M/S. CONCEPT COMMUNICATIONS LTD. v. BHARAT SANCHAR NIGAM LTD.

6.2. CCL completed the work under the Project and submitted all relevant documentation (including invoices) for release of payment. The terms of the Agreement and Clause 11 of the Release Order stipulated a 15day timeframe for BSNL to verify CCL’s work, on a random basis, following which, CCL’s invoices had to be cleared. However, no verification was conducted within the said 15-day period, and thus, BSNL failed to perform its contractual obligations and had shown no impediment or justification for this default. In most of the territorial Circles, such verification was not carried out within 15-days and was conducted only after considerable delay. Although, the Arbitrator acknowledged that this fact, he has nonetheless, placed reliance on such belated reports in concluding that – (i) the boards, as claimed by CCL, were not installed, as the same could not be located; and (ii) the payments with respect to the boards found, had already been made. 6.[3] Despite CCL pointing out that verification of the boards was not carried out by BSNL within the stipulated 15-days period as per the Release Order, the Arbitrator failed to provide any cogent reasoning for placing reliance on such verification reports. 6.[4] Further, not a single Notice under Clause 17.[4] was served upon CCL as per the terms of the contract. This aspect was completely ignored under by the Arbitrator in the impugned Award.

6.5. The impugned Award lacks appropriate reasoning as it does not accurately examine the facts of the case. Reliance is placed upon the case of Kailash Nath Associates v. Delhi Development Authority & Anr.[1] – wherein it has been that an arbitral award, which is without even a semblance of examination of facts, is not valid. The liquidated damages and penalty imposed on CCL are contrary to the law since it is violative of Section 74 of the Indian Contract Act, 1872 as well as Kailash Nath (supra). In the present factual matrix, to satisfy the mandate under Kailash Nath (supra), the Arbitral Tribunal should have asked BSNL to justify the losses suffered by them. The mere fact that liquidated damages and penalty were leviable and recovered does not lead to the conclusion that the same were legitimate. The Tribunal ought to have asked BSNL to prove the losses suffered, so that the mandate under Kailash Nath (supra) could be satisfied. There is no examination by the Tribunal on this aspect at all. In fact, for each SSA, the Tribunal merely notes the amounts of liquidated damages imposed and goes on to uphold such imposition.

6.6. The Arbitrator failed to consider that performance bank guarantees were never invoked and allowed to expire by BSNL. As per the terms of the Release Order, BSNL had the power to invoke the performance bank guarantees if the work was found to be deficient and was not rectified. If indeed there had been a failure of performance of the work by CCL, as contended by BSNL and held by the Arbitrator, BSNL would have raised issues with respect to the work carried out or/and asked for rectification with respect to the work done. At no stage was CCL called upon to rectify the work done. Moreover, BSNL never even issued any breach notice or invoked the performance bank guarantee given, clearly indicating that they had no grievance(s) with the contractual performance by CCL.

6.7. The Arbitrator, in page 46 of the impugned Award, while examining Salem SSA – dealt with the claim of wrongful deduction of liquidated damages raised in the year 2013. The inspection was carried out on different dates at different SSAs, however, dates are not noted in the award at all. Likewise, for Trichy SSA, no date of verification is provided. 6.[8] There exists no control over the owner of the PCOs to take care of the installed sign board, and hence, the invoice was accompanied with all details regarding the installation (including images of the sign boards) to ensure that the sign boards are installed properly. This was the duty of CCL – which it dutifully abided, thereby fulfilling its contractual obligations.

6.9. The Arbitrator ignored Ex. RW-1/9 – which is the parent document containing a summary of the installations, work done by CCL in respect of all states, duly certified by BSNL itself. By way of illustration, reliance was placed on data pertaining to the state of Tamil Nadu (as contained in RW-1/9), to emphasise that BSNL duly acknowledged the work done by CCL, as mentioned therein.

