Partly allowed

union of india v. m/s arctic iindia and Anr.

Bombay HC21 Jan 2011ARBP/388/2007

Case brief

AI extract

What is this about?

The High Court allowed the arbitration petition partly, affirming the validity of the arbitrator's award regarding quantum and delay compensation. However, the Court modified the award by reducing the rate of interest from 18% to 9% simple interest, following the Supreme Court's ruling in Krishna Bhagya Jala Nigam Ltd., while maintaining the rest of the decree.

What did the court decide?

The interest rate on the awarded amount restricted to 9% per annum simple interest at all stages; rest of the award maintained.

union of india Vs m/s arctic iindia and Anr. — Arbitration | Bombay HC (2011)

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IN THE HIGH COURT OF JUDICATURE AT BOMBAY

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ORDINARY ORIGINAL CIVIL JURISDICTION

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ARBITRATION PETITION NO. 388 OF 2007

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Union of India, Represented by the Chief Engineer (Navy) 26, Assaye Building, Colaba, Bombay-400 005. ....Petitioner.

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Vs.

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1 M/s. Arctic India, 7/A, Alfred Street, Richmond Town, Bangalore – 560 025. 2 Shri K.P. Nair, The Sole Arbitrator, C.E. Pune Zone, Manekaj Mehata Road, Pune -411 001. ....Respondents.

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Mr. S.R. Rajguru i/by Ms. Anamika Malhotra for the Petitioners. Mr. Zal Andhyrujina i/by M/s. Thakore Jariwala & Co. for the Respondents.

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CORAM : ANOOP V. MOHTA, J.

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JUDGMENT RESERVED ON : 06/12/2010 JUDGMENT PRONOUNCED ON : 21/01/2011

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JUDGMENT:-

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The Petitioner has challenged an award dated 28^th March, 2007,

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amended on 19^th April, 2007 passed by the sole Arbitrator (The Chief Engineer, Pune) in the matter of disputes pertaining to contract for replacement of Central Air-conditioning Plant at Wecors at Naval Dockyard, Mumbai. By the impugned award, the Arbitrator has rejected the counter claim of the Petitioners and granted claims as raised by the Respondent (Original-Claimant). The necessary dates and events are as under:-

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2 On 04.01.1996, tenders were invited for replacement of Central Type AC Plant at Wecors Naval Dockyard Bombay in Appendix of Schedule of which item to be provided was Semi Harmatic Water Chilling Package make Of Voltas/ Blue Star/ Danham Bush each of 175 Tone Capacity complete with Rotorary Secre Compressor using refrigerant HCFC-22 etc.

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3 On 15/06/1996, the Respondent tender was accepted for the work Rs. 2,85,83220/-. Work order No. 1 dated 2^nd July, 1996 was issued recording that site was handed over on 4^th July, 1996/ date of commencement 4^th July, 1996 and date of completion 3^rd May, 1997. The same was accepted and signed by the Respondents.

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4 On 08/08/1996, the Respondents informed that they had received Work Order dated 2^nd July, 1996 along with the Petitioners letter dated 4^th July, 1996 and were returning the same duly signed.

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5 On 02/09/1996, the Petitioners informed the Respondents that facilities requested by letter of 12^th August, 1996 would be made available when they commenced the subject work.

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6 On 11/09/1996, the Petitioners requested the Respondents to commence the work on priority basis.

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7 On 07/09/1996, the Petitioners issued telegram informing the Respondents that work had not started at the site.

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8 On 09/09/1996, the Respondents informed that they had placed

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the order for all the items and as soon as they would receive the materials the same would be despatched and that they had placed order for compressor and would despatched the drawings and complete fabrication of condensor and chillers within 15-20 days and would be dispatched along with pipes fittings and controls by first week of October.

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9 On 01/10/1996, the Respondents informed that they had taken up the work in hand and shortly the material for the work would be at the site.

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10 On 03/12/1996, the Petitioners issued notice to the Respondents that completion date 3^rd May, 1997 and on failure to complete the work within that date compensation as per Condition No. 50 would be claimed.

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11 On 09/12/1996, Second RAR for Rs.28,73,645/- was paid to the Respondents.

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12 On 07/01/1997, the Respondents informed the Petitioners that delay in completion of the work had occurred for the reasons beyond their control and hence the compensation was not recoverable from them.

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13 On 10/01/1997, third RAR was paid to the Respondents to the extent of Rs.15 lakhs.

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14 On 21/02/1997, second notice requesting the Respondents to complete the work within stipulated date was issued. Giving warning that compensation would be claimed on failure to do so.

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15 On 17/03/1997, 4^th RAR was paid to the Respondents to the extent of Rs.97 lakhs.

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16 On 19/04/1997, 5^th RAR was paid to the Respondents to the extent of Rs.24 lakhs.

