s. Lincoln Electric Company. That the learned Arbitrator used his expertise and skill for holding that electrode-E-7010 G electrodes were not normal E-7010 G electrodes but having 77,000 PSI Ultimate Tensile Strength (UTS) which was far above the normal base metal of 70,000 PSI. viii. In respect of Claim No.21(3), it is submitted that the claim arose on account of rebate for deletion of swabbing in the recommissioning. That the learned Single Judge erred in setting aside award of this claim by holding that it was not within the jurisdiction of the Arbitrator. That the learned Arbitrator has recorded a finding of fact that the item was deleted for expediting the commissioning by HPCL. It has also held that though the item was deleted, L&T had incurred expenditure towards mobilization since it is not a decision of Engineer In charge under Clause 5.j.4, the same cannot be held to be outside the jurisdiction of the Arbitrator. That even HPCL admits that the decision is taken by Engineer In charge under Clause 5j. ix. In respect of Claim No. 21(4), it is submitted that the award was within jurisdiction as no decision was made by Engineer Incharge under Clause 5.j.[4] of GCC. In any case, Respondent itself pleaded that the decision was made under Clause 5.j which is neither final nor binding. On above submissions, Mr. Wagle would pray for setting aside the order passed by the learned Single Judge qua Claim Nos. 1, 2, 4, 9, 15, 16, 21(1), 21(3) and 21(4) and for restoration of the Arbitral Award qua those claims. Submissions on behalf of HPCL opposing Appeal No. 26 of 2006 10) Mr. Hussein, the learned counsel appearing for Respondent- HPCL in Appeal No.26/2006 would oppose the Appeal and support the order passed by the learned Single Judge qua Claim Nos. 1, 2, 4, 9, 15, 16, 21(1), 21(3) and 21(4). He would submit that the learned Single Judge has acted within the bounds of jurisdiction of Section 34 of the Act while setting aside the award qua the above claims. That the claims sanctioned by the learned Arbitrator were either contrary to the terms and conditions of the contract or based on absolutely no evidence. That the learned Single Judge has rightly rejected the claims for additional work by relying on Clause 5.j.[4] of the contract, under which the decision/opinion of Engineer-in-Charge was agreed to be final and binding on the Contractor. That the terms and conditions of the contract stipulated that the additional work was required to be brought to the notice of Engineer-in-Charge and only after he approved execution of additional work, the question of making payment therefor arise. That the contract lays down parameters in respect of additional work and the L&T agreed that the decision of Engineer-in-Charge about actual execution of additional work, quantum thereof and rate payable therefor is final and binding between the parties. That once such agreement is arrived at, there was no question of L&T seeking any extra payment contrary to the decision of Engineer-in-Charge. That the learned Single Judge has recorded detailed findings in respect of each of the claims and has arrived at a finding that the claims are sanctioned by the learned Arbitrator either contrary to the terms of contract or in total absence of any evidence. That merely because Arbitrator happened to be an officer of HPCL with engineering background, the same does not mean that he could have sanctioned claims contrary to the terms of contract and in absence of any concrete evidence of incurring additional expenses. That what has been done by the learned Arbitrator is mere guesswork in awarding amounts as per his whims and in absence of any concrete material.
11) Mr. Hussein would take us through the evidence recorded by the learned Single Judge in respect of each of the rejected claims and would submit that the learned Single Judge has not exceeded his jurisdiction under Section 34 of the Act while rejecting the said claims. That jurisdiction of Appellate Court under Section 37 of the Act is co-terminus with the jurisdiction under Section 34. That in absence of any case being made out by the learned Single Judge acting outside the scope of power under Section 34, the appeal filed under Section 37 must necessarily be dismissed. In support of his contentions, Mr. Hussein would rely upon the following judgments:i. M/s. Larsen Air Conditioning and Refrigration Company Versus. Union of Indian and Ors.11 ii. The Project Director, National Highway Nos. 45 E and 220, National Highways Authority of India Versus. M. Hakeem and Ors.12 iii. Mcdermott International Inc. Versus. Burn Standard Co. Ltd. and Ors.13
12) On the above broad submissions Mr. Hussain would pray for upholding the order of the learned Single Judge qua Claim Nos. 1, 2, 4, 9, 15, 16, 21(1), 21(3) and 21(4). Submissions on behalf of HPCL in Appeal No. 14 of 2006 13) Mr. Hussein, the learned counsel appearing for the Appellant- HPCL in Appeal No. 14/2006 would submit that the learned Single Judge has erroneously upheld the Award towards liquidated damages in respect of Claim No.19. The work was actually completed on 20 August 1998. That completion of work is evidenced by Completion Certificate and mere charging of water or charging of product on 11 May 1998 does not mean that the work got completed on those days. That therefore the delay was rightly computed upto 20 August 1998 and delay was 3 months and 27 days. That the pipeline runs into 340 kms and that therefore unless the entire work of the pipeline was completed by issuance of work completion certificate, the learned Arbitrator and the learned Single Judge have (2023) 11 SCR 86 erred in assuming that the work got completed on 11 May 1998. That L&T itself requested for extension of time till 30 June 1998 and therefore it is erroneous on its part to claim that work got completed on 11 May 1998. He would therefore submit that award of Claim NO. 19 by the learned Arbitrator is ex-facie illegal and deserves to be set aside. Submissions on behalf of L&T in Appeal No. 14 of 2006 14) Per-contra, Mr. Wagle, the learned counsel appearing for Respondent-L&T in Appeal No. 14/2006 would submit that release of water and product by HPCL through the commissioned pipeline as a matter of fact which is clear from findings recorded by the learned Arbitrator. That HPCL has not disputed charging of pipeline by release of water and products on 10/11 May 1998. In that view of the matter no serious flaw can be traced in the findings of the learned Arbitrator that liquidated damages cannot be claimed in respect of period beyond 11 May 1998. That the concurrent findings are recorded by the learned Arbitrator and by the learned Single Judge which do not warrant any interference in exercise of jurisdiction by the Appellate Court under Section 37 of the Act. That HPCL has not raised any specific ground of charging of the pipeline with product on 11 May 1998 in its Arbitration Petition filed under Section 34 of the Act. In the light of absence of dispute about charging of pipeline by product by HPCL on 11 May 1998, the learned Single Judge has rightly refused to set aside the award qua Claim No. 19. That in any case, what is awarded by the learned Arbitrator is only amount of Rs. 2,01,60,000/- and the rest of the amount out of total amount of Rs.2,52,00,000/- is retained as liquidated damages. He would accordingly pray for dismissal of Appeal No. 14/2006. Reasons and Analysis 15) The appeals filed by the rival parties challenge order dated 16 November 2005 passed by the learned Single Judge in Arbitration Petition No. 449/2003, by which the Arbitral Award has been partly set aside in respect of Claim Nos. 1,2,4,9,15,16,21(1), 21(3) and 21(4) whereas the award is retained in respect of Claim Nos. 19. As observed above, Appeal No. 26/2006 filed by L&T was partly allowed by this Court vide judgment and order dated 16 September 2016 and while setting aside the order of the Single Judge dated 16 November 2005, Arbitration Petition No. 449/2003 was remanded to the learned Single Judge for fresh decision. The reasons recorded by the Appeal Court for remanding the proceedings to Section 34 Court in the judgment and order dated 16 September 2016 read thus:- Conclusion:
57. We are of the view that, therefore, in the present case, the learned Judge ought not to have interfered with arbitration decision n the findings of facts by interpreting the provisions of the contract in the background of his special knowledge/expertise in the field. The learned Judge's total rejection of the claim of additional work done, as awarded by the learned Arbitrator is unjust and contrary to the record. This is in the background, when HPCL is not in position to content that no extra work was done by L&T. There is an error in the impugned judgment to this extent of reversing the award for all the extra works by stating it to be within the scope of the contract. Considering the scope and purpose of Section 34 of the Arbitration Act read with the power of learned Judge to interfere with the finding of facts, arrived at by the learned Arbitrator based upon the possible agreed method to deal with the claims and by taking the reasonable view by keeping in mind the nature of the work, based upon the contract, ought not to have been quash and set aside. The learned Judge has maintained the award of liquidated damages in the background itself. Remand and Power of Appellate Court under Section 37 of the Arbitration Act-
58. We have to keep in mind the scope and object of the Arbitration while deciding the Appeal arising out of Judgment on Section 34 Petition of the learned Single Judge, where the award passed by the Arbitral Tribunal may be confirmed or reversed or modified. The scope of Section 34has been elaborated. The Court, if not to interfere with the decision given by the Arbitrator, unless there is perversity and illegality, then the Appellate Court needs to test the decision of the learned Judge if it is against the law (supra). We find no perversity and illegality in the Award. There was no case to interfere with the Award. We, therefore, inclined to remand the matter to the learned Single Judge, as this will give an opportunity to all to deal with the claims again, except the LD claim. There will be fresh reasons on these remaining claims/decisions, so that the Appellate Court may reconsider it in accordance with law, if necessary.
