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Union Of India vs M/S.

Build Fab on 10 April, 2017

Calcutta High Court

Union Of India vs M/S. Build Fab on 10 April, 2017
Form No. J(2)
The Hon'ble Justice Aniruddha Bose

AP 231 of 2007

Union of India
M/s. Build Fab

Advocates for the Petitioner: Mr. O.P. Dubey,

Mr. J.S. Dhatt

Advocates for the Respondent: Mr. Bijon Majumdar,

Mr. Prasanta Banerjee Heard On: 29/04/2016, 17/03/17 Judgment On: 10th April, 2017

1. The petitioner had engaged the respondent (claimant) for constructing a building
for Regional Provident Commissioner at Kolkata. The agreement to that effect was
executed on 21st August, 1994. It was initially agreed upon by and between the
parties the starting date for execution of the work was to be 27th August, 1994, and
the work was to be completed in twenty four months. The projected date of
completion of the work, thus, was 26th August, 1996. The value of the contract was
Rs.90,34,898/-(Rupees ninety lacs thirty four thousand eight hundred and ninety
eight only). The date of completion of work was extended by approximately twenty
eight and the actual date of completion of work was 21st December, 1998. Clause 25
of the contract provided for resolution of disputes arising out of the contract by
arbitration. In this clause, the Chief Engineer, Central Public Works Department in
charge of the work at the material point of time was specified to be the arbitrator, and
the administrative head of the same organization was specified to be the arbitrator if
there was no chief engineer.

2. Dispute had arisen in relation to certain claims made by the contractor after payment of final bill,
in which no disbursal had been made in respect of certain items, or partial disbursal had been made.
The arbitrator, whose award is under challenge in this petition was appointed in terms of an order
passed under Section 11 (6) of the Arbitration and Conciliation Act 1996. I find from records that at
the initial stage the arbitrator's authority to act in that capacity was questioned, but the petitioner's
plea on that count was rejected by the arbitrator in an application taken out under Section 16 of the
1996 Act. In the statement of claim filed before the arbitrator, the claimant had raised claims under

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six heads. The first claim comprised of three parts, in respect of escalation, penal recovery of cement
and extra/substituted items. A total sum of Rs.5,11,655/-(Rupees five Lacs eleven thousand six
hundred and fifty five only) was claimed under these three heads. The second claim related to cost of
maintaining extra establishment both on-site and off-site for twenty eight months, being the
extended time within which the contract was completed and the sum claimed was Rs.5,27,000/-
(Rupees five lacs twenty seven thousand only). Claim No. 3 related to extra cost on tools and plants
for prolongation of the work and a sum of Rs.2,63,000/- (Rupees two lacs sixty three thousand
only) was claimed. The fourth claim was for Rs.5,27,000/- (Rupees five lacs twenty seven thousand
only) on account of loss of profit resulting from prolongation of the work beyond the stipulated
period of twenty four months. The rest two claims were in respect of interest and costs. Upon
hearing the learned counsel appearing for the parties after completion of pleadings and examination
of evidence, the arbitrator awarded a sum of Rs.18,04,403/-(Rupees eighteen lacs four thousand
four hundred and three only) as principal in relation to the first four claims. 12% interest was
awarded from 17th February, 2005 till the date of the award, which was computed to be
Rs.4,63,371/-(Rupees four Lacs sixty three thousand three hundred and seventy one only) and 18%
interest with effect from 10th April, 2007, to be computed from the date of the award till the date of
payment. Costs of Rs.1,00,000/- was awarded in addition, against claim no. 6. The award was made
and published on 9th April, 2007.

3. This award is assailed in this proceeding on diverse grounds. It appears from the award itself that
in course of hearing before the arbitrator, the petitioner sought to exclude certain claims as
"excepted matters". The arbitrator on this point, inter alia, held:-

"..........But claims which are incidental to and arise out of or flow from the contract
but which do not form the subject matter of the contract cannot be termed as
'excepted matters' as for instance refund of security deposit, escalation, loss of profit
due to prolongation of the contract beyond the stipulated period of completion, loss
due to blockage of working capital, loss due to inability to plough back the working
capital to any gainful enterprise because of delay in making timely payment of 'on
account' bills etc. etc. These are very much arbitrable though these do not form the
subject matter of the contract."

Before me, not much argument had been advanced on arbitrator's authority to adjudicate on dispute
on any of these heads on the ground of such claim on those heads being outside the scope of the
arbitrator's jurisdiction. No specific provision of the contract was cited under which any of the
claims on which award had been made could take them outside the arbitrator's jurisdiction.

