Divine Infracon Pvt Ltd v. Vistar Constructions Pvt Ltd

13. Learned senior counsel for the petitioner further submits that the Arbitrator has erred in interpreting the contract by not applying the principles of literal Construction of contract but by interpreting the terms of the Work Orders in a manner that he felt was just and proper. In this regard he places reliance on the following judgments of the Supreme Court:

1. Rajasthan State Industrial Development and Investment Corporation and Anr. v. Diamond & Gem Development Corporation Limited and Anr., (2013) 5 SCC 470; OMP(COMM) 186/2016 Page 12

2. Food Corporation of India. v. Chandu Construction and Anr.,

14. I am unable to agree with the submission made by the learned senior counsel for the petitioner. Clause 1.[5] of the Work Order dated 11.03.2010 reproduced hereinabove clearly suggests that the same was an item rate contract. Clause 10 of the Work Order dated 11.03.2010 which is reproduced hereinbelow further fortifies the said interpretation: “10.0 Evaluation of Variations and Items included under Provisional Sums 10.[1] Evaluation of variations will be as under i. Works executed in quantities or at times and locations which can be readily absorbed into the Contractor's program me on the same basis of commercial profitability as the original Contract Work shall be valued at the same price as those in the Bills of Quantities. ii. Works executed as aforesaid but for which there is no exactly equivalent item in the Bills of Quantities shall wherever possible valued at comparable prices extrapolated from prices for similar though not identical works in the Bills of Quantities. iii. If and only if, work cannot be valued on any of the foregoing bases as mentioned above, the work shall be valued based on the actual prime cost to the Contractor of his materials, transport and labour for the work concerned, plus 15 (fifteen) percent, which percentage shall include for the contractor's establishment, water, power and all other cost, supervision, overheads and profit; plus all prevailing taxes, which are applicable.” OMP(COMM) 186/2016 Page 13

15. The Arbitrator has also considered this issue in detail and has held as under: “22. There is yet another aspect which cannot be ignored in evaluating the admissibility of Exhibit CW- 1/1. The first agreement dated 11.03.2010, which forms the basic understanding between the parties does not limit the quantum of work and deals primarily with the commercial aspects, completion period, certification process, precautions and payment mechanism. The following parts of the reply to interrogatories, served by the Claimant to RW-1 are illustrative of the above. The same may be reproduced hereunder: ''Q. 24: Is it not correct that the work orders and the LOI were essentially item rate contracts and that the value of the contract was only indicative which could go up or down depending on the quantum of work executed? Ans. 24: It was an item rate contract and payments were as per BOQ's.

23. Thus, it was clearly understood by the Respondent that the final payment, which it would be required to make to the Claimant would be determined on the basis of the actual work that would be executed by the Claimant, notwithstanding the initial estimate of quantum of work. The agreement dated 11.03.2010 does not restrict the Respondent to expand the quantum of work. The said agreement does not contain any clause which would prohibit the parties from undertaking the exercise of conciliation or re-conciliation of accounts. OMP(COMM) 186/2016 Page 14

24. "Final Agreed Summary" (Exhibit CW-1/1 and Exhibit CW-2/2) is thus an outcome of such an exercise only. Not only this, clause 10 of the agreement leaves a scope for the parties for 'evaluation of variations and items included under provisional sums'. The said clause acknowledges the possibility of variations in quantities, in consonance with clause 1.[5] of the same agreement. It proposes a formula for valuing the work done in the event of variations. xxx “iii. In any event, the Claimant could not have claimed any amount over and above the „Contract Price' stipulated in the respective agreements.”

Tribunal to determine as to whether the contract prices mentioned in the three agreements have the effect of providing an upper cap or ceiling, beyond which the Respondent was not liable to pay any amount, notwithstanding the quantum of work executed by the Claimant.

16. Therefore, the Arbitrator has not passed the Impugned award in ignorance of the terms of the Work Orders but has interpreted the same in a manner which cannot be said to be unreasonable or perverse.

