Partly allowed

Maharashtra State Road Development Corporation Ltd. , Mumbai v. M/S B. Seenaiah and Co. (Projects) Ltd. and 2 Ors.

Bombay HC17 Aug 2012ARBP/272/2008

Case brief

AI extract

What is this about?

In this arbitration petition, the High Court modified an arbitral award by reducing the rate of interest from 15% to 9% p.a., while affirming the principal relief and rejection of the counter-claim, relying on the nature of the construction contract.

What did the court decide?

Impugned award modified to grant interest at 9% p.a. instead of 15% p.a.; rest of the award maintained; no order as to costs.

Maharashtra State Road Development Corporation Ltd. , Mumbai Vs… — Arbitration | Bombay HC (2012)

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IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION

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ARBITRATION PETITION NO. 272 OF 2008

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Maharashtra State Road Development Corporation Ltd. (MSRDC) having its registered office at Nepean Sea Road, Near Priyadarshani Park, Mumbai-400 036. ......Petitioners.

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Vs.

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1 M/s. B. Seenaiah & Co. (Projects) Ltd., 6-2-913/914, Progressive Towers, 5^th Floor, Khairatabad, Hyderabad-500 004. 2 M/s. Shrinivasa Construction Limited, 6-2-913/914, Progressive Towers, 5^th Floor, Khairatabad, Hyderabad-500 004.

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3 M/s. B. Seenaiah & Co. (Projects) Ltd.,Srinivasa Construction Limited (SCL) (Joint Venture) having its registered office at 6-2-913/914, Progressive Towers, 5^th Floor, Khairatabad, Hyderabad-500 004.

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......Respondents.

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Mr. D.D. Madon, Senior Counsel with Mr. P.P. Chavan and Mr. Nooruddin Dhilla i/by Amarchand Mangaldas and S.A. Shroff & Co. for the Petitioners.

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Mr. S.U. Kamdar, Senior Counsel with Mr. Vinit Naik i/by Mr. Bhushan Walimbe for the Respondents.

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CORAM :- ANOOP V. MOHTA, J. JUDGMENT RESERVED ON :- 9 JULY 2012. JUDGMENT PRONOUNCED ON :- 17 AUGUST 2012.

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ORAL JUDGMENT:-

The Petitioners, a Government of Maharashtra undertaking, have challenged the award dated 3 March 2008 passed by the Sole Arbitrator, as appointed on the basis of Arbitration clause in the agreement in question between the parties.

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2 On or about December 2001, the Petitioners invited tender for Four Laning of Satara Kolhapur upto Maharashtra State Border Section of NH4 Package I from km. 592/000 to 616/000. On 4 March 2002, a formal contract was entered into between the parties.

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3 On 18 May 2002, an order for commencement of work was issued to the Respondents, which work was to be completed by 17 August 2004. On 31 December 2005, the work was completed by the Respondents.

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4 Certain disputes arose between the parties in respect of the contract with regard to reimbursement of increase in royalty charges under the provisions of Clause 14 of the Special Conditions of Contract mentioned hereinabove and payment for rock cutting by

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wedging and chiseling with the use of Hydraulic Excavator and payment of additional expenses on account of additional laps and lengths of steel provided at site. The Respondents referred the disputes to the Engineer. The Engineer rejected the claims. On 22 February 2006, the Respondents referred the decision of the Engineer to the Steering Committee. The Respondents referred the matter for Arbitration. Shri Sharad P. Upasani IAS (Retd.) Former Chief Secretary, Government of Maharashtra was appointed as a Sole Arbitrator for claim No.1. On 18 December 2006, he was also appointed for Claim Nos. 2 and 3. The learned Arbitrator issued notice of a preliminary meeting. A preliminary meeting was held. The Respondents filed their statement of claims. The Petitioners filed the statement of defence. The Respondents filed their rejoinder. On 3 March 2008, the impugned Award was passed.

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5 All the counsel made their legal submissions on merits, one after another. The Judgments delivered in Arbitration Petition Nos. 269 of 2008 and 282 of 2008 dated 17 August, 2012, with regard to the interpretation of royalty charges and the interest. This is also similarly situated case and the connected issues, as the basic contract and the terms were same in all respect except the respective parties.

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Therefore, this additional Judgment/reasons, on respective merits of the matter. All the judgments be read and referred together for all the issues.

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6 The learned Arbitrator has dealt with the royalty charges and interest as under:-

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“19. ......