4. Referring to the part of award under which the arbitrator accepted the claimant's case on
escalation, main submission of the petitioner was that the same was contrary to the provisions of the
contract and in this regard Clause 10CC of the contract had been referred to. Learned counsel
appearing for the petitioner submitted that the arbitrator had erred in holding that there was no
effective denial by the respondent (being the petitioner before me) on claimant's case on this
ground. Claim under this head was broken into two parts, and total sum claimed was Rs.1,14,567/-.
The pleadings relating to claim no. 1 had been made in paragraph 8 of the statement of claim

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(annexure "B" to the petition). The first part of this claim related to a sum of Rs.24,752/-. This was
rejected by the arbitrator. The second part involved a sum of Rs.89,815/-. It appears from the said
paragraph of the statement of claim that the petitioner (employer) had sanctioned altogether 17
escalation statements, and in relation to the first part of the claim made under this head, the amount
demanded was on account of computation or calculation in relation to the provisions of the contract.
The second part of the claim was on account of non-payment of escalation costs for the amount of
work covered in the final bill. In their counter-statement, at paragraph 3.8(a), the petitioner sought
rejection of the claim of Rs.24,752/-. There is no specific dealing in the counter- statement as
regards second part of the claim. There is comprehensive denial of the basis of the claim for
escalation on the ground that final bill stood settled without any objection from the claimant.
Objections to the amount cleared were raised by the claimant/respondent on 17th November 2001
by a communication marked annexure "I" to the petition. The issue of raising claim after receiving
final bill without objection has been dealt with by the arbitrator in paragraph 49 of the award, which
is reproduced in the subsequent paragraph. Barring denial on such general principle of law, I do not
find in the pleadings any specific denial of the claimant's contention relating to escalation, forming
second part thereof. There does not appear to be any error on the part of the arbitrator on his
finding in allowing second part of the claim to warrant interference by this Court.

5. The second component of the first claim was in relation to penal recovery of cement. The
provision relating to the penal recovery is contained in Clause 42 of the General Conditions of
Contract (GCC). Recovery had been made at double the rate of cement on account of excess
consumption. The petitioner alleged to have had found that there was excess consumption of
cement to the extent of 23.75 M.T.s. The claimant sought refund of penal recovery of cement for a
sum of Rs.53,556/-. On this point the stand of the contractor was that the contract provided for 2%
variation and this was not taken into account by the petitioner while computing excess consumption
for the purpose of penal recovery. It was also pointed out on behalf of the petitioner that such
variation was not allowed under the contract on actual consumption but on theoretical
consumption. On this point the arbitrator held:-

"48. The second part of claim no.1(B) is regarding "Penal Recovery of Cement". The
gist of the argument of the claimant is that the respondent has not considered the 2%
variation on the cement consumption in the work of piles for which the constant was
not available in the CPWD pamphlet and as per clause 42, the same were required to
be decided by the Superintending Engineer, which was taken as actual consumption.
According to the claimant, the Superintending Engineer has not decided any constant
for such item as required in clause 42 of the agreement. Clause 42,, inter-alia,
provides that any difference in the theoretical and the actual consumption after
considering plus minus 2% of variation will be recovered at penal rate. According to
the claimant, as the respondent has not considered the variation of 2% on the
consumption of cement on piles, the excess amount has been unjustly recovered at
double rate. The claimant further contended that there was no allegation of pilferage.
The claimant further states that cement was also used in some of items which were
not required to be paid. In the circumstances, the claimant contended that the penal
recovery of Rs.5,32,556.00 is unjustified and should be refunded.

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49. Mr. A.C. Moitra, the learned Counsel appearing for the respondent, inter-alia,
contended that the claimant received the final bill without any objection and as such
is debarred from making any claim on that account at this point of time, presumably
under clause 25 of the agreement. It is common knowledge that no "objection" is
allowed to be recorded in respect of any payment made by the government. Mr.
Maitra submitted that the claimant has waived its right to claim anything within the
meaning of clause 25 of the agreement in question.

Clause 25 of the agreement does not prohibit an arbitrator from granting any relief to an aggrieved
party if made within the period of limitation as prescribed by the law of the land. Mr. Maitra, further
contended that Cement Register and Hindrance Register is required to be produced to resolve this
part of the dispute. These records are in the custody of the respondent and it has chosen not to
produce the said Registers. In this connection Mr. Maitra once again cited a number of decisions of
the Hon'ble Supreme Court which are distinguishable on facts. The rest of the submissions of Mr.
Maitra are not relevant so far as this aspect of the penal recovery of cement is concerned."

The arbitrator held that the claimant was entitled to refund of Rs.53,556/- on account of excess
recovery on account of consumption of cement.