59. Resultantly, the following order: ORDER a) Judgment and order dated 16 November 2005, passed by the learned Single Judge is quashed and set aside, except claim No.19. The order on Claim No.19 is maintained. b) The Arbitration Petition No. 449 of 2003 is restored and remanded back to the learned Single Judge for reconsideration. The learned Single to reconsider the same within three months from today, in view of above order/observation. c) There shall be no order as to costs.
16) This is how the Appeal Court maintained the orders of the learned Single Judge on Claim No. 19 but remanded Arbitration Petition No.449/2003 for freshly deciding correctness of Award qua Claim Nos. 1,2,4,9,15,16,21(1), 21(3) and 21(4). The Hon’ble Supreme Court, by order dated 5 April 2023 passed in Special Leave Petition filed by HPCL challenging the judgment and order dated 16 September 2016, felt that the Appeal Court had fell into error in discussing all claims without rendering specific findings qua Claim No. 19. The order passed by the Supreme Court on 5 April 2023 reads thus:- After hearing learned counsel for the parties, this Court is of the opinion that the Division Bench fell into an error in discussing all claims but at the same time, not rendering specific findings accepting in regard to Claim No. 19. It would be in the fitness of things that instead of remitting the matters for fresh consideration under Section 34 of the Arbitration and Conciliation Act, 1996 the Division Bench examines the matter afresh in the light of the appeals preferred before it. Accordingly, the impugned order is set aside. The appeals filed by both the parties (Appeal Nos. 26 and 14 of 2006 in Arbitration Petition No. 449 of
2003) are hereby remitted for fresh consideration and final judgment on its merits after hearing the counsel for the parties. The observations in the impugned order shall not be construed as reflective of the merits of the appeals to be heard. All rights and contentions are kept open. We request the Division Bench to accord some priority and endeavor to complete the proceedings by rendering judgment expeditiously, preferably within a year. The Special leave petitions are disposed of. Pending applications, if any, are disposed of.
17) This is how both the Appeals are remitted to this Court for fresh consideration. After the appeals were remitted to this Court for fresh decision, this Court appointed Amicus Curiae to assist the Court on the issue of severability of the award. The learned Amicus brought to the notice of this Court the judgment of the Apex Court in Gayatri Balasamy Versus. ISG Novasoft Technologies Limited14 under which the Court is held to be empowered to modify the award which is severable by severing the invalid portion from the valid portion of the award.
18) In the present case, the learned Single Judge has set aside the award only qua Claim Nos. 1, 2, 4, 9, 15, 16, 21(1), 21(3) and 21(4) but has retained the same qua Claim No. 19. This is the reason why both L&T and HPCL have filed the present cross-appeals challenging the order passed by the learned Single Judge. We first proceed to examine the challenge raised by L&T in Appeal NO. 26/2006 of the decision of the learned Single Judge qua award of Claim Nos. 1,2,4,9,15,16,21(1), 21(3) and 21(4). 2025 SCC OnLine SC 986 19) L&T had raised total 30 claims in addition to claim for interest before the learned Arbitrator. The total amount claimed in respect of the said 30 claims was Rs.27,82,74,107/-. Out of the said 30 claims, some of the claims were outrightly rejected by the learned Arbitrator, some were partly allowed while the rest were fully allowed. The following table would indicate the exact claims as well as the amount awarded by the learned Arbitrator:- Claim No. Claims Claim Act. (Rs.) Awarded Amount (Rs.)
1. Towards addl. Work for canal at chainage (introduced by irrigation dept.) 16,26,160 10,00,000
2. Towards repair of CTE Coating by heat shrink sleeves 12,39,57,262 4,13,00,000
3. Towards additional work of Boulder Soling in River Sarpa 2,91,239.00 NIL
4. Claim for addl work of tree cutting & sizing of stem in VPT area 2,40,734 2,40,734
5. Claim towards expenses on account of idling of resources due to stoppage of work by landowners 11,86,500 NIL
6. Claim towards expenses on account of idling of resources due to stoppage of work by Respondent for want of electrode qualification 31,98,071 NIL
7. Claim for addl works due to increase in cover for pipeline crossing 72,71,530 NIL
8. Claim for addl route survey 6,69,117 NIL
9. Claim for addl work due to OFC of shorter length 28,78,713 15,10,000
10. Claim for addl work due to 1,90,27,943 NIL increase in crossing
11. Additional work involved due to increase in rocky area 96,69,593 NIL
12. Additional work for hooking up for intermediate pigging station with mainline 12,71,781 NIL
13. Claim for idling on account of non-availability of right of way 54,63,666 NIL
14. Claim for addl work executed for dewatering and swabbing 27,66,835 NIL
15. Claim for addl work in conecting with civil work for isolation valve 10,17,361 10,17,361
18 Claim for under-utilization of deployed resources, due to lowering of pipes on skid after root pass and reinforcement and idling of resources due to delay in establishing proper welding electrode for mainland welding 2,33,08,135 NIL
20 Claims for release of withheld amount 15,22,293 9,55,000 21 Claim for release of disputed rebates 1,88,44,791 70,80,213 22 Claim towards compenstion on account of damages in IPS & deduction of legal fees 40,000 40,000
20) HPCL however challenged the award only in respect of Claim Nos. 1, 2, 4, 9, 15, 16, 19, 21(1), 21(3) and 21(4) and did not challenge the Award in respect of the rest of the claims. The learned Single Judge has set aside the Award qua claim Nos. 1, 2, 4, 9, 15, 16, 21(1), 21(3) and 21(4), whereas the Award is retained qua claim NO. 19. L&T has filed Appeal No. 26 of 2006 challenging the order of the learned Single Judge qua rejection of Claim Nos. 1, 2, 4, 9, 15, 16, 21(1), 21(3) and 21(4). HPCL on the other hand has challenged the order of the learned Single Judge qua retention of claim No. 19 in Appeal No. 14 of 2006. We first proceed to examine the Appeal preferred by L&T. APPEAL NO. 26 OF 2006
21) L&T’s Appeal No. 26 of 2006 challenges order of the learned Single Judge in setting aside the award qua Claim Nos. 1, 2, 4, 9, 15, 16, 21(1), 21(3) and 21(4). We proceed to examine claim wise findings of the Arbitrator and the learned Single Judge.