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It is necessary to note certain important dates of events in this case. The Work Order was given on 4-3-2002 and Work was completed on 31-12-2005. The Employer has taken over the Works on 14-1-2006. The Employer's decision regarding reversing the earlier practice of reimbursement of Royalty was conveyed to Engineer on 16-1-2006 and Claimant was informed on 19-1-2006. During the entire execution of the Works and after reimbursing practically 83% of the claim in respect of enhanced Royalty, at no stage the Employer informed or gave inclination to the Claimant that he is modifying the interpretation given to clause 14 by the parties during execution of the work and on which the parties have acted during execution of work for a period of nearly 3 years. It is not now permissible for the Respondent to disown the interpretation given by both the parties to the contract during the execution of the Work and unilaterally change it after completion of Work and taking over of the Work. The defence of the Employer on the ground that the reimbursement of enhanced Royalty was given by oversight for three years is difficult to accept. Further the argument, advanced that the Employer is entitled under Clause 60.4 of the GCC to rectify the RA Bill payments which are only ad hoc payments has no application to the facts of the case as the omission the

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payment is not made on the ground that the work is not carried out to the satisfaction of the Engineer as required under the said clause. I have also noted that the suggestion of the Respondent that the increased royalty gets reflected in the indices which are taken into account while paying price variations is not supported by the facts placed on record.

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20. ….......There is no substance in the argument advanced on behalf of the Employer about the absence of words “including Royalty charges” in the second sentence as the purpose behind corrigendum is clear that drafters of the contract wanted that “other taxes” will include “Royalty charges.”

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21. In view of the above, I have no hesitation to conclude that the Claimant has proved his case for entitlement of reimbursement of the enhanced Royalty which as per the calculations given on pages C-207 and C-208 comes to Rs.59,56,232 plus a further amount of Rs.6,28,322 subject to the figures worked out as per the Final bill which is in the process of finalizing and the Claimant submitting proof of payment. I also considered the arguments from both the parties relating to interest and taking into consideration the contractual provision and various Court decision, I award the Claimant simple interest at the rate of 15% p.a..on principle amount of Rs.54,78,928 from 2-122005 and on Rs.4,77,304 from 4-6-2006 till the date of payment.

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7 In this matter, it is relevant to note clauses 67.2 and 67.3, which are reproduced as under:-

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“ 67.2 If either the Employer or the Contractor disagrees with the decision of the Engineer, the decision shall then be referred, by the Employer or by the

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Contractor, within 14 days of the Engineer's decision, to the Steering Committee constituted by the Maharashtra State Road Development Corporation Ltd. The Steering Committee shall give its advice in writing within 28 days of receipt of a notification by it. The Streering Committee may call upon the Engineer and the Contractor to hear their case before giving its advice. The Employer shall then take appropriate decision on the said advice of the Steering Committee and communicate the same to the Contractor within 28 days failing which the advice of the Steering Committee shall be binding on the Employer.”

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“ 67.3 If the decision of the Employer reached on consideration of the advice of the Steering Committee is not agreeable to the Contractor, the Contractor shall notify the Employer within 14 days of the receipt of the said decision, failing which the Employer's decision shall be final and binding on the Contractor. The Employer shall then nominate any person, who shall be a retired Chief Secretary of the Government of Maharashtra – such person to be selected by the Managing Director Maharashtra State Road Development Corporation Ltd. as a sole arbitrator, within 28 days of the receipt of the Contractor's notice for non-acceptance of the Employer's decision. The arbitrator so nominated shall carry out the arbitration proceedings in accordance with the Arbitration and Conciliation Act, 1996, or any modification thereof, and give his decision in the case within 4 months from the date of reference of the dispute to him. The decision of the above said arbitrator shall be final and binding on the Employer and the Contractor.”

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8 The procedure so adopted and so provided in the Contract

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means, in case of any discrepancy and/or the decision/ the conclusion the inter department remedy was made available. The "Steering

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Committee" being the expert committee of the Petitioners, in case of dispute of any kind, required to be consulted and/or the points required to be submitted for clarification and/or decision. The decision, therefore, if made by the Steering Committee and the learned Arbitrator had accepted the same, I see there is no reason to accept the submission that the award so passed by the learned Arbitrator by accepting the Steering Committee's decision read with his expertized reasons, is unjust, contrary to the law and/or the record.

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9 Therefore, now taking overall view of the matter, the submission that it is the Steering Committee's report and/or decision that itself is not binding, is unacceptable in the present case. The learned Arbitrator, referring to the pleadings, as well as, the material placed on record rightly not accepted the case of the Petitioners, by overlooking the Steering Committees opinion and/or decision. One cannot overlook the fact that the Steering Committee is In-house Committee constituted of their experts, by the Petitioners. Their decision may and/or may not be binding, so far as the Arbitrator is concerned. In a given case, the Arbitrator may give his own interpretation. But, the Arbitrator has accepted the case based upon

