Sanjib Banerjee, J.@mdashIn these proceedings under Sections 30 and 33 of the Arbitration Act, 1940, the petitioner challenges every bit of the
award that is in favour of the contractor.
2. The umpire has awarded Rs. 5 lakh by way of damages to the contractor; Rs. 50,000/- on account of costs in respect of the Court
proceedings; Rs. 7 lakh on account of costs in the reference and interest at the rate of 18 per cent per annum from March 15, 1988 until payment.
3. In end-August, 1983 the contractor was engaged for designing, manufacturing, supplying, erecting, testing and commissioning a Process Water
Reclamation Plant at the Rourkella Steel Plant of the petitioner. The work was to be completed by December, 1984. The arbitrator has found that
there was delay on the part of the employer or the engineers engaged by it that resulted in an unsuitable site being allotted. An alternative site was
thereafter provided and on the petitioner''s instructions found in a writing of March 22, 1984, the work was suspended. The work remained
suspended till or about the first week of December, 1984, and after relocation of the plant units, construction activities were taken up in the middle
of December, 1984.
4. By the beginning of 1987, the contractor instituted proceedings u/s 20 of the Arbitration Act, 1940 and the disputes were ultimately referred to
joint arbitrators and an umpire was appointed in the event there was difference between the joint arbitrators. According to the contractor, the
disputes referred to arbitration did not include any counter-claim by the employer and the joint arbitrators differed as to whether the counter-claim
would be entertained at all. Upon such difference, the matter reached the umpire and the reference culminated in an award running into some 116
pages made on July 16, 2003.
5. The contractor claimed a sum of Rs. 2.5 crore on various heads including on account of idle establishment charges (claim No. 5) and for loss of
profit (claim No. 7). The umpire held against the contractor on all 11 heads of claim originally made, save in respect of claim No. 7 and awarded a
sum of Rs. 5 lakh on such count. The umpire rejected the four additional claims made by the contractor in the supplementary statement of claim.
The entirety of the counterclaim, of value of Rs. 2.75 crore, was found unmeritorious.
6. The umpire has found that despite the original 16-months tenure of the contract having run out in December 1984, the contract was kept alive
by the parties till March 15, 1988. By an order of this Court of February 29, 1988, a chance was given to the contractor to complete the work, if
not already done, within two weeks from the date thereof. On the basis of such order, the umpire has concluded that the contract remained alive till
March 15, 1988.
7. The petitioner challenges the award for damages on account of loss of profit. The petitioner urges that loss of profit of the nature claimed and
awarded can arise only when the contract is terminated before the work contemplated thereunder is complete and such termination of work is not
on account of any breach by the contractor. The petitioner complains that the delay in the execution of the work was not for any fault on its part
and even if the delay is attributable to the petitioner, as the umpire has held, the petitioner may have been made liable for the delay on account of
idling charges. The petitioner asserts that upon the umpire having ruled against the contractor in respect of the claim on account of idling charges,
whether on account of labour or equipment, it was not lawful for the umpire to compensate the contractor by awarding damages on account of loss
of profit.
8. According to the petitioner, the contract was not terminated by it; it stood determined by the order of Court passed in proceedings instituted by
the contractor. The delay that the umpire found had been occasioned by the employer, the petitioner asserts, was more than made up by the
employer having enlarged the time for completion of the work. The petitioner urges that even if the delay on account of the petitioner is accepted,
the contractor ought to have completed the work within the enlarged time and, in any event, it was not the petitioner which closed the contract.
9. The umpire''s reasoning in awarding damages on account of loss of profit needs to be appreciated. The umpire reasoned that if the work
contemplated under the contract had been completed within the stipulated time, by end-December, 1984, the contractor could have raised bills for
the total amount covered by the contract and could have made a profit thereon which, by the reasonable estimate now accepted, is about 15 to 20
per cent of the value of the contract. The petitioner does not question the assessment of profit at 15 to 20 per cent of the value of the contract, but
challenges the factum of damages suffered by the contractor on account of loss of profit. The umpire held that the reasons for the work not being
completed within the stipulated time were attributable solely to the employer. The umpire found that there was delay on the part of the contractor
at the subsequent stage, but for the basis of his awarding damages on account of loss of profit, such delay on the part of the contractor was
irrelevant.
