Allowed

Union of India and 2 Others v. M/S. B.R. Enterprises and Another

Telangana HC15 Nov 2023CMA/1007/2008

Case brief

AI extract

What is this about?

This Civil Miscellaneous Appeal challenged a judgment that reduced the claimant's liability to pay the Respondent-Appellant. The High Court held that the judgment should be set aside to the extent of exonerating the claimant from paying liquidated damages awarded by the arbitrator.

What did the court decide?

CMA allowed; judgment dated 05.05.2006 set aside to extent of exonerating respondent from paying Rs. 1,50,000; Arbitrator's award confirmed.

Union of India and 2 Others Vs M/S. B.R. Enterprises and Another — Arbitration | Telangana HC (2023)

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IN THE HIGH COURT FOR.TfIE STATE OF TELANGANA-[^32s3 ] ATHYDERABAD

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WEDNESDAY, THE FIFTEENTH DAY OF NOVEMBER TWo THoUSAND AND rwer,rrv rriirELIY'ULri

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PRESENT

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THE HONOURABLE SMT JUSTICE M.G.PRIYADARSINI

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c.M.A. NO:10 07 0F 2008

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Appeal under section,3T (a) Arbitration and Conciliation Act .l g96 aqainst nru the judgment and decree .tate_a v os.os - nii' ti )ooo'rro""rrlo "8,i,E i p.No.1929 c uv - i'i 0f 2002 in the",t l i. "?l r:t.:.",Ti, :l J:: ;; ","r o n " - i "Li

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Between:

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, 3::"r1.31"[i,:, Represented by commander works Ensineer, rVrudford,

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1. The Chief Enoiner (Factory), Opp parade Grounds, S.p.Road, Secunderabad. 3 The Garrison Engineer rsoutrrr-"n,,ri';J ie"clnoeranao

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AND

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...APPELLANTS/RESPoNDENTS

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M/s. B.R. Enterorises, Re,resented by Mr. B. Manikya Rao,S/o.Bheem Rao. contractor. Rro nat no ios. B R-dij;;, Ili *"ro

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...RESPONDENT/

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PETITIONER

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2 IIH il:131.'*iffi".?1 1f,?lt:1i:[[1[il?;,2fl i ?3:l of A.P., (Retd.) Yousuf Guda,

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...RESPONDENT/ RESPONDENT

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Counset for the Appeltants: SRI GADI PRAVEEN KUMAR DEPUTY SOLICITOR GENERAL OF INDIA

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Counsel for the Respondents: SRI ARCOT MAHESH

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The Court delivered the foltowing: JUDGMENT

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THE HONOURABLE SMT. JUSTICE M.G.PRIYADARSINI Civil Miscellaneous Ap^peal No.IOOT OF 2OO8

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JUDGMENT:

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Aggrieved by the^judgment dated 05.05.2006 (hereinafter will be referred^as 'impugned^{judgment)in O.P.No.1929 of 2OO2} on the file of^{learned XIV Additional ChiefJudge,} City^Civil Court, Hyderabad, the^respondents hled the present^Civil Miscellaneous^{Appealto set aside the impugnedjudgment.}

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For the sake of convenience, hereinafter, the parties will be referred^{as per their array} before the learned XIV Additional Chief Judge,^{City Civil Court,Hyderabad.}

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The brief facts of the case as can be seen from the record available^{before this Court are as under}

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a) The claimant undertook a contract from the department to repair and re-erect the sheds in military campus for Rs.15,77,944.22^patse. The claimant commenced the work on 14.07.1997 and he has to complete the work by 13.07.1998. However, the respondent extended the time twice i.e., by 31.08.1998 and 28.09.1998. However, the claimant stopped the work, as such the department issued notices calling up the claimant to execute the remaining work and threatening to