17. In Associate Builders v. Delhi Development Authority, (2015) 3 SCC 49 the Supreme Court has reiterated the limited scope of challenge to an Arbitral Award in the following words: “42.3. (c) Equally, the third subhead of patent illegality is really a contravention of Section 28(3) of the Arbitration Act, which reads as under:

OMP(COMM) 186/2016 Page 16 This last contravention must be understood with a caveat. An Arbitral Tribunal must decide in accordance with the terms of the contract, but if an arbitrator construes a term of the contract in a reasonable manner, it will not mean that the award can be set aside on this ground. Construction of the terms of a contract is primarily for an arbitrator to decide unless the arbitrator construes the contract in such a way that it could be said to be something that no fair-minded or reasonable person could do.

43. In McDermott International Inc. v. Burn Standard Co. Ltd.,(2006) 11 SCC 181 this Court held as under: (SCC pp. 225-26, paras 112-13)

44. In MSK Projects (I) (JV) Ltd. v. State of Rajasthan, (2011)10 SCC 573: 2012 3 SCC (Civ) 818, the Court held: (SCC pp. 581-82, para 17)

45. In Rashtriya Ispat Nigam Ltd. v. Dewan Chand Ram Saran, (2012) 5 SCC 306, the Court held: (SCC pp. 320-21, paras 43-45)

18. Therefore, I find no merit in the objection raised by the learned senior counsel for the petitioner. OMP(COMM) 186/2016 Page 19

19. Learned senior counsel for the petitioner further submits that the Arbitrator has erred in granting various claims of the respondent based on the document titled „Final Agreed Summary‟ which was merely a rough and provisional summary prepared by the petitioner and was therefore not binding on it. Infact, the respondent itself had challenged the said summary and therefore no reliance could have been placed thereon for granting the relief in favour of the respondent.

20. I have considered the submission made by the learned senior counsel for the petitioner, however, I find no merit in the same. It is not denied that the document titled „Final Agreed Summary‟ had been prepared by the petitioner itself and sent to the respondent. The respondent challenged the same only to the limited extent that it had left out certain other work done by the respondent, however, the same could in no manner absolve the petitioner of its liability admitted by it under the „Final Agreed Summary‟. The Arbitrator has also discussed this issue at great length and has held as under: “17. The above document has been exhibited in the affidavits of both the witnesses of the Claimant first as Exhibit CW-1/1 and then as Exhibit CW-2/2. It is filed with the list of documents attached to the SOC at pages 177 to 217. Curiously, the Respondent in the affidavit of admission/denial has denied the document. In its pleadings and evidence, the Respondent has disputed the admissibility of this document contending that the Claimant in its own pleadings has stated that the same is only a rough and provisional summary, which was yet to be finalized and that is why it has not been signed and hence, is not binding. OMP(COMM) 186/2016 Page 20

18. The above plea and submission of the Respondent needs to be examined in light of its statement in the examination-in-chief. In paragraph 19 of the affidavit of its Assistant Project Manager (Interior), who appeared as RW-1, it is stated as follows:

19. The contention of the Respondent to the above effect does not appear to be correct. In paragraphs 22 and 23 of the SOC, all that the Claimant has stated is that they would cross-check the summary sent by the Respondent and that it was not exhaustive in the sense that there OMP(COMM) 186/2016 Page 21 were several items/works, claimed to be executed by the Claimant, which were not included in the said summary. This aspect is further fortified by the letter dated 16.06.2011 (page 245 of the documents filed with the SOC). This letter is an admitted document as per the Respondent's affidavit of admission/denial. In the said letter, it is mentioned that some of the items/works stated to be executed by the Claimant were left out in the "Final Agreed Summary" and accordingly the same were sought to be claimed on the basis of the claim sheet attached to the said letter. Therefore, the reservation of the Claimant vis-a-vis CW-1/1 was only to the effect that some additional items were not covered in the said summary. It cannot be lost sight of that the Respondent itself has prepared the entire document and has carried out an exhaustive accounting of all the work, indicating the amounts that would be payable to the Claimant in respect thereof. A bare perusal of the said document reveals that the accounting carried out by the Respondent is not confined to the invoices raised by the Claimant, on the contrary it covers even those works, which were not specifically spelled out in the three agreements. The Respondent further does not dispute that during the entire execution of the project, it had employed a dedicated Project Manager for the works in question and that he was in the loop at all the successive stages of the execution of the work. It therefore, necessarily follows that the summary was prepared by the person/persons who had direct, primary and first-hand knowledge of the quantum of work and the applicable rates; who were produced as witnesses by the Claimant and who only sought to prove the document by putting exhibit mark(s) thereupon. As such the said document i.e. Exhibit CW-1/1 (Exhibit CW-2/2) stands duly proved by the Claimant.

