S.C. Das, J.
1.By this appeal u/s 37(1)(b) of the Arbitration and Conciliation Act, 1996 (for short ''Act''), the appellant, Oil & Natural Gas Corporation Limited (for short, ONGC), challenged the judgment and order dated 30.10.2009, passed by learned District Judge, West Tripura, Agartala, in Case No. Misc. (Arb) No. 10 of 2007 u/s 34 of the Act. Heard learned senior counsel, Mr. G.N. Sahewala, assisted by learned counsel, Mr. P.B. Dhar and learned counsel, Mr. D. Senapati for the appellant-ONGC, and learned counsel, Ms. M. Arora with learned counsel, Mr. P. Rathor and learned counsel, Ms. P. Ponnam for the respondent, M/s. Astra Construction Pvt. Ltd. (for short, ACPL).
2.1 Brief facts:
2.2 ONGC engaged M/s. Project & Development India Ltd. (for short, PDIL), as consultant which invited tender on behalf of the ONGC for civil and structural works for plant and non-plant buildings, roads, drainage, etc. for the Gas Collection Module at Konaban, ONGC, Tripura and the tender submitted by the ACPL was accepted. Consequent thereto, an agreement was signed between ONGC and ACPL on 24.01.1997 vide No. CR/CM/CIVIL/96-97/34. The value of the work was Rs. 2,06,58,830.00. Time fixed for completion of work was seven months from the date of signing of the Agreement i.e. 24.01.1997 to 23.08.1997. An Addendum to the said Agreement was signed between the parties on 02.04.1997. The work could not be completed within the time schedule and the extension of time was allowed time to time on seven consecutive spells and the work was ultimately completed on 28.04.1999. The value of the work rose to Rs. 2,83,03,978.96.
2.3 According to the agreement, PDIL was the Engineer In-charge of ONGC, which was entrusted to supervise the work, take measurements, receive and certify the bills, grant extension of time, hand-over designs and drawings, etc. The role of PDIL was, therefore, very important in deciding the disputes arose between the parties.
2.4 Since the work could not be completed within the time schedule, as agreed upon by the parties, extension of time was allowed, and/or agreed upon on seven occasions and, ultimately, the work was completed within the extended period of time. The dispute arose when ONGC decided to deduct Liquidated Damage (for short, L.D.), refusing the objection raised by the contractor i.e. ACPL. The contractor also claimed price escalation alleging that the delay was attributable to the owner i.e. the ONGC and its agent, PDIL and, therefore, while the final bill was raised, the contractor raised the dispute and proposed for arbitration in terms of Clause 6.30 of the Agreement. The arbitration clause of the Agreement is in details and for brevity, I do not like to reproduce it, since no allegation is raised by either of the parties regarding appointment and/or capacity of the Arbitrator in deciding the dispute.
2.5 It may be mentioned here that the claimant contractor i.e. the ACPL submitted detailed Claim Statement and the owner i.e. the ONGC also submitted detailed Counter Statement before the Arbitrator and both side placed on record the documents and materials in support of their contentions. The claimant raised the following disputes:
a) Whether recovery of liquidated damages @ 10% is at all legal and whether the Claimant Contractor is entitled to get the entire amount of Rs. 20,65,879.00 deducted from the bills towards liquidated damages and interest on the same?
b) Whether the Claimant Contractor is entitled for payment of the work executed outside the battery limit as per the instructions of respondent and interest The bill for the work executed outside the battery limit and amount thereof are as under:-
1. Work executed outside the battery limit and hiring of JCB Excavator and dumpers for Rs. 2,64,143.50 (bill submitted vide reference No. ACPL/AGR/PDIL/2K dated 18/1/2000.
2. Work executed outside the battery limit on the occasion of visit of CMD of respondent for Rs. 13,85,856.50 (bill submitted vide reference ACPL/AGR/ONGC/2K dated 18.2.2000.
c) Whether the claimant contractor is entitled for payment of interest on account of delay in release of final bill amount for the works executed within the battery limit?
d) Whether the claimant Contractor is required to be reimbursed the amount on account of escalation towards price of fuel, materials, and labour as per CPWD and interest?
e) Whether the claimant contractor is required to be reimbursed on account of overheads during the extended period of contract?
f) Whether the claimant contractor is entitled to get interest for the pre reference period?
g) Whether the claimant contractor is entitled to get interest pendente lite?
h) Whether the claimant contractor is entitled to get post award interest?
i) Whether the claimant contractor is entitled to get the costs of Arbitration proceedings?
The Claimant has, accordingly laid a claim of Rs. 3,05,21,333.00 only, in the facts and circumstances stated and calculations made in the Statement of Claim, contending that since the Respondent is entirely responsible for the inordinate delay in completion of the Project, it (Claimant) is entitled to all the claims made by it under the following break-ups:
2.6 The Arbitrator, considering the Claim Statement and Counter Statement filed by the disputing parties, formulated 26(twenty six) issues, namely--
1. Was the Contract in question a turnkey Contract and/or a ''Firm Tender'', or an item rate Contract, as respectively contended by the parties?
2. Had there been a detailed technical conference and then a commercial conference between the parties after submission of tender, as alleged by the Respondents?