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MGP,J cMA 1007²⁰⁰⁸

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cancel the contract.^{The departmentrequestedthe claimant to} start the^{work and complete the same but the claimant failed to} do so,^{however, indulging in correspondence'Ultimately' the} contract^{was cancelled by the departmentunder clause 54 of} the General^{Conditionsof the Contractwith effect from} Oa.O2.lggg^{by the first respondent'An instructionwas given to} the claimant^{to be present for taking inventory of the material} from the spot.^{The claimantprotested the cancellationof} contract^{and soughtfor payment of hnal billThe department} took inventory^{of materialand entrusted the remainingwork to} a third party.^{The departmentdid not even pay the final bill of} the claimant^{as they have got a right to recoverany loss suffered} by them by^{entrusting the work to third partyThough the} claimant^{requested the department to appointan Arbitrator' the} Department^{failed to appointArbitrator, as such' the Claimant} approached^{the High Court for appointmentof Arbitrator by} Arbitration^{Application No.4O/20O0' The respondentNo 4 was} appointed^{by this Court as an Arbitrator,whereinthe claimant} hled claim^{statement allegingthat the departmentcommitted} breach of^{contract and that he isentitled toclaimof} Rs.18,OO,OOO/-.^{The Department filed counterdenyingthat} they are^{responsiblefor breach of contract and alleging that} claimant himself^{was responsibiefor breach of contractApart}

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from denying the averments of the claimant^{in the claim} application, the department has^{made eight counter claims} under different heads. the learned Arbitrator^{framed as manyas} 20 issues and awarded some amounts^{in favour of the claimant} and some amounts in favour of the^{department and after} adjusting the claim and counter^{claims,it was held that the} claimant himself has to^pay Rs.4,29,355/- with^interest @^6% per annum from 31.O 1.2001 till realization in favour of^the department, Rs.5,000/- towards costs of reference in^{favour of} the department, Rs.2,5OO/- towards reimbursement^{of share of} the secretarial expenses in favour of the^department, Rs.75,O00/- towards Arbitrator's fee and Rs.2,50O/-^towardshis share of secretarial expenses.

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Aggrieved by the Award, dated 24.06.2002^{passedby the} Respondent No.4, the claimant has ltled O.P.No.1929^{of 2OO2} under Section 34 of the Arbitration and Conciliation^{Act, 1996} (hereinafter will be referred as 'the Act), which was allowedⁱⁿ part by ordering that the amount payable by the claimant^{to the} department is reduced to Rs.2,79,355/- with interest @^{60/o per} annum from 31.O1.2001 till the date of realizatt'on.^Aggrieved by the same, the Department hled the^{present Civil} Miscellaneous Appeal to set aside the impugned^order.

MGP,J cMA 1007 2008

Heard both sides and perused the record.

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The first and foremost contention of the learned counsel for the Department/Appellant is that learned Judge erred in holding that the Arbitrator is not justifred in awarding Rs. 1,50,0OO/- as damages for the deiay in execution of the work, which is contrary to the condition No.50 of the General Conditions of Contract and the Arbitrator after considering all the aspects only awarded Rs. 1,50,OOO/_ towards damages. It is seen that the iearned Arbitrator i.e., Respondent No.4 in his Award dated 24.06.2002 has directed the claimant to pay Rs.4,29,355/- which includes the damages to a tune of Rs. 1,50,000/-. Thereafter, the learned XIV Additional Chief Judge, Hyderabad has set aside the said award to the extent of awarding Rs.1,5O,000/- and thereby reduced the amount payable by the claimant to the department from Rs.4,29,355/_ to Rs.2,79,355/-. Thus, the only grievance of the Department in this appeal is setting aside the Award passed by respondent No.4 to the extent of awarding Rs. 1,50,00O/_.

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The Arbitrator i.e., respondent No.4 in his Award observed that there was default on the part of claimant in concluding the contract within specific time in spite of extending the time to complete the work. Even the learned XIV Additional Chief

MGP,J cMA 1007,2008

Judge, Hyderabad^{in the impugnedjudgment observed that the} claimant could^{not completethe work in the scheduletime and} there is negligence^{on the part of the claimant'who has} committedbreachofcontract.However,learnedXlVAdditional Chief Judge,^{Hyderabad in the impugnedjudgmentopined that} the quantum^{of damages to a tune of Rs' 1,50,O0O/- awarded by} the iearned^{Arbitratorwasnot justified as the Department failed} to submit^{any proof to show that it suffered damages to the} extent of Rs.1,5O,O0O/-.^{It is to be seen that learnedXIV} Additional Chief^{Judge,Hyderabad has not reduced the} damages but^{in fact completely exonerated the claimantfrom} paying damages.^{There is no explanation in the impugned order} as to why the^{claimant was completely exoneratedfrom paying} damages, more^{particularly, when the learned XIV Additional} Chief Judge,^{Hyderabad observed in the impugnedjudgment} that the department^{suffered loss by re-entrusting the workto} third party.

