Royal Education Society vs Lis(India)Construction Co. Pvt.Ltd

Royal Education Society ..... Appellant

Versus

LIS (India) Construction Co. Pvt. Ltd. ..... Respondent

JUDGMENT

Lokeshwar Singh Panta, J.

1. Leave granted.

2. This appeal is directed against the judgment and order

dated 19.04.2006 passed by the Division Bench of the High

Court of Judicature at Bombay in Appeal No. 198 of 2006.

The appellant-Society has filed the above-said appeal 2

challenging the order dated 14.11.2005 of the learned Single

Judge whereby the appellant's Arbitration Petition No.423 of

2004 filed under Section 34 of the Arbitration and Conciliation

Act, 1996 against the award of the Arbitral Tribunal was

dismissed.

3. Briefly stated, the relevant facts are as follows:

The appellant is an educational society duly registered

with the Charity Commissioner, Bombay under Bombay

Public Trust Act, 1956. The appellant-Society is running an

educational institution at Borli Panchatan, Taluk

Shriwardhan, District Raigad, Maharashtra. The President of

the appellant-Society is stated to be a renowned Surgeon and

a gold medalist of University of Bombay, in Surgery and is

affiliated to various well-known Hospitals in Bombay. The

President of the appellant-Society hails from village

Barli/Konkan and out of his emotional love to his native

village and in order to educate his own village children; he

took upon the responsibility to establish the school and

institution at his ancestral land at Barli in Konkan area of 3

Maharashtra. The appellant-Society is running English

Medium School for the last about 20 years.

4. The appellant-Society desired to establish a women's

college at Borli and, therefore, it invited tenders for

construction of a building at Borli, Panchatan. The Society

was depending upon magnanimous donors, who have agreed

to donate the entire amounts for the Project.

5. The respondent-company is incorporated under the

Companies Act. The Director of the respondent-company

visited the site and in the presence of the donor, they agreed

to construct the building at the proposed site. The

respondent-company offered tender for constructing the

building at a total cost of Rs.1,55,37,981.20 [Rupees one crore

fifty five lacs thirty seven thousand nine hundred eighty one

and twenty paise]. The college was named after the donor as

`Kalsekar Institute of Science'. It is the case of the appellant-

Society that the tender of the respondent-company was

accepted with the condition that the time was essence of the

contract and the respondent-company by its letter dated

29.04.2000 assured to the appellant-Society that the company 4

will complete the Project within the stipulated time. The

standard agreement drafted by the Council of Architect was

executed on 20.04.2000 and the entire Project was to be

completed within 18 months on or before 01.11.2001. It was

also agreed that the final measurement and valuation shall be

done in the 17th month. The date of the commencement was

agreed upon 01.05.2000. The procedure for payment was that

the respondent-company would submit the bills to the

appellant's Architect and the same would be forwarded to the

donor (President of the appellant-Society) and thereafter the

cheque issued by the donor in the name of the appellant-

Society and, in turn, the appellant-Society would pay the

amount to the respondent-company.

6. The respondent-company allegedly failed to complete the

Project as on 01.11.2001 and the appellant-Society did not

give any extension of time to the respondent-company. The

respondent-company paid a total sum of Rs.1,41,59,956/- as

on 19.10.2001 for the cost of work done. The respondent-

company abandoned the work in the midstream. The donor

refused to give any amount beyond the agreed amount of 5

Rs.1,55,37,981.20 when he found that the building was still

incomplete and the contractors were demanding astronomical

amount for completion of the entire building. The respondent-

company removed their entire labour and machinery from the

site and it left the building incomplete as an orphan without

any care or maintenance to face the wrath of seasons. The

building has no windows and doors on the upper floors.

Subsequently, correspondence was exchanged between the

appellant-Society and the respondent-company. The

respondent-company also failed to pay the electricity bill of

Rs.1,29,000/-.

