Allowed

M/S. J. N. Construction, v. M/S. Shah Jagshi Jethabhai

Bombay HC24 Jun 2013APP/707/2012

Case brief

AI extract

What is this about?

Held the appeal set aside the lower court's order quashing part of an arbitral award. The High Court restored the first claim as the arbitrator reasonably inferred payment applied to an earlier bill, but upheld the setting aside of the second claim for delay due to lack of evidence. Also corrected the error regarding applications of procedure codes.

What did the court decide?

The judgment setting aside the award on the first claim is set aside; the award for Rs.4,56,136.80 is affirmed with interest; the judgment setting aside the award on the second claim is affirmed.

M/S. J. N. Construction, Vs M/S. Shah Jagshi Jethabhai — Arbitration | Bombay HC (2013)

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

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APPEAL NO. 707 OF 2012 IN

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ARBITRATION PETITION NO. 348 OF 2009

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M/s.J.N. Construction ..Appellant vs M/s.Shah Jagshi Jethabhai ..Respondent

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Mr. Kishore M. Jawale i/b. M/s.Thakore Jariwala & Associates for Appellant.

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Mr. Sanjay Kothari with Ms.Sheeja John i/b. M/s.M.P. Savla & Co. for Respondent.

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CORAM : DR.D.Y.CHANDRACHUD & S.C. GUPTE , JJ. 24 JUNE, 2013

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ORAL JUDGMENT (PER DR. D.Y. CHANDRACHUD, J.) :

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Admit. With the consent of the learned Counsel for the parties and by consent, the appeal is taken up for hearing and final disposal.

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1 The learned Single Judge by the judgment which is called into question in appeal set aside an award of a sole arbitrator dated 16 January 2009 on a petition under Section 34 of the Arbitration and Conciliation Act, 1996. The Appellant who was the original claimant in the arbitral proceedings is in appeal.

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2 On 15 May 2002, a contract was awarded by the Respondent to the Appellant for the redevelopment and construction of a building. The contract was a lump sum contract wherein the rate per square foot for the basement and the super structure was stipulated. Disputes arose between the parties which were referred to arbitration of a sole arbitrator. The arbitral tribunal awarded two claims:

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(I) Claim No.1 which pertained to the payment of an outstanding bill dated 8 October 2004 in the amount of Rs.4,56,136.80;

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(II) Claim No.2 towards damages on account of delay which was awarded in the amount of Rs.18,00,150/-.

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(III) The arbitrator has awarded interest at the rate of 12% per annum from 30 April 2005.

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3 Claim No.1 related to a bill of the Appellant of 8 October 2004 under which an amount of Rs.4,56,136.80 was due. According to the Respondent, he had made a payment of Rs.5 lakhs on 3 November 2004 which included the amount of that bill. According to the appellant, while the amount of Rs.5 lakhs was received, this was towards part payment of an earlier bill dated 20 April 2004; the date of payment being 1 November 2004. According to the appellant, there was, hence, no payment in respect of the bill dated 8 October 2004 which formed the basis of the claim.

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4 The arbitrator, while awarding the claim held as follows :-

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“ In his evidence, the partner of the Respondents says that whatever he has pleaded in the Reply is on the basis of the bank statement. Further, attached to the Respondent's Reply at page 40, there is a bill dated 20/04/2004 for Rs.10 lakhs received by the Respondents on 27/4/2004; and as against this bill, at page 18 of the Reply, there are two entries of Rs.5 lakhs each in the ledger account, one dated 27/4/2004, and other dated 3/11/2004. The first one refers to the above bill dated 20/4/2004,

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and refers to the same as labour charges, and the second one also refers to labour charges - balance payments. Therefore, if at all a sum of Rs.5 lakhs was paid, the same was paid against the said bill dt.20/4/2004, and there is nothing to connect the same with the amount claimed by the Claimants as shown in the bill relied on by the Claimants. The Respondents seem to suggest that the last payment of the final bill was made on 3/11/2004, and nothing was payable thereafter. On the other hand, the Claimants, under cover of a letter dated 30/4/2005, had sent the Respondents the final bill for the work done, as also the Claimants' claim for compensation for delay. There is a reply to this letter, dated 7/6/2005, where the Respondents admit the receipt of the said statements, and they dispute their liability to pay damages. There is no mention in the Respondents' said letter that they had already paid the balance due and payable under the final bill as on 3^rd November 2004.”

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5 The learned Single Judge, however, allowed the petition under

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Section 34 on the ground that there was an accord and satisfaction and the Appellant once having accepted full and final payment without any protest was not entitled to make any claim particularly, in the absence of any supporting documents on the record.

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6 We find considerable merit in the contention of the learned Counsel appearing on behalf of the Appellant that the finding that there was an accord and satisfaction is completely contrary to the record. The arbitral award records that there is no dispute either about the bill dated 8 October 2004 or of the amount. The extract from the arbitral award which we have referred to above would indicate that the arbitrator has evaluated the material on record. The arbitrator has referred to the fact that there was a bill on 20 April 2004 in the amount of Rs.10 lakhs of the Appellant against which there were two entries of Rs.5 lakhs each in the ledger account of 27 April 2004 and 3 November 2004.