22) Claim was No.1 was towards additional work for canal at chainage 205km, which was originally raised for Rs. 27,71,146/- but revised by L&T to Rs. 16,26,160/-. The claim arose on account of introduction of Janmabhoomi program of Government of Andhra Pradesh. L&T claimed that it was required to take additional/extra work of filling the pipeline at the depth of 1.[5] mtrs. It appears that excavation for the canal was undertaken by Andhra Pradesh Government at drainage chainage 205km. after the pipeline was lowered and back filing was completed resulting in lack of cover and exposure of pipeline at that location. The Consultants had carried out inspection at the site on 28 June 1997 and had requested L&T to take up the work on priority basis. The learned Arbitrator has recorded detailed events relating to execution of the extra work which need not be repeated here. After the extra work was completed, the consultant made valuation of the work based on actual man and machine days of resources deployed in execution of the work taking unit labour rates based on SOR and machine and item rates were taken on prevailing market rates. As per the consultant, the total value of the work was Rs. 4,86,280/-. However, L&T claimed an amount of Rs. 16,26,160/- for extra work.
23) Perusal of the findings recorded by the learned Arbitrator in paragraph Nos. 13, 14 and 15 of the Award would indicate that the learned Arbitrator has found the valuation of Consultant at Rs. 4,86,280/- to be correct, fair and reasonable. The Arbitrator still proceeded to award sum of Rs. 10 lakhs in respect of Claim No.1 by recording the following findings:-
14. Compared to similar work and cost thereof, the cost of Rs.4,86,280/-as worked out by the Consultants is fair and reasonable. It may be noted that the Bill of the Claimants was not correct and not based on actual work performed by them as can be seen from the conduct of the Claimants is reducing the bill amount by about Rs. 16 lakhs.
15. I have carefully considered the respective cases of the parties, their Written Submissions and authorities cited and hold that while the evaluation of Claim No.1 at Rs.4,86,280/- is in accordance with the Clause 5 j of the Gcc. To the contract, that the Claimants raised their bill on estimated basis and not on actual work done by them. The Claimants declined to accept the valuation of the Consultants on vague and unsustainable grounds vide Exhibits C-8 and C-9 of Volume 5. Irrespective of the fact that the opinion of the Engineer-in-Charge in this behalf is final and binding on the Claimants under Clause 5 j of gcc of the Contract vide pages 15 and 16 of Volume 2, being a technical person myself, I have looked into the actual amount of work involved in this extra claim. I find that the revised Claim of the claimant is still exaggarated and high. The work is not equal to Rs. 16 lakhs or so which has been the revised claim claimed by the claimant. The estimate of the Engineer in charge M/s EIL is a little to conservative and the work cannot be completed in Rs. 4.86 lakhs which has been estimated by them. Accordingly I have gone through in detail and I find that a sum of Rs.10 00,000 will represent a true and proper valuation of the work done by the claimant and I award this amount of money. (emphasis added)
24) The learned Single Judge, after considering the above findings recorded in paras-14 and 15 of the award, held that the learned Arbitrator was not justified in awarding sum of Rs.10 lakhs after recording a finding that amount of Rs.4,86,280/- worked out by consultants was fair and reasonable. The learned Single Judge thereafter held that the Arbitrator did not have jurisdiction to make award in relation to those items where decision of Engineer-in-Charge was declared to be binding. The learned Single Judge considered clause 5.j.[4] of the contract and held that the rate of altered additional work was to be worked out by the Engineer-in-Charge (Consultant) and his decision on that issue was final. The learned Single Judge has held in the impugned order qua Claim No.1 as under:- The claim of the Respondent was in relation to the additional work done for canal at chainage, Perusal of the clause 5.j.[4] shows that the rate of altered, additional work is to be worked out by the Engineer-in-charge and his decision on that issue is final. It is, thus, clear that once the Engineer-in-charge had made his decision, the learned arbitrator had no jurisdiction to interfere and direct the Petitioner to pay higher amount. It is clear from the award itself that the learned arbitrator has directed the Petitioner to pay an amount of Rs. 10 lakhs without disclosing any reason and without disclosing the decision making process, according to which the learned arbitrator reached the conclusion that the Respondent is entitled to receive Rs.10 lakh. It is obvious from the reading of paragraphs 14 and 15 of the award quoted above that the award of the arbitrator was without application of mind. The award also discloses that the learned arbitrator either did not understand the function of the arbitrator or he allowed himself to be persuaded to make such an award. The award made by the learned arbitrator is,therefore, liable to be set aside and is accordingly set aside.
25) It is submitted on behalf of L&T that reliance by the learned Single Judge on Clause 5.j.[4] of the GCC is erroneous and what ought to have been taken into consideration is Clause 5.j.[3] providing for payment of work for rates not specifically provided. It would be apposite to reproduce the entire Clause 5j of the contract which reads thus:- ALTERATIONS AND ADDITIONS TO SPECIFICATIONS, DESIGNS AND WORKS 5.j.1. The Engineer-in-Charge/Site-in-Charge shall have powers to make any alterations, additions and/or substitutions to the schedule of quantities, the original specifications, drawings, designs and instructions that may become necessary or advisable during the progress of the work and the Contractor shall be bound to carryout such altered /extra/ new items of work in accordance with instructions which may be given to him in writing signed by the Engineer-in-Charge/Site-in-Charge. Such alterations, omissions, additions or substitutions shall not invalidate the contract. The altered, additional or substituted work which the Contractor may be directed to carry on in the manner as part of the work shall be carried out by the Contractor on the same conditions in all respects on which he has agreed to do the work. The time for completion of such altered added and/or substituted work may be extended for that part of the particular job. The rates for such additional altered or substituted work under this Clause shall be worked out in accordance with the following provisions. 5.j.2. If the rates for the additional, altered or substituted work are specified in the contract for similar class of work, the Contactor is bound to carryout the additional, altered or substituted work at the same rates as are specified in the contract. 5.j.3. If the rates for the additional, altered or substituted work are not specifically provided in the contract for the work, the rates will be derived from the rates for similar class of work as are specified in the contract for the work. In the opinion of the Engineer-in-Charge/Site-in-Charge as to whether or not the rates can be reasonably so derived from the items in this contract, will be final and binding on the Contractor. 5.j.4. If the rates for the altered, additional or substituted rate determined in the manner specified above, then the Contractor shall, within seven days of the date of receipt of order to carry out the work, inform the Engineerin-Charge/Site-in-Charge of the rate at which he intends to charge for such class of work, supported by analysis of the rate or rates claimed and the Engineer-in-Charge/Site-in-Charge shall determine the rates on the basis of the prevailing market rates for both material and labour plus 10% to cover overhead and profit of labour rates and pay the Contractor accordingly. The opinion of the Engineer-in-Charge/Site-in-Charge as to current market rates of materials and the quantum of labour involved per unit of measurement will be final and binding on the contractor. 5.j.5. The quantities indicated in the Tender are approximate. The approved schedule of rates of the contract will be applicable for variations upto plus or minus 25% of the contract value. No revision of schedule of rates will be permitted for such variations in the contract value, including variations of individual quantities, addition of new items, alterations, additions /deletions or substitutions of items, as mentioned above. Quantities etc. mentioned and accepted in the joint measurement sheets shall alone by final and binding on the parties. 5.j.6. In case of any item of work for which there is no specification supplied by the Owner and is mentioned in the tender documents, such work shall be carried out in accordance with Indian Standard Specifications and if the Indian Standard Specifications do not------ the same, the work should be carried out as per specific standard Engineering Practice subject to the approval of Engineer-in-charge/Site-in-charge.
