IN THE COURT OF THE DISTRICT JUDGE
Rajamahendravaram
PRESENT: Ms B.S.Bhanumathi, District Judge.
Tuesday, the 7th day of March, 2017.
A.A.O.P.NO. 38/2013.
Between:
M/s Oil and Natural Gas Corporation Ltd (ONGC) Rep. By its GGM, Asset Manager, Mr P.K.Rao,
Rajahmundry. .. Petitioner
-And-
1. M/s Nicco Corporation Ltd, Kolkata
2. Mr Justice K.A.Swami, Arbitrator,
Bangalore .. Respondents
This arbitration application came up on 25-11-16 for hearing before me in the presence of Sri S.Kumar, advocate
for petitioner and Sri M.Siva Subba Rao, Advocate for R1 and
R2 remained exparte, and upon perusing the petition and memo, and material papers available on record, this court made the following:
O R D E R
This petition is filed U/Sec.34 of Arbitration and
Conciliation Act, 1996 to set aside award dt.15-3-2013 passed by 2nd respondent against the petitioner.
2. The petitioner herein is the respondent and the 1st respondent is the claimant before the Arbitrator/2nd respondent and they will be referred as claimant and respondent for convenience sake.
3. The genesis of the case, in brief, is as follows:-
The Oil and Natural Gas Corporation Limited, herein after referred as ONGC, issued notification of award to on 23-8-2007 which is the effective date for commencement of work and executed contract on 9-1-2008 with M/s NICCO Corporation
Limited, hereinafter referred as NICCO in consortium with 2 AOP 38/13 dt.7-3-2017 Ventech (a technical collaborator) for the construction of
Tatipaka Mini Refinery phase II in Andhra Pradesh on Lump Sum
Turn Key (LSTK) to complete the project within 540 days from 23-8-2007 to 12-2-2009, but NICCO completely stopped site work from 24-7-2009 and failed to complete the work for the reasons solely attributable to it. ONGC claims that it was constrained to terminate the contract by its letter dt.24-2- 2010. Running account (RA) bills 11 to 17 were not paid, liquidated damages (hereinafter referred as LD) were recovered, the bank guarantee was encashed NICCO filed a suit in Calcutta High Court in civil suit No.27/2010. ONGC filed an application GA 806/2010 u/s 8 of the Arbitration and
Conciliation Act, 1996 (in short the Act) to refer the matter to arbitration. Thus, the dispute was referred to the
Arbitrator (R2). NICCO filed claim statement before R2 seeking the following reliefs:- a. declare that the purported termination of the contract by the respondent vide its letter dt.24-2-2010 under clause 24.2 of the contract is illegal, null and void and consequently, the claimant would be entitled to the benefit of the payment of costs and expenses on termination, in terms of clause 19.3.2 of the contract.
b. to direct the respondent to pay a sum of US $ 639.150 and
Rs.nil towards certified / billed invoices; c. to direct the respondent to pay a sum of US $ 1,774,169 and
INR 36,65,000/- towards the value of the works executed by the claimant.
d. to direct the respondent refund the sum of Rs.4,38,55,000/- to the claimant received on the wrongful invocation of the 3 AOP 38/13 dt.7-3-2017 bank guarantee.
e. to direct the respondent to pay a sum of Rs.65,14,750/- towards the duties paid but later it was amended to
Rs.16,83,260/- by the claimant on account of non-furnishing project authority certificate by the respondent.
f. To pay damages of Rs.2.5 crores towards loss of reputation damages suffered by the claimant due to unlawful invocation of the bank guarantee.
g. To direct the respondent to indemnify the claimant against any/all demands / claims made by any vendor / sub contractor or any other person with regard to the orders placed / contracts entered into by the claimant in pursuance of the contract, or, in the alternative, direct the respondent to direct payment to such vendors / sub contractors and take delivery of the equipments / materials.
h. to direct the respondent to pay an interest at the rate of 18% p.a. on the aforesaid sums, claimed in reliefs (b) (c) (d)
(e) and (f) from the respective due dates / cause of action till the date of payment;
I. to direct the respondent to pay the costs of the arbitration proceedings and j. pass such further or other reliefs as the arbitrator may deem fit and proper in the circumstances of the case and thus render justice.