3. Was the Site handed over to the Claimant in time? Had the Respondent handed over disputed working area to the Claimant before completion of Land Acquisition Proceedings, as alleged by the latter?
4. Had there been frequent changes in the area of working site, drawings and designs and late supply of departmental materials by the Respondent? Had the Respondent taken 6 months to finalise the orientation, design, and drawings, as alleged by the Claimant?
5. Did the Claimant face a lot of difficulties and hindrances, sometimes caused by the Respondent, sometimes by the Engineer-in-charge, and sometimes by Force Majure/act of God, as alleged by the former?
6. Had the completion of the Project been delayed due to engagement of unskilled and inexperienced workmen/employees, and also due to insufficient mobilisation of skilled workers by the Claimant, as alleged by the Respondent?
7. Is the delay in completion of the Project in question attributable to the Respondent or to the Claimant, as respectively contended by the parties?
8. What was the role and extent of authority of the PDIL-Engineer-in-Charge? Was the PDIL, a duly authorised Agent of the Respondent? Were the acts and decisions of the former binding upon the latter?
Was the Respondent-ONGC Ltd. the ultimate authority to take decisions under the relevant Contract?
9. Had any work been executed by the Claimant outside the battery limit, as alleged by it? Did it do many jobs on the verbal instruction of the Chief Engineer of the Respondent, as contended by the former?
10. Had the Claimant been paid for all the extra work done by it?
11. Is there any provision for ''provisional extension'' in the relevant contract?
12. Was the Respondent entitled to recover damages at the rate of 10%(maximum) of the contracted value of Rs. 2.06 Crores (approximately) under the Contract, as contended by it?
13. Was the deduction of the sum of Rs. 20,65,879.00 only by the Respondent from the bills of the Claimant highly illegal, arbitrary, and unreasonable, as contended by the Claimant?
14. Was the amount deducted by the Respondent equivalent to the delay in completion of the work by the Claimant? Was it Liquidated damages?
15. Is the Claimant entitled to get the entire amount of Rs. 20,65,879.00 only deducted from its bills towards liquidated damages, as claimed by it? Is it entitled to get interest thereon amounting to Rs. 22,76,024.00 only, as claimed?
16. Is the Claimant entitled to get payment for work allegedly executed by it outside the battery limit, along with interest thereon, amounting to Rs. 4,23,788,00 only, as claimed by it? Is it entitled to get the sum of Rs. 21,99,145.00 only for work allegedly executed by it as per requirement of the Respondent at the time of inauguration of CGS, along with interest, as claimed by it?
17. Is the Claimant entitled to get interest on account of delay in release of final bill for the works done by it within the battery limit, amounting to Rs. 2,39,174.00, as claimed by it?
18. Is the Claimant entitled to get the sum of Rs. 1,09,90,461.00 only on account of escalation towards price of fuel, materials, and labour as per CPWD Guidelines, as claimed by it?
19. Is the claimant entitled to get the sum of Rs. 1,05,80,606,00 only towards interest on escalation payment, as claimed by it?
20. Is the Claimant entitled to be reimbursed on account of overheads during the extended period of contract, amounting to Rs. 17,46,256,00 only, as claimed by it?
21. Is the Claimant entitled to obtain an award for the sum of Rs. 3,05,21,333.00 only, as prayed for?
22. Is the Claimant entitled to get interest pendente lite @ 20% p.a. on the award amount, as claimed by it?
23. Is the Claimant entitled to get future interest @ 20% p.a. on the award from the date of award till realization, as claimed by it?
24. Is the Claimant entitled to get cost of Arbitration, as prayed for?
25. Are the claims of the Claimant inflated?
26. What relief, if any, is the Claimant entitled to?
2.7 Backbone of the dispute between the parties is on the delay in execution of the work, ACPL contended that the delay is solely attributable to the owner (ONGC) and its agent, the Engineer-in-Charge (PDIL). Per contra, the appellant-owner (ONGC) contended that the delay was attributable to the contractor.
2.8 ACPL raised the issue that there was delay in handing over the complete site and complete site was handed over only on 23.03.1997. There was delay in supplying all departmental-issue materials, such as, cement, iron, etc. There were frequent changes in the work site and drawings and designs, etc. There was delay in fixation of location of various buildings and the demarcation of boundary, etc. There were force Majure i.e. strike, excessive rain, local disturbances, general elections, etc. The ONGC alleged that there was delay on the part of the contractor in mobilization of the materials for execution of the work. There was delay in arrival of Hydraulic Excavator (Poclain). There was insufficient mobilization of skilled workers at the worksite and also insufficient and unskilled act of the contractor for which the delay of 613 days was occurred in execution of the work.
2.9 The Arbitrator held that the delay was solely attributable to the ONGC i.e. the owner, and that the deduction of L.D. from the bill of the contractor was absolutely unjustified. The Arbitrator also held that the contractor, in the facts and circumstances and agreed terms, was entitled to price escalation because of the delay, solely attributable to the ONGC and also entitled to compensation for overheads and interest on the amount.
2.10 ONGC challenged the award u/s 34 of the Arbitration and Conciliation Act, 1996 before learned District Judge, praying for setting aside the arbitral award but learned District Judge upheld the arbitral award, supporting the decisions of the Arbitrator, hence this appeal.
