State Of West Bengal vs Bharat Vanijya Eastern Pvt. Ltd

For the Petitioner : Mr. Jayanta Kr. Mitra, Ld. A.G., Mr. Paritosh Sinha, Ld. AOR., Mr. Subhabrata Dutta, Adv.

For the Respondent : Mr. Goutam Chakravortti, Sr. Adv.,

Mr. Pradip Kr. Ghose, Sr. Adv., Mr. Dhruba Ghosh, Sr. Adv., Mr. Sarajit Mitra, Adv., Mr. Shayak Chakraborty, Adv.

Heard On : 29.09.2016, 17.11.2016, 24.11.2016, 08.12.2016, 16.12.2016, 19.12.2016, 23.12.2016

Judgment On : 4th January, 2017

Soumen Sen, J.:- The employer assails the award in excess of Rs.15 crores

inclusive of interest in respect of construction of Falkata Pundari Section of NH

31 (Coochbehar) a Two-Lane At-Grade Highway in the State of West Bengal.

The respondent initially filed a suit in February, 2002 against the

petitioner for a decree for Rs.20,72,36,567/-. After the settlement of issues and

filing of evidence on affidavit, the parties have agreed to have the disputes resolved through arbitration and accordingly an application was filed being G.A.

No.3037 of 2008. The said application along with the suit was disposed of by an

order dated 11th September, 2008 appointing Justice Baboolal Jain (Retd.) sole

Arbitrator in view of the agreement between the parties. The Court, in exercise of

its jurisdiction under Section 89 of the Code of Civil Procedure, 1908 disposed of

the suit by referring the entire subject-matter of the suit including the issues

framed by the Court to the sole arbitrator.

The award passed by the arbitrator is now under challenge.

The claim in the arbitration proceeding arose out of alleged breach of works

contract.

The respondent was awarded a contract on 12th December, 1991 for

construction of 22.89 K.M. of Highway along with the major and minor bridges,

culverts with approaches, road works, pavements etc. under the contract

package-II, realignment of NH-31 (Falakata - Pundibari Section) of the

specification on terms and conditions and rates mentioned in the said contract.

The estimated value of the contract was Rs.7,76,50,500. The modified terms of

the contract provided that the respondent would be entitled to 36.25% above the

schedule of rates mentioned in the tender. The entire project was to be

completed within three years from the date of its commencement. Under the

contract fully mechanised construction works were to be executed and the type of

machinery to be used by the respondent were to be approved by the Engineer

before the actual execution of the work. Under the terms of the contract before the commencement of the work trial run of the said machinery to establish its

capability to achieve the said works of the specifications and tolerance specified

under the said contract were required to be made to the satisfaction of the said

engineer. The respondent accordingly brought the required machinery and

equipment on or about December 8, 1991. The trial run was made to the

satisfaction of the engineer. The bill of quantities of the said contract, inter alia,

did not provide the rates for earth work by mechanical process as construction of

embankment was "varied work" as defined in the said contract and the rates

were, therefore, required to be determined according to Clause 51.1 Variations

(General Conditions Vol-I).

Pursuant to the terms of the agreement the respondent deposited with the

petitioner a sum of Rs.5 lakhs by a fixed deposit receipt as performance security.

The petitioner also from time to time deducted a sum of Rs.8,13,553/- from

running bills as security amount. The respondent commenced work on and from

15th February, 1991 which included earth work for construction of embankment

by mechanical process. After the commencement of the work in or about

December 13, 1991 and thereafter the respondent requested the petitioner to fix,

determine or agree upon the rate or rates of the earth work for construction of

embankment by mechanical process. The petitioner, however, failed and

neglected to determine the rates for the aforesaid work. In the meantime, the

respondent executed huge quantity of the said earth work which the petitioner

refused to pay on the ground that the rates thereof were not fixed. In view of

failure to release payment and agree upon the rate and/or rates for the said earth work, the respondent suspended the work. The petitioner constituted an

expert committee comprising of the Chief Engineer, PWD, Additional Chief

Engineer (NH-1) and Superintendent Engineer (NH, Circle-3) to fix the rates for

varied items of earth work and/or to correct/remove other discrepancy/anomaly

in the bill of quantities. On the basis of the representation made by the

petitioner that the aforesaid issues would be resolved within a short time, the

respondent resumed work on 26th December, 1992. Since the expert committee

had failed to fix and/or determine the rates, the respondent once again

suspended the work from July 1, 1993. In or about July 20, 1993 there was

unprecedented flood in or around the work site causing complete inundation of

the embankment and extensive damages thereto and other works already

executed by the respondent. The respondent gave notice of the aforesaid fact to

the Chief Engineer as well as the petitioner. During the suspension of the work

the Chief Engineer of the petitioner, by a letter dated 8th March, 1995

communicated the respondent that the rates of the said earth works had been

fixed by the Ministry of Surface Transport, Government of India by its letter dated

16th February, 1995 subject to the respondent giving the following undertaking:-

"i) You will not prefer any claim for idle labour and hire charges of

plants and machinery remaining idle or any other contingency

arising thereafter during the idle periods.

ii) You agree to accept rectifications by mutual consent through

exchange of letters in all items of work other than those of earthwork that crept in the specification/description of items of work in the bill

of quantities of the tender agreement and you will not raise any claim

upon rectification of the mistakes.

iii) You would resume the work within 2(two) weeks from the date of first

payment made to you relating to the above said varied items of

earthwork."

The word "You" mentioned in the said letter dated March 8, 1995 refer to

the claimant.

Pursuant to the said letter dated February 16, 1995 the claimant by its

letter dated March 16, 1995, gave the required undertaking.

In terms of the said Memorandum of Understanding the claimant was

required to complete the said works on or before 31st August, 1997.

In terms of the said undertaking dated March 8, 1995 and the said

Memorandum of Understanding on April 5, 1995 the claimant resumed and

continued to execute the said works.

On or about July, 1996, further flood inundated and submerged the

worksite and vast adjacent areas causing extensive damage to the works already

executed by the claimant, causing damage to the machinery and equipments

mobilised for execution of the said works thereby preventing the claimant from

executing the said works.

The said flood was caused by operation of forces of nature due to climatic

conditions, which could not be foreseen and was not foreseeable by any

experienced contractor including the claimant and the claimant could not be

reasonably expected to and was unable to take precautions.

The claimant in terms of the said contract gave notice of the aforesaid facts

to the said Engineer and to the petitioner.

The claimant alleged that they were prevented from commencing the said

works until October 1996, when the work areas and the site became suitable for

work.

The claimant alleged that the claimant was prevented from and unable to

execute and complete the works till March 31, 2001. The particulars of the

breach alleged in the plaint which was treated as the statement of claim are:-

i) The petitioner has failed to hand over and give access to the sites to

the claimant in due and proper time. The petitioner released and

handed over major parts of the worksites within August, 1997 and

January, 2001.

ii) The petitioner failed to pay the compensation to the owners for land

acquired by it for the said works causing serious commotion,

disorder, riot and lawlessness at different worksites whereby the

claimant encountered obstructions or conditions not foreseeable by

any experienced contractor.

iii) The owners of the land and their accomplices caused extensive

damages to the machineries deployed by the claimant for the

execution of the works.

iv) The petitioner failed to provide and/or hand over clear sites by

removing encroachment.

v) The petitioner has not only failed and neglected to pay for the works

already executed by the claimant aggregating to a sum of

Rs.2,38,15,675/- as on 2nd March, 1995 but has also failed to pay

the full amounts of the Running Bills within 60 days from their

respective dates of submission. The respondent has wrongfully

recovered a sum of Rs.54,50,973/- from the 26th, 27th and 28th

Running Account Bills and a further sum of Rs.1,35,634 against the

25th Running Account Bill aggregating to a sum of Rs.55,86,607.

vi) The Chief Engineer of the petitioner caused undue delay in taking

decisions resulting in interruptions and/or stoppage of the execution

of the works.

vii) The respondent has failed to maintain law and order at and around

the site of the work.

The claimant alleged that by March, 2001 within the extended time, it

completed the work in all respect excepting certain minor works laying of 500 m.

of road embankment along both sides of Torsa River, laying of top layer of Bitumen Wearing Course from 18 km. to 22.89 km. and about 50 m. of earth

embankment out of 22.89 km. primarily due to the failure on the part of the

petitioner to clear encroachments such as removal of the electricity and

telephone poles, water mains and the standing trees and to make the said site

free and favourable for execution of the said works.

The claimant on the basis of the aforesaid made the following claims:-

i) Loss and damages Rs.10,21,23,948/-

ii) Repair and rectification Rs.36,09,983/-

iii) Wrongful deduction from

Running Account Bills Rs.55,86,670/-

iv) Overhead expenses Rs.45,00,000/-

v) Differential royalties Rs.35,60,180/-

vi) Differential price of the bill of quantities Rs.22,09.653/- vii) Wrongful retention of security deposit and deduction of performance security from the Running Account Bills Rs.13,13,553/-

viii) Conversion of materials Rs.12,50,000/-

ix) Idle labour and idle machinery Rs.4,67,09,823/-

x) Loss of profit Rs.93,41,965/-

The total sum claimed in the arbitration proceeding was Rs.18,02.05,712/-

. The arbitrator, however, has awarded a sum of Rs.15,39,05,071/- along with

interest at the rate of 12% p.a. on and from 1st April, 2001 and Rs.35,00,000/-

towards costs.

The award is challenged primarily on the ground that the arbitrator has

allowed various heads of claim without giving any reason. The respondent in its

letter dated 16th March, 1995 had given an undertaking that it would not claim

idle charges but has done so in claim no.1. The claim nos.9 and 10 for loss and

damages and of profit are overlapping and should not have allowed.

