Dismissed

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

Bombay HC21 Mar 2014ARA/25/2013

Case brief

AI extract

What is this about?

The High Court disposed of an appeal against a District Judge's order upholding an arbitration award. Upholding the arbitral determination, the court ruled in favor of the contractor's right to compensation for mobilization costs and losses incurred due to the employer's suspension and cancellation of the contract.

What did the court decide?

The appeal was dismissed; no order as to costs.

Union of India through Divisional Railway Manager(Works),Solapur… — Arbitration | Bombay HC (2014)

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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

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WITH

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CIVIL APPLICATION NO. 26 OF 2013

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Union of India

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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 , …Respondents 4, Vrindhavan Society, Budhwar Peth, Solapur – 413 023.

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APPEARANCES

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FOR THE APPELLANTS

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FOR THE RESPONDENTS

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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 : 21st March 2014

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JUDGMENT

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ARA25-13 GODAVARI IND. TRADERS.DOC

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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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ARA25-13 GODAVARI IND. TRADERS.DOC

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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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ARA25-13 GODAVARI IND. TRADERS.DOC

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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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ARA25-13 GODAVARI IND. TRADERS.DOC

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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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ARA25-13 GODAVARI IND. TRADERS.DOC

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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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ARA25-13 GODAVARI IND. TRADERS.DOC

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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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ARA25-13 GODAVARI IND. TRADERS.DOC

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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

What is this about?

What did the court decide?

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

Case brief

What is this about?

What did the court decide?

What the court decided

A compact analysis

Issues for consideration

Statutes considered

Parties & counsel

Coram

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