3. An arbitration is an alternative dispute resolution mechanism, authorized by law and the parties consciously agreed in terms of Clause 6.30 of the Agreement to refer their disputes to the Arbitrator for a decision. The scope to interfere in an arbitral award is very limited. Ordinarily, the Court is not required to re-appreciate the evidence to examine the correctness of the conclusion, arrived at by the Arbitrator. However, the Court can examine the award with the Clauses of Agreement to determine the correctness of the conclusion.
4.1 Let us now first see how far the Court of law can interfere in an arbitral award and under what circumstances the Court can so interfere u/s 34 or Section 37 of the Arbitration and Conciliation Act.
4.2 In the case of
It is well established that where the discretion vested in the Court u/s 34 of the Indian Arbitration Act has been exercised by the lower court, the appellate court should be slow to interfere with the exercise of that discretion. In dealing with the matter raised before it at the appellate stage the appellate court would normally not be justified in interfering with the exercise of the discretion under appeal solely on the ground that if it had considered the matter at the trial stage it may have come to a contrary conclusion. If the discretion has been exercised by the trial court reasonably and in a judicial manner the fact that the appellate court would have taken a different view may not justify interference with the trial court''s exercise of discretion. As is often said, it is ordinarily not open to the appellate court to substitute its own exercise of discretion for that of the trial Judge; but if it appears to the appellate court that in exercising its discretion the trial court has acted unreasonably or capriciously or has ignored relevant facts then it would certainly be open to the appellate court to interfere with the trial court''s exercise of discretion.
4.3 In the case of
4.4 In the case of
4.5 In the case of M/s. Sumitomo Heavy Industries Ltd. Vs. Oil & Natural Gas Company reported in 2010 AIR SCW 5171, the Apex Court in paragraphs 35 and 36 of the judgment observed thus:
35. The view canvassed on behalf of the respondent was that Clause 17.3 ought to be read narrowly like an indemnity clause or given a literal interpretation as in the case of an insurance policy. The umpire on the other hand has observed that this clause is couched in wide terms and it was commercially understandable and sensible, since it was designed to cover a wide and potentially unforeseeable spectrum viz. the likely impact of a possible change in Indian law in future. In the circumstances the approach adopted by the umpire being a plausible interpretation, is not open to interfere. The Division Bench was clearly in error when it observed that the view of the umpire on Clause 17.3 is by no stretch of imagination a plausible or a possible view. Perhaps, it can be said to be a situation where two views are possible, out of which the umpire has legitimately taken one. As recently reiterated by this Court in
36. Can the findings and the award in the present case be described as perverse? This Court has already laid down as to which finding would be called perverse. It is a finding which is not only against the weight of evidence but altogether against the evidence. This court has held in
4.6 In the case of
Courts shall not ordinarily substitute their interpretation for that of the arbitrator. If the parties with their eyes wide open have consented to refer the matter to the arbitration, then normally the finding of the arbitrator should be accepted without demur. There is no quarrel with this legal proposition. But in a case where it is found that the arbitrator has acted without jurisdiction and has put an interpretation on the clause of the agreement which is wholly contrary to law then in that case there is no prohibition for the courts to set things right.
4.7 In the case of
26. The arbitrator is the final arbiter for the dispute between the parties and it is not open to challenge the award on the ground that the arbitrator has drawn his own conclusion or has failed to appreciate the facts. In
28. In this case, claims before the arbitrators arise from the contract between the parties. It is well settled that if a question of law is referred to arbitrator and the arbitrator comes to a conclusion, it is not open to challenge the award on the ground that an alternative view of law is possible. In this connection, reference may be made to the decisions of this Court in
4.8 In the case of
The 1996 Act makes provision for the supervisory role of courts, for the review of the arbitral award only to ensure fairness. Intervention of the court is envisaged in few circumstances only, like, in case of fraud or bias by the arbitrators, violation of natural justice, etc. The court cannot correct errors of the arbitrators. It can only quash the award leaving the parties free to begin the arbitration again if it is desired. So, the scheme of the provision aims at keeping the supervisory role of the court at minimum level and this can be justified as the parties to the agreement make a conscious decision to exclude the court''s jurisdiction by opting for arbitration as they prefer the expediency and finality offered by it. The arbitral award can be set aside if it is; contrary to (a) fundamental policy of Indian law; (b) the interests of India; (c) justice or morality; or (d) if it is patently illegal or arbitrary. Such patent illegality, however, must go to the root of the matter. The public policy violation, indisputably, should be so unfair and unreasonable as to shock the conscience of the court. Lastly, where the arbitrator, however, has gone contrary to or beyond the expressed law of the contract or granted relief in the matter not in dispute, would come within the purview of Section 34 of the Act.
4.9 What emerges from the case laws discussed above is that an arbitration, being an alternative dispute resolution mechanism, voluntarily chosen by the parties to resolve their disputes through an arbitrator of their choice, under an agreement, outside the purview of the ordinary court of law, should be allowed to see the end of the disputes, once arbitrated by such an arbitrator, unless it is apparently found that the arbitral award is totally perverse or contrary to the fundamental policy of Indian Law or it is contrary to the justice and morality and violative of agreed terms of contract. The courts, while exercising jurisdiction u/s 34 or Section 37 of the Act is not required to substitute its own decision in place of the decision taken by the arbitrator, if there are materials on record for the arbitrator in taking the decision, even if it is not found logical by the court. Keeping in mind the above principles, let me now decide the appeal on the points raised on behalf of the appellant.