7. On these premises, the respondent-company filed

Arbitration Application bearing No. 61 of 203 before the High

Court of Judicature at Bombay. The President of the

appellant-Society appeared in-person. The said Arbitration

Application came up before the learned Single Judge on

02.05.2003, on which date following order was passed:-

"... The Petitioners have already appointed Mr. Devbhakta as their arbitrator. Mr. Roshan Nanavati is appointed as second arbitrator. These two arbitrators will appoint third 6

arbitrator who will act as Presiding Arbitrator. The arbitral tribunal so constituted will decide all issues between the parties including claims and counter claims, if any, and also existence of arbitral clause and/or that the claims as raised by the Petitioners are arbitrable or not. Application stands disposed of accordingly."

8. The respondent-company filed its alleged claim on

31.07.2003, whereas the appellant-Society filed reply thereto

and counter claim also on 21.1.2003 accompanied by report

dated 21.01.2002 of the Architect Khalil R. Shaikh and

Associates. The arbitration proceedings were heard on

various dates and finally the Arbitral Tribunal passed an

Award on 23.02.2004, but since the respondent-company did

not pay the fees of the Arbitral Tribunal, therefore the Award

was not declared. Subsequently, it appears that the

respondent-company paid the fees of the Arbitral Tribunal and

thereafter on 20.04.2004 the said Award was communicated

and declared to the appellant-Society by the Arbitral Tribunal

by its letter dated 20.04.2004. The following Award was

passed by the Arbitral Tribunal:-

7

1. We do hereby award that the Respondents namely M/s. Royal Education Society do pay to the Claimants namely M/s LIS (India) Construction Co. (P) Ltd., the sum of Rs.35,50,762.03 [Rupees thirty five lakhs fifty thousand seven hundred sixty two point zero three only] in full and final payment of the claim No.1 upheld by us in this arbitration proceedings.

2. We do hereby award that the Respondent do bear and pay interest at 7% per annum on the amount of Rs.35,50,762.03 [Rupees thirty five lakhs fifty thousand seven hundred sixty two point zero three only] from 13.06.2003 till the date of award as also interest at 7% p.a. from the date of award till the date of payment excluding two months needed to make arrangement for payment.

3. We do hereby award that the Respondents namely M/s. Royal Education Society do pay to the Claimants namely M/s LIS (India) Construction Co. (P) Ltd., the sum of Rs.5,00,000/- [Rupees five lakhs only] towards claim No.2.

4. We do hereby award that the Respondent do bear and pay interest at 7% p.a. on the above amount of Rs.5,00,000/- from the date of award to the date of payment excluding one month needed to make arrangement for payment.

5. We do hereby award that each party do bear and pay its own legal cost as well as cost of this arbitration proceedings.

8

6. We do hereby award that each party do bear and pay three Arbitrators' fees in equal parts."

9. Being aggrieved by the Award of the Arbitral Tribunal,

the appellant-Society filed Arbitration Petition 423 of 2004

before the High Court of Judicature at Bombay. The learned

Single Judge dismissed the said arbitration petition on

14.11.2005.

10. Feeling aggrieved thereby, the appellant-Society filed

appeal challenging the correctness and validity of the order

dated 14.11.2005 of the learned Single Judge and the Award

passed by the Arbitral Tribunal. The Division Bench of the

High Court, as noticed above, dismissed the appeal on

19.04.2006. Now, the appellant-Society has filed this appeal

by special leave.

11. We have heard the learned counsel for the parties and

meticulously examined the judgment and order of the Division

Bench confirming the order of the learned Single Judge

dismissing the Arbitration Petition of the appellant-Society.

12. It is not in dispute that Dr. Abdur Rahim Undre is the 9

President of the appellant-Society. He registered the

appellant-Society with the Charity Commissioner, Bombay.

The appellant-Society is running schools and college for

women at a small village Borli Panchatan in Taluka

Shrivardhan, District Raigad. Dr. Abdur Rahim Undre, as a

President of the appellant-Society, donated all his immovable

property and established English medium school in his native

place. The appellant-Society through its Architects, M/s

Salim Dawawala, had invited tenders for construction of Girls

College at Borli Panchatan. The respondent-company had

submitted its tender for the said work. It is not in dispute

that the tender of the respondent-company was accepted on

behalf of the appellant-Society. The work was awarded to the

respondent-company by the appellant-Society. Thereafter, a

formal contract agreement dated 20.04.2000 was entered into

by and between the parties. As per the terms of the contract,

the work under the contract was stipulated to be completed by

01.11.2001, i.e. within 18 months period from 01.05.2000.