The claim for idle men and machinery for the period of 1st March, 1997 to

October 26, 2000 for the period of 492 days has been wrongfully allowed in part

in spite of undertaking given by the claimant on 13th March, 1995. The award

for the idle machinery and labour in spite of undertaking is in conflict with the

public policy of India.

Mr. Jayanta Kr. Mitra, the learned Advocate General has submitted that

the claim on account of damages was allowed without any supporting evidence or

document. The award would not show that the arbitrator has applied its mind at

all. The disclosure of mind of the arbitrator could only be gathered provided any

reason is furnished in either allowing and/or disallowing any claim. The

arbitrator being an adjudicatory authority is required to apply its mind and the

award shall state the reasons upon which it is based unless the parties have

agreed that no reasons should be given or the award is an arbitral award under

Section 30. In the instant case, it is argued that having regard to the legislative

mandate as enshrined in the 1996 Act, the arbitrator is obliged to give reasons as

reasons are the links between the materials on which the certain conclusions are

based and the actual conclusions. It is argued that in the award, the claim of the claimant is equated to proof of the claim which obviously is a legal misconduct

and an error apparent on the face of the award. While the quantum of evidence

required to accept a claim may be a matter within the exclusive jurisdiction of the

arbitrator to decide, however, if there was no evidence at all and if the arbitrator

makes an award merely on the basis of the claim statement without anything

more then the award is required to be held as invalid. It is submitted that the

arbitrator equated the claim of contractor to proof of the claim and virtually has

allowed all the claims without any evidence at all. Moreover, the claim No.(i) and

(ix) are overlapping. The learned Advocate General has drawn attention to

Paragraphs 27 and 36 of the plaint and submits that if the averments of both the

paragraphs are scrutinized along with the schedules annexed to the plaint giving

particulars in support of the same it would be clear that except for change of

nomenclature of heads of claim the said claims were made twice over and in fact

the claim no. (ix) is already included in claim no. (i). The arbitration has allowed

both the claims overlooking the nature of both the claims. The learned Advocate

General was less critical in respect of claim no. (i) but more vocal in assailing the

claim for Rs.4,67,09,823/- made on account of alleged loss and damage suffered

on account of cost overrun due to failure of the petitioner to perform its

obligation which was allowed in full. It is submitted that it is merely a

duplication of claim with no fresh evidence. In this regard, the learned Advocate

General has relied upon the following decisions:-

i) Som Datt Builders Ltd. Vs. State of Kerala reported at (2009) 10

SCC 259 Paragraph 20-24;

ii) State of Rajasthan & Anr. Vs. Ferro Concrete Construction Pvt.

Ltd. reported at (2009) 12 SCC 1;

iii) Bharat Coking Coal Ltd. Vs. L.K. Ahuja reported at 2004 (5) SCC

109, Paragraph 11;

iv) Oil and Natural Gas Corporation Ltd. Vs. Western Geco

International Ltd. reported at (2014) 9 SCC 263 Paragraph 38.

v) Associate Builders vs. Delhi Development Authority reported at

2015 (3) SCC 49.

It is submitted that the award is patently illegal and lacks judicial

approach. The judicial approach is one of the tests required to be applied to find

out if the award is arbitrary, extraneous or whimsical. The judicial approach is a

specie of the genus "Fundamental Policy of Indian Law". The learned Advocate

General relying upon Oil and Natural Gas Corpn Ltd. (supra) Paragraph 34 to

40 argued that having regard to the law laid down in the said judgment, the

authority is required to act bona fide and deal with the subject in a fair,

reasonable and objective manner and its decision should not be actuated by any

extraneous consideration. The Fundamental Policy of the Indian Law also

recognizes the principle that if an award suffers from perversity or irrationality it

should be held to be invalid. A decision which is perverse or so irrational that no

reasonable person would have arrived at the same would not be sustainable in a

Court of law. The decisions that fall short of its standards of reasonableness are

open to challenge in a Court of law. Even though the arbitral tribunal enjoys considerable latitude in making awards, on the grounds of irrationality,

perversity, lack of judicial approach, unreasonableness, patent illegality and

violation of the principles of natural justice an award can be challenged and

interfered with. To the same effect the decision of the Hon'ble Supreme Court in

McDermott International Inc. Vs. Burn Standard Co. Ltd. & Ors. reported at

(2006) 11 SCC 181, Centrotrade Minerals & Metals Inc. Vs. Hindustan

Copper Ltd. reported at (2006) 11 SCC 245 and Associate Builders Vs. Delhi

Development Authority reported at (2015) 3 SCC 49 was cited.

In the petition, although, it is alleged that there is a violation of the

principles of natural justice, the learned Advocate General has fairly submitted

that after going through the record of the proceedings before the Arbitrator, the

said allegations are withdrawn and may be expunged from record. The learned

Advocate General has also filed an affidavit for expunging the said allegations

from the petition. This gesture of the learned Advocate General is appreciated.

Per contra, Mr. Goutam Chakravortti, the learned Senior Counsel

appearing on behalf of the respondent-claimant submits that the arbitrator has

applied its mind to each of the claims and disposed of the reference by a detailed

reasoned award.

It is submitted that neither in the pleadings nor before the arbitrator any

real challenge was thrown to the claim of the claimant. The petitioner had

virtually accepted the breaches and the arbitrator on the basis of both oral and

documentary evidence passed the award. The learned Senior Counsel has referred to Claim No.7 and submitted that although a sum of Rs.10,21,23,948/-

was claimed on account of idle men and machinery for the period of closure

between 1st March, 1997 and 26th October, 2000, the arbitrator did not allow the

entire claim and has allowed only a sum of Rs.7,97,06,496/- and in so far as loss

and damage on account of works re-executed by the claimant due to flood during

July 1993 and 1996 a sum of Rs.25,00,000/- only was awarded. The learned

Senior Counsel has referred to the discussion in the award in relation to Issue

No.7 and submits that the Arbitrator in deciding the aforesaid claims had taken

into consideration the affidavit of evidence of the PW2, D.L. Agarwal and

documents at pages 23 to 33 of the Annexure J1 and page 34 and 35 as

Annexure J2 of the said affidavit. The Arbitrator has taken into consideration

that all those machineries were brought to the site and certified by the Executive

Engineer. It is submitted that the arbitrator, in fact, disallowed the claim for 108

days due to insufficiency of evidence and doubts as to the proof and

maintainability of the claim. The arbitrator also recorded that the oral and

documentary evidence of the claimant had remained uncontroverted and

unchallenged.

The learned Senior Counsel has also drawn attention to the documents

referred to by the Arbitrator as well as the evidence taken into consideration in

partly allowing the said claims. It was emphasized that no witness on behalf of

the respondent was called to contradict the evidence of the claimant.

The learned Senior Counsel submits that the entitlement of the aforesaid

claims cannot be disputed in view of Clause 12.2, Clause 20.4, Clause 40.1 and

Clause 40.3 of the General Conditions of the contract. The said Clauses are:-

"12.2. Adverse Physical Obstructions or Conditions

If, however, during the execution of the Works the Contractor encounters physical obstructions or physical conditions, other than climatic conditions on the Site, which obstructions or conditions were, in his opinion, not foreseeable by an experienced contractor, the Contractor shall forthwith give notice thereof to the Engineer, with a copy to the Employer. On receipt of such notice, the Engineer shall, if in his opinion such obstructions or conditions could not have been reasonably foreseen by an experienced contract, after due consultation with the Employer and the Contractor, determine:

(a) any extension of time to which the Contractor is entitled under Clause 44, and

(b) the amount of any costs which may have been incurred by the Contractor by reason of such obstructions or conditions having been encountered, which shall be added to the Contract Price.

and shall notify the Contractor accordingly, with a copy to the Employer. Such determination shall take account of any instruction which the Engineer may issue to the Contractor in connection therewith, and any proper and reasonable measures acceptable to the Engineer which the Contractor may take in the absence of specific instructions from the Engineer.

20.4. Employer's Risks The Employer's risks are:

(a) war, hostilities (whether war be declared or not), invasion, act of foreign enemies.

(b) rebellioin, revolution, insurrection, or military or usurped power, or civil war,

(c) ionising radiations, or contamination by radio-activity from any nuclear fuel, or from any nuclear waste from the combustion of nuclear fuel, radio-active toxic explosive, or other hazardous properties of any explosive nuclear assembly or nuclear component thereof,

(d) pressure waves caused by aircraft or other aerial devices travelling at sonic or supersonic speeds.

(e) Riot, commotion or disorder, unless solely restricted to employees of the Contractor or of his Subcontractors and arising from the conduct of the Works,

(f) Loss or damage due to the use or occupation by the Employer of any Section or part of the Permanent Works, except as may be provided for in the Contract,

(g) Loss or damage to the extent that it is due to the design of the Works, other than any part of the design provided by the Contractor or for which the Contractor is responsible,

(h) Any operation of the forces of nature against which an experienced contractor could not reasonably have been expected to take precautions.

40.1 Suspension of Work

The Contractor shall, on the instructions of the Engineer, suspend the progress of the Works or any part thereof for such time and in such manner as the Engineer may consider necessary and shall, during such suspension, property protect and secure the Works or such part thereof so far as is necessary in the opinion of the Engineer. Unless such suspension is:-

(a) otherwise provided for in the Contract, or

(b) necessary by reason of some default of or breach of contract by the Contractor or for which he is responsible, or

(c) necessary by reason of climatic condition on the site or

(d) necessary for the proper execution of the Works or for the safety of the

Work or any part thereof (save to the extent that such necessity arises from any act or default by the Engineer or the Employer or from any of the risks defined in sub-Clause 20.4).