ONGC filed its defence statement and counter claim for the following reliefs:- a. pay the sum of Rs.24,37,41,371 and USD 41,25,958/- b. pay interest for above said sum @ 18% p.a. from 24-2-2010 to the a date of payment; c. pay costs of this arbitration proceedings; 4 AOP 38/13 dt.7-3-2017 d. pass such further or other orders as the tribunal may deem fit and proper in the circumstances of the case and render justice.
4. Reply and rejoinders were filed by both sides. The documents of the claimant were marked as Exs.C1 to C151 and the documents of ONGC were marked as Exs.R1 to R69. The documents summoned by R2 were marked as Ex.AT1 and Ex.AT2. No oral evidence was adduced. After hearing both parties, R2 passed the impugned award at Hyderabad on 15-3-2013 holding that ONGC caused delay of 402 days and thereby the time for performance of the contract was required to be extended till 21-3-2010 without levy of LD. Having aggrieved by the award, this petition was filed by ONGC.
5. R1 filed counter resisting the petition.
6. R2 remained exparte.
7. Heard.
8. IA 2490/15 filed by the petitioner under Or.41 R.27
CPC to receive additional documents is received. Exs.R70 to
R80 were marked.
9. Considering rival contentions, perusing material available on record, the point that arise for consideration is:
Whether the award passed by the R2 is vitiated by any illegalities and that whether the Award was passed basing on principles of natural justice; if so the Award is sustainable ?
POINT:
10. Counsel on both sides firstly submitted about the scope of enquiry u/s 34 of the Act and referred decisions. The petitioner contended that when the award is perverse etc being 5 AOP 38/13 dt.7-3-2017 against terms of contract or evidence on record; one sided approach, suffering from arithmetical mistakes and illogical conclusions, this court can look into the reasons to examine whether it is in consonance with terms of contract or evidence on record and the award is liable to be set aside, if found to be perverse etc. On the other hand, R1 submitted that this court, like an appellate court on civil side, cannot reappraise the evidence and cannot judge the reasonableness of the reasons given and it is enough to examine whether the arbitrator has considered the terms of contract, contentions of both parties and the evidence before him and whether he assigned reasons for his findings.
11. It is pertinent to refer the provision u/s 34 of the
Act as follows:-
34. Application for setting aside arbitral award:- (1)
Recourse to a Court against an arbitral award may be made only by an application for setting aside such award in accordance with sub-section (2) and sub-section (3).
(2) An arbitral award may be set aside by the court only if—
(a) the party making the application furnishes proof that---
(i) a party was under some incapacity; or
(ii) the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law for the time being in force; or
(iii)the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or 6 AOP 38/13 dt.7-3-2017
(iv)the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration , or it contains decisions on matters beyond the scope of the submission to arbitration:
Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside; or (V) the composition of the arbitral Tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Part from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Part; or
(b) the court finds that ----
(i) the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or
(ii)the arbitral award is in conflict with the public policy of India.
Explanation-- Without prejudice to the generality of sub- clause (ii), it is hereby declared, for the avoidance of any doubt that an award is in conflict with the public policy of
India if the making of the award was induced or affected by fraud or corruption or was in violation of section 75 or section 81.
The petitioner relied on the following decisions:-
(a) Hindustan Zinc Ltd Vs Friends Coal Carbonisation;
dt. 4-4-2006; (2006) 4 SCC 445;
(b) Associate Builders Vs Delhi Development Authority;
dt. 25-11-2014; 2015(3) SCC 49;
7 AOP 38/13 dt.7-3-2017
(c) ONGC Ltd Vs Western Geco International Ltd; dt.4-9- 2014; (2014) 9 SCC 263; These decisions are discussed hereafter.