5. Learned senior counsel, Mr. Sahewala, assailing the arbitral award and the judgment and order passed by learned District Judge, has vociferously contended that the arbitrator has utterly failed to construe the terms and conditions of the Agreement and, he has, virtually, modified the contract by giving anew and foreign interpretation to the Agreement. The Arbitrator, ignored the agreed terms in respect of price escalation, interest, etc., and also failed to construe the case of the owner (ONGC), and arrived at an unilateral finding, attributing the delay solely on the ONGC. There are materials to show that the delay was not solely attributable to the owner, but the Arbitrator, in his unilateral finding, wrongly did so. It is also submitted by learned senior counsel that according to the agreed terms of contract, the contractor was bound to complete the work on the fixed rates, even if there was any rise of price of materials and labour, etc. The contractor was not also entitled to claim interest on the amount in any manner in view of the agreed terms of contract and, therefore, the award made by the Arbitrator is vitiated by violation of agreed terms. Learned counsel has further argued that it was specifically stipulated in the Agreement that the time is the essence of contract and the contractor was supposed to complete the work within the stipulated time, however, on the approach of the contractor, PDIL, the Engineer-in-Charge, recommended time extension and such time extension was allowed time to time on the recommendation of the PDIL, and that does not mean that the offence of delay in executing the work committed by the contractor was absolved and, therefore, deduction of L.D. from the bills of the contractor was justified and as per the terms of the contract in view of Clause 6.41 of the Agreement. It is also submitted by learned senior counsel that the Arbitrator has utterly failed to construe the contents of weekly meetings held between the parties and significance thereof and also failed to construe the applications made by the contractor time to time for seeking extension of time and, therefore, arrived at a wrong and perverse finding, which ought to be interfered by the Court below while adjudicating the objection filed by the owner, ONGC u/s 34 of the Act. In support of his contention learned senior counsel has relied on the following case laws:
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
(ix)
(x)
(xi)
(xii)
(xiii) Bharat Cooking Coal Ltd. vs. Annapurna Construction: (2003) 8 SCC 754 (para 14, 18, 19, 20, 22, 39 and 40).
(xiv)
(xv)
(xvi)
(xvii)
6. Controverting the argument advanced by learned senior counsel for the appellant, learned counsel, Ms. Arora has made a strenuous argument referring to the materials placed in evidence and, interalia, submitted that the Arbitrator committed no misconduct. No allegation was raised in the course of hearing before the Arbitrator that any material was wrongly accepted or construed beyond the terms of Agreement. Learned counsel has further submitted that the contractor brought on record time to time the cause of delay in executing the work which was solely attributable to the owner-ONGC and its agent and the agent i.e. the Engineer-in-charge, namely, the PDIL, admitted that the delay was because of the sole lapses on the part of the owner-ONGC, and that the contractor cannot be held responsible in any manner for delayed execution of work. The contractor time to time brought on record the lapses in respect of clear handing over of site, drawings and designs, etc., but the owner was with at fault. Further, the contractor raised objection when they proposed to deduct liquidated damage. In the final bill, though, PDIL proposed that the delay was not solely attributable to the contractor and proposed for deduction of a token liquidated damage of one percent, but the owner most arbitrarily and illegally deducted ten percent towards L.D. which was wholly unjustified and not supported by the elements of Agreement. She has also submitted that the contractor issued notice time to time regarding price escalation towards cost of labour, fuel charges, etc., etc. for the delay attributable to the owner and claimed compensation in writing in the form of notice and the Arbitrator, having taken into consideration all those materials, held the owner responsible for escalation and overheads. The award, therefore, was justified and the Court below lightly did not interfere in the award in the facts and circumstances of the case. In support of her contention, learned counsel for the respondent has relied on the following case laws:
(i)
(ii)
(iii) Food Corporation of India Vs. A.H. Ahmed & Co.: 2006(4) Arb. L.R. 155 (SC) (para 32).
(iv) Associated Construction Vs. Pawanhans Helicopters Pvt. Ltd.: 2008(2) Arb. L.R. 473 (SC) (para 8, 11 and 12).
(v)
(vi)
(vii)
(viii)
(ix)
(x) Bhagawati Oxygen Ltd. Vs. Hindustan Copper Ltd.: 2005(1) ARB. L.R. 608 SC.
(xi) Municipal Corporation of Greater Mumbai Vs. Jyoti Construction Company: 2003(3) Arb. L.R. 489 (Bombay)
(xii)
7. Admittedly, the dispute cropped up centering around the delay in execution of the work. Respective parties to the agreement held the other side attributable for the delay. The Arbitrator, taking into consideration the materials on record, held the owner solely responsible for the delay in execution of the work. The time stipulated for execution of the work was seven months w.e.f. 24.01.1997, the date of signing the Agreement. The work was supposed to be completed by 23.08.1997, but it could be completed only on 28.04.1999 and there was a delay of 613 days.