20. In the opinion of the Tribunal, merely because the Summary was not found to be complete in all respects OMP(COMM) 186/2016 Page 22 by the Claimant, owing to its belief that some items were still not included in the said summary, it cannot be a ground for the Respondent to wriggle out of the admissions contained in the said summary or to deny the document itself. The Respondent as its admitted author, cannot escape from its binding effect, particularly when the document records the work done by the Claimant, as per own records of the Respondent.

21. Furthermore, in the covering letter of CW-1/1 the Respondent writes as follows, '''dear sir, pls. find final agreed summary". An examination of the summary illustrates that it deals in detail with the particulars of the work done in rooms, corridors, public area, banquets, toilets, high energy toilets, business centre, crew lounge, Indian restaurant and lounge bar, etc. Thus the Respondent itself having taken pains to incorporate above details in the said summary cannot be heard to say that the same is not binding on it. xxxxx

26. Therefore, the "Final Agreed Summary" which is Exhibit CW-1/1 (and also Exhibit CW-2/2) is an admissible document and will be relied upon by the Tribunal in determining the claims made by the Claimant. From the discussion contained in paragraphs 17 to' 25 above, it clearly emerges that such a summary does not undermine the written agreements or their scope. Any document in the nature of the "Final Agreed Summary" whereby the party awarding the work, summarizes the work done and crystallizes the amount payable to the contractor, is bound to be construed as a document in the aid of the agreed terms and conditions. It is not alien to the written contract. It does not militate against the written contract. Above all, both the parties having agreed to have certain claims arising out of this document adjudicated through this Tribunal are OMP(COMM) 186/2016 Page 23 estopped from questioning this document in any manner whatsoever.”

21. The above being a matter of appreciation of evidence led before the Arbitrator, which in no manner can be said to be perverse, cannot be interfered with by this Court in exercise of its power under Section 34 of the Act. In Associate Builders (supra) the Supreme Court has further reiterated as under: “33. It must clearly be understood that when a court is applying the “public policy” test to an arbitration award, it does not act as a court of appeal and consequently errors of fact cannot be corrected. A possible view by the arbitrator on facts has necessarily to pass muster as the arbitrator is the ultimate master of the quantity and quality of evidence to be relied upon when he delivers his arbitral award. Thus an award based on little evidence or on evidence which does not measure up in quality to a trained legal mind would not be held to be invalid on this score. Once it is found that the arbitrators approach is not arbitrary or capricious, then he is the last word on facts. In P.R. Shah, Shares & Stock Brokers (P) Ltd. v. B.H.H. Securities (P) Ltd. [(2012) 1 SCC 594: (2012) 1 SCC (Civ) 342], this Court held: (SCC pp. 601-02, para 21)

22. I, therefore, find no merit in the submission made by the learned senior counsel for the petitioner in this regard.

23. Learned senior counsel for the petitioner has further submitted that the respondent had delayed the completion of the work within the stipulated time forcing the petitioner to get the work done from a third party at considerable expenditure. He submits that the fact of suspension of work had been admitted by the respondent in its email dated 11.04.2011. The petitioner was therefore entitled to its claim of loss suffered on account of said delay.