6.10. BSNL, through its own document viz. RW-1/9 – admitted that CCL had completed more than 90% work in all Circles. The said document was an extremely vital document for the case of CCL. BSNL’s witness – RW-1 – had also admitted the authenticity, veracity and contents of the said document during cross-examination, indicating that work had in fact been completed to the extent of 91%, while carrying out preliminary verification of the boards. However, the Arbitrator selectively ignored the categorical admissions made by the witness and the afore-said document.

ANALYSIS

7. The findings of the learned Arbitrator, which are germane for deciding the present petition, are qua issues no. 2 and 3, noted above. The invoices raised by CCL were of the year 2010. The inspection reports were of the year 2011 – some of which were pursuant to joint inspections, and others on the basis of inspections done by BSNL unilaterally. Mr. Mehta, has stressed that these inspections were carried out beyond the contractually stipulated period of 15-days – to suggest that it does not have evidentiary value. It has been contended that verification in some Circles was conducted around six to eight months after the installation of the boards and some Circles had seen cyclonic activities owing to which the boards were either damaged, broken or misplaced, thereby resulting in its non-availability at the said locations. It is contended that had the verification been conducted within the stipulated time, the boards would have been available. Besides that, other reasons were also given in an attempt to explain the non-availability of the boards at site – such as declining PCO services and change in service provider. It has also been argued that CCL were not responsible for the upkeep and maintenance of the boards after installation and the delay in verification by BSNL resulted in not locating the installation. In Arbitration, BSNL controverted each contention with cogent reasoning – to say that failure and inability to complete the work cannot be justified with false and frivolous excuses. BSNL has emphasised that payment to CCL was made for all boards installed, however, it was withheld where the boards were not found installed. The Arbitrator has analysed such contentions on the basis of evidence led and rejected the version of CCL. For reasons discussed hereinafter, the Court is in agreement with the conclusion reached by the Arbitrator and is not inclined to accept the contentions urged by CCL to explain the non-availability of the boards at the sites. Further, the findings of the Arbitrator are purely factual and have been rendered on basis of the material placed before him and on appreciation of such evidence. The law is now well-settled in view of several judgments of this Court as well as the Apex Court, that the quality and quantity of evidence falls within the exclusive domain of the Arbitrator. The limited scope of operation under Section 34 of the Act does not permit this Court to embark upon the exercise of re-appreciating the evidence. The jurisdiction exercised by this Court does not vest expansive authority to correct errors. Undoubtedly, Courts may interfere under the scope of Section 34 of the Act, however, for that, ex facie perversity or patent illegality must be shown in the conclusions drawn by the Arbitral Tribunal. This certainly, is not one such case.