8. Clauses 6.12 and 6.13 of the Agreement deal with the time of completion and extension of time respectively. Those clauses read thus:
6.12. TIME OF COMPLETION:
Time of completion of the work and the date from which it is to be reckoned would be indicated in the Letter of Intent/Work Order asking the contractor to commence the work. The time is the essence of this contract. Entire job is to be completed within the stipulated time. If however, due to reasons beyond the control of PDIL/Owner there occurs a delay in release of site, issuing material and/or in issuing working drawing as per relevant clauses as stated elsewhere in this tender, the suitable extension of time would be granted to the contractor on his written application, who shall remain bound to execute and complete the balance work within the extended period on the same terms and conditions and quoted rates of his tender without any additional cost to PDIL/Owner. Further, no compensation, whatsoever, shall be paid for the idle labour by PDIL/Owner during this period.
6.13 EXTENSION OF TIME
In case the contractor desires an extension of time for completion of work on the grounds of his having been unavoidably hindered in its execution or on any other ground in addition to that of clause
6.12 he shall apply in writing to the Engineer within 15 days of the date of the hindrance on account of which he desires such extension as aforesaid and the Engineer may, in his absolute discretion, grant such extension of time as may, in his opinion (which shall be final), be necessary. The contractor shall, as in clause 6.12 remain bound to complete the work without any additional cost to PDIL/Owner. If the Engineer is not satisfied that the works can be completed by the contractor and in the event of failure on the part of the contractor to complete the works within the extended time allowed as aforesaid, the Engineer shall be entitled, without prejudice to any other right or remedy available in that behalf, to appropriate the contractor''s security deposit under clause 6.34 whether or not actual damage is caused by such default.
9. Admittedly, the work could not be completed within the stipulated period of seven months i.e. 212 days as per the Agreement. It took more 613 days to complete the work. The contractor, ACPL sought for extension of time as per the above terms of Agreement on six consecutive occasions through Engineer-in-Charge, PDIL, engaged by the owner assigning reasons therefor. On seventh occasion i.e. the last occasion, though, the contractor did not pray for extension of time, but the PDIL, at its own, initiated extension of time till 28.04.1999 and by that time the execution of work was completed. The dates of the contractor, seeking extension of time and the dates granting such extension of time by the owner, are as follows:
10. In all the letters written by the contractor, ACPL seeking extension of time, the reason assigned was attributable to the owner, ONGC. While the contractor requested for extension of time for the delay attributable to the owner, and the time was extended time to time and, lastly, even without a letter from the side of the contractor, it was not at all justified for the owner to impose and/or to realize liquidated damage from the contractor.
As I find, the arbitrator has taken into consideration all the letters written by the contractor seeking extension of time, the weekly progress report of the works and the decision taken in the joint meetings and I find, nothing wrong in the decision taken by the Arbitrator. The owner also raised insufficient mobilization of skilled workers and delayed arrival of hydraulic excavator, etc. but substantially, delay was for the lapses on the part of the owner. The letter of Engineer-in-charge dated 12.10.2000 addressed to the owner (ONGC), makes it abundantly clear that the delay was substantially attributable to the owner alone. Let us reproduce here the contention of letter dated 12.10.2000, written by the Engineer-in-Charge, PDIL, to the ONGC (owner) based on the query made by the owner. The letter with it enclosures run as follows:
Ref: 2900-PSPM-12-036
Dated: 12.10.2000
To
M/s. Oil & Natural Gas Corporation Limited,
Operation Business Group,
Tripura Project, Badarghat,
Agartala-799014.
Kind Attn: Sri S.K. Moitra,
Chief Engr. (Prodn.) & HOBG.
Project - GCM Project, ONGC, Agartala
(PDIL JOB NO: 2900).
Ref: Your fax msg. dt. 15.09.2000.
Subject: Clarifications on recommendation of compensation for delay of Civil Works.
Dear Sirs,
With reference to your fax message referred above, we are furnishing below our comments for your kind perusal:
Although, the overall delay from the original scheduled date of completion as per work order works out to 608 days, the delay is not attributable exclusively to the contractor i.e. M/s. ACPL.
The main reasons for delay has been detailed out in the enclosed Annexure from which it is apparent that the delay has occurred mainly because of delay in acquisition of land, change in orientation of Battery Limit, change in scope of work in positive direction, soil condition, delay in supply of free issue material like cement & steel and. Force meajure like unprecedented rain, elections, local disturbance etc. on which the contractor had no control.
However, not withstanding the above, the fact remains that the project schedule could not be maintained and hence we have recommended a token compensation for delay @ 1% of the total contract value.
Thanking you,
Yours faithfully
B. Jha
Enclo: As above
Dy. G.M. (Projects)
Delay in Civil work of GCS Konaban, Agartala (Job No. 2900)
11. The Arbitrator heavily relied on the above letter of the PDIL and coupled with other materials on record arrived at a conclusion that the delay was solely attributable to the owner. Since the decision taken by the Arbitrator was based on critical appreciation of the evidence and materials placed before the Arbitrator, I think, it was appropriate for the Court not to interfere in the decision and not to substitute the decision of the Arbitrator with a contrary decision of the Court based on some other materials. The jurisdiction of the Court in respect of appreciation of the materials in a dispute decided by the Arbitrator is available within a very limited sphere as already held by the Apex Court in numerous case laws.