The total estimated cost of Project was Rs.1,55,37,981.20

based on item-rate contract. Undisputedly, as the 10

respondent-company could not complete the work within the

stipulated period, therefore a dispute arose between the

parties, which was referred by the learned Single Judge to

three members of Arbitral Tribunal, namely, Shri Russi R.

Mistry, Shri Madhav Deobakhta and Dr. Roshan N. Nanavati.

Both the parties filed their statements of claim and counter-

claim before the Arbitral Tribunal. The respondent-company

under Claim No.1 had claimed a sum of Rs.38,06,576.75 for

outstanding R.A. Bills. Against R.A. Bill No.17, an amount of

Rs.21,33,423.18 was claimed, whereas against R.A. Bill No.18

a sum of Rs.15,35,356.97 was claimed out of which a sum of

Rs.1,37,796.60 was claimed beyond prolonged period of work,

i.e. 01.11.2001 to 21.01.2002. The Arbitral Tribunal had

allowed the following claims:-

1. In regard to R.A Bill No.17, a sum of Rs.22,45,708.61 was awarded.

2. For R.A. Bill No.18, a sum of Rs.13,05,053.42 was awarded.

3. Bill beyond R.A. Bill No.18 was rejected. 11

The total amount awarded under Claim No.1 was

Rs.35,50,762.03.

13. It was the claim of the respondent-company before the

Arbitral Tribunal that gross value of the work executed by it

within the stipulated period was to the tune of

Rs.1,45,59,956/-, but the total work executed was to the

extent of Rs.1,80,78,908/-. Thus, the difference between the

gross value of the work and the amount of total work got

executed in the prolonged period was Rs.35,18,952 and the

said amount was claimed on escalation rate at 10%. The

Arbitral Tribunal awarded a sum of Rs.35,50,762.03 under

Claim No.1 and a sum of Rs.5,00,000/- under Claim No.2 to

the respondent-company along with interest at the rate of 7%

p.a. from the date of award till the date of payment, excluding

two months needed to make arrangement for payment. Claim

Nos.3, 4, 5, 6, 7 and 8 were rejected. The counter claim of the

appellant-Society was rejected.

14. As stated above, the Award of the Arbitral Tribunal was

upheld by the learned Single Judge as well as by the Division

Bench of the High Court.

12

15. We have gone through the general conditions of contract

executed between the appellant-Society and the respondent-

company. The Type of Contract in terms of clause (3) of the

Contract was item-rate contract and the Contractor was to be

paid for the actual quantity of work done, as measured at site,

at the rates quoted by him in the Contract Bills. In terms of

clause 16 (1) the Architect shall be the Owner's representative

during the construction period, who shall periodically visit the

site to familiarise himself generally with the progress and the

quality of the work and to determine in general if the work was

proceeding in accordance with the contract document. As per

clause 32, when any instruction or decision given at site

involves an extra or whereby the Contractor may plan to claim

an extra, it shall be the responsibility of the Contractor to

inform the Architect of the extra amount and get written

authorization from the Architect before proceeding with the

work involved. Clause 40 of the Arbitration Agreement

stipulates that upon it becoming reasonably apparent that the

progress of the works is delayed, the Contractor shall

forthwith give written notice of the cause of the delay to the 13

Architect and if in the opinion of the Architect, the completion

of the work to be or has been delayed beyond that date for

completion stated in the appendix to these conditions or

beyond any extended time previously fixed under this clause.