8. That apart, the Tribunal’s rulings are apt and a correct analysis of the evidence. CCL had to prove that they had completed the installations to be entitled to the dues. On this aspect, the Arbitrator essentially relied upon the documents placed on record by CCL, as well as, oral evidence led by the parties in the nature of testimonies of the witnesses. The Arbitrator has rendered his findings with respect to each SSA from paragraph no. 69 of the impugned Award onwards. The common thread in the findings is the gross discrepancy between the claims agitated by CCL in the invoices and the inspection reports prepared on physical verification of the sites. On the basis of inspection reports, the Arbitrator concluded that the installations were not found at the respective SSAs. Further, the witnesses who had deposed on behalf of CCL, did not deny the levy of penalty and liquidated damages imposed by BSNL. For illustration, the Court takes note of certain observations made by the Arbitrator in respect of certain SSA’s in the Tamil Nadu and Maharashtra Circles, which are as follows: “MAHARASHTRA CIRCLE Buldhana: The Claimant as per Annexure F-1 had installed 503 lit and 4167 non lit boards, however as per the Respondent, nil lit and 14 non lit boards were installed. This definitely is a big discrepancy. The amount claimed is Rs.1535360/- while the Respondent concedes only Rs.3920/- The amount is drastically different and requires closer scrutiny. The table prepared by the Respondent Annexure F-1 does have its differences with the officer's report. The fact remains the testimony of CW-2 is overshadowed by the testimony of RW-3 as the document are placed on record which are the verification report and the testimony of RW-3 is on the basis of the Reports together with the documents filed and relied by the Respondent […] Panaji (Goa): As per the Claim 677 lit and 4503 non lit boards were installed. But according to the verification report dated 26.8.2011 Ex RW3/18 only 13 boards were found installed as has been deposed by RW-3 to this the witness CW[2] has conceded that as per inspection the there were in fact 13 boards found installed. Hence the Claimant is not entitled to any claim for more than 13 boards in the said SSA. […] Jalgaon: A Claim has been made for 612 lit and 7786 non lit boards that is stated to have been installed. In fact when the documents were submitted as on 03/12/2010 the work was incomplete and after completion of work Report as per letter dated 18.8.2011 produced by RW[3] as document RW3/19, on inspection 170 lit and 2157 non lit boards were found installed. The Claimant required to be paid according to the report but also wanted to await for final report. This of course was not feasible as there was no occasion requiring further verification or any final report. Hence there is no dispute in regard to payment in Jalgaon. […] Nagpur: The Claimant through bill dated 09.11.2010 has claimed an amount of Rupees 4,77,160/- for 167 lit boards and 1585 non-lit boards. The witness CW[2] has ad1nitted that only 45 lit boards and 412 non-lit boards. Keeping this in view there does not seem to be any dispute in regard to any claim of boards that were found installed and for the same Rupees 1,48,660 was paid. It is evident that the Claimant cannot require payment for the boards not found installed. Hence any further claim would not be viable. […] Sindudurg/ Sawantwadi: A claim has been made for 155 lit and 1875 non-lit boards which are stated to have been installed. Documents had been file or else the verification could not have been initiated. As per RW[6] payment was denied and produces Ex RW6/82. There is no denying that the report gave nil installation. This was after verification was conducted by the field visits and found nil boards installed as per ExRW3/33.It is alleged that the Agency did not even visit to collect the list of PCOs where signage were to be installed. In view of the fact no installation is attributed and Ex RW 6/82 has not been challenged as per the claim, hence no amount can be claimed. […] TAMIL NADU CIRCLE Trichy: A bill for a sum of Rs.6,983,049.00 is claimed for 1,600 backlit and 18,382 non lit boards as per the document GG-1 filed by the Claimant. However as per the verification 179 lit boards and 6,919 non lit boards were found installed. The documents filed by the Claimant raise a doubt in regard to its veracity. It does not seem to be genuine. The fact that the verification report had found the number of board as per the report of the Respondent which has been conceded by the Witness CW[2]. The witness concedes to the said fact also as per joint verification conducted. Report of the verification is Ex 6/11 and Ex6/12 and verified list is Ex6/13 for which a sum of Rupees 10,87,700/-was paid. The witness CW[2] agrees that a sum of Rs 2,48,374 /LD was deducted for noncompletion of work together with Rs.7,33,707/towards penalty as the date of completion was 3.12.2012. In view of the Report of the Boards found and the admission on the part of Claimant CW 2 the Claimant is not entitled to any further claim in the said SSA. […] Coimbatore: A sum of Rs 3,254,071.00 for a 1830 backlit and 5,700 non-lit boards as per GG-5 is claimed. The Claimant as agreed were allotted 2000 backlit and 6000 non-lit boards. Even though the CW[2] claims installing 7530 boards, as per bill dated 29.06.2010,a report was prepared which are Ex 6/33 and Ex. RW 6/34. As per the report only 37 backlit and 73 non lit Boards were found installed. The Claimant was informed of the number of boards installed vide letter ExRW6/32 dated 12.05.2011.Even though the Witness CW[2] has challenged the number of boards that were found on verification but the witness could not categorically deny the letter dated 12.05.2011. There is no refutation by the Claimant at the time as the number of boards installed. Further the Witness did not deny that penalty Rs 3,75,544/- and LD ofRs.1,196 was imposed. In fact a cumulative amount of penalty and liquidated damages was in excess and Rs.3,28,921 is sought to be recovered from Claimants as per ExRW6/31. […] Tuticorin: Bill dated 19/07/2010 Ex RW6/7 was raised on account of installing 383 lit boards and 5335 non-lit boards for a sum of Rs.19,60,273.00. However the Respondent through their joint verification did not find any installation at the site accordingly report dated 16.03.2011 was given which is Ex RW6/9. Not finding any installation a penalty of Rs.2,03,520/-was imposed. The photographs and the certificates filed are negated when the joint verification did not find the claimed installation. Hence no claim subsists in the said SSA. […] Vellore: Bill dated 27.04.2010 for installation of 500 lit and 4300 non lit boards amounting to Rs.17,36,122.00. As per Ex 6/51, the report of installation found nil lit boards and 2888 non lit boards on a 100% verification which was completed on 25.03.2011. the said report is ExRW6/51. In consequence payment of Rs.6,13,222/- was made. The verification report takes primacy over the claimant document as the payment was required to be made on the number of boards. Hence no claim can be made under the circumstances. […] Pondicherry: Bill dated l 0.05.2010 was submitted for installation of 500 backlit and 3,701 non lit boards costing Rs 1, 51,127.00. Claimant is stated to have written a letter Ex RW6/20 dated 17.05.2010 wherein they stated 3701 non lit and 500 lit boards were found installed. The certificate Ex RW 6/21 was accepted as correct and payment of Rs l[3],78,045/- was made. Hence no claim for the SSA subsists.” [Emphasis Supplied]