12. The Agreement stipulates, "time is the essence of contract", but where there is a clause in the Agreement in respect of extension of time, the plea that time is the essence of contract does not held good. In the case of
The question whether or not time was of the essence of the contract would essentially be a question of the intention of the parties to be gathered from the terms of the contract.
Even where the parties have expressly provided that time is of the essence of the contract such a stipulation will have to be read along with other provisions of the contract and such other provisions may, on construction of the contract, exclude the inference that the completion of the work by a particular date was intended to be fundamental, for instance, if the contract were to include clauses providing for extension of time in certain contingencies or for payment of fine or penalty for every day or week the work undertaken remains unfinished on the expiry of the time provided in the contract such clauses would be construed as rendering ineffective the express provision relating to the time being of the essence of contract.
13. In the case at hand, while the owner considered the time extension prayer and, in fact, extended the time as many as on seven occasions, as requested by the contractor time to time, and the plea that time is the essence of contract has become academic and while the time was extended being satisfied that the delay in execution of the work was for adequate reasons not attributable to the contractor, the liquidated damage charged by the owner was rightly held by the Arbitrator as unjustified. The Arbitrator rightly held that the recovery of damage by virtue of Clause 6.41 was not proper.
14. Learned senior counsel, Mr. Sahewala has strenuously contended that the award of escalation and overhead was totally unjustified and contrary to Clauses 5.02, 5.05, 5.23, 6.12, 6.13, 6.47, 1.03, 1.15, 1.16 and 7.04 of the contract Agreement. The Arbitrator allowing the escalation and overhead and interest thereon violated the public policy and, therefore, it was appropriate for the Court below to interfere in the award but the Court below failed to exercise its jurisdiction and, hence, the judgment passed by the Court below is bad in law.
15. I have meticulously gone through the award made by the Arbitrator. While the learned Arbitrator held the owner (ONGC) solely responsible for the delay in execution of the work, drawing the ratio from the decision of the Hon''ble Apex Court, in the case of
The doctrine of distributive justice is another jurisprudential concept which has affected the law of contracts. According to this doctrine, distributive fairness and justice in the possession of wealth and property can be achieved not only by taxation but also by regulatory control of private and contractual transactions even though this might involve some sacrifice of individual liberty. This doctrine has found constitutional recognition through the Preamble and Articles 38 and 39.
The test of reasonableness or fairness of a clause in a contract where there is inequality of bargaining power is another theory recognized in the sphere of law of contracts. The courts will not enforce and will, when called upon to do so, strike down an unfair and unreasonable contract, or a clause in a contract, entered into between parties who are not equal in bargaining power. Lord Diplock in A. Schroeder Music Publishing Co. case has given the test of fairness thus: "Whether the restrictions are both reasonably necessary for the protection of the legitimate interests of the promisee and commensurate with the benefits secured to the promiser under the contract. For the purpose of this test all the provisions of the contract must be taken into consideration." This is in consonance with right and reason, intended to secure social and economic justice and conforms to the mandate of the great equality clause in Article 14. There can be myriad situations which result in unfair and unreasonable bargains between parties possessing wholly disproportionate and unequal bargaining power. These cases can neither be enumerated nor fully illustrated. The court must judge each case on its own facts and circumstances. The above principle will apply where the inequality of bargaining power is the result of the great disparity in the economic strength of the contracting parties or where the inequality is the result of circumstances, whether of the creation of the parties or not or where the weaker party is in a position in which he can obtain goods or services or means of livelihood only upon the terms imposed by the stronger party or go without them or where a man has no choice, or rather no meaningful choice, but to give his assent to a contract or to sign on the dotted line in a prescribed or standard form or to accept a set of rules as part of the contract, however unfair, unreasonable and unconscionable a clause in that contract or form or rules may be. This principle, however, will not apply where the bargaining power of the contracting parties is equal or almost equal. This principle may not apply where both parties are businessmen and the contract is a commercial transaction. However, these are only illustrations as it is difficult to give an exhaustive list of all bargains of this.
The contracts of the types to which the principle formulated above applies are not contracts which are tainted with illegality but are contracts which contain terms which are so unfair and unreasonable that they shock the conscience of the court. In the vast majority of cases such contracts are entered into by the weaker party under pressure of circumstances, generally economic, which results in inequality of bargaining power. Such contracts will not fall within the four corners of the definition of "undue influence" given in Section 16(1) of the Contract Act, even though at times they are between parties one of whom holds a real or apparent authority over the other. Contracts in prescribed or standard forms or which embody a set of rules as part of the contract are entered into by the party with superior bargaining power with a large number of persons who have far less bargaining power or no bargaining power at all Such contracts which affect a large number of persons or a group or groups of persons, if they are unconscionable, unfair and unreasonable, are injurious to the public interest. Such a contract or its clause should be adjudged void u/s 23 of the Contract Act on ground of being opposed to public policy.