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Merely because^{theArbitratorhasawarded} Rs.2,O4,O52.60^{paise towards extra expenditure incurred by the} Department for^{gettingthe left workcompletedthrough third} party, the claimant^{cannotbe exoneratedentirely from payment} of liquidated^{damages.As can be seen from the record'}

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6 MGP,J cMA I007 2008

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Condition No.50 of the General Conditions of contract between the parties, there is a specific clause for fixing the liquidated damages. No doubt, compensation payable under Sections 73, 74,75 of the Contract Act is only for loss or damage caused by the breach and not on account of the mere act of breach. If in any case the breach has not resulted in or caused any loss or damage to a party, compensation cannot be claimed. But in the case on hand, there was breach of contract on the part of claimant and the Department has also suffered loss to a tune of Rs.2,04,O52.60 paise.

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Damages are a type of compensation granted to the party, who has been harmed to allow them to reclaim their position before the breach. Damages are claimed in different contracts for a variety of reasons, including loss of proht, opportunit5r, overheads, and so on. There are two sorts of damages i.e., liquidated and un-liquidated. The court may award unliquidated damages, the amount of which is not known ahead of time. The term 'liquidated damage'is not specified in the Indian Contract Act, 1872, however, Section 74 dehnes the parts that make up the defrnition of liquidated damage. So, if a contract states that a certain number will be awarded in the case of a breach, the innocent party will be allowed to recover damages

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MCP,J cMA_loo7_2008

equal to or less than that amount, based on the facts and circumstances of each case, up to the maximum amount stated in the contract. As stated supra, there is specific condition No.50 of the General Conditions of contract fixed the liquidated damages. In such circumstances, the claimant is liable to pay damages to the Department for breach of contract. Damages are granted to compensate the injured party and, as a result, it places the aggrieved party in the very same situation as it would have been if the breach had not occurred. Thus, there is no irregularity or inhrmit5z in the Award passed by the learned Arbitration while granting damages to a tune of Rs. 1,5O,0O0/in the Award, dated 24.06.2002.

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The other contention of learned Government Pleader for Arbitration representing the Department/ appellant is that the learned Judge agreed with the findings of Arbitrator, however, interfered and set aside the award of Arbitrator exceeding the scope for setting aside award under Section 34 of the Arbitration and Conciliation Act as if he is sitting in appeal over arbitrator award. It is further contented that the learned Judge erred in observing that Apex Court in Oil and Natural Gas Company Limited (ONGCI v. Saw Pipes Limitedr certain

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'^{aIR 2oo3 SCPage2629}

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grounds for^{setting aside the awardwere added besides} whatever^{mentioned inSection 34 of the Arbitration and} Conciliation^{Act. In support of abovecontention'the learned} GovernmentPleaderforArbitrationrelieduponadecisionin the Project^{Director, National HighwaysNo'45 E an.d 22O} National^{Highways Authority of India v' M' Hakeem2'the} Apex Court^{at paragraph Nos'4Oand 46 heldas follows:}

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"40. It can^{thereforebe said thttt this q)estiontta,s now} been^settled. finattg^{bg (lt lea-st 3 decisions of this Court' Euen} otlrcnise,^{to statethat the judicial trendappearsto Jquouran} interpretation^{that tl)outd- read intoSection 34 a pouer to modiJA'} reuise or^{uary tlle anuqrd uould be to ignrethe' preuious law} contatned^{in the 1940Act; as also to ignore the fact tlnt tfe 1996} Act utas^{enacted. based on the UNCITRALModelLttuton} Intemotional^{Commercial Arbitrqtioa1985 ttthich as has been} pointed^{out in Redfenr ond.Hunteron International Arbitratio4} makes it^{clear tlutt, giuen the timitedjudicialinterkrenceon} ertremelg^{limited grouncls not deating withthe m.eritsof an autard'} the 'timited.^{remedg' under Section34 is co-teminus tltith the} 'limited^{right',namelg, either to set qside an awardor remandthe} malTer unl.er^{the circunrstancesmentioned in Section 34of the} Arbitrotion^{Act, 1996.}

