State Project Director, Vs M/S. Bsr Infratech India Ltd.

SRI JUSTICE K.N. KESHAVANARAYANA SOLE ARBITRATOR, ARBITRATION AND CONCILIATION CENTRE BENGALURU (DOMESTIC AND INTERNATIONAL) KANJIA BHAVANA RACE COURSE ROAD BENGALURU - 560 001

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…RESPONDENTS

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(BY SRI ZULFIKIR SHAFI, ADVOCATE FOR C/R-1)

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COMAP No. 486 of 2024

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THIS COMMERCIAL APPEAL IS FILED UNDER SECTION 13(1A) OF THE COMMERCIAL COURTS ACT, 2015 READ WITH SECTION 37(1)(c) OF THE ARBITRATION AND CONCILIATION ACT, 1996 PRAYING TO SET ASIDE THE JUDGMENT DATED 18.09.2024, PASSED IN COM.A.P NO.51/2024 ON THE FILE OF THE HON'BLE LXXXIV ADDITIONAL CITY CIVIL AND SESSIONS JUDGE AT BANGALORE & ETC.

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THIS COMMERCIAL APPEAL HAVING BEEN HEARD AND RESERVED FOR JUDGMENT, COMING ON FOR PRONOUNCEMENT THIS DAY, JUDGMENT WAS PRONOUNCED AS UNDER:

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CORAM: HON'BLE MR. VIBHU BAKHRU ,CHIEF JUSTICE and HON'BLE MRS. JUSTICE K.S. HEMALEKHA

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C.A.V. JUDGMENT

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(PER: HON'BLE MR. VIBHU BAKHRU ,CHIEF JUSTICE)

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The appellant, the State Project Director, Rashtriya Madhyamika Shikshana Abhiyana, has filed the present appeal under Section 13(1A) of the Commercial Courts Act, 2015 [CC Act] read with Section 37(1)(c) of the Arbitration and Conciliation Act, 1996 [A&C Act] , impugning a judgment dated 18.09.2024 [impugned order] passed by the learned LXXXIV Additional City Civil and Sessions Judge, Commercial Court, Bengaluru (CCH-85) [Commercial Court] in Com.A.P.No.51/2024. The appellant had filed the said petition under Section 34 of the A&C Act seeking setting aside of an arbitral award dated 10.11.2023 [impugned

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award] rendered by the learned Sole Arbitrator [Arbitral Tribunal] in A.C. No. 106/2021. The learned Commercial Court found no ground to interfere with the impugned award and accordingly passed the impugned order dismissing the petition.

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Respondent No.1, M/s. BSR Infratech India Ltd. [BSR] , was the claimant before the Arbitral Tribunal and the appellant was the respondent. In terms of the impugned award, the Arbitral Tribunal partly allowed BSR's claims and directed the appellant to pay a total sum of 1,18,99,858/- (Rupees one crore eighteen lakhs ninety-nine thousand eight hundred and fifty-eight only), comprising 75,85,656/- towards unproductive overhead charges (Claim No.7(a)); and 43,04,202/- towards loss of expected profit (Claim No.8); with future interest at 9% per annum from the date of the award till payment; and 2,00,000/- towards costs (Claim No.12).

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The present appeal is one of a batch of nine appeals, (COMAP Nos.484/2024 to 488/2024), filed by the appellant against orders passed by the learned Commercial Court dismissing the appellant's petitions under Section 34 of the A&C Act, (Com.A.P.Nos.48/2024 to 52/2024) assailing separate Arbitral Awards rendered by the Arbitral Tribunal constituted of Sole

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COMAP No. 486 of 2024

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Arbitrator in respect of the contract of nine packages awarded to M/s. BSR. The arbitral awards rendered are substantially in similar terms and the issues involved in the said nine appeals are also materially similar.

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PREFATORY FACTS

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Rashtriya Madhyamika ShikshanaAbhiyana [RMSA] is a centrally sponsored scheme launched in the year 2009-10 by the Ministry of Human Resource Development, Government of India, for enhancing access to, and the quality of, secondary education. The Government of Karnataka [GoK] implemented the scheme through the appellant and took up civil works under 77 packages from 2013-14. The said civil works involved construction of new school buildings, Adarsha Vidyalayas [model schools] and girls' hostels, and strengthening and upgradation of existing schools. The scheme has since been integrated with SamagraShikshana Karnataka (2018-19).

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On 24.09.2012, tenders were invited on a package basis through the e-procurement portal, for construction of model schools and upgrading and strengthening of existing government high schools in several districts of the State, for a total of 52 packages.