26) Holistic reading of the various sub-clauses of clause 5.j would indicate that clause 5.j.[1] mandates performance of additional/substituted/altered work by the contractor as directed by the Engineer-in-charge. The rates for such additional work were agreed to be determined as per the remaining sub-clauses. Clause 5.j.[2] provides for payment of additional, altered or substituted work in accordance with rates specified for similar classes of work. However, if rates for such additional work, altered work or substituted work are not specifically provided in the contract, clause 5.j.[3] becomes applicable and the rates will have to be derived from the rate of similar class of work as specified in the contract. Here the opinion of Engineer-in-Charge comes into play where he opines as to whether rates could be reasonably so derived from the items in the contract or not. After providing for determination of rates for altered, additional or substituted work clauses 5.j.[2] and 5.j.3, the next clause (5.j.4) deals with the procedure to be adopted by the Contractor while proceeding with the additional work. The contractor needs to inform the Engineer-in-Charge the rate at which he intends to charge for such work along with the analysis of rates for such work. The Engineer-in- Charge thereafter determines the rates on the basis of the prevailing market rates for both material and labour plus 10% to cover overhead and profit of labour rates and pay the Contractor accordingly. Here again the opinion of the Engineer-in-Charge about rates of material and quantum of labour involved is final and binding between the parties.
27) Thus the Engineer-in-Charge records his opinion twice where the contract does not provide for rates for additional work as under:
(i) He first opines whether or not the rates can be reasonably derived from the items in the contract.
(ii) He then opines about the current market rates of materials and the quantum of labour involved per unit of measurement Both the above opinions are final and biding between the parties. Here the opinion about the first aspect is not disputed by L&T as it is argued before us that the rates for the additional work in question were outside the contract. It is the second opinion on the basis of which the Engineer-in-Charge adjudged the amount of Rs. 4,86,280 for additional work by determining the ‘current market rates of materials and the quantum of labour involved per unit of measurement’ which is sought to be disputed by L&T.
28) The learned Arbitrator though agreed that the opinion of Engineer-in-charge was final and binding on L&T, since the Arbitrator was technical person, he looked into the actual amount of work involved in the extra claim and decided to award sum of Rs. 10 lakhs. Such course of action puts clause 5.j on its head where the opinion of the Engineer-in-charge is thrown to the winds, and the Arbitrator substitutes himself into the chair of the Engineer and determines the quantum of work and rates applicable. In our view, Arbitrator has clearly acted contrary to the Clause 5j of the GCC and the learned Single Judge has rightly set aside the award in respect of Claim No. 1.
29) Reliance by Mr. Wagle on the judgment of the Apex Court in State of Orissa Versus. Dandasi Sahu (supra) does not cut any ice. Evaluation of the work by the Engineer-in-Charge was by taking into consideration the rates for similar work which was found to be fair and reasonable by the Arbitrator. Once the Arbitrator found the evaluation of Engineer-in-Charge to be fair and reasonable, it was beyond the power of the Arbitrator to award any additional sum. Thus in the present case the issue need not be decided only in the light of finality of decision of the Engineer-in-Charge but the findings recorded by the learned Arbitrator makes it clear that the evaluation by the Engineer-in-Charge was fair and reasonable. We therefore do not find it necessary to deal with the argument of difference in meaning of the terms ‘opinion’ and ‘decision.’ Therefore the findings recorded by the learned Single Judge qua Claim No.1 do not warrant any interference in exercise of jurisdiction under Section 37 of the Act.
30) Claim No.2 was towards alleged liability incurred by L&T for repairing of CTE coating. L&T alleges that HPCL supplied CTE coated pipes for execution of the contract and that due to the poor bonding of the CTE, the coating gave away and the same was required to be repaired with Raychem Sleeves by importing the same. The original claim was for Rs.12,39,57,262/- but the Arbitrator has awarded only one-third amount of Rs.4,13,00,000/-. For partly allowing Claim No.2, the learned Arbitrator recorded following findings in para-23 of the Award:-
23. Having considered the rival contentions of the parties, the terms of contract and various Exhibits filed by the parties and the decisions relied upon by them. I hold that:
(i) Claim No. 2 of the Claimants is not proper and valid and is contrary to the terms of the Contract. Further the Claimants did not produce any reliable evidence to substantiate their contention that the defects and damage in pipeline had occurred due to the poor quality of the pipes or that the damages occurred to the pipes due to the alleged defects in Coating etc. I hold that most of the damages were caused to pipes due to the wrong handling of pipes by the Claimants in violation of specific provisions of the Contract for handling of pipes, welding, bending, stringing, lowering padding; etc.
(ii) Most importantly, I find and hold that the very design criteria / decision to Coal Tar Enamel for a cross country pipeline of this size and terrain is questionable. It is well known that CTE coated pipes have a tendency to go “soggy” in open terrain heat conditions while laying a cross country pipeline. Admitted, that in this case a huge number of problems were created by the contractor in not adopting proper practices for laying the pipeline. However, the respondent is also to take a part of the blame. They chose the claimant contractor though the claimant had no expertise or experience in laying cross country pipelines especially of CTE coated pipes. These factors cannot be brushed away. Even if it is held that most of the damages occurred due to poor handling of the pipes by the claimant contractor (even after having acknowledged as having received the same in good condition from the respondent), a portion of the damages could easily be attributed to the wrong design choice. By the time of this contract, the usage of PERP coated pipe was well recognized to be having superior benefits. However PERP was not the chosen coating material. The contract clearly stipulates and the claimant did receive the pipes through out the contract in good condition. He has acknowledged this over the entire period of the contract, even as there were problems in the field. The claimant did not choose to have a joint test and did not visit the coating manufacturer’s location though a meeting was fixed. The claimant’s representatives agreed that the handling and stacking of pipes at the field were improper and not as per contract and these could cause damages. Yet the huge amount of damages leaves me with no alternative but to hold that a part of it is due to the account of the respondent due to poor design choice. Hence, after a careful consideration of the full facts, I am inclined to award one third of the claim amount to the claimant and thus award a rounded off sum of Rs. 4,13,00,000/- (Rs.4.13crores) as payable by the respondent to the claimant in settlement of this claim. The balance amount of claim is rejected.
(iii) I further hold that the Claimants had not adduced any detailed evidence as to the quantum of expenses incurred for repairs except for bringing out the details of their import etc. During the hearing with a lot of calculations
(iv) The Claimants had also not proved their allegation as to the poor quality of the coating. Further I hold that Claim No. 2 is contrary to the terms of Contract. Further the actual expenses were not proved by the Claimants by at least filing the certified extract of their Accounts.
(v) I, therefore, give my award rejecting Claim No. 2 except to the extent of a sum of Rs. 4.13 crores as already stated by me. This money shall carry interest as stated in para 72.
31) Thus, the Arbitrator criticized HPCL for use of CTE coating for cross country pipeline. The Arbitrator opined that usage of PREP coating pipes could have yielded superior benefits. Though the Arbitrator held that most of the damages to the pipes had occurred due to poor handling of the contractor of L&T, the portion of damages could be attributed to the wrong design choice of using CTE coating. On above reasoning, the learned Arbitrator awarded lumpsum amount of Rs.4,13,00,000/- towards Claim No.2. The learned Single Judge took into consideration the finding recorded in para-23(i) of the Arbitral Award that L&T was not entitled to any compensation for removal of defects in the pipes, which occurred after it took over the pipes. The learned Single Judge also took into consideration the finding recorded by the Arbitral Tribunal that L&T did not lead evidence of expenses actually incurred by it for curing the alleged defect. The learned Single Judge accordingly held that award of amount of Rs.4.13 crores to be paid by a Public Corporation on the basis of perverse findings was clearly unwarranted. We are in agreement with the findings recorded by the learned Single Judge.