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Quite^{obuiouslyif one uere to include the pouerto} modifg an^{ouGrd in Section34, one rpould be crossingthe} Lakshrnan^{Rekhaand doingttthol, accordingto the justice of o} case, ought^{to be done ln interpretinga slotuloryproutston'a} Jud.ge^{must put himsetfin the shoes of Parliamentandthe'nask} uhether^{Partiaruentiruten'dedthjs result Pqrliqment ueryclearly} intended tllat^{no powerof modirtcationof an anuardeists} in Section^{34 oJ the Arbitration Act,1996' It is onlg for Parliament}

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1 La\s (SC) 2021 7 20

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to amend the aforesaid prouision in tle light of the^{expeience of} the courts in the uorking of the Arbitration Act,^1996, and^bingit in line u,tith otlrcr legislations the uorld ouer."

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1 1 . The Apex Court in ONGC's^{case (supra) has enumerated} certain grounds to set aside the award^{passed by an Arbitrator} under Section 34 of the Act.^However, in^{the case on hand,} none of the grounds mentioned in^{ONGC'scase (supra) are} available for the learned XIV Additional Chief^{Judge, City Civil} Court, Hyderabad to set aside the Award^passed by^the respondent No.4, more particularly with regard to^damages when there is specihc condition that in case of default by either of the parties, the party, which suffered loss is entitled^for damages. No doubt the Arbitrator awarded Rs.2,O4,O52.60 paise in favour of the Department as amount found due towards extra expenditure incurred for getting left over work completed. But there is no explanation as to what was the loss suffered by the Department for non completion of the work within stipulated period. In such circumstances, Condition No.5O of the General Conditions of contract comes into picture and the said condition stipulates that if the contractor fails to complete the work within the time, the aggrieved is entitled for 1O% of the contract as liquidated damages. Therefore, the learned XIV Additional Chief Judge, City Civil Court, Hyderabad ought not

MGP,J cMA 1007_2008

to have interfered with the findings of the learned Arbitrator so far as awarding damages to the extent of Rs. 1,5O,000/_ is concerned, more particularly, when the scope and ambit of the Court under Section 34 of the Act to interfere with Award passed by the Arbitrator is limited until and unless the irregularit5r goes to the root of the matter. In the case on hand, thele is no dispute that the contractor has committed breach of contract for which the Arbitrator has awarded liquidated damages in favour of the Department. Thus, on the face of the record, there is no patent irregularit5r in the Award passed by the learned Arbitrator.

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In view of the above discussion, viewed from any angle, there are no grounds at all to interfere with the findings of the learned Arbitrator in the Award, dated 24.06.2002. Thus, the learned XIV Additional Chief Judge, City Civii Court, Hyderabad has- committed an irregularity in modifying the Award, dated 24.06.2002, more particularly, when the scope and ambit of interfering with the Award under Section 34 of the Act is very restricted as stated supra. Hence, the Department is entitled for liquidated damages to the tune of Rs.1,5O,0OO/- towards liquidated damages as rightly awarded by the learned Arbitrator.

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Accordingly, the Civil Miscellaleous^{Appeal is allowed by} setting aside the^judgment dated^{05.O5.2OO6in O-P.No .1929 of} 2OO2 or the file of learned XIV^{AdditionalChief Judge,City Civil} Court, Hyderabad to the extent of^{exoneratingthe} claimant/ contractor from^{paying liquidated damagesof} Rs.1,5O,OOO/- and thereby the^{Award dated 24.06.2002passed} by the respondent No.4/learned^{Arbitrator is conhrmed. There} shall be no order as to costs.

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Pending Miscellaneous applications, if any,^{shall stand} closed.

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SD/.K.SRINIVASA RAO JOINT REGISTRAR

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