9. The yawning gap between the number of boards installed as mentioned in the invoices and those actually found at the sites in terms of the inspection reports is telling. In most cases, the difference is huge – with certain SSA’s having ‘nil’ installations as per the inspections reports. The installations which were claimed to have been done by CCL, were thus, ‘non-existent’. The invariant aspect of the reports is the pattern of discrepancies. On a query of the Court, Mr. Mehta admits that the life of the installation done by CCL was two years. Therefore, it is unfathomable that the boards would disappear in such huge numbers, at all sites and at the time of inspections – which were done nearly one-year after installations. Therefore, merely because the verification was done beyond the stipulated 15-days period, it would not absolve CCL of the burden to prove the claim. It is not an isolated case of mismatch, rather it is repetitive for almost all SSAs. The Court, therefore, refuses to accept the contention that even if installations were not found, the claim should be allowed – just because the inspection was done beyond the 15-days’ time limit. Even if some benefit of doubt is to be given to CCL on account of delay in inspection carried out by BSNL, it cannot eviscerate the insurmountable evidence against CCL. In any event, as noted above, this is purely the appreciation of evidence – a no-go area for this Court. There is certainly no perversity in the conclusions drawn by the Tribunal. The Arbitrator has also taken note of the fact that the witness who deposed on behalf of CCL – does not deny the imposition of the penalty and liquidated damages. Although, this may not amount to an admission of default, however, that is only an observation of the Arbitrator qua the statement of the witness to indicate that there was no protest for deductions. It explains that BSNL complained of non-performance. The final conclusion of the Arbitrator, on the basis of the inspection reports and testimonies of the witnesses, is found in paragraphs no. 95 and 96, which read as under:

10. Mr. Mehta has also placed reliance on Ex. RW-1/9. This document, according to Mr. Mehta, was prepared by BSNL and clinches the issue. In the said exhibit, Mr. Mehta, illustratively has referred to serial no. 5 viz. Tamil Nadu, at page 487, which reads as under:

11. Mr. Mehta states that all the documents placed on record from page no. 395 onwards, were indeed provided to the learned Arbitrator, which support that the work was indeed carried out. However, these documents, cannot deny the inspections carried out by BSNL. The Court thus, does not find any ground to compel BSNL to make payment, notwithstanding the installations.