40.3 Suspension lasting more than 84 days

If the progress of the Works or any part thereof is suspended on the written instructions of the Engineer and if permission to resume work is not given by the Engineer within a period of 84 days from the date of suspension then, unless such suspension is within paragraph (a),(b), (c) or (d) of Sub-Clause 40.1, the Contractor may give notice to the Engineer requiring permission, within 28 days from the receipt thereof, to proceed with the Works or that part thereof in regard to which progress is suspended, if within the said time, such permission is not granted, the Contractor may, but is not bound to, elect to treat the suspension, where it affects part only of the Works, as an omission of such part under Clause 51 by giving a further notice to the Engineer to that effect, or where it affects the whole of the Works, treat the suspension as an event of default by the Employer and terminate his employment under the Contract in accordance with the provisions of Sub- Clause 69.1, whereupon the provisions of Sub-Clause 69.2 and 69.3 shall apply."

The argument of the petitioner that in view of the undertaking dated 8th

March, 1995, the claimant would not be entitled beyond 31st August, 1997 is

factually incorrect inasmuch as the petitioner did not raise such objection before

the arbitrator. The learned Senior Counsel has referred to Paragraphs 18 and 22

of the written statement filed by the petitioner submits that in view of such

pleadings, the award allowing part of the aforesaid claims cannot be questioned

in this proceeding.

In order to appreciate the said argument, Paragraphs 23 and 27 of the

Plaint and Paragraph 18 and 22 of the Written Statement are given in the

following table:-

23. The defendant at the material 18. With reference to Paragraph 23 times knew and had notice and of the plaint the defendant states knowledge that due to its breach that the defendant had no other and failure to perform the contract option than to extend the terms for and circumstances beyond its completion of the work till March, control, the claimant was prevented 2001 inasmuch as completion of from completing the said works in the project was extremely urgent all respects until March 31, 2001 and in due consideration thereof and the defendant accordingly, time was extended leaving all the unconditionally extended the time terms and conditions of the said to complete the same till March, contract intact.

2001.

27. Due to the failure of the 22. With reference to Paragraph 27 defendant mentioned in Paragraph of the plaint it is denied that there 21 hereof and the circumstances was any alleged failure on the part mentioned hereinabove, the of the defendant or that the claimant was unable to proceed claimant was unable to proceed with the execution of the said with the execution of the said work works and the same were or that the said work was intermittently interrupted causing intermittently interrupted or that undue and long prolongation of the the claimant incurred costs, works. Accordingly, the claimant charges and expenses or suffered was obliged and compelled to and any alleged loss and damages in in fact, kept its men and machinery the alleged sum or otherwise as mobilized during the entire period alleged or at all. The defendant of such prolongation of the works states that earthwork may have until March 31, 2001. By reason of been interrupted but other works premises the claimant was continued. The defendant denies compelled to incur and incurred and disputes the factum, validity costs, charges and expenses and and/or propriety of the purported suffered loss and damages in particulars as shown in Part - I of Rs.10,21,23,948/-. Particulars of Schedule 'J' to the plaint. The the said sum would appear from defendant further states that the Part-I of Schedule "J" annexed defendant cannot be held hereto as part of the plaint. The responsible for prolongation of the claimant claims the said sum also works and the claims of the as damages for breach of the claimant for idle labour and contract by the defendant. The machinery are absolutely frivolous, claimant also claims the said sum malafide, an afterthought and not of Rs.10,21,23,948/- in terms of tenable in law.

Clause 12.2, 40.2 and 42.2 of General Conditions of the said Contract.

The learned Senior Counsel has referred to the letters dated 13th January,

1998, 17th November, 1999, 2nd March, 2000, 10th April, 2000, and 18th July,

2000 also extracts of Cash Book and Ledger to justify the award allowed in

favour of the petitioner. It is submitted that these are some of the documents out

of the plethora of documents produced before the arbitrator which would justify

the claim towards the idle labour and idle machinery beyond 31st August, 1997.

The learned Counsel has raised an objection with regard to the arguments

made based on the letter dated 16th March, 1995 as a defence to the claim for

idle charges on the ground that the said plea was neither taken as a defence in

the written statement nor argued before the arbitrator. It is submitted that

grounds for setting aside an award must be taken within time prescribed under

Section 34. The grounds which are now being argued were not even mentioned

in the ground for setting aside of the award. New grounds containing new

materials of fact cannot be introduced if the same was not originally raised in the

arbitration proceeding for setting aside an award. No further grounds can be

added thereafter and grounds cannot be amended. The right to introduce any

ground beyond any period prescribed under Section 34 would stand

automatically forfeited and no argument can be made on grounds that are not

being included in the application for setting aside of the award. In short, it is

argued that new grounds containing new materials of fact cannot be introduced if

the same was not raised either within the original period or extended period

allowed under Section 34(3) of the Arbitration and Conciliation Act, 1996. There

is no question of even discretion after the relevant period is over. In this regard, the respondent has relied upon a decision in State of Maharashtra Vs.

Hindustan Construction Company Ltd. reported at 2010(2) Arb. LR 1 : 2010

(4) SCC 518.

It is submitted that in an adversarial nature of proceeding, it is not the

duty or the obligation of the Court to investigate the matter on its own and the

argument advanced on behalf of the petitioner that under Section 34(2)(b), the

Court can independently of the pleadings go into the question of public policy is

contrary to law and not beyond the section demands.

The learned Senior Counsel, however, without prejudice to such objection

has argued that if the pleadings are scrutinized it would appear that there has

been no real challenge thrown to the award. The learned Senior Counsel has

referred to Paragraph 19 of the plaint and submits that the said paragraph

expressly mentioned the letter dated 16th February, 1995 whereby the claimant

was requested by the defendant to give an undertaking. The claimant by its

letter dated 16th March, 1995 gave the required undertaking. The undertaking

relates to rates of earth work at the site. In paragraph 12 of the written

statement, except relying on the letter of the Chief Engineer dated March 8,

1995, and the letter of Ministry of Surface Transport, Government of India dated

16th February, 1995, there is no averment that the undertaking given on 13th

March, 1995 was to continue during the entire period of contract and the

claimant was not entitled to claim any amount for idle labour and machinery.

The claimant served a notice under Section 80 of the Code of Civil Procedure, 1908 claiming compensation for idle machinery and labour but there is no reply

to the same.

In paragraph 29 of the plaint, the claimant expressly claimed loss and

damage of Rs.10,21,23,948/- with particulars.

In Paragraph 22 of the written statement except a mere denial there is no

averment that the claimant was not entitled to the costs incurred by the claimant

for idle machinery and labour as is being contended at the hearing.

It is submitted that in the petition for setting aside, there is no mention

that the claimant was not entitled to any amount for idle men and machinery,

and an entirely a new case is being made out at the hearing.

It is submitted that the Arbitrator under Issue No.7 dealing with

Paragraphs 26, 27 and 28 of the plaint/statement of claim has recorded that the

matter was exhaustibly argued and details of analysis of the idle men and

machinery furnished are based on agreed rates. The Arbitrator also considered

and examined record, papers, pleadings, evidence and documents pertaining to

the claim. The Arbitrator has extensively set out all particulars of the document

relied and referred to various documents including document Nos. PD 181 and

PD 188 relating to the undertaking given by the claimant on 16th March, 1995. It

is submitted that the Arbitrator went through all the relevant documents

disclosed by the claimant in several volumes and also considered the evidence of

P.W.1 Mr. P.K. Bhadra and evidence of D.L. Agarwal and other witnesses for the

claimant. The Arbitrator also considered extensively the cross-examination of the said witnesses and gave a reasoned order in not allowing the costs incurred for

the first machinery for the period from 22nd March, 1998 to 15th June, 1998

aggregating to 108 days as the arbitrator had some doubts as to the proof and

maintainability of the claim in respect of those 108 days. It is submitted that the

Court cannot go into the question why the arbitrator has doubts as to the proof

and maintainability in respect of those 108 days. The arbitrator has exercised its

discretion on the basis of its doubts and the Courts might not go into the

question of his doubts. The arbitrator has extensively referred to the documents

and evidence given by the claimant and it would appear from such documents

and evidence that the claimant, in fact, maintained idle labour and machinery

during 492 days. The claim of the claimant was reduced from Rs.10,21,23,948/-

to Rs.7,97,06,496/-.

The Arbitrator has given extensive reasons for his decision and the

claimant is the only party aggrieved by this reduction. The primary documents,

namely, Cash Book and Ledger showing actual payment made in respect of

machinery, labour, staffs salary, maintenance of camp, etc., were produced

before the Arbitrator, and were considered and mentioned in the award. The

finding arrived at on examination of such documents is final and binding on the

parties.

It is submitted that the Court would not go into the documentary and oral

evidence led by the claimant to ascertain the correctness thereof.

In respect of the loss and damages on account of works re-executed by the

claimant due to flood during July, 1993 and 1996, it is submitted that the

particulars of such loss and damages suffered by the claimant were furnished in

Schedule 'K' to the plaint and under Clause 20(4)(h) of the Contract, the claimant

is entitled to claim such amount. The claimant in Paragraph 21 of the plaint

made a specific claim on account of such loss and damage caused due to flood to

which there was no effective denial in the written statement. The arbitrator

considered the oral evidence of Mr. P.K. Bhadra on behalf of the claimant and

also the Chief and Cross-examination of the said witness before awarding a sum

of Rs.25 lacs against a claim of Rs.36,09,083/-. The claimant claimed a sum of

Rs.45 lacs on account of loss and damage due to hindrance created by the

Falakata Truck Owners' Association. In paragraph 30 of the plaint, the claimant

claimed that due to the failure of the defendant to maintain law and order in and

around the site, the claimant was obstructed and prevented from carrying on

and/or transporting the materials to the work site by the Falakata Truck Owners'

Association. The claimant had engaged trucks from its own source but the

Falakata Truck Owners' Association refused to allow the claimant to utilize

trucks arranged by it. The claimant's positive case was that at the instance of

the defendant State of West Bengal, the claimant was compelled to engage the

trucks of the said Falakata Truck Owners' Association at a much higher rate, as

a result whereof, the cost of carriage of materials by the claimant increased and

the claimant suffered loss and damage of Rs.45,00,000/- which would appear at

Schedule "L" to the petition. There could not be any dispute that the respondent faced obstruction during carriage of materials to the site as would appear from a

letter dated 10th July, 2000 from the Chief Engineering to District Magistrate.

