Union of India through Divisional Railway Manager(Works),Solapur Vs M/S Godavari Industrial Traders

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ARA25-13 GODAVARI IND. TRADERS.DOC

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Shephali

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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
CIVIL APPELLATE JURISDICTION

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ARBITRATION APPEAL NO. 25 OF 2013 WITH

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CIVIL APPLICATION NO. 26 OF 2013

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Union of India
Divisional Railway Manager (Works),
Central Railway, Solapur

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…Appellants

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Versus

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M/s. Godavari Industrial Traders,
4, Vrindhavan Society, Budhwar Peth,
Solapur – 413 023.

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…Respondents

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APPEARANCES

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FORTHEAPPELLANTS

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FORTHERESPONDENTS

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Mr. T.J. Pandian

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Ms. Shilpa Kapil

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Coram :G.S. Patel, J.

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Judgment Reserved on :12th March 2014
Judgment Pronounced on :21stMarch 2014

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JUDGMENT

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1.This is an appeal by the Union of India through the Divisional
Railway Manager (Works), Central Railway, Solapur under Section
37 of the Arbitration and Conciliation Act, 1996. The challenge is to
an order dated 31st December 2012 passed by the Principal District
Judge, Solapur in Civil Miscellaneous Application No. 264 of 2006.
That Civil Miscellaneous Application was a challenge against an
arbitration award dated 2nd September 2005.

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2.The Arbitral Tribunal considered 10 claims made by the
present respondents and one counter claim made by the appellants.
The counter claim was dismissed. Of the 10 claims made by the
respondents, six were awarded in favour of the respondents, though
in amounts lower than claimed against each head. A total amount of
Rs.5,19,663/- was awarded to the respondents. The appellants
challenged five of these six heads of award before the Principal
District Judge, Solapur. That challenge failed in its entirety. This
appeal is thus directed against the order of the Principal District
Judge, Solapur.

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3.I have heard Mr. Pandian, learned counsel for the appellants
and Ms. Kapil, learned Advocate for the respondents. Having
considered their respective submissions and also considered the
material on record, I am unable to find sufficient grounds for
interference with the impugned order. For the reasons that follow,
this appeal fails.

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4.On 24th April 2001, the respondents were awarded a contract
for cropping and welding for through weld renewal on various

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stretches of the Daund-Mohol Section of the Solapur Division of
Central Railways. The value of the contract was Rs.75,78,683.32 on
the basis of different percentages for different groups of work items.
The work was to be completed within eight months of 24th April
2001. The work involved welding of rails in various stretches.
Welding material and equipment were to be supplied free of cost by
the appellants.

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5.On 28th April 2001, the appellants’ Assistant Engineer asked
the respondents to mobilise the resources. The respondents in reply
by a letter dated 4th May 2001 asked that a sufficient quantity of
rails and welding material be arranged to ensure timely completion.
There appears to have been no reply. Reminders, too, met with no
response.

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6.On 15th June 2001, the appellants wrote to the respondents
saying that there had been change in the policy of the railway
administration and that the work should be stopped with immediate
effect. Some three months later, on 12th October 2001, the
appellants wrote to the respondents asking for details of work done
so that payment would be arranged. On 31st January 2002, the
appellants finally informed the respondents that the work was not
required and the contract was closed under Clause 61 of the General
Conditions of Contract.

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7.There appears to have been some controversy regarding the
claim that was then sought to be made in arbitration by the
respondents. Ultimately, this court in Arbitration Application No.

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105 of 2003 passed an order on 1st July 2003 inter-alia directing the
Manager, Central Railway to appoint arbitrators. The respondents
appointed their arbitrator, as did Central Railways. A third arbitrator
was appointed to preside over the arbitral tribunal thus constituted.

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8.The following tabulation shows the claims made and the
amounts awarded.

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Claim	Brief description	Amount claimed (Rs.)	Amount awarded (Rs.)
1.	Work done remainspayable.	10,000.00	Nil.
2.	Refund of EMD	47,000.00	47,000
3.	Under utilization of labour force.	11,36,802.50	1,47,000
4.	Under utilization of equipment.	1,89,467.07	22,333
5.	Under utilization of overhead.	7,57,868.00	84,867
6.	Loss ofprofit.	11,36,802.50	1,88,063
7.	Loss of advance to labour force.	7,57,868.00	Nil
8.	Mobilization of expenses of labour force.	80,000.00	Nil
9.	Interest from the date of 13.11.02 till the above amount is released or till the date of decree whichever is earlier.	24% p.a.	Nil
10.	Cost.	1,00,000.00	30.000
11.	Counterclaim of respondent.	1,00,000.00	Nil

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9.After hearing the parties and considering all material,
including, it appears from a perusal of the arbitral award, a
substantial amount of documentary material, the arbitral panel made
an award of Rs.5,19,663/- in favour of the respondents on claims 2,
3, 4, 5, 6 and 10, although in amounts lower than claimed, except for
Claim No. 2. That claim was for a refund of Rs.47,000/- earnest
money deposit. This portion of the award has remained

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unchallenged, and is therefore, not part of the subject matter of this
appeal.