32) Not only the contract clauses dis-entitled L&T from claiming any damages for defect in the pipes after taking over their possession, there is total absence of any evidence to demonstrate incurring of any additional expenditure by L&T for curing of the alleged defect. Though it is sought to be suggested that there is absence of dispute about repair of pipes, it still did not absolve L&T of burden of proving incurring of expenditure for curing of the alleged defect. The contention that the Arbitrator was the General Manager (Engineering and Project) and was entitled to use his knowledge also does not appeal us. The learned Arbitrator did not have any material before him to conclude that use of PERP coating pipes could have yielded superior benefits. Mere alleged expertise of the Arbitrator in the technical field does not mean that he was empowered to award amounts in favour of L&T contrary to the contractual terms and in absence of any evidence. Even after the learned Arbitrator held that ‘most of the damages occurred due to poor handling of pipes by the Contractor of L&T,’ the Arbitrator has recorded a finding that portion of the damages could easily be attributed to the wrong design choice. The Arbitrator did not have any material before it to segregate the damage caused to the pipes by L&T’s contractor and alleged damages suffered on account of defect in coating. In absence of any material, the learned Arbitrator awarded lumpsum amount of Rs.4.13 crores without any basis.
33) Mr. Wagle has strenuously contended that use of expertise by the learned Arbitrator in award of Claim No.2 cannot be questioned since both the parties volunteered for resolution of disputes by an expert Arbitrator. While in ordinary circumstances, there would have been no difficulty in accepting this proposition, however expertise of the Arbitrator cannot be superior to the contractual terms and requirement of evidence when it comes to award of claims. The enterprise can be used to find a solution to a problem within the contractual sphere. Ordinarily, if there is a dispute about a technical issue between the parties and an expert Arbitrator records his opinion on such technical issue, Courts would be in loathe to interfere in the findings of the Arbitrator. In the present case, L&T had never demanded supply of PERP coated pipes nor had raised any objection about use of CTE coated pipes for execution of the Project. In such circumstances, it was nobody’s contention that PERP coated pipes ought to have been used in execution of the work. Therefore, the findings recorded by the learned Arbitrator about PERP coated pipes yielding better results does not amount to expression of opinion of any technical dispute between the parties. Therefore, reliance on four judgments by Mr. Wagle does not assist the case. In Municipal Corporation of Delhi Versus. Jagan Nath Ashok Kumar (supra), the case did not involve total absence of evidence whereas there is absolutely no evidence in the present case about incurring of any additional expenditure by L&T for removal of alleged defect. In Jagdish Chander (supra), the Delhi High Court has followed the ratio of the judgment in Municipal Corporation of Delhi Versus. Jagan Nath Ashok Kumar and the judgment is rendered by the Delhi High Court in the light of peculiar facts of that case. The judgment cannot be cited in support of an absolute proposition that in every case, the finding recorded by an expert Arbitrator would be immune to challenge under Section 34 of the Act. In the judgment of the learned Single Judge of the Delhi High Court in Rajesh Khanna (supra), the findings of the learned Arbitrator were found to be still supported by evidence on record and the award was not upheld only on account of expert knowledge of the Arbitrator. In the present case also, every finding of the Arbitrator cannot pass the muster of scrutiny under Section 34 of the Act only on account of the pretext of his technical expertise over the subject. Mere technical background of the Arbitrator would not empower him to award claims contrary to the contractual terms and/or in absence of any evidence on record. In support of his contention that Section
34 Court does not have jurisdiction to go into the issue of quantification of the damages made by the Arbitrator on the basis of guesswork, reliance is placed by Mr. Wagle on judgment in Mahanagar Gas Ltd., Mumbai. In our view, the judgment cannot be cited in support of an absolute proposition that the Arbitrator can award a lump sum amount in absence of evidence and by mere exercise of guesswork in every case.
34) We therefore do not find any valid reason to interfere in the findings recorded by the learned Single Judge qua Claim No.2.
35) It appears that Vishakhapatnam Port Trust had instructed L&T to cut the trees from 300 m.m. above the ground and thereafter cut the stems in the size of 1 meter piece each and hand over the same to the nursery as a precondition for grant of permission for laying of pipeline. It is L&T’s claim that in pursuance of visit, the Vishakhapatnam Port Trust’s Surveyor directed L&T to take out roots of the trees safely and hand over the same at Vishakhapatnam Port Trust Nursery. The learned Arbitrator allowed the entire claim for Rs.2,40,000/- by discussing the scope of the contract which included cutting of the trees in the corridor to ground level, grubbing the stumps to required width and to dispose of the timber bush, stumps etc. Clause-5.[2] of the contract catered duty on L&T to comply with all requirements of concerned authorities at no extra cost. However, the learned Arbitrator still proceeded to award the claim by holding that the requirement of grubbing the trees to specified size (in accordance with a particular pattern) and then having them transported to some particular place resulted in some extra steps and efforts.
36) The Arbitrator held that ‘The claim is not a very large claim and I am not inclined to question the lack of evidence on the sum claimed’. The size of this extra claim is being viewed from the angle of the size of the contract itself. The learned Single Judge has set aside the award of Claim No.4 on the grounds of (i) absence of contractual obligation, (ii) lack of evidence (iii) erroneous reasonings of comparing size of claim with size of contract. We are in agreement with the findings recorded by the learned Single Judge. The learned Arbitrator has proceeded to award Claim No.4 only because the same was small in size as compared to the contract value. This, in our view, is a completely perverse understanding by the learned Arbitrator. Because the size of the claim is small (as compared to the contract), the learned Arbitrator felt it unnecessary to require L&T to lead evidence to demonstrate incurring of additional expenditure. The learned Single Judge took note of contractual clause which required L&T to secure all permissions at no extra cost. Thus if any expenditure was required to be incurred for securing any permission, no sum could be contractually claimed by L&T. In our view, therefore award of Claim No.4 by the learned Arbitrator was based on perverse findings and the same has rightly been set aside by the learned Single Judge.
37) Claim No.9 was raised by L&T for Rs.28,78,713/- for incurring of additional expenditure for joining optical fiber cables of short length. According to L&T, HPCL decided to supply short length of cable drums of 1 km each as against the length of 2 kms agreed in the contract stipulations. L&T received 34 number of drums of OFC of 1 km length and the number of joints which were originally assumed at 155 increased to 174. The learned Arbitrator awarded sum of Rs.15,10,000/- against Claim No.9 by recording following findings:
(i) Even though the Consultants had indicated in their letter dated
31/1/97 Exhibit C-34 page 144 Volume 5 in regard to supply of 34 1 km drums, the Claimants had neither objected nor informed the Respondents that in view of change they would be entitled to additional cost. On the other hand, the Claimants had without any reservation submitted under cover of their letter dated 16/4/97, 2 1/2 months after C-34 of the Consultants, the methodology for cable laying and project procedures without raising or reserving any right to make a claim for additional expenditure. Further item 12(6) of MOM dated 22/1/97 Exhibit 6-4 (i.e. immediately after C-34) item 8 of MOM especially item 2 and MOM dated 15/7/98 negative the claim of the Claimants as to additional expenditure. Even though OFC Cable was subject matter of the MOMs, the Claimants never put forwards their claim for additional expenditure. If the supply of 1 km cable drums resulted in extra expenditure, the Claimants ought to have raised the issue immediately after receipt of Exhibit C-34 and should have proceeded with the work only after getting in the matter settled. It is also on record that they had damaged Copper lines and caused more joints nearly 156 nos. due to their inefficiency and further agreed to work out rebates payable to the Respondents for the damages caused to copper lines. The Claimants had not produced any evidence in regard to the quantum of damages. Though the claim is not raised as per contract terms, I have considered equity to be in favour of the claimant. Sometimes in a big contract of this nature, not everything goes by or happens as per the contract. That is not to say that the entire contract is given a go by. However, the giving of 1 kilometre length cables have resulted in some increase in joints. Though the increase is not equal to what the claimant has stated, I find that the increase is such that a sum of Rs. 15,10,000/is payable by the increase in the joints if the market rates are taken. I, therefore allow this claim in part and hold and direct that a sum of Rs. 15,10,000/- is payable by the respondent to the claimant and reject the balance amount of claim. This claim shall carry interest as per para 72 of my award. (emphasis and underlining added)
38) The learned Arbitrator thus held that L&T did not produce any evidence with regard to the quantum of damages suffered by it. He however held that the claim was not raised as per the contract terms. Despite recording these findings, the learned Arbitrator proceeded to award the same in equity.