The defendant in Paragraph 25 of the written statement contended that the

defendant is not liable for any obstruction faced by the claimant from carrying on

or transporting the materials to the site by the Truck Owners' Association. There

is a bald denial that the claimant had suffered any loss or damage in the sum of

Rs.45,00,000/- or any other sum. The defendant is not at all concerned with the

carriage or transportation of the materials of the claimant.

Clause 12.02 of the contract of the petition expressly provides "the amount

of any costs which have been incurred by the contractor by reason of such

obstructions or conditions having been encountered, which shall be added to the

contract price and shall notify the contractor accordingly with a copy to the

employer".

The Arbitrator recorded in the award that all papers, record and

documents disclosed in the suit were placed before him. P.W.1 Mr. P.K. Badhra

filed his affidavit of evidence wherein he deposed before the learned

Commissioner appointed by the Hon'ble High Court and was extensively cross-

examined. It would appear from the said award that the Arbitrator considered

the affidavit of Mr. P.K. Bhadra and also in detail considered the cross-

examination of Mr. P.K. Bhadra by the learned Counsel. The Arbitrator also

observed that the affidavit of D.L. Agarwal dated 15th December, 2004 along with

annexures was disclosed/tendered in evidence and marked as exhibits in the proceedings. The cross-examination of Mr. P.K. Bhandra was also considered by

the Arbitrator. The Arbitrator considered in detail the relevant documents

disclosed by the claimant and full particulars of the documents considered were

set out in the award. The Arbitrator further recorded that it is significant to

mention that in the entire proceedings seven volumes of documents were

disclosed by the parties. The Arbitrator has set out the documents considered by

him and also the evidence adduced by the claimant. The Arbitrator after

considering the evidence on the record held that the assessment of damage made

by the claimant on estimate was to be allowed, but according to him a fair

estimate would be Rs.40,00,000/- and not Rs.45,00,000/-.

It is submitted that the fair estimate as decided by the Arbitrator was not

imaginary and without any supporting evidence. The Arbitrator arrived at the

estimate after considering the relevant record placed before him and after

considering the evidence of Mr. P.K. Bhadra and Mr. D.L. Agarwal. There is no

denial by the petitioner that there was disturbances and hindrances created by

the Falakata Truck Owners' Association. There is also no denial of the averment

in the plaint that the at the instance of the then Government, the

claimant/claimant was forced to hire the trucks of Falakata Truck Owners'

Association.

In paragraph 35 of the plaint of the petition a sum of Rs.4,67,09,823/- has

been claimed by the claimant on the ground that the defendant having failed in

its obligation under the contract, the execution and completion of the said contract was delayed and prolonged from 31st August, 1997 to 31st March, 2001.

By reason of such failure on behalf of the petitioner, the claimant was obliged

and compelled to keep its men, machines and maintain its establishment at

different work sites throughout the said period. By reason of keeping such men

and machines and maintaining the establishment, the claimant was compelled to

incur a sum of RS.4,63,09,823/-, which it would not have incurred if the

defendant had fulfilled its obligation under the contract and allowed the claimant

to complete the work within the stipulated period. This claim is for loss and

damage on account of cost overrun due to failure of the defendant to perform its

obligations under the terms of the contract and its breach.

The claim would also appear from Paragraph 35 of the plaint where it is

stated that due to the breach of contract by the defendant and its failure to

perform its obligations under the contract, the execution and completion of the

said contract was delayed and prolonged from 31st August, 1997 to 31st March,

2001.

In Paragraph 30 of the written statement, there is a bald denial that the

completion of the contract was delayed or prolonged by reason of any alleged

breach of the contract by the defendant or its alleged failure to perform its

obligations therein.

The claimant had calculated the loss and damages at 5% for three and half

years of the total value of work executed, which is fair, reasonable and the usual

basis for estimating and calculating cost overrun. According to the Ministry of Road and Highways circular, calculation of overhead charges up to

Rs.50,00,00,000/- is at 10%. The Arbitrator is dealing with the claim for

Rs.4,67,09,823/- has recorded that the completion of the said contract was

delayed and prolonged from 31st August, 1997 to 31st March, 2001 due to the

failure of the defendant to discharge its obligation. Affidavit of evidence was filed

of the claimant's first witness P.K. Bhadra who gave evidence regarding the claim

for the said sum. The Arbitrator in the award has observed that the defendant

could not shake the testimony P.K. Bhadra during cross-examination with regard

to the said claim. It has also been recorded by the Arbitrator that the defendant

did not tender any evidence denying the factum and there is no contradiction to

the claim's evidence. The petitioner is responsible for prolongation of the work by

three and half years for which the plaintiff is entitled to compensation.

It is submitted that the claimant is entitled to Rs.4,06,09,832/- as overrun

damages, it cannot be disputed that the complete date for the contract was 31st

August, 1997 which would appear from the supplementary document to the

original tender extension of time was granted till 31st August, 1997 considering

the circumstances mentioned in Paragraph 5 of the MOU which was

supplementary to the original tender.

Due to prolongation of work, the claimant suffered loss of profit of

Rs.93,41,965/-. The learned Senior Counsel has referred to Paragraph 36 of the

plaint and submits that it is the positive case of the claimant that when the said

contract was entered into, the defendant knew and/or should have known and it was in the contemplation of the parties that the claimant would suffer loss and

damage by way of loss of profit if the execution of contract was delayed due to

breach of the contract by the defendant. The loss of profit calculated by the

claimant is 3.5% of the total value of the work executed namely Rs.26,69,13,

274/-.

In paragraph 31 of the written statement, there is a bald denial and an

allegation that the execution of the work was delayed and prolonged primarily

due to the inability and negligence on the part of the claimant itself. The

defendant alleged that the claimant was unable to cope with the magnitude of the

said work and unable to gear up the proportionate work within the proportionate

time and hence repeatedly prayed for extension of time for completion of the

work. The defendant denied that the claimant suffered any business loss.

It is submitted that there is virtually no denial to the said claim in the

written statement. It is submitted that the arbitrator in deciding the Issue No.7,

inter alia, held that the contract work was prolonged due to laches and default of

the defendant and there was a delay of three and half years from the extended

period mentioned in the said Memorandum of Understanding dated 20th March,

1995. The Arbitrator considered and examined carefully, the evidence placed

before him and the affidavit evidence of Mr. P.K. Bhadra, the witness of the

claimant, who was cross-examined by the learned Counsel of the defendant. Mr.

D.L. Agarwal the other witness of the claimant also filed an affidavit of evidence

on 15th December, 2004 and the Arbitrator held that the testimony on behalf of the claimant could not be shaken. The Arbitrator also recorded that he carefully

considered the questions in cross-examination of Mr. D.L. Agarwal, but no

supporting evidence on behalf of the defendant was tendered nor the evidence

given by the claimant was contradicted.

It has been strenuously argued that the finding of the Arbitrator in no

uncertain terms is that breach was committed by the defendant and by reason

thereof the claimant was entitled not only to costs overrun but also loss of

business profit. The entire project could have been completed by 31st August,

1997 if breach had not been committed by the defendant. The allegations made

in the written statement that the claimant was guilty of delay could not be

established as no evidence was called on behalf of the defendant.

It is submitted that no ground has been made out challenging the award of

Rs.93,41,965/- on account of loss of profit and this Hon'ble Court would be

pleased not to accept the contentions of the defendant.

The learned senior counsel has argued that consequence of breach by the

petitioner had more than one ramification, including the cost of material,

supervision required at the site, the inability, of the contractor to utilize

manpower at some other place, the inability of the contractor to make profit from

some other contract by utilization of the same resources. The Arbitrator in the

instant case considered carefully each of the claims and passed a reasoned order,

which does not call for any interference.

The learned Advocate General in reply submits that the power under

Section 34(2)(b) is a power given to the Court. The section contemplates two

independent situations where an award can be set aside. While Section 34(2)(a)

requires a party to furnish a proof of conditions mentioned in Section 34(2)(a)(i)

to (v), Section 34(2)(b) is applicable where the Court finds, inter alia, that the

arbitral award is in conflict with the public policy of India. The power under

Section 34(2)(b) is not curtailed by Section 34(2)(a). It is submitted that in the

grounds, the petitioner has taken a specific plea that the award is in conflict with

the public policy of India. It is submitted that in Western Geco International

Ltd. (supra) in Paragraphs 32 and 34, the Hon'ble Supreme Court has

recognized that an award can be challenged under Section 34(2)(b)(ii). It is

submitted that even if none of the grounds enumerated under Section 34(2)(a)

are set up in the original petition but if the Court is satisfied that the award

made by the arbitrator was in conflict with the public policy of India, a ground

recognized under Section 34(2)(b)(ii), the Court can always interfere with the

award not merely to do justice but also the Section confers upon the Court the

power to the interfere in such a situation.

Before I advert to the merits of the claim, I like to address first the issue

with regard to the power of the Court under Section 34(2)(b)(ii).

The Section contemplates two situations on which an award can be set

aside. While Section 34(2)(a) requires a party to furnish proof of existence of the

conditions enumerated therein to the satisfaction of the Court in order to succeed, Section 34(2)(b) is a power conferred upon the Court to interfere with

the award if the Court finds that the subject-matter of the dispute is not capable

of settlement by arbitration under the law for the time being in force or early

arbitral award is in conflict with the public policy of India. Either of the

conditions stipulated in Section 34(2)(b) if fulfilled could be a ground for setting

aside of the award. In such a situation, the furnishing of proof by a party may

not arise. A wide discretion is given to the Court under Section 34(2)(b) to

interfere with an award where, inter alia, it appears to the Court that it is in

conflict with the public policy of India. Western Geco International Ltd.

