Union of India v. Chenab Construction Joint Venture

10. It is further submitted that the delay in execution of the work was solely attributable to CHENAB. He states that CHENAB was provided PVC in terms of the provisions mentioned in the PVC clause and was suitably compensated. Moreover, as per Clause 21.[5] of Special Tender Conditions and instructions to Tenderer, no claim for ideal labour and/or ideal machinery etc. could be entertained on any account. Similarly, no claim is permissible qua loss in business. Therefore, he contends that the award is contrary to the provisions of the contract and the public policy of India.

CONTENTIONS OF CHENAB

11. On the other hand, Mr. Sandeep Sharma, counsel for CHENAB, submits that the ground urged by UoI was already dealt with and rejected by this Court[6] and the same was also affirmed by the Division Bench.[7] Additionally, Mr. Sharma submits that the afore-noted decision has since been accepted by UoI, and therefore, there is finality on this issue and they cannot be permitted to re- In O.M.P. 44/2010 dated 5th In FAO (OS) 302/2010 dated 29th agitate the issue(s), already settled between the parties, relating to the same Project.

ANALYSIS

12. Having considered the submissions of the counsel for the parties, it would be apposite to first take note of the findings of the Arbitral Tribunal on this issue. The findings qua the plea of “excepted matters” is found in paragraphs no. 25-29 of the impugned Award, which read as follows: “25. Tribunal carefully considered oral arguments made by the two parties and perused all the relevant documents and clauses of the contract on record. Tribunal finds itself in agreement with the view expressed by the Hon’ble Supreme Court in the matter of J.G. Engineers vs. Union of India [AIR 2011 SC 2477] “....Interests of justice and equity require that where a party to a contract disputes the committing of any breach of conditions the adjudication should be by an independent person or body and not by the other party to the contract…..” Tribunal is of the view that for holding a claim as an excepted matter under clause 63 of GCC, the following are the conditions precedents. • There is a provision in this regard in the clauses of the agreement • The decision as required has been given by the competent authority. • Decision is an adjudication of the claims raised by the claimant by the Railway Authorities • The said adjudication before the authorities has to be notified to the claimant

26. The Tribunal examined all the clauses referred by the respondent and the relevant correspondences and is of the view that there is nothing on record to suggest that the Respondent had considered the Claimant's representation and had adjudicated the claims of the claimant and thereafter, notified the said decision of adjudication of claims in terms of clause 63 of the G.C.C. The Respondent simply mentioned the clauses where excepted matter is mentioned but had failed to explain and establish as to how the clauses referred were applicable to the present-case. In the absence of a proper decision of adjudication of claims under clause 63, the bar under clause 63 would not apply and therefore, the claims of the Claimant would not fall under the category of the Excepted Matters. Tribunal also finds that the Hon’ble High Court of Jammu and Kashmir while referring, the claims of the claimant had categorically held as under: “… 12. The issue is no longer res integra and has been the Subject matter of various judgments of the Hon'ble Supreme Court. In J.G. Engineers (P) Ltd. vs Union of India, the issue with regard to "excepted matter" was raised before the Hon'ble Supreme Court. It was held that the clauses in a contract like the one in hand do not make the decision of the Chief Engineer or Engineer in chief as final. The decision as to who was responsible for execution of the extra work contract and was responsible for committing breach has not been made subject matter of any decision of the Respondents or its officer. The decision, as to who was responsible for prolongation of contract period or for later delivery of site, have not been subject matter of any decision of the Respondents or its officers. Such issues have also not been excepted from arbitration under any provision of the contract. Therefore, it could not be successfully argued that the claim for extra expenses incurred on account of change of scope of work, casting of girders in one go instead of stages, prolongation of contract period or the additional claims, could not be subject to the decision of the respondents or its officers nor they could be covered under the expression 'excepted matter'. The aforesaid conclusion flows from the fact that the issue concerning extra expenses for various reasons like change of scope of work, prolongation of contract period etc. is not made subject of any decision of the Respondents or its officers by affixing the responsibility whether the extra expenses were incurred at the instance of which of the two parties. Therefore, I am of the view that the issue has to be left to the decision of the Arbitral Tribunal"

13. Following the aforesaid principle it has been concluded by the Delhi High Court in Earnest Builders Pvt Ltd vs Union of India and Ors, that the decision with regard to the arbitrability of the Claim made by the a claimant cannot be left to the discretion of the Respondents because it involves adjudicatory process which has to be left to the Arbitral Tribunal..."