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COMAP No. 486 of 2024

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BSR was awarded works under 4 packages by way of the prequalification tender, and a further package (Package A-2) by way of open tender, aggregating to 5 packages comprising 45 work sites. The present dispute pertains to one such package, namely Package A-16 — construction of Adarsha Vidyalaya at Kustagi, Gangavathi and Yelaburga Blocks, and Girls' Hostels at Kustagi, Gangavathi, Yelaburga and Koppa Block, Koppal District [the subject package] . After BSR was declared as the successful bidder, the parties entered into negotiations, and pursuant to said negotiations, BSR reduced its quoted rates.

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The negotiated price of `2,316.94 lakhs offered by BSR in respect of Package A-16 was accepted, and work was awarded to BSR by Letter of Acceptance dated 18.03.2013 (Ex.C2), for the said contract price.

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After BSR furnished the requisite security deposit by way of bank guarantees, the parties executed a Construction Agreement [the Agreement] dated 15.05.2013 (Ex.C3), comprising General Conditions of Contract and Special Conditions of Contract, for execution of the works under Package A-16.

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The notice to proceed with the work was issued on 07.05.2013 (Ex.C4), and the stipulated period of completion was twenty months therefrom. During execution, additional quantities and EIRL¹ items were required to be executed. Upon approval of the competent authority the parties entered into a Supplementary Agreement dated 24.03.2017, inclusive of the additional cost, pursuant to which the percentage of the amount earlier withheld from BSR came to be released.

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There was delay in execution of the works, and they were not completed within the stipulated period. BSR addressed several letters to the appellant, inter alia, alleging (i) delay in supply of agreement copies and signing of conditions of contract; (ii) delay in handing over sites; (iii) delay in performance of pooja; (iv) delay in supply of drawings; (v) non-availability of water and power; (vi) scarcity of sand; (vii) increase in quantity; (viii) delay in payment; (ix) delay in approval of work slips/EIRL items; (x) increase in cost of material due to shortage; (xi) loss of working season; and (xii) extension of bank guarantees. BSR invoked the price adjustment clause of the Conditions of Contract and raised its claim towards price adjustment; none of the said bills were paid. The appellant,

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1 Extra Items Rate List: unbudgeted items

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on the other hand, contended that no price adjustment clause was applicable to the Agreement in respect of the subject works.

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In the meantime, under Government Order No.ED 49 MCD 2016 dated 16.11.2016, the GoK, while granting administrative approval to a revised project cost directed (i) an audit by the Karnataka Institute of Public Auditors [KIPA] into the causes of, and responsibility for, the delay; and (ii) an enquiry into the issue of price adjustment by a committee headed by an officer of the rank of Additional Chief Secretary. The committee reported that the price adjustment clause incorporated in the tender documents for the RMSA civil works of 2009-10 and 2010-11 was not duly approved and was not binding on the GoK. By a communication dated 17.07.2018, the State Project Director informed the contractors that price adjustment would not be paid and that extension of time would be considered only upon giving up their contractual claims in that behalf.

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The said Government Order was impugned by three other contractors, namely M/s. Jampana Constructions Pvt. Ltd., M/s. NCC Ltd. and M/s. KBR Infratech Pvt. Ltd., in W.P. Nos.38613/2018, 35594/2018 and 34990/2018 respectively. By

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orders dated 25.02.2019 (Ex.R4, R5 and R6), the learned Single Judge of this Court quashed the Government Order dated 16.11.2016 in W.P.No.38613/2018, and disposed of the other two writ petitions in similar terms. As of the appellant's letter dated 11.06.2019, the intra-court appeals against the said orders — W.A. Nos.958/2019, 996/2019 and 1031/2019 by the contractors, and W.A. No.2791/2019 by the State — were stated to be pending before the Division Bench of this Courton 20.10.2020, observing that "the parties would be governed by the terms of the contract entered into by them in respect of various packages awarded by the State".

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By its letter dated 11.03.2019, BSR called upon the appellant to consider its claims and to invoke the dispute resolution mechanism under Clause 24 of the Conditions of Contract read with Clause 4 of the Special Conditions of Contract. As the appellant did not respond, BSR issued a legal notice dated 08.05.2019, invoking the arbitration agreement under the same clauses.

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The appellant responded by letter dated 11.06.2019,stating

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that the claims stood rejected in its earlier office communication, and that reference to arbitration was premature in view of the pendency of the intra-court writ appeals.

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BSR filed an application under Section 11of the A&C Act (C.M.P.No.262/2019), seeking appointment of an Arbitrator. This Court allowed the same by order dated 05.11.2020 and appointed a Sole Arbitrator to adjudicate the disputes between the parties.