(supra) recognized that even if the grounds enumerated in Section 34(2)(a) are

not set out in the petition, but if it appears to the Court that the said award is in

conflict with the public policy of India, a ground recognized under Section

34(2)(b)(ii), the award can be challenged on that ground.

State of Maharashtra (supra) relied upon by the respondent, in my view,

does not limit the power of the Court to permit incorporation of additional

grounds in an application under Section 34 or Memorandum of Appeal under

Section 37 provided the Court is satisfied that the said amendment could not be

carried out earlier. The issue was addressed in Paragraphs 29, 30 and 36

which read:-

"29. There is no doubt that the application for setting aside an arbitral award under Section 34 of the 1996 Act has to be made within the time prescribed under sub-section (3) i.e. within three months and a further period of thirty days on sufficient cause being shown and not thereafter. Whether incorporation of additional grounds by way of amendment in the application under Section 34 tantamounts to filing a fresh application in all situation and circumstances. If that were to be treated so, it would follow that no amendment in the application for setting aside the award howsoever material or relevant it may be for consideration by the Court can be added nor existing ground amended after the prescribed period of limitation has expired although the application for setting aside the arbitral award has been made in time. This is not and could not have been the intention of the legislature while enacting Section 34.

30. More so, Section 34(2)(b) enables the Court to set aside the arbitral award if it finds that the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force or the arbitral award is in conflict with the public policy of India. The words in clause (b) "the court finds that" do enable the court, where the application under Section 34 has been made within prescribed time, to grant leave to amend such application if the very peculiar circumstances of the case so warrant and it is so required in the interest of justice.

36. As notice above, in the application for setting aside the award, the appellant set up only five grounds viz. waiver, acquiescence, delay, laches and res judicata. The grounds sought to be added in the memorandum of arbitration appeal by way of amendment are absolutely new grounds for which there is no foundation in the application for setting aside the award. Obviously, such new grounds containing new material/facts could not have been introduced for the first time in an appeal when admittedly these grounds were not originally raised in the arbitration petition for setting aside the petition under Section 34 before the Court concerned or at the appellate stage."

There cannot be any doubt that the Court in considering an application for

setting aside an award may not permit a party to urge a point not argued before

the arbitrator but the Court in view of Section 34(b)(i) and (ii) is not precluded to

consider a submission that the subject matter of dispute is not capable of

settlement by arbitrator or the award is in conflict with the public policy of India.

No amount of waiver or acquiescence can confer a jurisdiction upon an arbitrator

if it is found that the dispute is non-arbitrable. If the arbitrator decides any of

the disputes which are held to be non-arbitrable in Booz Allen and Hamilton

Inc. Vs. SBI Home Finance Limited reported at 2011 (5) SCC 532 the award

can be challenged under Section 34(2)(b) as the award would be Coram non-

judice.

Moreover, in the instant case, the petitioner has specifically taken the

ground that the arbitral award is in conflict with the public policy of India. The

concept of public policy has received interpretation recently in Associate

Builders (supra).

The challenge to the award under the 1996 Act is very limited.

The width and ambit of power under Section 34 of the Arbitration and

Conciliation Act, 1996 has been recently considered by the Hon'ble Supreme

Court in 'Associate Builders vs. Delhi Development Authority' reported at

2015 (3) SCC 49.

Section 5 of the 1996 Act provides that notwithstanding anything

contained in any other law for the time being enforce, in matters governed by Part 1, no judicial authority is to intervene, except where so provided in the said

part.

Section 34, read in conjunction with Section 5 makes it clear that an

arbitral award that is governed by Part 1 of the 1996 Act, can only be set aside

on grounds mentioned in Section 34(2) and (3) and not otherwise.

None of the grounds contained in Sub-section 2(a) of Section 34 permit the

Court to adjudicate the merits of the decision rendered by an arbitral award.

The grounds given under S.34(2)(a) are crisp and precise and lay the law as

it is without the inclusion of any open-ended expression which otherwise would

have given the courts an opportunity to widen their scope of interference with the

arbitral awards. The only open-ended expression which can be and has been of

concern is the ground of public policy of India. It has been under many cases

defined as an unruly horse thus 3 giving the interpretation that it can never be

defined or be a certain thing. However, for the purpose of achieving the aim of the

new Act, the Act of 1996 - the legislature while drafting the Act limited the scope

of public policy in its explanation restricted it to:-

a) Fraud

b) Corruption

c) S.75 or S.81 (confidentiality breach or admissibility of evidence)

The scope of public policy was, however, widened after Supreme Court in

its decision of Oil & Natural Gas Corporation Ltd. v. Saw Pipes Ltd. (2003 (5)

SCC 705) (also referred to as : "Saw Pipes Case") interpreted it to include "patent

illegality" in its definition. The case mentioned that the term public policy can be construed and understood in a narrow or with a wider meaning and then went

ahead to say that it should not have a limited meaning - thus, included the term

"patent illegality" within the scope of public policy. "Patent Illegality" as explained

by the Saw Pipes Case meant any error of law on the face of award, however, it

did mention that the error which would be taken into consideration should not

be trivial in nature. Lord Mansfield in Holman v. Johnson stated that the

principle of public policy is ex dolo malo non oritur actio. No Court of law will

lend its aid to a man who founds his cause of action upon an immoral or illegal

act. The rule has been further illustrated by Russel by stating that grounds of

public policy on which an award may be set aside include: (1) that its effect is to

enforce an illegal contract; (2) that the arbitrator, for instance manifested obvious

bias too late for an application for his removal to be effective before he made his

award.

In its decision in Oil and Natural Gas Corpn. Ltd. (supra), the Supreme

Court has elaborated the concept of public policy at great length. The concept

was extended to permit challenge to an arbitral award which is based on an

irregularity of a kind which has caused substantial injustice. It is stated:-

"Therefore, in our view, the phrase 'public policy of India' used in S.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 Renusagar's case, it is required to be held that the award could be set aside if it is patently illegal. Result would be award could be set aside if it is contrary to:-

(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 so 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.

The expression "public policy" or "opposed to public policy" is not defined either in the Arbitration and Conciliation Act, 1996 or in the Contract Act, 1872. The reason is that these expressions are incapable of precise definition. The concept has to be taken to connote larger public interest on public good. Broadly speaking it would mean policy of law and, therefore, whatever tends to obstruct justice or violate a statute, whatever is against good morals is against public policy.

Public policy means the principles and standards regarded by the legislature or by the Court as being of fundamental concern to the state and the whole of the society. The notion of public policy is not static. Ideas on what is good for the public or what is in public interest, keeps changing with time. The enforcement of an award is to be 5 refused as being contrary to public policy if it is contrary to the fundamental policy of Indian law, country's interests, and its sense of justice and morality. The case in which this point was raised did not involve any such violation, nor any other ground for setting aside could be proved.

The word "public policy" is not to be confined to the Explanation appended to the provision. That would be a very narrow construction of the provision."

In Centrotrade Minerals & Metals Inc. Vs. Hindustan Copper Ltd.

reported at 2006 (11) SCC 245 the Supreme Court has interpreted public policy

to include patent illegality and such patent illegality must go to the root of the

matter. It should be unfair and unreasonable so as to shock the conscience of

the Court. The pleadings of the parties and the materials on record are required

to be considered to lay the Court if the award is against public good on public

interest.

The law laid down by the Supreme Court in Saw Pipes (supra) has led

many other courts to interpret the law to include any error of law to be hit by

S.34 including the subsequent decisions of the Hon'ble Supreme Court, for

instance, in the case of Delhi Development Authority v. R.S. Sharma

(2008(13) SCC 80) the Hon'ble Supreme Court summarized the law thus:-

"From the above decisions, the following principles emerge:

(a) An Award, which is

(i) Contrary to substantive provisions of law; or

(ii) The provisions of the Arbitration and Conciliation Act, 1996; or

(iii) Against the terms of the respective contract; or

(iv) Patently illegal, or

(v) Prejudicial to the rights of the parties, is open to interference by the Court under S.34(2) of the Act.

(b) Award could be set aside if it is contrary to:

(i) Fundamental policy of Indian Law; or

(ii) The interest of India; or

(iii) Justice or morality;

(iv) The Award could also be set aside if it is so unfair and unreasonable that it shocks the conscience of the Court;

(v) It is open to the Court to consider whether the Award is against the specific terms of contract and if so, interfere with it on the ground that it is patently illegal and opposed to the public policy of India."

In ONGC Ltd. Vs. Garware Shipping Corporation Ltd. reported at

2007(13) SCC 434, it was held that under Section 34 of the Act, an award can

be set aside on the ground that it is erroneous in law.

The Supreme Court in McDermott International Vs. Burn Standards

Co. Ltd. reported at (2006) 11 SCC 181 has commented on the scope of the

powers of the arbitrator to interpret terms of the contract, and the permissible

interference by the courts on the assessment of the arbitrator. It was held:-

"It is trite that the terms of the contract can be express or implied. The conduct of the parties would also be a relevant factor in the matter of construction of a contract. The construction of the contract agreement, is within the jurisdiction of the arbitrators having regard to the wide nature, scope and ambit of the arbitration agreement and they cannot, be said to have misdirected themselves in passing the award by taking into consideration the conduct of the parties. It is also trite that correspondences exchanged by the parties are required to be taken into consideration for the purpose of construction of a contract. Interpretation of a contract is a matter for the arbitrator to determine, even if it gives rise to determination of a question of law.(emphasis added)

The 1996 Act makes the 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 arbitrator, violation of natural justice, etc. The court cannot correct the 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 7 of the provision aims at keeping the supervisory role of the court at minimum level and this can be justified as 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 Court will not judge the reasonableness of a particular interpretation

accorded by the arbitrator to the terms of the contract. Even an error in

interpretation, unless patently illegal, will only amount to an error within the

jurisdiction of the arbitrator.