Further, he relied on the following decisions:-
(d) Security printing and Mining corporation of India Ltd and another Vs Gandhi Corporation; dt. 12-10-2007; (2007) 13 SCC 236 wherein Saw Pipes case which is discussed hereafter, was followed.
(e) Delhi Development Authority Vs R.S.Sharma and company; dt.26-8-2008; (2008) 13 SCC 80 wherein Saw Pipes case which is discussed hereafter, was followed.
(f) ONGC Vs Garware Shipping Corporation; dt. 14-11-2007; (2007) 13 SCC 434; “16. The Division Bench was of the view that even if the mode of calculation as applied by the arbitrator is not very appropraite in its affect, that could not be a ground for exercise of power u/s 34.
17. It is noted that the reference in fact did not include the period 13th to 16th year to inspect that the arbitrator thought it improper to open the same. The High Court was of the view that a narrow technical reading of the award cannot be made.
30. There is no proposition that the courts could be slow to itnerfere with the arbitrator's award, even if the conclusions are perverse, and even then the very basis of the arbitrator's award is wrong. In any case, this is a case where interference is warranted and we set aside the norms prescriBED by the arbitrator as upheld by the learned Single
Judge and the Division Bench.”
g. BHEL VS Tata Projects Limited; dt. 1-9-2014; (2015) 5 SCC
682. This decision is based on facts before it and no proposition of law to find out ratio could be culled out there from.
h. PR Catering company and another Vs ONGC Limited and others;
dt. 13-3-2008; (2008) 5 SCC 272. In this case, the award was
challenged on the grounds of non reading of material evidence by the arbitrator as also the suppression of the material evidence by the appellant before the arbitrator. The High Court set aside the award and remanded the case back to the arbitrator for its fresh disposal in the light of material documents earlier ignored by the Arbitrator. The Supreme Court confirmed the order of the High Court.
8 AOP 38/13 dt.7-3-2017 R1 / NICCO relied on the following decisions
(a) Municipal Corpn of Delhi Vs Jagan Nath Ashok Kumar; (1987) 4 SCC 498; wherien it is observed as follows:- “2. The arbitrator gave reasons in support of the award. The question is whether reasonableness of the reasons in a speaking award is justiciable under Article 136 of the Constitution. We are of the opinion that such reasonableness of the reasons given by an arbitrator in making his award cannot be challenged in a proceeding like the present...” 3... We do not find any lack of reason in the reasons given by the arbitrator. Whether in a particular contract time was of the essence of the contract or not is a mixed question of law and fact. But the reasons given by the arbitrator appear to be reasonable and have rational nexus with theconclusion arrived at by him.... In our opinion where reasons germane and relevant for the arbitrator to hold in the manner he did have been indicated, it cannot be said that it was unreasonable...
4. In this case, there was no violation of any principles of natural justice. It is not a case where the arbitrator has refused cogent and material factors to be taken into consideration. The award canot be said to be vitiated by non- reception of material or non-consideration of the relevant aspects of the matter. Appraisement of evidence by the arbitrator is ordinarily never a matter which the court questions deciding forum must be conceded the power of appraisement of the evidence. In the instant case, there was no evidence of violation of any principle of natural justice. The arbitrator in out opinion is the sole judge of the quality as well as the quantity of evidence and it will not be for this court to take upon itself the task of being a judge of the evidence before the arbitrator. It may be possible that on the same evidence the court might have arrived at a different conclusion than the one arrived at by the arbitrator but that by itself is no ground in our view for setting aside the award of an arbitrator.
5. It is familiar learning but requires emphasis that Sec.1 of the Evidence Act, 1872 in its rigour is not intended to apply to proceedings before an arbitrator... Lord Goddard, C.J in Mediterranean and Eastern Export Co.Ltd Vs Fortress Fabrics Ltd; (1948) 2 AllER 186 observed at pages 188 – 89 of the report as follows:- ... If an arbitrator has acted within the terms of his submission and has not violated any rules of what is so often called natural justice the courts should be slow indeed to set aside his award.”