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10.The respondents’ claim for items 3, 4, 5 and 6 was, briefly, on
account of under-utilization of labour, equipment and overhead
claims (3, 4 and 5); loss of profit (claim no. 6); and costs (claim no.
10). The counter claim of the respondents was only towards
litigation costs. That was disallowed.

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11.Before the Arbitral Tribunal, the respondents claimed that
although the Central Railway had ultimately withdrawn or cancelled
the contract, there was nonetheless a contractual stipulation for
timely completion. The Central Railway itself had asked the
claimant to mobilise. This was a mere four days after the contract,
on 28th April 2001. The final cancellation did not happen till 31st
January 2002, although it is true that on 15th June 2001, the
appellants had asked the respondents to stop the work. Nonetheless,
the respondents maintained, in the period between April and June
2001, it has commenced mobilization of labour and equipment.

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12.The Arbitral Tribunal found, as a matter of fact, that the
appellants had never controverted the respondents’ contentions
about their deployment of labour. The respondents were also
justified, the Arbitral Tribunal held, in contending that equipment
had also been similarly mobilised. The claim for under utilization of
overhead necessarily followed these two claims. The arbitral panel
also considered the claim for loss of profit in light of the foreclosure
by the appellants. It held that the respondents had tendered for a

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contract with a view to earn some profit. By denying the
respondents a completion of the contract, the respondents had lost
this opportunity. The arbitrators worked out a formula for
assessment on loss of profit. This was considerably less
(approximately 10%) of the claim. The tribunal awarded this amount
toward loss of profit. The tribunal also awarded Rs.30,000/- in
litigation costs.

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13.Aggrieved by this award, the appellants filed a Civil
Miscellaneous Application before the Principal District Judge,
Solapur. The argument of the appellants was that since no work had
started, there was no question of making any payment. The learned
Principal District Judge noted that the tribunal had considered a
welter of the evidence before arising at its conclusion. It was not
possible, the learned Principal District Judge quite rightly held, to
re-appreciate or re-appraise the evidence in appeal. Further, since
the scope for interference with an award is limited, and since the
view taken by the arbitrators was a plausible and probable view, the
learned Single Judge declined to interfere.

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14.As do I. Before me, substantially the same arguments are
taken by Mr. Pandian. From the facts, it is clear that it was the
appellants who asked the respondent to begin mobilization. Ms.
Kapil, learned Advocate for the respondents, is justified in
contending that once the appellants have expressly asked the
respondents to mobilize, and when it is shown that the respondents
did so, the appellants cannot deny compensation for the costs and
losses incurred on the ground that the contract has been suspended
or cancelled. The fact that the appellants are a government agency

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makes no difference. Mr. Pandian’s reliance on the stop-work
instruction does not, she submits, and in my view rightly, take into
account the appellants’ previous instruction to the respondents to
mobilize. As I have noted, it was not till June 2001 that the
respondent was asked to stop work, and not till end January 2002
that the contract was cancelled. The tribunal can hardly be faulted
for its reasoned conclusion that a contractor ought not to be put loss
for no fault of its own. Further, the award of the Arbitral Tribunal is
extremely conservative. The claims made by the respondents have
been judiciously considered. They have not been accepted as laid.
The evidence has been taken into account. The award is sufficiently
reasoned. Except for the claim for a refund of the earnest money
deposit, every single claim has been whittled down on a rational,
plausible and reasoned basis.

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15.A government agency awards a high-value contract with a
stipulation for timely completion. The government agency then asks
the contractor to mobilize. In good faith, the contractor does so. He
deploys manpower and labour. He makes his equipment available.
He readies himself to do the work on schedule. The government
agency is to supply some material. The contractor asks that this be
done. The government agency does not reply. The contractor sends
reminders. There is still no response. Months pass. The
contractor’s labour and equipment are on stand-by, idling. Then the
government agency asks the contractor to “stop work”, quite
overlooking the fact that without the contractually required free
supply of certain material no work is in fact possible, that this is a
situation of its own making, not the contractor’s, and that the
contractor has, in the meantime, placed himself in complete

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readiness. There is still no cancellation of the contract. More time
passes. Nine months later the contract is terminated. The contractor
has lost monetizable value in deploying its resources. That, Mr.
Pandian suggests, is irrelevant. That is a loss that the contractor
must bear and falls entirely to his account. What Mr. Pandian
suggests is unthinkable.

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16.The impugned order of the learned Principal District Judge,
Solapur demands no interference. The appeal is without merit. It is
dismissed. There will be no order as to costs.

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(G.S. PATEL, J.)

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Union of India through Divisional Railway Manager(Works),Solapur v. M/S Godavari Industrial Traders

Case brief

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Union of India through Divisional Railway Manager(Works),Solapur v. M/S Godavari Industrial Traders

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