27. Therefore, as held hereinabove, there being no adjudication of the disputes by the Respondent, and Respondents have failed to explain how the claims are covered under clauses pertaining to "Excepted Matter”. Reliance of the Respondent on the letter dated 31.07.2008 and to state that the said letter was the decision by the Railways is not tenable. Bare perusal of the said letter shows that no adjudication have been done by the Railways and only the clauses have been referred as have been done in the pleadings. Respondents have failed to show as to how the said clause is applicable to the present claim even in the letter dated 31.07.2008. Claims of the Claimant, therefore, cannot be said to be 'excepted matter'

28. Also, the plea of the Respondent at page 24 under para 18 of the written submissions dated 08.08.2019 that since the claimant has enjoyed fruits of contract for 11 years and therefore cannot challenge the clauses of contract is misplaced and wrong. Claimant has executed the contract as per requirement of the Respondent and is c1aiming the payments which he thinks are legitimately due to him. Respondent has failed to establish that the claims can legitimately be termed as excepted matters. Hence, the arguments of the Respondent with regard to the claims of the Claimant being excepted matter is devoid of any merit and is rejected.

29. ln view of the aforesaid findings by the Tribunal, the claims as made by the claimant are not excepted matters and are to be considered on its merits.” [Emphasis Supplied]

13. The Arbitral Tribunal, after evaluating the entire evidence, found the delay to be attributable to UoI as seen in paragraphs no. 55 to 77 of the impugned Award. The award for the above-noted claims is based on findings of fact rendered on the basis of evidence and material presented before the Tribunal and no perversity is shown to the Court qua the same. The Tribunal was satisfied that excess cement was consumed in the work due to use of higher specifications, and accordingly, the claim for increased quantities so consumed (over and above the tendered quantities) was awarded. Likewise, the Tribunal found excess quantity of steel to have been consumed in the execution of the work, as compared to the Notice inviting tender, on account of change in the scope of work and other factors. As regards the contention qua Clause 21.[5] of GCC, the Tribunal held that it does not bar the claim for ‘idle labour and/ or machinery’. The delay of 77 months in the earlier arbitration attributed to UoI, has been upheld by this Court. The Tribunal thus, awarded expenses for the prolonged period towards actual expenses. As regards extra expenses for casting of girder, the Court finds that since the specification was changed and CHENAB intimated that extra expenses would be involved in casting of girder in one go, CHENAB is entitled to the claim.

14. In fact, on merits, there is no serious challenge on this issue. The primary challenge of UoI is premised on the plea of “excepted matter” – which has been decided against it. Indeed, a similar objection raised was rejected, and thus, there is finality on this issue.

15. That apart, UoI has failed to explain how the above-mentioned claims were covered under the “excepted matters” clauses. Reliance placed on the letter dated 31st July, 2008, to say that the same was the final decision of UoI, was rejected. Thus, on facts, the Tribunal did not find any decision in terms of Clause 63. This finding of fact, rendered on the basis of the material placed before the Tribunal, calls for no interference. That said, the plea of “excepted matter”, as noted above, was rejected by the Single Judge.[8] Subsequently, the Division Bench affirmed the view taken by the Single Judge of this Court,[9] observing as follows: “11. On the first issue of “excepted matters”, this Court notices that the learned single Judge recorded the findings that the UOI never urged this aspect any time during the arbitration proceedings. Even in the petition under section 34, no specific plea as to maintainability of claim Nos. 8 and 6, was ever voiced as to provide the Tribunal the occasion to consider it. Furthermore, during the hearing of this appeal too, the UOI could not show any specific pleading urging the Tribunal to desist from considering the claim Nos. 8 and 26. Furthermore, the reasons for stating that these matters as excepted, in our opinion, are insubstantial given the nature of the conditions relied upon by the UOI. The consequence of the appellant's omission to urge this ground in its pleading as well as in the course of submissions before the Arbitral Tribunal is that it is deemed to have waived such objection under Section 4 of the Act. The other way of looking at the matter is that a statement of claim, which articulate the demand in respect of the head Claim Nos. 26 and 8 was based upon the claimant’s understanding that the amounts were payable and the disputes arbitrable. The failure of the appellant to refute those pleadings meant that on a demurer, its unstated objection to the issue of "excepted matters" itself stood waived by reason of Section 4 of the Act. In other words by any specifically urging non-arbitrability in its reply, the UOI is deemed to have accepted that the arbitration agreement covered those claims as well.”