39) The learned Single Judge has set aside award of Claim No.9 by recording following findings:
13. Perusal of this paragraph shows that the learned arbitrator has in terms observed that the claim made by the Respondent is contrary to the terms of the contract. Though the Respondent was claiming reimbursement of extra expenditure incurred by the Respondent for putting in extra joints and the Respondent did not lead any evidence to prove the amount spent for the purpose, still the learned arbitrator has awarded an amount of Rs. 15,10,000/-. While awarding the amount of Rs.2, 40,000/- against claim No.4 the learned arbitrator awarded the amount without there being any evidence on record by observing that he is awarding the amount without any evidence because the claim is small. But now the learned arbitrator has awarded the amount of Rs. 15,10,000/-, which the learned arbitrator does not find to be small amount, though even according to the learned arbitrator there is no evidence on record placed by the Respondent. The amount has been awarded without there being any evidence on record. The award made against claim No.9 is, therefore, set aside.
40) We are in agreement with the findings recorded by the learned Single Judge for setting aside the award of Claim No.9 which was neither supported by contractual terms nor backed by evidence. The learned Arbitrator had committed jurisdictional error by awarding sum of Rs.15,10,000/- in equity and on consideration of the claim being small as compared to the contract value. We therefore do not find any valid reason to interfere in the findings recorded by the learned Single Judge qua Claim No.9. Claim No. 15
41) L&T claims to have carried out similar mechanical work pertaining to isolation valve installation outside the battery limits of Vizag Terminal IPS-1, Rajamundry Terminal IPS-2 and Vijaywada Terminal. The scope of the work was apparently not covered in the mainline nor in the stations. L&T claims that the additional work had to be carried out at the instance of Engineer-in-Charge. L&T claimed an amount of Rs. 10,17,361/- for having executed the said additional work, which is sanctioned in entirety by the learned Arbitrator. The Arbitrator held that isolation valve near the station was within the scope of work of L&T if it must within the battery limits. However, since the drawings showed that the work was outside the battery limits, the same will have to be treated for the purpose of payment as extra work. This is how the learned Arbitrator proceeded to award the entire Claim No. 15 for Rs.10,17,361/-.
42) The learned Single Judge took note of specific averment raised by HPCL in Arbitration Petition about the work falling within the battery limits as per drawings. The learned Single Judge also took note of the fact that L&T did not deny this isolation of HPCL. The learned Single Judge thereafter considered the drawing in question and found that the findings of the learned Arbitrator about work falling outside the battery limits was factually incorrect. The findings recorded by the learned Single Judge in this regard in paragraph 15 of the order reads thus:- “Perusal of above quoted paragraph of the award shows that the work in relation to which the compensation was claimed by the Respondent, according the learned arbitrator was within the scope of the work awarded to the Respondent. The learned arbitrator, however, made the award of Rs. 10,17,361/- in favour of the Respondent by observing that though according to contract the work was within the scope of the contract the drawing show that the work was out side the battery limits. In the petition, the Petitioner has made a categorical statement that the above observation that the drawing shows the work was out side the battery limits is incorrect statement. The Respondent has filed an affidavit in reply in the petition. The Respondent has not denied this statement that observation in the award that the work was out side the battery limits according to drawing is factually incorrect statement. The learned Counsel for the Petitioner also showed the drawing in question. Perusal of that drawing shows that the observation made in the award on the basis of which the amount has been awarded in favour of the Respondent is factually incorrect. In this view of the matter, therefore, no amount could have been awarded against the claim No. 15. The award made against claim No. 15 is therefore, set aside.”
43) It is sought to be contended on behalf of L&T that the findings recorded by the learned Arbitrator about location of work being outside the battery limits is a finding of fact which could not have been interfered with by the learned Single Judge by entering into the realm of re-appreciation of evidence.
44) There is no dispute to the position that the concerned drawings were part of record before the learned Arbitrator and on perusal of which, a finding was recorded in the award that the work was outside battery limits. No attempt is made by L&T to invite our attention to the concerned drawing to demonstrate that the finding of the learned Arbitrator about location of work within battery limits is factually incorrect. In fact, in the Affidavit in Reply filed in Arbitration Petition No. 449 of 2003, there is no categorical averment in paragraph 28 thereof that the work was outside the battery limits as per the drawing. Such averment was necessary in view of categorical ground raised by HPCL in its Arbitration Petition that the finding of the learned Arbitrator is factually incorrect. Also, the learned Arbitrator has recorded defence of HPCL raised before him that no claim was ever raised by L&T towards any additional work being carried out outside battery limits during currency of contract period. Thus, no claim was contemporaneously raised before the Engineer-in-Charge who alone had authority to certify any particular work to be an additional work. Considering this position, we do not find any valid reason to interfere in the finding recorded by the learned Single Judge qua Claim No. 15. Claim No. 16
45) It is contended by L&T that while executing the work, it encountered an a canal named Pallivagu and that the approved construction drawings did not reflect existence of such canal. Therefore, claim for additional work for laying of pipeline for Pallivagu canal was raised for Rs.4,67,245/- which has been awarded in entirety by the learned Arbitrator. The learned Arbitrator recorded following reasons for allowing Claim No. 16: “(a) By C-42, the Claimants sought only directions for anti-buoyancy measures which are applicable for areas of water stagnation which were to be taken after the lowering activity is completed and hence their case of leaving the job and later completing the same is not true. The work could not be carried out for want of cold field bends as the bending operations could not be stabilised by that time and the Claimants tie ins of all bends i.e. horizontal and vertical subsequently by mobilising a separate tie-in crew. (b) The ground profile at the specified location between TPD 42 and D 43 was clearly shown in the alignment sheet 3489-10-16-71-0151-Rev-O which shows only a depression which is a rain water drainage of rain water during rainy season. There is no canal at this location.
(c) Hence the claim of the Claimants that they executed work at this location as a canal crossing is not true and so also the claim of providing 1 meter cover as can be seen from As Laid Drawing submitted by the Claimants being drawing No.3489-10-16-71-0151-Rev-O which does not show any canal drawing.
(d) The Consultants stated that the Claimants were paid for laying and anti-buoyancy measures under relevant items of SOR. No other efforts were put by the Claimants in this regard and the claim is not tenable as per Clause 3.[3] of gec Clause 5.[1] and 5.[3] of Document No.3489-00-QM- TM-0010-Rev C and item No.16.[2] of 'Instructions to Bidders'.”