10. The umpire has subtracted the value of the bills submitted by the contractor from the total contract value. According to the umpire, had it not
been for the delay on the employer''s part, the work under the contract could have completed by end-December, 1984 and the contractor could
have raised bills for the remaining value of the contract. On such reasoning, and after taking into account the value of the bills raised by the
contractor during the extended tenure, the umpire has awarded damages on account of loss of profit roughly at about 20 per cent of the unbilled
value. It is a view that was possible to be taken on the facts and cannot be questioned as being absurd or perverse or otherwise being opposed to
public policy in the sense that the Oil and Natural Gas Corporation Ltd. Vs. SAW Pipes Ltd., , recognises public policy to be.
11. The umpire''s finding that the delay in the initial stage and till the original tenure of the contract was attributable to the employer, is virtually
unassailable, and to be fair to the petitioner, has not been questioned with much enthusiasm. After all, the employer could not make the site
available, and alternate site had to be found out and a notice for suspension of work was issued by it. There is little basis for such employer to
challenge the finding that it was it which caused the work not to be completed within the stipulated period. If the employer was guilty of delay, the
contractor was liable to be compensated. Usually, such compensation is in the form of idle labour or idle equipment charges. The umpire held did
not award anything to the contractor on such head of claim. If the umpire had acceded to the claim for damages sought on such ground, the
employer would have been on better ground challenging any award on account of loss of profit in the facts of this case. But the umpire found
nothing was due to the contractor on account of its fifth head of claim and further found that there was nothing to assume that the contractor would
not have completed the work within the agreed time had the conditions therefore been made suitable by the employer. The employer thwarted the
execution of the contract within the stipulated time and, consequently, the contractor''s chance of running up bills of the value of the contract and
making reasonable profit thereon. The umpire concluded, on the detailed appreciation of the material before him, that the contractor was liable to
be compensated for his loss of profit and has opened his mind as to why he felt so. As long as reasons are given and the reasons disclose a
plausible view, the Court would be loathe, in proceedings of such nature, to tinker with the award.
12. It was open to the contractor to treat the contract to have been determined upon the conclusion of the stipulated time and to sue the employer
for loss of profit in respect of the unbilled value of the contract for reasons attributable to the employer. This contractor chose not to do so and
plodded away for the better part of the next three years. Surely, the estimates that the contractor had given and the basis on which it quoted its
price for the work had all gone away by reason of the extended duration of the work. The umpire has found nothing was due to the contractor on
such count and this has not been challenged by the contractor. The umpire thought it fit to merely award the contractor the 20 per cent of the
unbilled value of the contract on account of loss of profit. On a broader view, there is nothing shocking about such part of the award that will
require the Court to sit up and take notice.
13. The petitioner next urges that exorbitant costs have been awarded. The umpire awarded Rs. 50,000/- on account of costs in the Court
proceedings and Rs. 7 lakh as costs in the reference. The petitioner asserts that there is no basis for the award of Rs. 50,000/- on account of
Court proceedings. The respondent instituted proceedings u/s 20 of the 1940 Act and there were several interlocutory applications made. A sum
of Rs. 50,000/- on account of costs in the Court proceedings is probably less than what the respondent expended and what was found by the
umpire to be recoverable. It is not such a large or unconscionable amount that should detain the matter nor is the award of costs to such extent a
matter which is otherwise unsustainable.
14. It is the award of Rs. 7 lakh as costs in the reference that the petitioner attacks with more vigour. The umpire records that bills of costs as to
the reference were submitted by both sides. Each party assessed its costs in the reference to be in excess of Rs. 10 lakh. The umpire''s basis for
awarding costs is found in the following sentence:
So far as the question of costs of arbitration is concerned, both the parties have submitted their costs statements which are above Rs. 10,00,000/-
and after taking into account, further costs incurred thereafter and the fact that several items of claims and/or counter-claim have been found by me
to be non-maintainable and have been disallowed, I am inclined to allow and I hereby award a further sum of Rs. 7,00,000/- only to the claimant
on account of costs.
15. The petitioner contends that the claimant had sought an award for Rs. 2.5 crore and the employer had counter-claimed for Rs. 2.75 crore. The
award that was made was for Rs. 5 lakh, though the claimant adduced evidence to sustain the entirety of its claim. The petitioner submits that even
though the entirety of the counter-claim was disallowed, there was little time expended in the reference on account of the counter-claim. According
to the petitioner, if the entire duration that the reference lasted was taken up by the contractor''s claims and at the end of it an insignificant
percentage of the claim sustained, it is the claimant which has to bear costs and, at least, no additional burden on such count should have been
levied on the respondent since the umpire has accepted that the respondent had spent Rs. 10 lakh in the reference. As a point of principle, the
petitioner is right in such assertion. If a suitor seeks a fantastic amount and at the end of a prolonged trial in his failed attempt to sustain such
fantastic claim, a paltry sum is obtained such suitor should ordinarily not be compensated for the huge costs that have naturally been incurred in
course of the protracted proceedings. Yet there can be no formula for assessing quantum of costs on the basis of the ratio of the sum awarded to
the sum claimed.