24. I find no merit in the submission made by the learned senior counsel for the petitioner. The Arbitrator in his Impugned Award has held that the terms of the Agreement do not suggest that time was the essence of the Agreement. In any case, no communication had been addressed by the petitioner to the respondent complaining of delay on the part of the respondent in executing the work. The Arbitrator further holds that the petitioner has been unable to prove any loss suffered by it due to the said alleged delay. The relevant findings of the Arbitrator in this regard are reproduced hereinunder: “i. Time was the essence of the contract and the Claimant is in breach of this covenant, having not completed the work in time”: OMP(COMM) 186/2016 Page 25

(answer to question 12 and 13), fails to point out any correspondence wherein the Respondent has complained about delay in completion of work during the execution of work under work orders and LOI. Needless to say, that this aspect is intrinsically linked with the time being or not being the essence of the contract.

Respondents did not during the stage of execution of work or at any point immediately thereafter object to the delay or raise any plea that it was suffering losses on account of the alleged delays on the part of the Claimant. In any event, assuming a plea of delay was indeed raised, the delay in itself cannot be a ground to deny a claim or make a counter-claim for damages unless the OMP(COMM) 186/2016 Page 27 Respondent proves by cogent evidence the actual loss, if any, it has suffered on account of the delay. The Respondent has not proved any actual loss as required to be proved under Section 73 of the Contract Act. It has already been concluded in the preceding sub-paragraphs that time was not the essence of the contract in the present case and therefore, it was imperative for the Respondent to prove the alleged breach on the part of the Claimant. Neither the breach is established nor any loss stated to have been suffered, is proved. Therefore, in my view, there is no justification to withhold any amount to which the Claimant may be found entitled, on the ground of the alleged delay. Its impact on the counter-claim NO. 3 shall be dealt with separately. xxxxxxx v. The Claimant left the work incomplete compelling the Respondent to get the same completed through third parties.”

J. RW-1, the Assistant Project Manager (Interiors) in paragraphs 5, 6, 13 and 23 of his affidavit by way of examination-in-chief has deposed to the above effect on the line of the Respondent‟s SOD, where it has so been pleaded. He has stated that the Respondent paid Rs. 25,00,000/- to Magic decor (P) Ltd. for getting the remaining work completed. RW-2 in paragraph 5 of his affidavit by way of examination-in-chief has reiterated the same position. The Respondent also filed a summary of payments along with certain bills as Document No. 9 (pages 74 to 84) as per the index of documents dated 05.03.2013, claiming that the said documents indicate payments made to the third parties.

25. The above again being a matter of appreciation of evidence which can by no means be said to be perverse in nature, cannot be interfered with by this Court in exercise of its power under Section 34 of the Act. Infact, the learned senior counsel for the petitioner has been unable to show how any of the findings given by the Arbitrator are incorrect in any manner. OMP(COMM) 186/2016 Page 29

26. Last submission made by the learned senior counsel for the petitioner is that for the additional work carried out by the respondent, as also for the work carried out by the respondent in the Letter of Intent dated 10.06.2010, there was no Arbitration Agreement in existence between the parties. He submits that for the said claims, the Impugned Award is beyond the terms of the reference.

27. As noted above, as far as the additional work is concerned, the Arbitrator has held that the Work Orders and Letter of Intent in question were item rate contracts and the final amount was payable depending upon the actual work done by the respondent. Therefore, it cannot be said that the Arbitrator did not have the jurisdiction to adjudicate on the work actually done by the respondent, though, the same was beyond the Contract Price quoted in the Work Order or the Letter of Intent.