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In the meanwhile, by Government Order No. EP 89 YYK 2020 dated 30.09.2020, the GoK adopted the recommendations of the Technical Advisory Committee in supersession of the KIPA report, ordered, inter alia , that (i) for computing extension of time and penalty, each work site in a package be treated as a separate unit; (ii) the administration be held responsible for delays occasioned by causes beyond the contractor's control; and (iii) price adjustment be allowed in respect of the 25 packages whose tender conditions contained a price adjustment clause — a category which, as noticed in paragraph 8 above, did not include Package A-16. By an order dated 13.01.2021, extension of time was granted to BSR without levy of penalty.

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COMAP No. 486 of 2024

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ARBITRAL PROCEEDINGS

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BSR filed its Statement of Claims [SOC] before the Arbitral Tribunal claiming an amount of `80,03,19,726/- (Rupees Eighty crores Three lakhs Nineteen thousand Seven hundred and Twentysix only) under twelve heads. together with interest at 24% per annum from the date of the claim petition till payment, and costs. The summary of claims as set out in the statement of claims is reproduced below:

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Claims	Particulars	Claim Amount (Amt. in Rs.)
Claim No.1	Payment of Price Adjustment/Escalation Bill	4,53,24,186
Claim No.2	Payment of equitable enhanced rates executed beyond tender completion period.
Claim No.3	Payment of equitable enhanced rates executed beyond Tender Completion Period for extra Items.	2,91,75,505 (Claims 2-4)
Claim No.4	Payment of equitable enhanced rates executed beyond Tender Completion Period for quantities of 125%
Claim No.5	Refund of Excess Royalty Charges	19,81,068
Claim No.6	Payment towards idle men, machinery and establishment during original tender period.	7,47,95,600
Claim No.7(a)	Payment of unproductive overhead charges.	2,32,55,404
Claim No.7(b)	Payment of additional overhead charges.	56,37,903
Claim No.8	Payment towards loss of expected profit on the balance work as on original tender completion date.	2,32,55,404
Claim	Loss of expected profit due to non-	11,62,77,020

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No.9(a)	receipt of profit by tender completion period.
Claim No.9(b)	Loss of expected profit due to non- receipt of profit by actual completion period.	2,73,72,950
Claim No.10	Payment towards additional Bank Guarantee charges beyond original agreement period	5,98,370
Claim No.11	Payment towards interest on claim amount calculated up to 31.12.2020 at the rate of 24%.	45,08,47,944
Claim No.12	Payment of Rs.12,00,000/- (Rupees Twelve Lakhs Only) towards Cost of Litigation.	12,00,000
Total		80,03,19,726

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It was BSR's case that after it was declared the successful bidder, it had reduced its rates by factoring in the price escalation clause and the economies of scale. BSR claimed that the appellant did not hand over the sites within the stipulated period despite various requests, and delayed approval of drawings, work slips and EIRL items, thereby preventing BSR from completing the contract within time and prolonging the execution of the works. BSR alleged that the appellant also withheld amounts due to it, which compelled BSR to seek reference of the disputes to arbitration.

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The appellant contended that no price adjustment clause was applicable to the Agreement in respect of the subject works, and that, in any event, the conditions of contract as forthcoming in

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the e-procurement portal, which were binding on the parties, specifically excluded price adjustment. The appellant further contended that the delay, if any, had been suitably compensated by extension of time granted without imposition of penalty, and that the claims, aggregating Rs.80,03,19,726/-, were fictitious, unsubstantiated and beyond the scope of arbitration.

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On the basis of the pleadings between the parties, the Arbitral Tribunal, on 04.02.2022, framed the following issues.

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"1. Whether Claimant proves that non completion of the works under the contract within the stipulated period was for the reasons solely attributable to Respondent, resulting in breach of contract by Respondent, as such, the delay in completion of the works was solely attributable to Respondent?

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2. Whether for the reasons set out in SOC which were beyond the control of Claimant, he was prevented from completing the entire scope of work within the scheduled contract period?

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3. Whether Respondent proves that the delay in completion of the works under the contract within the original period stipulated under the contract was solely attributable to Claimant?

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4. Whether Respondent proves that as the requirements of Clause 38.4 of Conditions of Contract have not been complied with by Claimant, none of the claims put forth in SOC is tenable?

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5. Whether the Claimant is entitled for payment of the amounts claimed under various heads as put forth under Claim Nos.1 to 10 of SOC?

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6. Whether the Claimant is entitled for payment towards past interest on the amounts claimed up to 31-12-2020 at 24% PA as claimed under Claim No.11 of SOC?

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7. Whether Claimant is entitled for current and future interest at 24% PA on the amount claimed?

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8. Whether Claimant is entitled for cost of this arbitral proceeding?

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9. To what order and award the parties are entitled to?"