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17 On 20/06/1997, the Respondents requested to extend completion date of work till 3^rd November, 1997.

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18 On 22/08/1997, DO No. 2 granting extension of time upto 3^rd September, 1997 was issued recording that other conditions of contract agreement shall still hold good.

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19 On 14/07/1997, 6^th RAR was submitted and the Respondents were paid Rs.17,50,000/-

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20 On 01/09/1997, the Respondents submitted 7^th RAR claimed

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Rs.14,01,478.50 ps.

21 On 22/08/1997, the Petitioners informed the Respondents that they had submitted design mixed for M20.

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22 On 21/01/1998, the Petitioners again requested the Respondents to remove the equipment not confirming to the contract specification and rectify the defects.

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23 On 16/01/1998, the Respondents requested the Petitioners to clear their arrears.

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24 On 05/02/1998, the Respondents denied the Petitioners

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contentions in letter dated 21^st January, 1998.

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25 On 12/02/1998, the Petitioners issued notice informing that compensation would be claimed on failure to complete the work.

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26 On 25/02/1998, the Petitioners informed the Respondents that

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the Accepting Officer was the Testing Authority regarding contract interpretation and contract specification and his decision is final and

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binding in respect of Clause 6A

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27 On 17/03/1998, the Respondents requested the Petitioners to appoint Arbitrator and to refer the dispute to him.

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28 On 17/07/1998, the Petitioners letter denied the contention of the Respondents in their letter dated 17^th March, 1998 for referring the matter to the Arbitrator and requested them to replace the equipment.

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29 On 12/05/1999, the Respondents alleged non fulfillment of the reciprocal obligation to make the payment of RAR in absence of which they claim to be entitled to abandon the contract and claim compensation and damages and informed they had already erected two chilling units and two AHUs by October, 1998 and balance existing units were not given to them.

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30 On 20/07/1999, the SSW sent a reminder to the Respondents requiring them to rectify the defects early.

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31 On 28/07/1999, the Respondents informed the Chief Engineer

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that it was not possible for them to proceed with the work without receiving RAR payments.

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32 On 09/11/2002, the Respondents submitted the final bill for Rs.1,35,93,326/- contending that the contract was completed.

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33 On 14/11/2002, the Petitioners returned the Bill to the Respondents containing the work was not completed and completion certificate was not issued.

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34 On 26/11/2002, the Respondents invoked the Arbitration clause contending that even an alleged completion of work was sufficient to invoke the arbitration clause and enumerated their three claims in respect of the final bill, interest @ 18% per annum and the cost of the Arbitration.

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35 On 08/09/2003, this Court passed an order in Arbitration Application No. 145 of 2003, directing the Respondents to appoint Arbitrator including the dispute as to whether before the completion of work the dispute regarding the submission of the final bill and appointment of the Arbitrator could be done.

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36 On 17/10/2003, the Petitioners submitted their claim of (a) Rs.93,64,398.75 towards higher rates of acceptance procured by the Respondent through illegal means; (b) Rs.10,00,000/- for the rectification of the defects and conducing Phase-II test; (c) Rs.12,50,000/- for compensation as per the Condition 50; and (d) Rs. 50,000/- towards the cost.

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37 On 10/11/2003, the Chief Engineer Mr. B.B. Sharma was appointed as a Sole Arbitrator with a request to first decide the jurisdiction and arbitrability of the claims as per Section 16 of the Arbitration and Conciliation Act and thereafter take up adjudication on merits.

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38 On 15/01/2004, the Respondents filed claim statements contended that the controversy regarding the compressor was contrary to the terms and conditions of the contract because of their offering to provide rotary open type compressor and denied that they were supposed to provide semi hermetic sealed screw type compressor.

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39 On 20/08/2004, the Petitioners filed pleadings in defence/ written statement to the claim statements of the Respondents dated 15/01/2004 denying the contentions of the Respondents.

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40 On 31/08/2004, the Respondents filed reply to the claim statements of Union of India dated 29^th July, 2004.

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41 On 28/03/2007, the learned Arbitrator made and signed the award in the matter.

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42 On 19/04/2007, the learned Arbitrator made certain corrections to the Award.

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43 The basic contention raised by the learned counsel appearing for the Petitioner is that as work was not completed, therefore there was no question of referring the dispute to the Arbitrator. Therefore, such partial claim or counter claim before the Arbitrator was not within the purview of the terms and conditions. Therefore, the award so passed is invalid. The reference was made to the Arbitration clause 70 of the General Conditions of Contracts. In the present case, admittedly, the work in question was a lump sum contract based upon the drawings

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and specification for replacement of Central A.C. plant at Wecors, Naval Dockyard, Mumbai. The tender was accepted on 15^th June, 1996. The commencement date was 4^th July, 1996. The original date of completion was 3^rd May, 1997; the same was extended up to 3^rd September, 1997, but before that the dispute arose. As the Petitioner failed to refer the matter to the Arbitrator, an application was filed. The Hon’ble High Court, after hearing both the parties, by order dated 8^th September, 2003, directed to appoint a sole Arbitrator to decide the claims and counter claims.