In Bharat Coking Coal Ltd. (supra) the Hon'ble Supreme Court observed

as follows:-

"11. There are limitations upon the scope of interference in awards passed by an arbitrator. When the arbitrator has applied his mind to the pleadings, the evidence adduced before him and the terms of the contract, there is no scope for the court to reappraise the matter as if this were an appeal and even if two views are possible, the view taken by the arbitrator would prevail. So long as an award made by an arbitrator can be said to be one by a reasonable person no interference is called for. However, in cases where an arbitrator exceeds the terms of agreement or passes an award in the absence of any evidence, which is apparent on the face of the award, the same could be set aside." (emphasis added)

In KV Mohd. Zakir v. Regional Sports Centre reported at AIR 2009 SC

(Supp) 2517 it held that the courts should not interfere unless reasons given are outrageous in their defiance of logic or if the arbitrator has acted beyond his/her

jurisdiction.

In P.R. Shah Shares & Stock Brothers v. M/s. B.H.H. Securities (P)

Ltd. reported at 2012 (1) SCC 594 it states that a court does not sit in appeal

over the award of an arbitral tribunal by re-assessing or re-approaching the

evidence. An award can be challenged only on the grounds mentioned in S.34(2)

of the Act.

In Steel Authority of India Ltd. v. Salzgitter Mannesmann; OMP

No.736 of 2009, decided on 18th April, 2012 (Delhi HC) it refused to set

aside the award in view of court's limited and restricted powers for judicial

intervention as under S.34 of the Act. The court relied upon the judgment in P.R.

Shah Shares (supra) and held that the court cannot sit in appeal over the award

of the tribunal by re-assessing and reevaluating the evidence.

In a fairly recent decision of Associate Builders Vs. Delhi Development

Authority reported at (2015) 3 SCC 49 the Hon'ble Supreme Court had the

occasion to re-consider the grounds on which an award can be challenged under

Section 34 of the Arbitration and Conciliation Act, 1996. In dealing with the

grounds on which an award can be challenged, the Hon'ble Supreme Court has

noticed the distinction between Section 34(2)(a) and Section 34(2)(b)(ii) and held

that it is only when arbitral award is in conflict with Public Policy of India as per

Section 34 (2)(b)(ii) that merits of an arbitral award are to be looked into under

certain specified circumstances it includes if it is in conflict with Public Policy of India. The Hon'ble Supreme Court has subdivided Public Policy of India in four

separate and distinct sub-heads, namely:-

i) Fundamental Policy of Indian Law;

ii) Interest of India;

iii) Justice or Morality; and

iv) Patent Illegality.

Fundamental Policy of Indian Law was again subdivided in four heads,

namely, i) Compliance with statutes and judicial precedents; ii) Need of judicial

approach; iii) Natural justice compliance; iv) Wednesbury reasonableness.

Patent Illegality principle was subdivided in three heads, namely, i)

Contravention of substantive law of India; ii) Contravention of Arbitration and

Conciliation Act, 1996; iii) Contravention of the terms of the contract.

The Hon'ble Supreme Court in Associate Builders (supra) had taken into

consideration the object and reason for introduction of the 1996 Act and

observed that the said Act was enacted to replace the 1940 Arbitration Act in

order to provide for an arbitral procedure which is fair, efficient and capable of

meeting the needs of arbitration and also to provide that the Tribunal gives

reasons for an arbitral award; to ensure that the Tribunal remains within the

limits of its jurisdiction; and to minimize the supervisory roles of courts in the

arbitral process. The Fundamental Policy of Indian Law requires compliance with

statutes meaning thereby that an award which is patently in violation of

statutory provisions is in conflict with Public interest and would be regarded as

being contrary to the Fundamental Policy of Indian Law. Furthermore, the binding effect of the judgment of a superior Court if disregarded would be equally

violative of the Fundamental Policy of Indian Law. The arbitral tribunal being

vested with the power to determine the rights and obligations of the parties is

required to show fidelity to judicial approach meaning thereby that they cannot

act in an arbitrary, capricious or whimsical manner. Judicial approach demands

that a decision should be fair, reasonable and objective and not actuated by any

extraneous considerations. Equal important and indeed fundamental was that

the arbitral tribunal is required to follow the principles of natural justice. Audi

alteram partem principle is Fundamental to the Policy of Indian Law and is also

contained in Sections 18 and 34(2)(ii) of the Arbitration and Conciliation Act. The

juristic principle of wednesbury reasonableness also forms part of the

Fundamental Policy of Indian Law and a decision which is perverse or so

irrational that a reasonable person conversant with the facts would not have

arrived at the same conclusion is part of the Fundamental Policy of Indian Law

and on the ground of which an award can be challenged. In New Brunswick

(Board of Management) Vs. Dunsmuir ("Dunsmuir") reported at (2008) 1 SCR

190, the Supreme Court of Canada revisited the analysis to be used on judicial

review of the decision of an administrative body. The Supreme Court collapsed,

from three to two, the potential standards of review, holding that review of the

decision of an administrative body is to be performed on a standard of either

correctness or reasonableness. The Court also redefined what is meant by

reasonableness, stating as follows:-

"Reasonableness is a deferential standard animated by the principle that underlies the development of the two previous standards of reasonableness:

certain questions that come before administrative tribunals do not lend themselves to one specific, particular result. Instead, they may give rise to a number of possible, reasonable conclusions. Tribunals have a margin of appreciation with the range of acceptable and rational solutions. A court conducting a review for reasonableness inquiries into the qualities that make a decision reasonable, referring both to the process of articulating the reasons and to outcomes. In judicial review, reasonableness is concerned mostly with the existence of justification, transparency and intelligibility within the decision-making process. But it is also concerned with whether the decision falls within a range of possible, acceptable outcomes which are defensible in respect of the facts and law."

Even in a civil trial, a finding of fact is not to be reversed unless it can be

established that the trial Judge made a palpable and overriding error which

means an error that gives rise to the reasonable belief that the trial judge must

have forgotten, ignored or misconceived the evidence in a way that it affected his

conclusion or an obvious deficiency in the trial Judge's finding of fact that affects

the outcome of the trial. The Court in this jurisdiction, however, is not exercising

such sweeping power. It is settled law that where a finding is based on no

evidence or an arbitral tribunal takes into account something irrelevant to the

decision which it arrives at or includes vital evidence in arriving at its decision.

Such decision would necessarily be perverse and on those grounds, an award

can be set aside. This later decision of the Hon'ble Supreme Court has reaffirmed

its faith in Saw Pipes Ltd. (supra) with a word of caution that when a Court is

applying the public policy test to an arbitration award, it does not act as a Court of appeal and consequently errors of fact cannot be corrected. A possible view by

the arbitrator on facts has necessarily to pass muster as the arbitrator is the

ultimate master of the quantity and quality of evidence to be relied upon when he

delivers his arbitral award. Thus, an award based on little evidence or no

evidence, which does not measure up in quality to a trained legal mind

would not be held to be invalid on this score. Once it is found that the

arbitrators' approach is not arbitrary or capricious then he is the last word

on facts. (emphasis added)

An award can be said to be against justice or morality only when it shocks

the conscience of the Court. The instance of it can be whether the Tribunal

awards a sum without any acceptable reason or justification. The concept of

Patent Illegality was considered by reference to the explanation under Section

34(2)(b)(ii) of the 1996 Act which states that an award is said to be in conflict

with Public Policy of Indian Law if the making of the award is induced or affected

by fraud or corruption. Patent Illegality would include a contravention of the

substantive law of India or if an award is based in contravention of Arbitration

and Conciliation Act, 1996 - for example, if an arbitrator failed to give any reason

for an award in contravention of Section 31(3) of the 1996 Act and in all cases

whether the Tribunal failed to decide in accordance with the terms of the contract

which in effect would be really a contravention of Section 28(3) of the 11

Arbitration and Conciliation Act. The Hon'ble Supreme Court, however, entered a

caveat by stating that an arbitral tribunal must decide in accordance with the

terms of the contract but if an arbitrator construes a term of the contract in a reasonable manner, it would not mean that the award can be set aside on this

ground. Construction of the terms of the contract is primarily for an arbitrator to

decide unless the arbitrator construes the contract in such a way that it could be

said to be something that no fair minded or reasonable person would do, of

course, the arbitrator cannot wander outside the contract and deals with the

matters not forming the subject matter or allotted to him as in that case he

would commit jurisdictional error. The said judgment also recognized and

reaffirmed the settled law that where a cause or matters in differences are

referred to an arbitrator, whether layer or layman, he is constituted the sole and

final judge of all questions of law and of fact obviously with the limited grounds

of interference as alluded to above.

As observed by the Supreme Court in Associate Builders (supra), the 1996

Act was enacted to provide for an arbitral procedure, which is fair, efficient and

capable of meeting the needs of arbitration, to provide that the Arbitral Tribunal

gives reasons for an arbitral award, to ensure that the Arbitral Tribunal remains

within the limits of its jurisdiction and to minimize the supervisory role of Courts. The merits of an award might only be looked into under certain specified

circumstances, when an award is found to be in conflict with the public policy of

India, as held by the Supreme Court in Associate Builders (supra).

An award might be set aside as patently illegal, provided the illegality goes

to the root of the award. If the illegality is of a trivial nature it cannot be said that

the award is against public policy. This proposition was reaffirmed by the Supreme Court in Hindustan Zinc Ltd. Vs. Friends Coal Carbonization

reported at (2006) 4 SCC 445.