16. Learned counsel, Mr. Sahewala has contended that the above principle of distributive justice cannot be applied in the case of commercial transaction in view of the stipulation made in Brojo Nath Ganguly (supra) itself In paragraph 89 of the judgment the Court held--
88. As seen above, apart from judicial decisions, the United States and the United Kingdom have statutorily recognized, at least in certain areas of the law of contracts, that there can be unreasonableness (or lack of fairness, if one prefers that phrase) in a contract or a clause in a contract where there is inequality of bargaining power between the parties although arising out of circumstances not within their control or as a result of situations not of their creation. Other legal systems also permit judicial review of a contractual transaction entered into in similar circumstances. For example, Section 138(2) of the German Civil Code provides that a transaction is void "when a person" exploits "the distressed situation, inexperience, lack of judgmental ability, or grave weakness of will of another to obtain the grant or promise of pecuniary advantages.... which are obviously disproportionate to the performance given in return". The position according to the French law is very much the same.
17. The above ratio, as laid down in Brojo Nath Ganguly (supra) that, the principle of distributive justice is not applicable in commercial transaction, has been reiterated in the case of
8. It is to be noted that the plea relating to unequal bargaining power was made with great emphasis based on certain observations made by this Court in
18. Drawing essence from Brojo Nath Ganguly (supra) and taking aid from Sarvesh Chopra (supra), the Arbitrator held that in the given facts and circumstances of the case it was appropriate to grant escalation and overhead. In the case of Sarvesh Chopra (supra), the Apex Court in paragraph 15 of the judgment held thus-
15. In our country question of delay in performance of the contract is governed by Sections 55 and 56 of the Indian Contract Act, 1872. If there is an abnormal rise in prices of material and labour, it may frustrate the contract and then the innocent party need not perform the contract. So also, if time is of the essence of the contract, failure of the employer to perform a mutual obligation would enable the contractor to avoid the contract as the contract becomes voidable at his option. Where time is "of the essence" of an obligation, Chitty on Contracts (28th Edn., 1999, at p. 1106, para 22-015) states
a failure to perform by the stipulated time will entitle the innocent party to (a) terminate performance of the contract and thereby put an end to all claim damages from the contract breaker on the basis that he has committed a fundamental breach of the contract (''a breach going to the root of the contract'') depriving the innocent party of the benefit of the contract (''damages for loss of the whole transaction'').
If, instead of avoiding the contract, the contractor accepts the belated performance of reciprocal obligation on the part of the employer, the innocent party i.e. the contractor, cannot claim compensation for any loss occasioned by the nonperformance of the reciprocal promise by the employer at the time agreed, "unless, at the time of such acceptance, he gives notice to the promisor of his intention to do so". Thus, it appears that under the Indian law, in spite of there being a contract between the parties whereunder the contractor has undertaken not to make any claim for delay in performance of the contract occasioned by an act of the employer, still a claim would be entertainable in one of the following situations: (i) if the contractor repudiates the contract exercising his right to do so u/s 55 of the Contract Act, (ii) the employer gives an extension of time either by entering into supplemental agreement or by making it clear that escalation of rates or compensation for delay would be permissible, (iii) if the contractor makes it clear that escalation of rates or compensation for delay shall have to be made by the employer and the employer accepts performance by the contractor in spite of delay and such notice by the contractor putting the employer on terms.
19. To counter the ratio laid down in Sarvesh Chopra (supra), learned senior counsel, Mr. Sahewala referred the case of Wig Brothers Builders & Engineers Pvt. Ltd. (supra) wherein the Apex Court held that the arbitrator was not supposed to exceed its jurisdiction ignoring express bar contained in the contract and that any award beyond jurisdiction of the arbitrator requires interference by court.
20. In the case of Wig Brothers Builders & Engineers Pvt. Ltd. (supra), the law laid by the Apex Court in the case of Sarvesh Chopra (supra), was not discussed. In Sarvesh Chopra (supra), as already indicated above, certain principles have been laid down regarding consideration of escalation whereas in Wig Brothers Builders & Engineers Pvt. Ltd. (supra), no such principle has been laid down. It has simply been observed by the Apex Court that if there is an expressed provision in the contract, the arbitrator cannot ignore it. In the present case at hand, there is no definite clause to grant escalation and overhead.
There was restriction in the Agreement in respect of escalation and overhead but the situation where abnormal delay in execution of the work which was found attributable to the owner, was considered by the Arbitrator, in view of the law laid down by the Apex Court in Sarvesh Chopra (supra), and with the aid of Clause 5.23 of the Agreement, escalation has been allowed to the respondent-contractor. Since the Arbitrator assigned reasons for allowing such escalation and overhead, I think, in view of the settled position of law laid down by the Apex Court, the trial Court was justified in not interfering with the arbitral award.
21. The arbitral award, if found in conflict with the public policy in India, may be interfered. What should be termed as a ''public policy'', has been categorically and clearly defined by the Apex Court in the case of Saw Pipes Ltd. (supra). The Court in paragraph 31 of the judgment held thus--
31. Therefore, in our view, the phrase "public policy of India" used in Section 34 in context is required to be given a wider meaning, it can be stated that the concept of public policy connotes some matter which concerns public good and the public interest. What is for public good or in public interest or what would be injurious or harmful to the public good or public interest has varied from time to time. However, the award which is, on the face of it, patently in violation of statutory provisions cannot be said to be in public interest. Such award/judgment/ decision is likely to adversely affect the administration of justice. Hence, in our view in addition to narrower meaning given to the term "public policy" in
(a) fundamental policy of Indian law; or
(b) the interest of India; or
(c) justice or morality, or
(d) in addition, if it is patently illegal.