6. The third component of claim no. 1 was in respect of payment for extra/substituted work. Dispute
on this count is primarily factual in nature. Contention of the petitioner was that the arbitrator did
not consider their defence summarized in paragraph 3-8(c) of the counter- statement. The arbitrator
held, in respect of the third component of the first claim:-

"51. Part C of claim no. 1 is concerned with payment for extra/substituted items.
According to the claimant, it had submitted the rates of all the extra and substituted
items along with the rate analysis at the appropriate time but the respondent
sanctioned lower rates for many items without disclosing any;

basis. The respondent furnished a Rate Analysis of extra items on a perusal of which claimant gives
up its claims on 18 items namely, III/2, VII(4)(a) and (b), VI/5, VII/6, X8, X9, XI/5, XI/6, XII/9,
XIKI/10, XII/11, XII/13, XII/14, XII/15, XII/16, XIII/3 and XIII/7. The respondent however denied
the claim and contended, inter-alia, that the claimant had made an arithmetical jugglery by
reflecting the provisional rates for items awaiting sanction to maintain formality for passing the
final bill. This argument of the respondent is not at all convincing. The claimant further stated that
for an item namely, at E/1 VI of B-1, though the respondent had sanctioned a rate of Rs.1.553/-
which is acceptable yet by mistake it had paid Rs.1533.86. This calculation mistake is to be rectified.
The claimant further contended for many items, which are derived on the basis of market rates, the
labour rates as adopted by the respondent differs from time to time and that there is no uniformity
as would be evident from the chart submitted by the claimant on June 14, 2006 before the learned
Arbitrator. As it is not possible for the arbitrator to go into such minute details of calculations item
by item and as there is no denial by the respondent of the corrected calculations furnished by the
claimant on June 14, 2006 in course of arbitration proceeding let there be an award of
Rs.2,56,361.00 plus Rs.87,171.00 (Rs.3,43,532.00) as modified by the aforementioned observations

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in the preceding paragraphs. I, accordingly, direct the respondent to pay to the claimant the
aforesaid modified amount. The modified chart submitted by the claimant on 14.6.2006 in the
arbitration proceeding forms part of this Award marked as Annexure A."

7. It would be evident from this part of the award that the arbitrator had examined the factual
aspects while deciding on this issue. There was recalculation of the claim before the arbitrator, and
in course of this exercise, claimant had given up its claim on 18 items. The petitioner's (respondent
before the arbitrator) contention that the claimant had made an arithmetical jugglery had been
repelled by the arbitrator. The arbitrator had also corrected certain arithmetical errors while dealing
with this part of the claim. In these circumstances, I cannot accept the contention of the petitioner
that the arbitrator had not considered their factual defence. An award is to contain an overall factual
analysis of the cases of the claimant and the respondent. A line by line scrutiny or analysis of the
pleadings of the rival parties is not to be expected in an award of an arbitrator.

8. Claim no. 2 is in respect of the cost of extra establishment for prolonged period. There was delay
of 28 months in completion of the work and time to complete the work was extended by the
petitioner from time to time. The claimant proceeded on the basis that the quoted rates included 5%
towards establishment cost, and claim under this head was made on that basis. In fact, the second
and the third claims are also founded on the same reasoning, the latter being in respect of extra
costs of tools and plants which had to be deployed for the additional twenty eight months. The basis
of calculation of extra costs of tools and plants is 2.5% of the quoted rates. The petitioner sought to
attribute at least part of the delay in completion of the work to fault of the claimant. The arbitrator
found on this point:-

"............Time to complete the work was extended from time by the respondent
without levy of any penalty by the respondent and at this point of time it will be futile
to seek the reason for such delay or as to who is responsible for such delay. What
matters is the factum of such delay and the condonation thereof by the respondent.
Now it follows as a matter of corollary that such extended time to complete the
construction, the claimant had to maintain the establishment both on site and off

I do not find any fault in such reasoning.

9. The other defence on the same point, also being factual in nature, was that the claimant had
subcontracted the work and these subcontractors were terminated for causing delay. Certain
exhibits were sought to be relied upon in this regard, and the petitioner urged that they could not be
held responsible for such delay. This again is factual defence, on which the scope of interference by
this Court is limited. The arbitrator accepted the mode of calculation of the claimant and awarded
sums of Rs.5,27,000/- and Rs.2,63,500/- under these two heads.