28. As far as the plea that the Letter of Intent did not contain an Arbitration Agreement between the parties, learned senior counsel for the petitioner has been unable to show that the said plea had been taken before the Arbitrator in the Statement of Defence filed by the petitioner or in form of an application under Section 16 of the Act. Infact, the petitioner had based its counter claim on the basis of not only the Work Orders but also the Letter of Intent and therefore, it cannot now be heard to say that there was no Arbitration Agreement between the parties as far as the claims under the Letter of Intent are concerned. The Arbitrator in paragraph 10 of the Impugned Award has further recorded as under: “10. The claims and counter-claims raised by the parties were treated as issues. The parties did not object to the OMP(COMM) 186/2016 Page 30 arbitrability of any of the claims or counter-claims. Thus there is no dispute on the terms of reference.”

29. Section 4 of the Act is reproduced as under: “4. Waiver of right to object.—A party who knows that— (a) any provision of this Part from which the parties may derogate, or (b) any requirement under the arbitration agreement, has not been complied with and yet proceeds with the arbitration without stating his objection to such noncompliance without undue delay or, if a time limit is provided for stating that objection, within that period of time, shall be deemed to have waived his right to so object.”

30. Sub-Section 2 and 3 of Section 16 of the Act are quoted herein below: “(2) A plea that the arbitral tribunal does not have jurisdiction shall be raised not later than the submission of the statement of defence; however, a party shall not be precluded from raising such a plea merely because that he has appointed, or participated in the appointment of, an arbitrator. (3) A plea that the arbitral tribunal is exceeding the scope of its authority shall be raised as soon as the matter alleged to be beyond the scope of its authority is raised during the arbitral proceedings.”

31. A reading of the above provisions would clearly indicate that a plea of lack of jurisdiction of the Arbitral Tribunal must be taken not later than in the Statement of Defence. In the present case, as noted above, before the Sole Arbitrator there was no challenge made to the OMP(COMM) 186/2016 Page 31 jurisdiction of the Arbitrator to decide the claims and the counter claims that were based on the Letter of Intent. The petitioner, therefore, is estopped from now challenging the jurisdiction of the Sole Arbitrator to decide such claim and counter claims.

32. In MSP Infrastructure Limited v. Madhya Pradesh Road Development Corporation Limited, (2015) 13 SCC 713, the Supreme Court while interpreting sub-Section 2 of Section 16 of the Act has held as under:- “13..... On a plain reading, this provision mandates that a plea that the tribunal does not have jurisdiction shall not be raised later than the submission of the statement of defence. There is no doubt about either the meaning of the words used in the section nor the intention. Simply put, there is a prohibition on the party from raising a plea that the tribunal does not have jurisdiction after the party has submitted its statement of defence. The intention is very clear. So is the mischief that it seeks to prevent. This provision disables a party from petitioning a tribunal to challenge its jurisdiction belatedly, having submitted to the jurisdiction of the tribunal, filed the statement of defence, led evidence, made arguments and ultimately challenged the award under Section 34 of the Arbitration Act, 1996. This is exactly what has been done by the respondent Corporation. They did not raise the question of jurisdiction at any stage. They did not raise it in their statement of defence; they did not raise it at any time before the tribunal; they suffered the award; they preferred a petition under Section 34 and after two years raised the question of jurisdiction of the tribunal. In our view, the mandate of Section 34 clearly prohibits such a cause. A party is bound, by virtue of sub-section (2) of Section 16, to raise any objection it may have to the jurisdiction of the tribunal before or at the time of submission of its statement of defence, and at any time OMP(COMM) 186/2016 Page 32 thereafter it is expressly prohibited. Suddenly, it cannot raise the question after it has submitted to the jurisdiction of the tribunal and invited an unfavourable award. It would be quite undesirable to allow arbitrations to proceed in the same manner as civil suits with all the well-known drawbacks of delay and endless objections even after the passing of a decree.”

33. In any case, the two Work Orders and Letter of Intent in the present case are part of the same transaction and have been considered as such by the parties. Therefore, I find no merit in the objection raised by the learned senior counsel for the petitioner in this regard.

34. In view of the above, I find no merit in the present petition and the same is accordingly dismissed with cost quantified as Rs.50,000/-. NAVIN CHAWLA, J OCTOBER 09, 2018/Shikhar/Arya