12. Further, Mr. Mehta has questioned the Tribunal’s findings upholding the levy of liquidated damages and penalty. On this aspect, he states that the findings are completely in contravention of the well-settled legal position and in view of the judgment of the Supreme Court in Associate Builders v. Delhi Development Authority[2] and M/s Kailash Nath Associates v. Delhi Development Authority.[3]

13. On this issue again, the Court does not find any merit in Mr. Mehta’s contentions. Liquidated damages have been imposed as per Clause 7 of the Release Order, which reads as under: “The replacement warrant shall be provided by the Agency as per the life mentioned in specifications. The Agency is required to replace the faulty item within seven days after a intimation is received from the Dealer/ PCO owner/ BSNL employee […] the faulty item during the specified period of seven days. BSNL without prejudice to other rights/ remedies available to BSNL, a sum equivalent to 0.5% of the value of the delayed period for each week of delay or part thereof for period of 10 (Ten) weeks and thereafter @ 0.7% of the value of the unreplaced material for each week of delay or part thereof for another 10 (Ten) weeks delay. The total value of the above described liquidated charges shall be limited to a maximum value of 2% of R.O. PBG amounting to 2% of R.O. valid for 2 years shall be submitted to BSNL.” There is an express stipulated amount of damages in the Release Order and deductions were made by BSNL under the afore-noted clause. The language used in a clause is not the sole decisive factor. Therefore, mere usage of the words “penalty” or “liquidated damages”, is not conclusive. Rather, it is necessary to ascertain the real intention of parties by analysing the nature of transaction/ deduction, by going beyond the prima facie meanings ascribed by the parties in order to find out whether the deductions were indeed a ‘penalty’ or ‘liquidated damages’ or a ‘pre-estimation of damages’. It must also be borne in mind that deductions can be considered “penal” – if the sum stipulated is extravagant and/or unconscionable in comparison to the maximum loss, which could conceivably be proved to have followed from the breach of contract. The clause extracted above suggests that it is in the nature of the pre-estimation of damages which the parties agreed upon. Further, the clause provides a maximum limit – not a lumpsum sum, but a percentage, commensurate with period of delay. The sum provided is not exorbitant or inequitable or oppressive, and therefore, cannot be held to be in terrorem, and rather, it is perceived to be ‘compensatory’ in nature. Besides, this express stipulation was never disputed by CCL and the burden lay on them to show that the amount stipulated was not reasonable. Pertinently, the levy of damages by BSNL is for non-supply of the material. Since CCL failed to supply and install the boards, BSNL certainly had the right to make deductions. The nature of deductions cannot therefore, be held to be “penal” in nature as the loss caused to BSNL, on account of nonsupply of material, is ex facie visible.

14. Mr. Mehta has also argued that there was no allegation of breach by BSNL, and in absence thereof, it cannot be contended that the deductions made were on account of non-supply of the material. However, as discussed above, BSNL was justified in making deductions since CCL had ex facie failed to fulfil its obligations under the contract. The Arbitrator has also held that CCL received the payment for the boards found installed and could not make a claim for those not found installed.

15. The Court also does not find any merit in the contention of Mr. Mehta that since BSNL did not raise issues with respect to – the work carried out, or ask for rectification with respect to the work done and/or invoked the bank guarantee – there was no failure of performance on the CCL. BSNL certainly had the power to invoke the bank guarantees, but this remedy was available with them, without prejudice to its other rights and contentions. Non-invocation of the bank guarantees cannot be interpreted as acceptance of successful completion of obligations by CCL. Further, BSNL did indeed make deductions on account of liquidated damages against the payment dues, which was one of the options provided as a consequence for delay in performance. This deduction demonstrates failure of performance on the part of CCL.

16. In view of the above, the Court does not find any merit in the present petition and the same is dismissed. The pending application also stands disposed.