CLAIM IX (FOR RS. 1,75,72,922.40

ON ACCOUNT OF PVC)

16. Mr. Upadhyay argues that the PVC amount could not have been awarded against Claims No. 1, 2 & 4 as the same were wrongly awarded.

17. The claim and maintainability of PVC has already been adjudicated upon by the erstwhile Arbitral Tribunal as well as the Single Judge on 5th March, 2010 and Division Bench on 29th October, 2015 and has been duly accepted and implemented by the UoI. The findings of the erstwhile Arbitral Tribunal, on this issue, in the award dated 25th September, 2009, are as follows:

11. “The Arbitration Tribunal has considered and examined various contentions, written submissions, records etc. as field and relied upon by parties. The crux of Respondent’s argument is that there was slow progress on part of Claimant, as such extension was granted upto 07.08.1999 with PVC, and thereafter extensions were sanctioned without levy of penalty/liquidated damages and without benefit of price variation clause. The averments of Claimant such as non availability of land, which remained under occupation of security personal, non availability of land for casting yards in GADS, changes in design of pier, delays in approval of design and drawing by Proof Consultants and the Department, delay in construction of catch water drains, delays due to diversion of National Highway, delays in power connections, delays due to shortage in Departmental Supplies, delays in payments, wrong encashment of BGs, delays due to rains, strikes and law and order situation in J & K, non finalization of NS items etc. and Respondent's replies to Claimant and instruction to increase progress etc. have been examined. The Arbitration Tribunal has carefully considered the merits and demerits including conditions of contract, documents records etc. It is also seen that the work which was slated for completion on 07.02.1998 finally was completed on 31.07.2004 i.e. with additional period of 77 months, part of which was extended by Respondent with grant of escalation and rest of period without penalty, without escalation, though tenders for additional pier Pl were finally decided by Respondents on 25.04.2003 for this additional pier when in the meeting held on 19.08.1996, Respondent were aware that additional pier had to be provided and till it was completed Claimant’s work of viduct E -18, would have remained incomplete. The respondent, got additional pier – I satisfactory completed on 15.06.2004 which proves that Claimants contractual date for items to be completed after completion of additional pier had to be reasonably and proportionately extended. The balance items executed by claimants after 15.06.2004 needed some time and arbitration tribunal finds that further time taken by claimants to finally complete work of vinduct E-18 by 31.07.2004 was not unreasonable. The respondents admitted that no loss has been suffered by them and while extending completion date of additional pier I upto 15.06.2004, no penalty/ compensation was levied or recovered. It was also admitted by respondents that line was opened after March 2005. The Respondent have also issued a certificate of satisfactory completion of work in favour of the claimants. The Arbitration Tribunal holds that Respondents were justified to make changes and/or revise scope of work as required and needed but in case of changing scope of work or adding certain items, reasonable extension of time has to be given to the contractor to complete balance items to treat the work complete so that payments in normal course such as security deposit, earnest money final bill etc were released and paid which remain blocked, unless work is certified to have been completed. The initial time of completion was very unrealistic and considerable period was consumed in making changes and approval of design. Due to various changes and unforeseen circumstances beyond reasonable control of claimants the completion period was got extended. This upset the working cycle and rhythm of contractor and upsets cash flows so try essential for expediting completion. The cash flows further get adversely affected if contract is not compensated for escalating in prices and a vicious cycle begins. The Arbitration Tribunal has gone into merits and demerits and is of the view that there was no undue delay on the part of the Claimants in completing remaining work by 31.07.2004. Even the Respondents have been granting extension to period of completion without any penalty and without any liquidated damages. The Respondents have paid some escalation of amount to claimants up to 31.08.1998 and not up to 07 08.1999 and continued to pay escalation on the balance executed work on the last indices of 31.08.1998 till completion of work withholding application of further price indices from 01.09.1998 till completion of work. The Arbitration Tribunal has also taken note of this fact that instead of 24 months work continued up to 101 months and extra period was regularized by respondents without penalty." The same was affirmed by both the Single Judge as well as the Division Bench of this Court, the relevant portions of which is as follows: “12. The aforesaid conclusion clearly shows that the contract was extended for an abnormal period of time. Not only was the contract extended for an additional period of 77 months, the fact of the matter was also that because of non-construction of an additional pier P[1] which was not in the scope of the work of the respondent, but which the petitioner had got constructed through another contractor, the work in question got delayed. Further the Arbitrators have noted that there was default on the part of the petitioner in not only originally having an unrealistic time period bud considerable time was consumed in making changes and approval of design and there was further delay due to various changes and unforeseen circumstances beyond reasonable control of the claimant it is further noted that the cash flow got affected because the respondent was not compensated for the escalation payment another argument may appear to be attractive, however, there are three things which stand in the way of the petitioner. Firstly, a reference to the response filed by the petitioner in the arbitration proceedings show that except a general reference to Clause 32, no reference has at all been made to the price variation aspect to be limited to 15% only. Secondly, in fact there appears to be a valid reason for the petitioner not to have raised this issue of limit of price variation claims within 15% only, because, the counsel for the respondent has drawn my attention to a minutes of meeting dated 16.11.1999 in which, in para 2, it is clearly stated that the respondent was not agreeable to work in the extended period of time unless price variation claims were granted. In this minute of meeting, it is clearly recorded that this issue therefore, with respect to price variation claims, will be reviewed by the Railways. The counsel for the respondents has in my opinion rightly relied upon Asian Techs Ltd Vs. Union of India and others 2009 (10) SCC 354, paragraphs 17 and 21, as per which once a contractor acts on a representation and does work, it is not permissible for the owner/employer to refuse and deny the valid claims and entitlement of the contractor. In the face of this understanding, I do not find any basis as to why price variation claims should be restricted only to 15% and not the actual price escalation as has been incurred by the contractor Surely and lastly, I must state that the contractual clauses which hold that petitioner, even if found guilty of breach of contract in causing delays, yet it should not pay actual damages of price variation, under either Section 55 or section 73 of the contract Act, 1872 are clearly legal and void. In a recent judgment in CS(OS) no 614 _ A/2002 titled as M/s Simplex Concrete Piles (India) Ltd. Vs. Union of India dated 23.02.2010, I have held that Clauses in a contract which disentitle an aggrieved party from clamming actual damages suffered by it, either under Section 55 or Section 73, such contractual clauses are void by virtue of Section 23 of the Contract Act.”