46) The learned Single Judge has set aside the award qua Claim No. 16 by recording following findings: “The learned arbitrator was considering what was the nature of the work. In my opinion, that was not relevant. What was relevant was that in January, 1997 the Petitioner had informed the Respondent the type of measure that were to be taken. Because the claim of the Respondent was based on lack of prompt response from the Petitioner. The claim could not have been awarded as the case of lack of prompt response is not established on record. The claim No. 16 awarded by the arbitrator in favour of the Respondent has been awarded without application of mind and therefore that award is liable to be set aside. It is accordingly set aside.”
47) In our view, the learned Single Judge has rightly appreciated the position that the claim was essentially raised on account of lack of prompt response from HPCL with regard to taking of anti-buoyancy measures in relation to the concerned canal. The claim did not depend on the nature of the water body. Therefore, whether the concerned water body was canal or not was an irrelevant factor for deciding the claim. From paragraph 54(i) of the award, it is clear that the claim for additional work was raised on account of the activity of re-mobilizing resources and thereby incurring additional expenses. It would be apposite to reproduce paragraph 54(i) of the award which reads thus: “The Claimants state the while they were carrying out the work as per construction Drawings issued by the Consultants they came across a new canal near TP D42 and D43 and they had by their letter dated 6/4/97 being Exhibit C-42 pages 165 of Volume 5 informed the Consultants and sought their directions as to whether anti buoyantly measures were to be taken. Since there was no response from the Respondents, they went ahead with other work. Ultimately, they were constrained to complete the work by remobilising resources and incurring the additional expenses.”
48) Thus, Claim No. 16 was raised on account of incurring of alleged additional expenses on account of halting the work due to lack of response from HPCL and diverting the workforce at another location and re-mobilizing the same subsequently for completion of the work. This is the correct nature of claim which was completely misunderstood by the learned Arbitrator who misdirected himself by deciding the issue as to whether the concerned water body was a canal crossing or not. What the learned Arbitrator ought to have decided is whether there was any delay on the part of HPCL in responding to L&T’s query for taking anti-buoyancy measures after the receipt of letter dated 6 April 1997. The learned Single Judge took note of the fact that much prior to L&T raising a query on 6 April 1997, HPCL had already directed initiation of anti-buoyancy measures vide letter dated 10 January 1997 in relation to the concerned canal. L&T was thus fully aware of the position on 10 January 1997 that anti-buoyancy measures were required to be taken but still proceeded to raise a query vide letter dated 6 April 1997. Since taking of anti-buoyancy measures in relation to the concerned canal was already intimated to L&T on 10 January 1997, there was no question of its continuation of work or diversion of work force thereby encouraging any additional expenditure. The claim of L&T was patently false and the same was erroneously allowed by the learned Arbitrator on factors not related to the said claim. There was thus a manifest and patent illegality in awarding Claim No. 16, which has rightly been set aside by the learned Single Judge. Claim No. 21(1)
49) This claim arose as HPCL withheld amount of Rs.6,48,013/on account of L&T using different electrodes than the specifications and sought rebate vide letter dated 20 January 1997.
50) The learned Arbitrator allowed the entire claim of Rs. 6,48,013/-, holding that there was no difference between normal E- 7010 G electrode with 70000 PSI and E-7010 G electrode. It is further held that L&T was left with surplus of E-7010 G electrode from previous projects, which were used in the subject work. The learned Arbitrator further held that the Engineer-in-Charge did not take into account special nature of E-7010 G electrode which were not normal E-7010 G electrode but 77,000 PSI UTS which was far above of normal base metal UTS of 70,000 PSI. On this ground, learned Arbitrator proceeded to allow Claim No. 21(1). The learned Single Judge has set aside award in respect of 21(1) by recording following findings:
51) The learned Arbitrator has actually sought to substitute his own opinion over the opinion of the Engineer-in-Charge. The Engineer-in-Charge, who had taken a decision not to grant rebate in favour of L&T on account of use of unspecified electrodes. The learned Single Judge has relied upon Clause 5.j.[4] of GCC for concluding that the decision of the Engineer-in-Charge was final. Clause 5.j.[4] has already been extracted and interpreted above. It is sought to be contended by L&T that since the Arbitrator is qualified and experienced person, he was entitled to use his skill and knowledge about the consumables used in execution of the work. Use of different electrodes than the specified ones would amount to execution of substituted work. In respect of every substituted work, the Engineer-in-Charge was contractually given authority to opine about the rates of the material and his opinion was agreed to the final. In our views, the learned Arbitrator could not have awarded the claim only on the basis of his personal expertise/skill. The Arbitrator has to decide the dispute on the basis of contractual terms and evidence and his decision cannot be based purely on his personal skill/knowledge. We, therefore, do not find any reason to interfere with the finding recorded by the learned Single Judge qua Claim NO. 21(1). Claim No. 21(3)
52) The Claim arose on account of rebate for deletion of swabbing in the reconstruction. The learned Arbitrator has proceeded to allow the entire claim of Rs. 3,60,280/- once again recording a finding that the claim looked very small as compared to the value of the contract. The claim is sanctioned even after recording of a finding that details of incurring the expenditure were not produced by L&T. The learned Single Judge has rightly set aside award in respect of Claim 21(3) by holding that the Arbitrator himself held in paragraph 57(d) that it was contractually correct to seek rebate on account of non-carrying out of swabbing operations during pre-commissioning. Once it was held that the action of HPCL in seeking rebate on account of non-performance of swabbing operations was contractually correct, the Arbitrator could not have sanctioned the claim applying equitable considerations and by comparing the size of the claim with the value of contract. The Arbitrator committed manifest error in sanctioning Claim No. 21(3) and the award has rightly been set aside by the learned Single Judge qua that claim. Claim No. 21 (4)
53) The claim was raised by the HPCL as L&T had sought a deviation involving deletion of top and bottom reinforcement weld after root pass/run. The learned Arbitrator recorded a finding that if there was a basis for assumption benefit to L&T due to deviation, L&T was bound to pass the same to HPCL. However, on extraneous consideration, rejection of Claim No. 18, the learned Arbitrator proceeded to allow the entire claim of Rs. 60,71,920/-. The learned Single Judge once again relied upon Clause 5.j.[4] for holding that the decision of Engineer-in-Charge was final. The learned Single Judge further held that the Arbitrator applied irrelevant consideration that the deduction was against the spirit of contract. The learned Single Judge further held that the dispute was not arbitrable in view of
54) Though it is sought to be contended on behalf of L&T that HPCL has never argued that the decision of rebate of an amount of Rs. 60,71,920/- was made under Clause 5.j.4, the learned Arbitrator himself has referred to the working done by Engineer-in- Charge on 25 August 1998 while deciding to recommend rebate/deduction of Rs.60,71,920/- in respect of work not performed by the L&T. The issue for consideration before the Arbitrator and before the learned Single Judge was whether L&T was entitled to contend that it actually did not save any money on account of the concerned deviation contrary to the decision taken by the Engineerin-Charge. This issue, though skirted by learned Arbitrator, has been considered and decided by the learned Single Judge by holding that the decision of Engineer-in-Charge was final and binding in view of clause 5.j.4. It is therefore erroneous on the part of L&T to contend before us that deduction of amount involved in Claim No. 21(4) did not arise out of application of Clause 5.j.4. We do not find any error on the part of the learned Single Judge in holding that Claim NO. 5.j.[4] was in fact not arbitrable in the light of decision taken by the Engineer-in-Charge.