10. The fourth claim was founded on loss of profit. The claimant's contention before the arbitrator
was that for the purpose of being tied up with the work for a period of additional twenty eight
months curtailed the claimant's potential participation in business ventures elsewhere and

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consequentially the claimant suffered loss of profit which it could have generated in such business
ventures. Under that head a sum of Rs.5,27,000/- have been claimed. This computation was made
on the basis of net profit at the rate of 5% of the quoted price. Through this mode of computation the
amount of monthly profit came to Rs.18,823/. Award was made on that basis. So far as deciding on
the rate, which exercise has been undertaken in relation to award under the second, third and the
fourth claims, there is little scope of interference by the Court under Section 34 of the 1996 Act. The
petitioner relied on the decision of the Supreme Court in the case of South Bengal State Transport
Corporation reported in [(2006)2 SCC 584] to contend that the finding of the arbitrator on this
point was perverse. I do not think the arbitrator had decided on this issue without any material
basis. Reasoning of the arbitrator appears from the award, and such reasoning in my opinion is not
flawed. The ratio of the aforesaid decision does not apply in the facts of this case. The Supreme
Court had examined a similar issue in the case of Mohd. Salamatullah Vs. Govt. of A.P. (AIR 1977 SC
1481) while determining the question of rate of damages for breach of contract based on estimated
profits. In that case, the High Court was dealing with an award passed under the Arbitration Act,
1940 in which rate was fixed at 15%. The High Court had reduced it to 10%. The Supreme Court
found there was no reason to undertake a second guess in fixing the rate in the absence of any
material on record. The same principle, in my opinion, ought to apply to an award under the 1996
Act as well. The petitioner has not come with a cogent case for reducing the rates which were found
by the arbitrator to be acceptable.

11. The scope of interference in an award of an arbitrator has been examined by the Supreme Court
in the case of Mcdermott International Inc. Vs. Burn Standard Co. Ltd. & Ors. [2006(2) Arb. LR 498
(SC)]. In this judgment, it has been held:-

"In Renusagar Power Co. Ltd. Vs. General Electric Co., 1994 Supp (1) SCC 644=1994(2) Arb. LR 405
(SC), this Court laid down that the arbitral award can be set aside if it is contrary to-(a) fundamental
policy of Indian Law; (b) the interests of India; or (c) justice or morality. A narrower meaning to the
expression 'public policy' was given therein by confining judicial review of the arbitral award only on
the aforementioned three grounds. An apparent shift can, however, be noticed from the decision of
this Court in Oil and Natural Gas Corporation Ltd. v.

Saw Pipes Ltd. (for short 'ONGC')(2003) 5 SCC 705=2003(2) Arb. LR 5 (SC). This Court therein
referred to an earlier decision of this Court in Central Inland Water Transport Corporation Ltd. v.

Brojo Nath Ganguly (1986) 3 SCC 156 wherein the applicability of the expression 'public policy' on
the touchstone of Section 23 of the Indian Contract Act and Article 14 of the Constitution of India
came to be considered. This Court therein was dealing with unequal bargaining power of the
workmen and the employer and came to the conclusion that any term of the agreement which is
patently arbitrary and/ or otherwise arrived at because of the unequal bargaining power would not
only be ultra vires Article 14 of the Constitution of India but also hit by Section 23 of the Indian
Contract Act. In ONGC (supra), this Court, apart from the three grounds stated in Renusagar
(supra), added another ground thereto for exercise of the court's jurisdiction in setting aside the
award if it is patently arbitrary.

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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. 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. However,
we would consider the applicability of the aforementioned principles while noticing the merit of the

12. The Supreme Court in the case Sudarsan Trading Co. Vs. The Govt. of Kerala (AIR 1989 SC 890),
while expressing opinion under the 1940 Act held that in a case where there is no dispute as to the
contract, the interpretation of the contract would be a matter for the arbitrator to decide, on which
Court cannot substitute its own decision. The same view is reflected in a judgment of the Delhi High
court in the case of National Highways Authority of India Vs. R. N. Shetty & Co. [(214)3 Arb. LR
(Delhi)]. In the latter case, the 1996 Act was applicable. Claims under the fifth and sixth heads relate
to interest and costs. Applying the ratios of these authorities, I do not find any ground to interfere
with the award. Award has been made under the first four claims mainly on interpretation of the
terms of the contract and upon examining factual basis of such claims. No part of the award can be
held to be tainted with patent illegality. As regards raising of the dispute after payment of final bill,
the arbitrator has given his reasoning, which cannot be held to be perverse. No case has been made
out that there was specific bar or prohibition in the contract on making claims under any of the
heads on which award has been made in favour of the claimant. I also do not find award of interest
and costs by the arbitrator to be illegal for any reason. In my opinion, there is no error on the part of
the arbitrator in rejecting the counter-claim for costs. The learned arbitrator has rightly held that
the award being largely in favour of the claimant, no cost was payable in favour of the petitioner.

13. I accordingly dismiss the instant application. The award impugned is sustained.

14. There shall be no order as to costs.

15. Let an urgent Photostat certified copy of this order, if applied for, be supplied to the parties
subject to compliance with all requisite formalities.


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