In ONGC Vs. Saw Pipes Ltd. (supra) the Supreme Court held that an

award could also be set aside, if it was so unfair and unreasonable, that it

shocked the conscience of the Court.

Patent illegality may render an award to be in conflict with the public

policy of India. Under the explanation to Section 34(2)(b) an award may be said to

be in conflict with the public policy of India if the making of the award was

induced or affected by fraud or corruption.

In Indu Engineering & Textiles Ltd. Vs. Delhi Development Authority

reported at (2001) 5 SCC 691, the Supreme Court held that the Arbitrator being

a Judge appointed by the parties, the award passed by him is not to be interfered

with lightly. When the view taken by the arbitrator was a possible or a plausible

one, on his analysis of evidence and interpretation of contractual and/or

statutory provisions and did not suffer from any manifest error, it was not open

to the Court to interfere with the award.

Even though the judgment in Indu Engineering & Textiles Ltd. (supra)

was rendered in the context of an application under Section 30 of the Arbitration

Act 1940, 13 for setting aside of an award, the same principle would apply to an

application for setting aside an award, under Section 34 of the 1996 Act.

The judgment in Associate Builders (supra) clearly enunciates unless

there is a patent illegality or perversity or violation of the principle of natural

justice, the award cannot be interfered with.

The award cannot be passed on the ipse dixit of the arbitrator. Mere

reference to documents, deposition, pleadings without discussing the relevancy

and cogency of such materials and evidence would make the award an

unreasoned award. Since an award is subject to judicial review, it is important

that such award must disclose the mind of the arbitrator.

In Associate Builders (supra) while interpreting public policy of India

law, the Supreme Court had reiterated that the rights and obligations of the

parties are required to be decided by a judicial approach meaning thereby that

such decision should be fair, reasonable, objective and based on some evidence.

Although, quality and quantity of the evidence cannot be gone into in a

proceeding under Section 34 of the Arbitration and Conciliation Act, 1996 but

the mind of the arbitrator should be discernible from the award otherwise it

would be an unreasoned and arbitrary award. The arbitrator, in my view, is

required to give some reason for allowing a claim.

The claim in the arbitration proceeding is essentially on the ground of loss

and damages suffered due to the breaches of the petitioner. The claim is made

on the ground of various heads. The claim on account of idle men and

machinery was Rs.10, 21, 23, 948/-, the arbitrator reduced the said claim to

Rs.7, 97, 06, 496/-. In reducing the claim, the arbitrator held that the arbitrator

is having doubt as to the proof and loss of the claim for 108 days for the period

from 22nd April, 1998 to 15th June, 1998 and 21st November, 1998 to 12th

January, 1999.

The quantity and quality of the evidence fall within the exclusive domain of

the arbitrator. The arbitrator is the sole authority to interpret the contract. The

interpretation of the terms of the contract falls within the jurisdiction of the

arbitrator. The arbitrator is the final word on facts and interpretation of the

terms of contract in view of the informality attached to an arbitration proceeding

falls within the exclusive domain of the arbitrator and the court would be

extremely charry to interfere unless it leads to jurisdictional error like wandering

outside the contract. The arbitrator has assessed the quality of evidence and has

disallowed claim for 108 days. The arbitrator has applied his mind. Accordingly,

the award for a sum of Rs.7.97,06,496/-is sustained.

The claim on account of re-execution of the work was reduced from

Rs.36,09,083/- to Rs.25,00,000/-. The Arbitrator apart from referring to some of

the documents did not disclose any reason for allowing a sum of Rs.25 lakhs on

account of re-execution of the work. Moreover, it appears that the said work was

done before the parties agreed to have contract extended up to 31st August, 1997

without any claim on either side. It appears from the minutes of the proceeding

that it was argued on behalf of the claimant that in terms of Clause 12.2 of the

General Conditions of Contract, the claimant would be entitled to damages for

un-precedented floods caused during 1993 and 1996. It was argued that there

was no specific denial in the written statement about the factum of flood and the

damage caused. However, during the cross-examination, the defendant

suggested that there was no flood in 1996. There was no denial that no damage

was caused to the work or no precaution was taken to prevent the damages to earth work. Even if it is assumed that the claimant was able to establish that

damage was caused by un-precedented flood and under Clause 12.2 of the

General Conditions of Contract, they are entitled to claim loss and damage on the

ground of works re-executed due to flood during July, 1993 and July, 1996 the

arbitrator, in my view, is required to indicate and give some reason for assessing

the damage at Rs.25 lakhs. It cannot be passed at the ipse dixit of the arbitrator.

In view thereof, the award for Rs.25 lakhs is set aside.

The claim on account of loss and damage due to hindrance created by

Truck Owners' Association of Falkata was reduced from Rs.45 lakhs to Rs.40

lakhs. The claim of Rs.45 lakhs is based on estimates. It is true that some

documents were produced before the arbitrator to show that let or hindrance was

caused during the executing of the work but the loss and damage, in my view,

has already been factored and/or included in claim no.1. If the hindrance has

caused prolongation of the work, the claimant would be entitled to loss and

damage under recognizable heads of claim to which the claimant is entitled in

law. The said claim is covered under claim no.1. Moreover, even if it is assumed

that the claimant would have right to claim damage, the measure of damage has

to be quantified and cannot be based on estimate. In my view, the awarding of

the said sum is unreasoned and hence, set aside.

The next immediate larger amount awarded by the arbitrator is on account

of infructuous expenses incurred by the claimant by reason of the petitioner

failing to perform its obligation under the contract. The learned Advocate General has argued that the claim made in Paragraph 27 of the plaint and the

claim made herein are overlapping to which the response of Mr. Gautam

Chakraborty, learned Senior Counsel was that they are distinct and different and

the claimant is entitled to make the said claim resulted in delayed execution of

the contract. The learned Senior Counsel has referred to Paragraphs 61 and 62

of Associate Builders (supra) which read:-

"61. One more point needs to be noted. An argument was made before the learned Single Judge that there has been a duplication of claims awarded. The learned Judge dealt with this argument as follows:

"18. Learned counsel for the petitioner in respect of ground P, once again makes a reference to the issue that there is overlapping of the claim. I am unable to accept the submission made by the learned counsel. The consequence of delay may have more than one ramifications including the cost of material the supervision required at the site, the inability of the contractor to utilise the manpower at some other place, the inability of the contractor to make, profits from some other contract by utilisation of the same resources. All these aspects are liable to be considered. The Arbitrator has considered the claims separately and has dealt with, claims 9, 10, 11 & 15 together. Claims 12 & 13 have been thereafter dealt with on the same principles since it was found that it was not the respondent, who was responsible for the delay for a period of 25 months beyond the stipulated condition of 9 months.

19. There is thus no question of overlapping in different heads and the grievance of the petitioner is rejected."

62. The Single Judge is clearly right. We have gone through all the 15 claims supplied to us and we find that none of these claims are in fact overlapping. They are all contained under separate heads. This argument, therefore, must also fail."

The claim No.9 is on account of cost overrun due to failure of the defendant

to perform its obligation. The basis of the claim appears to be that the claimant

had executed the work valued at Rs.26,69,13,274/-. Due to prolongation of the

work the claimant has suffered loss and damage which was calculated at the rate

of 5 per cent for three and half years, that is to say, between 31st August, 1997

and 31st March, 2001. The claimant contended that the basis of the calculation

is fair, reasonable and usual and is based on the circular of the Ministry of Road

and Highways which permits calculation of overhead charges upto Rs. 50, 00, 00,

000/- at 10%. Although, an argument is made based on Paragraphs 61 and 62

of the Associate Builders (supra) that the consequence of breach would entitle

the petitioner to make the aforesaid claim along with loss of profit which would

be separately dealt with I find that the claims are overlapping.

The claimant did not have any doubt in mind that the said two claims are

overlapping which would be evident from Paragraphs 27 and 35 of the plaint. The

said paragraphs read:

"27. Due to the failure of the defendant mentioned in Paragraph 21 hereof and the circumstances mentioned hereinabove, the plaintiff was unable to proceed with the execution of the said works and the same were intermittently interrupted causing undue and long prolongation of the works. Accordingly, the plaintiff was obliged and compelled to and, in fact, kept its men and machinery mobilized during the entire period of such prolongation of the works until March, 31, 2001. By reason of the premises the plaintiff was compelled to incur and incurred costs, charges and expenses and suffered loss and damages in Rs.10,21,23,948/-. Particulars of the said sum would appear from Part-I of Schedule "J" annexed hereto as part of the plaint. The plaintiff claims the said sum also as damages for breach of the contract by the defendant. The plaintiff also claims the said sum of Rs.10,21,23,948/- in terms of clauses 12.2, 40.2 and 42.2 of General Conditions of the said Contract.

35. Due to the breach of the contract by the defendant and its failure to perform its obligations under the contract the execution and completion of the said contract was delayed and prolonged from August 31, 1997 to March 31, 2001. The plaintiff was obliged and compelled to keep the men and machineries mobilized and keep and maintain its establishment at the different worksites throughout the said period. Accordingly, the plaintiff was compelled to incur a sum of Rs.4,67,09,823/- which it would not have incurred, had the defendant fulfilled its obligations under the contract and allowed the plaintiff to complete the work within the stipulated period. Particulars of the said sum would appear from Schedule "P" annexed hereto as part of the plaint. The plaintiff also claims the said sum as damages for breach of contracts.

The claimant adduced same set of evidence. The arbitrator apart from

narrating the submission made on behalf of the parties and reference to few

documents relied upon the claimant did not give any reason for allowing the said

claim for Rs.4,67,09,823/- in full. The petition is entitled to know the reason for

awarding such sum. The said claim could not have been treated as a separate

head of claim.