55) What remains now in L&T’s appeal is to deal with the judgments relied on by Mr. Wagle. In support of the contention that Section 34 Court cannot interfere in interpretation of the contract by the Arbitrator based on plausible view Mr Wagle has relied on Apex Court judgment in U.P. Hotels. In the present case the issue is not about interpretation of clauses of contract in a particular manner. For awarding most of the claims, the Arbitrator has noted that the same were not contractually admissible. Reliance on judgment in Associate Builders in support of contention that a construction contract must be read as a whole, does not make case of L&T any better, once it is found that most of the claims awarded by the Arbitrator are outside the terms of contract. In support of the contention that the Courts must always support Arbitral Award, reliance is placed on judgments in Santa Sila Devi and Bijendra Nath Srivastava (Dead) through LRs. However, the findings recorded above would indicate that the Arbitrator had thrown the contractual clauses to the wind and had awarded various sums as per his whims by use of his so called technical knowledge. The Award was thus unsupportable and has rightly been set aside by the learned Single Judge qua the claims, except claim No. 19. In support of the contention that findings of fact cannot be disturbed in exercise of jurisdiction under Section 34 of the Act, reliance in placed on the judgment in Venkatesh Construction Company. In the instant case however, the learned Arbitrator has no evidence before him and had recorded few findings in total absence of evidence. The case involves element of perversity and not the exercise of re-appreciation of evidence on record. Conclusion in Appeal No. 26 of 2006 56) In view of findings recorded above, we are of the view that the learned Single Judge has rightly set aside the award of the learned Arbitrator qua Claim Nos. 1, 4, 9, 15, 16, 21(1), 21(3) and 21(4) and there is no warrant of any interference in the said findings in exercise of jurisdiction under Section 37 of the Act. Appeal No. 26 of 2006, therefore, deserves to be dismissed.
APPEAL NO. 14 OF 2006
57) As observed above, this appeal is filed by HPCL challenging the order passed by the learned Single Judge on 16 November 2005 to the extent of retention of Arbitral Award qua Claim No. 19. Claim No. 19 was raised by L&T for releasing of withheld amount of Rs. 2.52 Crores towards liquidated damages. The subject contract was supposed to be completed by 25 November 1997. However, since the work could not be completed by the agreed date, various extensions were sought by the L&T from time to time. The first extension was applied for on 23 September 1997 which was granted up to 31 March 1998. On 10 December 1997, L&T sought further extension up to 30 April 1998 and the same was granted by the HPCL on 13 April 1998. This was the last extension granted by HPCL as further extension sought by the L&T on 23 April 1998 (up to 30 June 1998) was rejected by the Engineer-in-Charge of HPCL. Thus, the work was supposed to be completed on or before 30 April
1998. The work completion certificate was issued by HPCL on 20 August 1998. Therefore, HPCL computed liquidated damages in respect of delay from 1 May 1998 to 20 August 1998 and withheld amount of Rs. 2.52 Crores.
58) In defence, L&T contended before the Arbitrator that though the work completion certificate was issued on 20 August 1998, the pipeline was actually commissioned on 11 May 1998. L&T contended that hydrotesting was conducted in respect of the entire pipeline from Vishakhapatnam to Vijaywada on 10 May 1998 by water filling. It is further contended that HPCL also charged the pipeline with its product on 11 May 1998. The Arbitrator, therefore, held that HPCL was entitled to claim liquidated damages only up to 11 May 1998. The relevant findings recorded by the learned Arbitrator in this regard are as under:- “(h) A deeper look at the entire facts reveals that though the work was completed as per the contract only on 20/8/1998 (and there is no dispute on this), the pipeline had been laid and given for charging of water/product on 10th May, 1998 and so charged with water and then product on 11/5/1998. Thus the main purpose of the laying of the pipeline was achieved on 11/5/1998. It may be technically correct that the actual work was completed in all respects as per the contract only on 20/8/1998, but however the respondent's main requirement of petroleum transportation through pipeline was commenced/ achieved on 11/5/1998 itself. The respondent could not have suffered loss beyond that date. The respondent has shown that even if we assume a delay of only 10/11 days, they had suffered loss in excess of the entire liquidated damages amount. That may be the case, but then the delay committed to the main requirement is only 11 days, which translates into two weeks or part thereof of delay and hence only 1% LD/ penalty ought to have been deducted. The peculiarity of LD clause is that the owner is bound by and limited by the LD clause and even though he may suffer more than the LD amount stipulated by the contract, he has to limit his claim to the LD amount so agreed. Thus, I find and hold that the delay committed by the claimant is only 11 days and I also find that the damages are proved by the respondent far in excess of the LD amount and hence I hold and award that the respondent is entitled to levy only 1% of the contract value as LD and the balance LD of 4% of the contract value must be returned to the claimant. This will be fair and proper to meet the ends of justice, I feel. I, therefore, reject the claim for return of the full LD amount but direct that the respondent returns 4% of the contract value to the claimant. The respondent is directed to pay back to the Claimant the sum of Rs. 2,01,60,000/- and the balance LD amount of 1% of the contract value maybe retained by the respondent, as it has been correctly and validly deducted.”
59) Before the learned Single Judge, the issue for consideration was whether the finding of fact recorded by the learned Arbitrator about commissioning of the pipeline on 11 May 1998 by HPCL warranted any interference. The learned Single Judge encountered a situation that HPCL did not plead in its Arbitration Petition that finding of the Arbitrator about charging the pipeline with product on 11 May 1998 was factually incorrect. In absence of any challenge to the finding of fact about the charge of the pipeline with product on 11 May 1998, there was no occasion for the learned Single Judge to test correctness of the said finding of fact. In our view, therefore, the learned Single Judge rightly did not disturb the Claim No. 19 awarded by the learned Arbitrator. No case was made out by HPCL for setting aside the award in support of Claim No. 19 as HPCL never disputed factual finding that the pipeline was charged with product on 11 May 1998. Mere issuance of Completion Certificate on 20 August 1998 could not have been a ground for claiming liquidated damages by considering delay period up to 20 August 1998. The learned Single Judge thus rightly upheld the award qua Claim No. 19.
60) Coming to the issue of jurisdiction of Section 34 Court to modify the award, reliance is placed by Mr. Hussein on the judgments in M/s. Larsen Air Conditioning and Refrigeration Company (supra), The Project Director, National Highway Nos. 45 E and 220, National Highways Authority of India (supra) and Mcdermott International Inc. (supra). In our view, however, the learned Single Judge has not modified the award in exercise of jurisdiction under Section 34 of the Act. In Gayatri Balasamy (supra), the Apex Court has held that if the award is severable, the Court can sever the invalid portion from valid portion of the award and, to that extent, modification of the award is permissible. The three Judge Bench had made a reference to the Constitution Bench on question as to whether power to modify an award can be read into power to set aside an award under Section 34 of the Act. The Constitution Bench has answered the issue by holding in paragraph 152 (G) to (M) as under:-
I. Once an award is understood as consisting of separate components, each standing separately and independent of the other, there appears to be no hurdle in the way of courts adopting the doctrine of severability and invoking a power to set aside an award partly. The power so wielded would continue to remain one confined to “setting aside” as the provision bids one to do and would thus constitute a valid exercise of jurisdiction under Section 34 of the Act.
61) Applying the above principles to the present case, it is seen that upholding the award qua Claim No. 19 does not disturb setting aside of the award qua rest of the claims.
62) We, therefore, do not find any merit in Appeal No. 14 of 2006 filed by HPCL, which also deserves to be dismissed.
63) We hereby proceed to pass the following order:
(i) Both Appeal Nos. 14 of 2006 and 26 of 2006 are dismissed by upholding the order passed by the learned Single Judge.
(ii) Considering the facts of the case, there shall be no order as to costs.