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the terms and conditions and the material placed on record and the decision so given, to say now, it is wrong and incorrect, is unacceptable. The Petitioners, at least just cannot overlook the decision given by their Inhouse Expert Committee constituted by them. It is like, challenging their own decision by the Petitioners, though as agreed between the parties that in view of clause 67.2 and 67.3, the decision of Steering Committee is binding. I am not inclined to accept that the decision binds only the contractor and not the Petitioners. The challenge of the contractor in a given case of the Steering Committees decision, is another angle. In my view, they are at least bound by their Committee's decision, unless it is so perverse and/or it is contrary to the contract and/or the settled law. It is always subject to the Arbitrator's decision. It is not the case, the learned Arbitrator has not considered the reasoning given by the Steering Committee. I see there is no reason to interfere with the award so passed,

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10 With regard to Claim No.2, Payment of Rock Cutting by wedging

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and Chiseling with use of Hydraulic Excavator the learned Arbitrator has observed as under:-

“35 ….........

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a) The rate for labour of Rs.1314 is same in both the rate analysis. This appears reasonable.

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b) So far as Machinery is concerned while rate for Tipper Rs.1462.50 is same, rate for Excavator is different. The Employer has considered rate for only Excavator for 6 hours of Rs.8730 and the Contractor has considered two Excavators one with rock breaker attachment for 6 hours at Rs.10344 and another with bucket attachment for 3 hours at Rs.4365 and given justification for the same. The Employer has pointed out that basic machine Excavator is same with two separate attachments and hence no extra rate for basic excavator is considered again. Employer has not provided for extra hours. According to him time taken for loading a particular quantity of excavated rock is much less that the time required for excavation. I have considered arguments of both and consider a rate suggested by the Employer as reasonable except the hours are reduced from 3 to 1 in case of removal of excavated material. Thus the rate under Machinery would be 10344+1455+1462.50=13261.50.

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c) Contractor has not given any credit for use of excavated material. This has to be provided and I accept the rate of Rs.1440 suggested by the Employer.

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d) Regarding the lead of 9/10 Km assumed by the Contractor and 4 Kms. No data has been given by the contractor in support of higher lead. I have noted that the item provides for all leads. Therefore, I reject the arguments of the Contractor and accept the rate suggested by the Employer of Rs.705.60.

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36 In view of above, I direct that the Claimant is entitled to get paid at the rate of Rs.465.21 per Cum without deducting any discount plus escalation. As per the record the Contractor is paid at the rate of Rs. 420 per Cum minus discount i.e. Rs. 392.87 plus escalation of Rs.70.72 per Cum i.e. a total rate of Rs.463.59 per

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Cum. The total quantity is 37180.54 Cum. The Respondent is directed to pay the Claimant on this quantity at the rate of Rs.465.21 plus escalation minus the amount already paid and the interest should be paid on the amount so arrived at 15% p.a. from 3-10-2006 (the date on which reference is made to the Arbitral Tribunal) till the date of actual payment.”

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11 Now, the question is of grant of 15% interest on the principal amount till the date of payment. Admittedly, no particular rate of interest was agreed by the parties. The learned Arbitrator, considering the nature of business however, granted 15% interest. I am inclined to reduce the same. The contract, being construction contract, therefore, taking overall view of the matter and in view of the judgment of Apex Court in Krishna Bhagya Jala Nigam Ltd. Vs. G.

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Harischandra Reddy & Anr.1 , in my view, the rate of interest needs to be reduced to 9% from 15%. The pendency of the Arbitration Petition, is no way be treated as additional reason to continue the rate of 15% interest till realization. The award unless attains finality, there is no question of realization of deposit of the awarded amount, specially in the circumstance like this. Only one party cannot be asked to suffer interest only because of pendency of the matter.

1 2007 AIR SCW 527

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12 No other points have been pressed and submitted and therefore,

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taking over all view of the matter, I am inclined to modify the award only to the extent of grant of interest as referred above i.e. 9% instead of 15% as above. The rest of the award is maintained.

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13 The learned Arbitrator considering the material so placed on record, has recorded that the Petitioners failed to make out the case and thereby rejected the counter claim. Considering the over all view of the matter, and as no case is made out, I see there is no reason to interfere with the rejection of the counter-claim also. No such counterclaim was raised earlier by the Petitioners.

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14 Resultantly, the following order.

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ORDER

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a) The impugned award is modified only to the extent of grant of interest i.e. 9% instead of 15%.

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b) Rest of the award is maintained.

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c) There shall be no order as to costs.

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(ANOOP V. MOHTA, J.)

Maharashtra State Road Development Corporation Ltd. , Mumbai v. M/S B. Seenaiah and Co. (Projects) Ltd. and 2 Ors.

Case brief

What is this about?

What did the court decide?

Maharashtra State Road Development Corporation Ltd. , Mumbai v. M/S B. Seenaiah and Co. (Projects) Ltd. and 2 Ors.

Case brief

What is this about?

What did the court decide?

What the court decided

A compact analysis

Issues for consideration

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Coram

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