The record shows that the Architect of the appellant-Society

issued letter dated 20.4.2000 to the Managing Director of the

respondent-company whereby the tender quotations of the

respondent-company was accepted by the appellant-Society

on certain conditions contained in the said letter. One of the

conditions was that total cost of the Project will be within

Rs.1.55 crores. Further condition was that the Project of the

construction of the Girls College at Borli, Panchatan for the

appellant-Society shall be completed within stipulated time

frame of 18 months from 01.05.2000 and if the Project was

not completed within stipulated time, a penalty of Rs.1,000/-

per day will be charged and if completed before time, same

amount will be paid as bonus. It was also stipulated that the

respondent-company could mobilize the work from

21.04.2000. The MOU will be read in conjunction with tender

document and other prevailing laws of the State Government. 14

16. In response to the said work order, the Director of the

respondent-company vide reference : LIS/RES/00/06 dated

29.04.2000 acknowledged and accepted the work order dated

20.04.2000 and stated that the respondent-company had

started mobilization for the commencement of the said Project

and assured the appellant-Society to complete the same

within the stipulated time limit. In terms of the Agreement,

the Director of the respondent-company informed the

Architect of the appellant-Society vide letter dated 16.05.2000

that in terms of the Agreement the respondent-company had

already mobilized the site and executed the work at the site.

The parties thereafter have exchanged various

communications with each other. The respondent-company

could not complete the work within the stipulated period, the

appellant-Society vide letter dated 04.09.2001 refused to give

further extension of time beyond stipulated period as

contemplated in the Terms of the Agreement. It is not

disputed that the appellant-Society has paid a sum of

Rs.1,41,000/- to the respondent-company before 01.11.2001,

i.e. the stipulated period for execution of the work. The 15

respondent-company submitted R.A. Bill Nos. 17 for

Rs.22,45,708.61 and R.A. Bill No. 18 for Rs.13,05,053.42 after

the stipulated period of the execution of the work. The

appellant-Society has not extended the stipulated time beyond

01.11.2001. The respondent-company claimed a sum of

Rs.1,80,78,908/- for the work done by it till 21.01.2002.

17. Undisputedly, the appellant-Society is an educational

society duly registered by the Charity Commissioner under

Bombay Public Trust Act, 1956. Dr. Syed Akhtar, a renowned

Surgeon, is the President of the appellant-Society. He has

established a women's college at his native village Borli

Panchatan with a sole purpose of giving education to the

children of his native village. He has donated his entire land

for the construction of the women's college and received

substantial amounts by donations from magnanimous donors

for the Project. The work of construction of the college was

entrusted to the respondent-company for a total cost of

Rs.1,55 crores. Looking to the charitable cause for which the

President-Donor of the appellant-Society has donated his land

and raised money from the donors, we do not wish to embark 16

upon the merits of the claims and counter claims raised by

the parties before the Arbitral Tribunal. In the interest of both

the parties and in order to settle their dispute finally, we think

it proper and reasonable that in addition to Rs.1,41,51,956/-

already paid by the appellant-Society to the respondent-

company for the work executed by it, an extra sum of Rs.21

lakhs shall be paid by the appellant-Society to the

respondent-company on account of the work claimed in R.A.

Bill No.17. The respondent-company is not entitled to the

payment of the amount claimed for prolonged period of work

done after 01.11.2001 to 21.01.2002. The claim beyond

01.11.2001 made by the respondent-company and awarded

by the Arbitral Tribunal, therefore, is wholly untenable and

unsustainable.

18. In the facts and circumstances of the case, the

respondent-company cannot be held entitled to the retention

money and interest as awarded by the Arbitral Tribunal in its

Award, which has been affirmed by the High Court. The

balance amount of Rs.21 lakhs, as ordered by us, shall be 17

paid by the appellant-Society to the respondent-company

within eight weeks from the date of this order.

19. In the result, for the above-said reasons, the appeal is

partly allowed and the judgment and order dated 19.04.2006

of the Division Bench of the High Court affirming the order of

the learned Single Judge in Arbitration Petition No. 423 of

2004 whereby the Award of the Arbitral Tribunal was upheld,

shall stand modified in the aforesaid terms and to the extent

indicated above. The parties are left to bear their own costs.

........................................J. (Lokeshwar Singh Panta)

........................................J. (Aftab Alam)

New Delhi, December 02, 2008.