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The first one refers to labour charges while the second also refers to the balance on account of labour charges. The arbitrator has drawn a possible inference based on the material on record that if at all a sum of Rs.5 lakhs was paid, the same was paid against the bill dated 20 April 2004 and there was nothing to connect it to the bill of 8 October 2004. In any event, since it was the contention of the Respondent that the amount of Rs.5 lakhs was paid as against the bill of 8 October 2004, the burden was on the Respondent to establish its case by cogent evidence. The finding of the learned Single Judge that there was an accord and satisfaction is misconceived. There is none. Moreover, it was not open to the learned Single Judge to reappreciate the evidence. Once the arbitrator has taken a view which is a possible view to take on the basis of material on record, recourse to the jurisdiction under Section 34 is not warranted. This is not a case where arbitrator has acted in breach of the terms of the contract or where he has taken a view which is contrary to substantive law. The arbitrator's finding does not suffer from perversity. We are of the view that the learned Single Judge was not justified in entertaining the Petition under Section 34 for setting aside the arbitral award, insofar as it had allowed the first claim.

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7 The second claim was for the loss suffered allegedly for the delay on the part of the Respondent. The arbitrator entered a finding of fact that both the Appellant and the Respondent were responsible for the delay inasmuch as the Appellant ought to have been more diligent if it wanted to “pinpoint a delay” on the Respondent. The Appellant did not lead any oral evidence to prove the claim for damages. All that the arbitrator observed is that, it is well known that there are various formulae like Hudson's formula or the Emden formula for computing damages. The arbitral award would indicate that the award on the

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second claim is based on pure surmises and is based on no evidence at all. The arbitrator took the workload per month at Rs.21.81 lakhs, adopted a figure of 15% thereof towards overheads and profits and taking the overheads and profits at Rs.3.72 lakhs, apportioned the delay of 11 months equally between the Appellant and the Respondent and proceeded to award an amount of Rs.18,00,150/-.

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8 In McDermott International Inc. v. Burn Standard Co.Ltd.¹ , t he

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Supreme Court has noted that Hudson's formula has received judicial support in many cases which has been the subject matter of criticism;

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“(a) Hudson formula : In Hudson's Building and Engineering Contracts, Hudson formula is stated in the following terms :

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“Contract head office overhead & contract sum period of delay” profit percentage x ---------------- x contract period

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In the Hudson formula, the head office overhead percentage is taken from the contract. Although the Hudson formula has received judicial support in many cases, it has been criticized principally because it adopts the head office overhead percentage from the contract as the factor for calculating the costs, and this may bear little or no relation to the actual head office costs of the contractor.” (emphasis supplied)

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9 The Supreme Court held that it is an accepted position that different formulae can be applied in different circumstances and the question as to whether damages should be computed by taking recourse to one or other formula, having regard to the facts and circumstances of a particular case, would fall within the domain of the arbitrator.

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1 2006(2) Arbitration Law Report 498 (SC)

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10 In the present case, first and foremost, the arbitrator has not even entered a finding to the effect that Hudson's formula was an appropriate formula to adopt since the Award merely records that it is well known that there are various formulae for the purpose of computing damages. The award does not indicate any evaluation for adopting a particular basis or formula. But more significantly, the manner in which the arbitrator has proceeded to divide the period of delay and to apportion it equally between the Appellant and the Respondent without any evidence being adduced by the Appellant would indicate that the Award was founded on no evidence at all.

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11 In the circumstances, though for the reasons which we have indicated above, we are of the view that the Order of the learned Single Judge setting aside the Award on the second claim does not warrant interference.

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12 We may, however, clarify that during the course of the judgment, the learned Single Judge observed that in the absence of any specific agreement, the arbitrator is bound to follow the Civil Procedure Code and the Evidence Act. Section 19 of the Arbitration and Conciliation Act, 1996 provides that the arbitral tribunal shall not be bound by the Civil Procedure Code, 1908 or by the Indian Evidence Act, 1872. The proposition of law laid down by the learned Single Judge is, therefore, erroneous. We have, however, on the request of the Counsel considered the Appeal on merits instead of remanding the proceedings to the learned Single Judge since both learned Counsel agreed that it would not be in the interests of justice to remand the proceedings back having regard to the facts and circumstances of the case.

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13 The award of the learned arbitrator on the first claim is severable. We have agreed with the judgment of the learned Single Judge insofar as it sets aside the Award of the second claim. However, we have for the reasons indicated earlier set aside the judgment of the learned Single Judge in regard to the first claim. In consequence, we dispose of the Appeal in the following terms;

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(I) The judgment of the learned Single Judge, insofar as it sets aside the Award of the arbitral tribunal dated 16 January 2009 in its entirety, shall stand set aside in respect of the decision on the first claim;

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(II) In consequence, the award of the sole arbitrator, insofar as it awards the first claim in an amount of Rs.4,56,136.80, is affirmed and the Appellant would be entitled to interest as awarded at the rate of 12% per annum from 30 April 2005;

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(III) The judgment of the learned Single Judge insofar as it sets aside the arbitral award in respect of the second claim, which is severable, is confirmed.

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14 The Appeal is disposed of in the aforesaid terms. There shall be no order as to costs.

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(Dr. D.Y.Chandrachud, J.)

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(S.C. Gupte, J.)

M/S. J. N. Construction, v. M/S. Shah Jagshi Jethabhai

Case brief

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M/S. J. N. Construction, v. M/S. Shah Jagshi Jethabhai

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