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The Arbitral Tribunal, after examining the evidence and materials placed on record, found that non-completion of the contract within the stipulated period was, on account of delay in handing over sites in several locations comprised in Package A-16 and delay in issuing drawings and revised drawings, was for reasons attributable to the appellant, resulting in breach of contract by the appellant.

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The Arbitral Tribunal partly allowed Claim Nos. 7(a), 8 and 12. The Arbitral Tribunal also awarded future interest and costs but rejected the remaining claims, being Claim Nos.1 to 6, 7(b), 9(a), 9(b), 10 and 11, in their entirety.

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22. The dispositive part of the impugned award is set out below:

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"The claims of Claimant as put forth in Statement of Claim are allowed in part as under:

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(1) Claim No.7(a) is allowed in part in a sum of Rs.75,85,656/- as against claim of Rs.2,32,55,404/-;

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(2) Claim No.8 is allowed in part in a sum of Rs.43,04,202/- only as against the claim of Rs.2,32,55,404/-;

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(3) Respondent is directed to pay to Claimant a total sum of Rs.1,18,99,858/- as per Sl.No.(1) to (2) above together with future interest at the rate of 9% per annum from the date of this Award till the date of payment;

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(4) Claim No.12 is allowed in part in a sum of Rs.2,00,000/only as against claim of Rs.12,00,000/-. Respondent is directed to pay to Claimant, this amount within a period of 3 months from the date of this award failing which the said amount shall carry interest at the rate of 9% per annum from the date of award till the date of payment;

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(5) Claim Nos.1 to 6, 7(b), 9(a), 9(b), 10 and 11 are rejected in their entirety;

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(6) Claimant shall pay requisite stamp duty on this award payable as per Karnataka Stamp Act,

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With the pronouncement and publication of Award, this Arbitral Proceeding stand terminated as per Section 32(1) of the Act."

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The impugned award was assailed by the appellant before the learned Commercial Court in Com.A.P.No.51/2024 under Section 34 of the A&C Act. The learned Commercial Court, by the impugned judgment dated 18.09.2024, found no infirmity warranting interference with the impugned award and dismissed the petition, giving rise to the present appeal.

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As noted above, the learned Arbitral Tribunal had partly allowed Claim No.7(a), which was towards unproductive overhead charges. The learned Arbitral Tribunal had noted that there were no averments made in the claim statement to support the said claim. Further, even in the affidavit tendered by BSR's witness (P.W.1) had

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not stated anything in this regard. Paragraph 121 of the impugned award reads as under:

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"121. Respondent in its SO has contended that these claims are beyond the original tender period and the overhead charges are inbuilt for the finished items of works and that there is no provision in the agreement for payment of unproductive overhead charges beyond the original tender period, therefore, these claims are beyond the scope of arbitration as such Claimant is not entitled for these claims."

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Although the statement of claims was bereft of any particulars or the methodology used for quantification of Claim No.7(a), the learned Arbitral Tribunal partly allowed the claim by applying the Hudson Formula and assuming that the overheads charges constituted 10% of the contract price. It is material to note that BSR had made no such claim. The learned Arbitral Tribunal relied on the cross-examination of P.W.1 during which a suggestion was put to the witness that the overhead charges were included in the item rates. In absence of any averments justifying the said claim and any evidence led by BSR in this regard, the award for unproductive overhead imposed is unsustainable.

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The learned Arbitral Tribunal also allowed the claim for loss of profits (Claim No.8), inter alia , referring to the decision in the case of the Supreme Court in A.T.Brij Paul Singh and Others v. State of Gujarat² . On the said basis, the learned Arbitral Tribunal accepted that the expected profit was 10% of the contract price. However, in the present case, the contract was fully performed and it is evident that BSR had realized the profit as included in the contract price. Notwithstanding the same, the learned Arbitral Tribunal awarded 10% per annum of the expected profits included in the value of work

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2 (1984) 4 SCC 59

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executed after the execution date. BSR had made no claim on such basis. It had led no evidence as to the quantum of loss of profits. We find no basis for awarding 10% p.a of the assured profits as loss of profits for the prolongation of contract. In this view, the award against claim No.8 is unsustainable.

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Claim No.12 is for costs. The award of costs, is premised on BSR succeeding in Claim Nos.7 and 8. Since the award against claim Nos.7 and 8 is set aside, the award against claim No.12 is also unsustainable.

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The impugned award is in the similar terms as the arbitral award which was subject matter of challenge in COMAP No.54/2025. The said appeal was allowed by this court by an order dated 18.08.2026. The reasons set out in the said order fully cover the issues involved in the present appeal as well. For the sake of brevity, the same are not repeated in this order but may be read as a part of the present order as well.

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