The arbitrator has allowed loss of profit Rs.93, 41,965/- based on pleading

of the claimant that had the claimant been able to complete the said work before 31st August, 1997 it would have earned a profit of such sum. The contract was

prolonged due to laches and default of the petitioner and there was a delay of

three and half years from the extended period mentioned in the said agreement.

The arbitrator while allowing the said claim in full referred to the evidence of Mr.

P.K. Bhadra and Mr. D.L. Agarwal and on that basis, allowed the said claim

without any further discussion.

The arbitrator is required to assess and measure the damage on the basis

of the evidence adduced by the parties. While there may not be any dispute that

for prolongation of the work and/or disruption caused during execution of the

work, the employer might suffer some damage in my view, the basis of

quantification of the damage has not been clearly indicated in the award. The

award to that extent is unreasoned and lacks judicial approach.

This principle has been recognized in Paragraph 24 of Bharat Coking Coal

(supra). The said paragraph reads:-

"24. Here when claim for escalation of wage bills and price for materials compensation has been paid and compensation for delay in the payment of the amount payable under the contract or for other extra works is to be paid with interest thereon, it is rather difficult for us to accept the proposition that in addition 15% of the total profit should be computed under the heading "Loss or Profit". It is not unusual for the contractors to claim loss of profit arising out of diminution in turnover on account of delay in the matter of completion of the work. What he should establish in such a situation is that had he received the amount due under the contract, he could have utilized the same for some other business in which he could have earned profit. Unless such a plea is raised and established, claim for loss of profits could not have been granted. In this case, no such material is available on record. In the absence of any evidence, the arbitrator could not have awarded the same. This aspect was very well settled in Sunley (B) & Co. Ltd. v. Cunard White Star Ltd. by the Court of Appeal in England. Therefore, we have no hesitation in deleting a sum of Rs.6,00,000 awarded to the claimant."

In my view, the arbitrator could not have allowed the claim No. (ix) since it

has overlapped with claim No.(i) and claim No.(x) since escalation and other

claims were allowed. Moreover, the loss of business could not have been allowed

on a mere formula without requiring the claimant to show that during the period

of delay the claimant could have actually deployed its men and machinery

elsewhere at a profit.

Disputes arising out of Building Contracts typically fall into three broad

categories, namely: (i) claims by the contractor for unpaid sums pursuant to the

final account, (ii) claims by the employer in respect of defective or outstanding

work, and (iii) claims by either party for delay and disruption. In relation to the

latter, a distinction should be made between prolongation claims (involving costs

and losses incurred as a result of delays to the activity in question or the works

as a whole which have led to critical delay to the contract completion date) and

disruption claims (which involve those additional costs and losses incurred

during extended or disrupted periods of activities usually without any effect on

the completion date for the works).

It should also be emphasised that although prolongation claims are often

seen as the financial side of a "delay claim", there is no automatic entitlement to loss and expense or damages even if a right to an extension of time is

established.

Apart from direct additional construction costs and other specifically

identifiable expenses resulting from the breach or relevant matter, contractor's

claims for delay are commonly brought under one or more of these heads:

(a) increased preliminaries or site overheads;

(b) increased or lost contribution towards head office overheads;

(c) loss of profit;

(d) increased costs resulting from inflation; and

(e) interest for non-payment of money.

Such claims are often for commercial or other reasons greatly exaggerated

both as to the extent of delay caused by the employer's breach and in

quantification. The basis for calculation is often excessively theoretical, ignoring

the principles that damages are to compensate for actual loss and must be

proved. In C & P. Haulage Vs. Middleton reported at 1983 (1) WLR 1461 at

1467, Lord Ackner observed:

"It is not the function of the courts where there is a breach of contract

knowingly...to put the plaintiff in a better financial position than if the

contract had been properly performed."

A contractor's overheads are commonly taken to be recovered out of the

income from the business as a whole and ordinarily where completion of one contract is delayed the contractor claims to have suffered a loss arising from the

diminution of income from the job and hence the turnover of the business. But it

continues to incur expenditure on overheads which it cannot materially reduce

or, in respect of the site, can only reduce, if at all, to a limited extent. But for the

delay, the workforce would have had the opportunity of being employed on

another contract which would have had the effect of contributing to the

overheads during the overrun period. There is some authority that a claim on

this basis is sustainable. However Keating suggested that, in order to succeed, a

contractor has in principle to prove that there was other work available which,

but for the delay, it would have secured but which in fact because of the delay it

did not secure. It might do this by producing invitations to tender which it

declined with evidence that the reason for declining was that the delay in

question left it with insufficient capacity to undertake other work. It might

alternatively show from the accounts a drop in turnover and establish that this

resulted from the particular delay rather than from extraneous causes. If loss of

turnover resulting from delay is not established, the effect of the delay is only

that receipt of the money is delayed. It is not lost.

Contractors commonly claim a loss of profit arising out of the diminution

in turnover, but it seems that to establish this claim it must show, as with a

claim for lost contribution to overheads considered above, that at the time of the

delay it could have used the lost turnover profitably. A claim for loss of profit

does not, fail merely because the contract in question was unprofitable. The

question is what the contractor would have done with the money if it had been received at the proper time. Even if, at that time, the contractor's business was

making a loss, a sum analogous to loss of profit is, recoverable if the loss of

turnover increased the loss of the business. [See Keating on Construction of

Contracts, 10th Edition]

The learned Senior Counsel has referred to the Emden's Building

Contracts And Practice, 9th Edition, Page 740 in connection with various

heads of claim made due to breach of contract. The celebrated Author has given

a formula for calculating damages for prolongation of contract. The said formula

was also taken into consideration in Saw Pipes (supra).

In the said celebrated book, the Author has recognized following heads of

damages that a contractor would be entitled due to disruption or delay in

executing the work:-

(a) His labour at site will be affected, either by being under-utilized or because extra labour is required because of the additional difficulties.

(b) Plant on site may be affected in the same way.

(c) Where delay occurs, his site establishment costs, such as the employment of a resident manager, site huts, fixed plants etc., will be increased. These are known as 'on-site overheads'.

(d) Extra administration costs and loss of profit may be incurred by the contracting organization as a whole as a result of the delay or disruption. These are known as 'off-site' or 'head-office' overheads.

(e) Where delay occurs, the price of labour and materials may rise in a way 'unforeseen' by the contractor.

(f) Extra financing costs.

The Emden formula is one of the methods accepted in an attempt to arrive

at an approximation of the damages supposedly incurred by the contractor where

there has been a delay to the progress of the works whereby completion is

delayed. The various formulae, namely, Hudson formula, Emden formula,

Eichleay formula, are all approximations rather than assessments of actual

costs. Each relies on assumptions which may not always be appropriate, and the

inclusion of an allowance for profits in some of the formulae must be separately

justified.

In Emden's Building Contract, the author has made the following

observation with regard to the loss of profit:

"Although contractors invariably seek to claim, in addition to a head-office overhead representing actual head-office expenses, a further percentage representing profit calculated in the same way, it is submitted that such a profit percentage is not invariably recoverable; it is necessary to show that the organization could, during the period of delay, have actually been deployed elsewhere at a profit."(Emphasis added)

Allowing a claim on account of time related cost component or business

profit runs with a caveat which could be found out from Hudson's Building and

Engineering Contract, 10th Edition, at Page 999 which reads:-

"A caveat should, however, be entered in regard to the profit element in the above formula. The formula assumes that the profit budgeted for by the contractor in his prices was in fact capable of being earned by him elsewhere had the contractor been free to leave the delayed contract at the proper time. This itself involves two further assumptions, namely that on average the contractor did not habitually underestimate his costs when pricing, so that the profit percentage was a realistic one at that time, and secondly that there was thereafter no change in the market, so that work of at least same general level of profitability would have been available to him at the end of the contract period. There is no doubt that satisfactory evidence on these matters is necessary, and the case of Sunley Vs. Cunard White Star 1940, and a number of cases involving the wrongful detention of ships and consequential loss of charter-party profits, indicate that in the absence of such evidence a contractor who has been delayed will only be entitled to interest on capital employed, and not to loss or profit."

Summarising the principles, a learned Single Judge in Videsh Sanchar

Nigam Limited Vs. Shapoorji Pallonji & Company Limited reported at

2008(1) CHN 721 stated:-

"Ordinarily when there is delay in completion of such a project, the contractor may suffer loss on account of additional overheads during the extended period for which it had not budgeted at the time of submission of its price for the work. A contractor would also have suffered, for such delay, a loss of profit earning capacity for its resources being detained longer than its envisaged. The contractor would also incur additional expenditure on site overheads in addition to escalation. For loss on account of head office overheads and profit for the overstay, Hudson has devised a formula that has been applied by the arbitrators. The formula has been based on certain assumptions and before his application, the contractor should satisfy that the profit budgeted for by the contractor in the price submitted was capable of being earned by the contractor elsewhere during the period of overstay."

In Associate Builders (supra) while interpreting public policy of India law,

the Supreme Court had reiterated that the rights and obligations of the parties are required to be decided by a judicial approach meaning thereby that such

decision should be fair, reasonable, objective and based on some evidence.

Although, quality and quantity of the evidence cannot be gone into in a

proceeding under Section 34 of the Arbitration and Conciliation Act, 1996 but

the mind of the arbitrator should be discernible from the award otherwise it

would be an unreasoned and arbitrary award. The arbitrator, in my view, has

failed to adopt judicial approach in deciding the claim Nos.2, 4, 9 and 10.

In view thereof, the application of setting aside of the award succeeds in

part. The claim Nos. 2, 4, 9 and 10 are disallowed. The application succeeds in

part. However there shall be no order as to costs.

Urgent Xerox certified copy of this judgment, if applied for, be given to the

parties on usual undertaking.

(Soumen Sen, J.)