18. In view of the above, the Court finds that the challenge by UoI cannot sustain, as there is finality on this issue. No ground is made out to interfere with the view taken by the Arbitral Tribunal.

CLAIM VI (FOR RS. 50,87,316/- QUA REIMBURSEMENT OF INTEREST DEDUCTED ON MOBILISATION ADVANCE AND MACHINERY ADVANCE BEYOND ORIGINAL CONTRACT PERIOD)

19. Against the afore-noted claim, the Arbitral Tribunal has awarded the entire amount of Rs. 50,87,316/- in favour CHENAB. Mr. Upadhyay submits that the Tribunal had summarily awarded the interest, without assigning any reason. He places reliance upon Clause 33 of the Contract Agreement, which clearly shows that the interest was deducted on the mobilisation advance, since the delay was attributable to CHENAB.

20. On this aspect, it must be noted that the Tribunal, after evaluating the evidence and contentions of the parties, held that the entire delay was attributable to UoI. This becomes a finding of fact rendered by the Tribunal, as may be seen in paragraph no. 27 of the Award, which reads as follows:

27. Therefore, as held hereinabove, there being no adjudication of the disputes by the Respondent, and Respondents have failed to explain how the claims are covered under clauses pertaining to "Excepted Matter". Reliance of the Respondent on the letter dated 31.07.2008 and to state that the said letter was the decision by the Railways is not tenable. Bare perusal of the said letter shows that no adjudication have been done by the Railways and only the clauses have been referred as have been done in the pleadings. Respondents have failed to show as to how the said clause is applicable to the present claim even in the letter dated 31.07.2008. Claims of the Claimant, therefore, cannot be said to be 'excepted matter’.