Illegality must go to the root of the matter and if the illegality is of trivial nature it cannot be held that award is against the public policy. Award could also be set aside if it is unfair and unreasonable that it shocks the conscience of the court. Such award is opposed to public policy and is required to be adjudged void.
In the case of Brojo Nath Ganguly (supra), in paragraph 92 of the judgment, the Supreme Court on the words, "public policy", observed thus--
92. The Indian Contract Act does not define the expression "public policy" or "opposed to public policy". From the very nature of things, the expressions "public policy", "opposed to public policy", or "contrary to public policy" are incapable of precise definition. Public policy, however, is not the policy of a particular government. It connotes some matter which concerns the public good and the public interest. The concept of what is for the public good or in the public interest or what would be injurious or harmful to the public good or the public interest has varied from time to time. As new concepts take the place of old, transactions which were once considered against public policy are now being upheld by the courts and similarly where there has been a well recognized head of public policy, the courts have not shirked from extending it to new transactions and changed circumstances and have at times not even flinched from inventing a new head of public policy. There are two schools of though--"the narrow view" school and "the broad view" school According to the former, courts cannot create new heads of public policy whereas the latter countenances judicial lawmaking in this area. The adherents of "the narrow view" school would not invalidate a contract on the ground of public policy unless that particular ground had been well established by authorities. Hardly ever has the voice of the timorous spoken more clearly and loudly than in these words of Lord Davey in Janson v. Driefontein Consolidated Gold Mines Ltd.: (1902) AC 484, 500: "Public policy is always an unsafe and treacherous ground for legal decision". That was in the year 1902. Seventy-eight years earlier, Burrough, J., in Richardson v. Mellish: (1824) 2 Bing 229, 252 : 130 ER 294, 303 and (1824-34) All ER 258, 266 described public policy as "a very unruly horse, and when once you get astride it you never know where it will carry you". The Master of the rolls, Lord Denning, however, was not a man to shy away from unmanageable horses and in words which conjure up before our eyes the picture of the young Alexander the Great taming Bucephalus, he said in Ender by Town Football Club Ltd. v. Football Assn. Ltd. (1971) Ch 591, 606; "With a good man in the saddle, the unruly horse can be kept in control. It can jump over obstacles". Had the timorous always held the field, not only the doctrine of public policy but even the Common Law or the principles of Equity would never have evolved. Sir William Holdsworth in his "History of English Law", Volume III, page 55, has said:
In fact, a body of law like the common law, which has grown up gradually with the growth of the nation, necessarily acquires some fixed principles, and if it is to maintain these principles it must be able, on the ground of public policy or some other like ground, to suppress practices which, under ever new disguises, seek to weaken or negative them.
It is thus clear that the principles governing public policy must be and are capable, on proper occasion, of expansion or modification. Practices which were considered perfectly normal at one time have today become obnoxious and oppressive to public conscience. If there is no head of public policy which covers a case, then the court must in consonance with public conscience and in keeping with public good and public interest declare such practice to be opposed to public policy. Above all, in deciding any case which may not be covered by authority our courts have before them the beacon light of the Preamble to the Constitution. Lacking precedent, the court can always be guided by that light and the principles underlying the Fundamental Rights and the Directive Principles enshrined in our Constitution.
22. Section 55 of the Indian Contract Act, 1872 prescribes thus:
55. Effect of failure to perform at a fixed time, in contract in which time is essential.-- When a party to a contract promises to do a certain thing at or before a specified times, and fails to do any such thing at or before the specified time, the contract, or so much of it as has not been performed, becomes voidable at the option of the promisee, if the intention of the parties was that time should be of the essence of the contract.
Effect such failure when time is not essential.-- If it was not the intention of the parties that time should be of the essence of the contract, the contract does not become voidable by the failure to do such thing at or before the specified time; but the promise is entitled to compensation from the promisor for any loss occasioned to him by such failure.
Effect of acceptance of performance at time other than that agreed upon.--If, in case of a contract voidable on account of the promisor''s failure to perform his promise at the time agreed, the promise accepts performance of such promise at any time other than that agreed, the promisee cannot claim compensation for any loss occasioned by the non-performance of the promise at the time agreed, unless, at the time of such acceptance he gives notice to the promisor of his intention to do so.
23. The Arbitrator, while taking into consideration the law laid down by the Apex Court in the particular facts and circumstances of the case, allowed escalation and overhead, which, though, not in terms of the Agreement, but can in no way be said against "public policy in India" and, therefore, the Court of law is not required to interfere in such an award made by the Arbitrator.
24. The Arbitrator awarded interest on the amount for both pendent elite and subsequent, which in my considered opinion, in a commercial contract, is justified.
25. In view of the discussions made above, I find no merit in the appeal and, hence, the appeal stands dismissed. Parties are to bear their own costs.