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44 The learned Arbitrator after considering the rival contentions interpreted the relevant provisions of the contract and adjudicated the claim on merits as the Respondent-claimant was permitted to perform his part of obligation without any objection from time to time. He had brought all equipments to complete the entire work. He had received a payment up to 5^th RAR from the Petitioner. However, on 10/07/1996, the amount based on 6^th RAR was wrongly withheld and therefore, disputes arose.

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45 The arbitrator has held rightly that the contractor offered a compressor with accessories and features for open type compressor.

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The Petitioners’ Department after acceptance made the payment after due scrutiny without any condition. The findings that 6^th RAR bill which wrongly withheld and the claim of the final bill was arbitrable and valid, need no interference.

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46 The interpretation, therefore, so given by the learned Arbitrator to the terms and conditions of the contract, cannot be stated to be perverse and/or contrary to law. The view so taken is plausible and possible view. There is no case made out to interfere with the same.

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47 “ Even if two views are possible on an interpretation of central clause, that would not be justification in interfering with the Award specially when the view so taken is possible/plausible one and there is no perversity.” (State of U.P. Vs. Allied Constructions (2003) 7 SCC 396), G. Ramchandra Reddy & Company v. Union of India & anr., (2009) 6 SCC 414., (M/s. Sumitomo Heavy Industries Ltd. Vs. Oil and Natural Gas Commission of India, 2010 Arb.W.L.J. 449 (S.C.)

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48 The submission, therefore, so raised by the learned counsel based upon Sections 7, 8 and 32 of the Indian Contract Act, 1872 revolving around the principle of concluded contract or accepted with

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material alteration by the Second party are of no assistance in view of the facts and circumstances of the case itself, specially when admittedly the work was done by the Respondents and the bills upto the 5^th RAR were paid. Therefore, to submit, now that there was no valid and binding contract in view of the change of condition of the original offer is unacceptable. Recently, the Apex Court in Civil Appeal No. 5236 of 2007, State of U.P. & Ors. Vs. Combined Chemicals Company Private Limited, decided on 04/01/2011, has considered very aspect of “tender”, “offer” and “acceptance” as contemplated under the Contract Act. It is observed that merely because the agreement was not specifically executed, that itself is not sufficient to hold that there exists no contract between the parties; on merits directed the Arbitrator/ Court to reconsider the claims.

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49 The Full Bench of this Court in ((M/s.) R.S. Jiwani, Mumbai Vs. Ircon International Ltd., Mumbai 2010(1), Mh.L.J. 547) , has

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already considered the facet that under Section 34 of the Act, the award can be modified and/or claim or counter claim can be restricted.

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50 In the present case, after hearing both the parties, the Court has

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appointed the Arbitrator and the matter proceeded accordingly before the Arbitrator. The award so passed is within framework of law and the record.

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51 There was no serious challenge raised by the learned counsel appearing for the Petitioner with regard to the counter claim. No submission also made on that count.

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52 The Arbitrator, after considering the material and document of claim No.1, has granted the partial amount of Rs.49,75,760.70/-, after considering the rival contentions of the parties on the final bill. There is no other specific argument raised to challenge the same except the ground of the validity of agreement, partial claim and reference of dispute before completion of the contract.

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53 Claim No.2 with regard to the interest (Compounded Quarterly), as awarded under Section 31(7) of the Arbitration Act, I am inclined to interfere with the same and restrict it to 9% p.a. (simple interest) at all stages. The Apex Court in Krishna Bhagya Jala Nigam Ltd. Vs. G. Harischandra Reddy & Anr., 2007 AIR SCW 527 , held as under:-

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“Here also we may add that we do not wish to interfere

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with the Award except to say that after economic reforms in our country the interest regime has changed and the rates have substantially reduced and, therefore, we are of the view that the interest awarded by the Arbitrator at 18% for the pre-arbitration period, for the pendente lite period and future interest be reduced to 9%.”

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54 In view of the Judgment of the Supreme Court, the award is therefore, modified, this also because, in the present case at most of the stages the Respondents got amount in advance, it is only the final bill which was withheld. Therefore, to claim and/or to award interest @ 12% p.a., is restricted to 9% as observed above. The costs of Arbitration so awarded, as there is no specific challenge raised, is also maintained.

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55 In the result, the amount awarded is modified to the above extent. Rests of the award is maintained. The Petition is partly allowed. No costs.

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(ANOOP V. MOHTA, J.)

union of india v. m/s arctic iindia and Anr.

Case brief

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union of india v. m/s arctic iindia and Anr.

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