21. Further, the Tribunal also analysed Clauses 33.[1] and 33.[2] of the GCC and observed as follows: “Clause 33.[1] Mobilization advance up to a maximum of 10% of the total value of contract against Bank guarantee will be paid in 2 stages, as under: Stage-1 50% of the advance will be paid against an Irrevocable bank guarantee from a nationalized bank in India or State Bank of India after signing contract documents. Stage-Il 50% of the advance will be paid against an irrevocable bank guarantee from a nationalized bank in India or State Bank India, when the mobilization at site in regard to establishment, setting up of the offices and bringing up the equipment have been done to the satisfaction of the Engineerin-Charge and the work has actually commenced at the site. Bank guarantee will be on the proforma to be supplied by the Railway. Bank guarantee will also cover the liability of the contractor in regard to interest on mobilization advance during the currency of the contract period. The advance carries an interest at rate of 10% per annum. The advance to other with interest accrued there on will be recovered through on account bills in instalments, the recovery commencing when the quantum of work executed and paid reached 15% of the contact value and shall be completed when the value of the work executed reached 85% of the contract value. The instalments of recovery from each 'on account' bill will be pro-rata basis.”

22.

CHENAB claimed interest on mobilisation advance for the delayed period. The delay has been attributed to UoI, notwithstanding which, entire mobilisation advance would have been paid back in terms of the contract within 24 months. Concededly, CHENAB received the said payments after much delay – in 101 months. The mobilisation advance, thus, accrued interest for 77 additional months, and therefore, the Tribunal was justified in awarding this claim. The Clause relied upon by UoI to deny this claim, was found to be an incorrect interpretation by the Tribunal. The Court, finds the same to be reasonable. Accordingly, the Court does not find any ground to interfere with the findings rendered by the Tribunal under this head of claim.

CLAIM X (FOR INTEREST PAYABLE AT 24% P.A. ON THE AFORESAID AMOUNTS FROM DUE DATES TILL THE DATE OF PAYMENT)

23. Against the interest claim of 24%, the Arbitral Tribunal has awarded

(i) pendente lite interest payable at 8% from the date of invocation of arbitration viz. 15th May, 2006 to the date of the publication of the Award viz. 11th October, 2019; and (ii) future interest payable at 12%. On this aspect, Mr. Upadhyay has argued that the impugned Award is contrary to several decisions of the Supreme Court, wherein it has been specifically held that in case a contractual provision prohibits the grant of interest, no order of interest could be made therein. He further places reliance on Clause 16.[2] of the GCC to argue that no interest was payable in terms of the language of the said clause, which reads as under: “16.2. No interest will be payable upon the earnest money or the security deposit or amounts payable to the Contractor under the contract, but Government Securities deposited in terms of sub-clause (1) of this clause will be repayable with interest accrued thereon.” It is further contended by CHENAB that since there was no clause in the GCC, 1989 barring the interest, UoI had specifically replaced the said clause with Clause 64(5) in GCC, 1999 – which places a specific bar on the award of interest by the Arbitrators.

24. On this aspect, the Court has considered the contentions advanced by UoI, however, does not find merit in the same. The award of interest being barred under Section 16.[2] of the GCC has already been delved into by this Court in the above mentioned decisions of the Single Judge10 and Division Bench of this Court.11 When the Single Judge of this Court upheld such award of interest in the other arbitral proceedings between the parties, this question was thoroughly analysed by the Division Bench, however, it was found that Clause 16.[2] of the GCC never intended to bar the award of interest on amounts awarded on account of delay in execution of the work under the Project. Rather, Clause 16.[2] of the GCC only barred interest on earnest money and security deposits and payments, which became due during the normal course of execution of the work under the Project. The observations made by the Division Bench on this issue are mentioned in paragraph nos. 15 to 19 of the judgement therein.

25. The Court thus, finds that the award of interest payable at 8% as pendente lite interest and 12% as future interest, to be reasonable and no interference is warranted. Accordingly, the challenge by UoI on this ground is also found to be lacking merit.

26. In view of the above, there is no ground to interfere in the present petition. Accordingly, the same is dismissed.