16. There is no material produced by the petitioner here in support of the point that it now seeks to canvass that the reference was hardly detained
by the weight of the employer''s counter-claim. It is for the petitioner assailing the award to establish that the entire duration of the reference was
taken up in the assessment of the contractor''s claim. If better material in such regard had been furnished by the petitioner, the principle that it
propounded could have been carried forward and the award of costs assessed on the basis of such material. But in the absence of relevant data,
despite the scanty reasons found in support of the award of costs that exceeds the award on the principal head, the award on such score should
not be disturbed. It is, to take the petitioner''s case at the highest, a somewhat arbitrary assessment by the umpire. To accept the petitioner''s
contention now would be, on the basis of what the petitioner had put on display in support of such ground, a more arbitrary assessment. At least,
the umpire had the benefit of presiding over the reference and the sparse reasoning in support of the award for costs is supported by his subjective
assessment with the benefit of having conducted the reference. The award of costs in a commercial matter is of some significance and not a trifling
matter. Oftentimes the commercial gain from a favourable order or award is offset by the time and money expended unless realistic costs are
awarded.
17. The petitioner last assails the award of interest at the rate of 18 per cent per annum. The Court is reminded that the reference was conducted
under the 1940 Act without the benefit of the figure of 18 per cent in the statute that the Arbitration and Conciliation Act, 1996 recognises. The
decision reported at Krishna Bhagya Jala Nigam Ltd. Vs. G. Harischandra Reddy and Another, is cited and paragraph 11 thereof placed in
support of the petitioner''s contention that in view of the low interest regime, the grant of interest at the rate of 18 per cent was not justified.
18. The solitary line in the award justifying grant of interest at 18 per cent per annum speaks of both parties having claimed 18 per cent interest in
their respective claims. Implicit in such reason is that since either party claimed at such rate, there was no further justification necessary for award
of interest at that rate. With respect, interest is a measure of compensation. A party is compensated for money due to it, being withheld. The
compensation is to offset damages that such party suffers on account of the money being received at a later date. If a person is found to have been
entitled to a certain sum at an earlier date, he is compensated by the award of interest so that at the time that he receives the money, he can get, as
nearly as possible, the same basket of goods or services that he could have obtained had he been afforded use of the money when he was
originally entitled to it. Loosely, the principle is that the quantum of money ultimately received by a successful suitor is such as the original amount
due to him, with the usual accretions, would have amounted to. It is in such context that paragraph 11 of the Supreme Court judgment may be
referred to:
11. On the merits of the claims made by the contractor we find from the impugned award dated 25.6.2000 that it contains several heads. The
arbitrator has meticulously examined the claims of the contractor under each separate head. We do not see any reason to interfere except on the
rates of interest and on the quantum awarded for letting machines of the contractor remaining idle for the periods mentioned in the award. Here
also we may add that we do not wish to interfere with the award except to say that after economic reforms in our country the interest regime has
changed and the rates have substantially reduced and, therefore, we are of the view that the interest awarded by the arbitrator at 18% for the pre-
arbitration period, for the pendente lite period and future interest be reduced to 9%.
19. The Supreme Court has taken notice of interest rates having fallen in recent times. The umpire has awarded interest from March 15, 1988 till
payment. In the usual course money does not grow these days at the rate of 18 per cent per annum in this country. For almost the entirety of the
decade of 1990s money did not command, in the usual course, a return of 18 per cent. Given that the award of interest is from March 15, 1988, a
rate of 12 per cent per annum would be a reasonable compensation for the contractor and more appropriate, in view of judicial notice having been
taken by the Supreme Court of the prevailing commercial scenario.
The award is modified only to the extent of the interest awarded being reduced from 18 per cent per annum to 12 per cent per annum from March
15, 1988vtill payment. The rest of the award remains.
The petition is allowed to the limited extent as above and is disposed of without any order as to costs.
In view of the above, there will be judgment and decree in favour of New Central Power & Process Private Limited in terms of the award save
that the interest will be at the rate of 12 per cent per annum from March 15, 1988 till payment. The award holder will also be entitled to interest at
the rate of 12 per cent annum on the principal sum of Rs. 5 lakh till payment and on the sums of Rs. 50,000/- and Rs. 7 lakh from the date of the
award till payment.
20. Urgent photostat certified copies of this judgment, if applied for, be issued to the parties upon compliance with requisite formalities.