(b) Puri Construction Pvt.Ltd Vs Union of India; dt.20-1- 1989; (1989) 1 Supreme Court Cases 411 wherein it is observed 9 AOP 38/13 dt.7-3-2017 as follows:- “7...When a court is called upon to decide the objections raised by a party against an arbitration award, the jurisdiction of the court is limited, as expressly indicated in the Arbitration Act, and it has no jurisdiction to sit in appeal and examine the correctness of the award on merits. However, so far as the present case is concerned, the decision of the arbitrator is supportedby the evidence led before him including the evidence of the Union of India and papears to be correct on merits also.
14. It is significant to note that there has been no suggestion on behalf of the Union of India either in the High Court or here that the integrity of the arbitrator could be doubted. Admittedly he was (now he is dead) a highly respectable retired Chief Engineer... Mr Sibal, therefore, appears to be right that apart from the fact that the award is not vulnerable to any objection which can be entertained under the arbitration act, it is a fair one. But, this does not lead to the conclusion that for upholding an award, court has to examine the merits of the award with reference to the materials produced before the arbitrator. The court cannot sit in appeal over the views of the arbitrator by reexamining and reassessing the materials. The scope for setting aside an award is limited to the grounds available under the Arbitration Act, which have been well defined by a long line of decided cases, and none of them is available here. For this reason the decision of the Division Bench of the High Court has to be set aside.
15..... We are afraid, for reasons as indicated earlier, it is not open to the court to examine the correctness of the award on a reappraisal of the evidence.”
(c) M/s Sudarshan Trading Company Vs Govt.of Kerala and another; dt. 14-2-1989; (1989) 2 SCC 38 wherein it is observed as follows:- “28. … An award can also be set aside if the arbitrator had misconducted himself or the proceedings or had proceeded beyond his jurisdiction. These are separate and distinct grounds for challenging an award. … The judicial committee in Champsey Bhara and Co Vs Jioraj Balloo Spinning and Weaving Co.Ltd; Air 1923 PC 66 has discussed this problem. It was held that an award of arbitration can be set aside on the ground of error of law apparent on the face of the award only when in the award or in a document incorporated with it, as for instance a note appended by the arbitrator stating the reasons for his decision, there is found some legal proposition which is the basis of the award and which is erroneous... It was held by the judicial committee that the award could not be set aside; the terms of the contract were not so incorporated with the award as to entitle the court to refer to them as showing, either that the award was wrong in law, or that under them the contract, and therefore the jurisdiction of the arbitrators, were terminated. This decision and the ratio on this proposition of law has always 10 AOP 38/13 dt.7-3-2017 been accepted by the courts of this country and is well settled.
29. … It is not open to th court to probe the mental process of the arbitrator and speculate, where no reasons are given by the arbitrator as to what impelled the arbitrator to arrive at his conclusion....Further more, in any event, reasonableness of the reasons given by the arbitrator cannot be challenged. Appraisement of evidence by the arbitrator is never a matter which the court questions and considers. If the parties have selected their own forum, the deciding forum must be conceded the power of appraisement of the evidence. The arbitrator is the sole judge of the quality as well as the quantity of evidence and it will not befor the court to take upon itself the task of being a judge on the evidence before the arbitrator.
30... But where a specific question is referred, the award is not liable to be set aside on the ground of an error on the face of award even if the answer to the question involves an erroneous decision on a point of law. But an award which ignores express terms of contract is bad... Theefore, it appears to us that there are two different and distinct grounds involved in many of the cases. One is the error apparent on the faceof the award and the other is that the arbitrator exceeded the jurisidiction. In the latter case, the court can look into the arbitration agreement but in the former, it cannot, unless the agreement wa sincorporated or recited in the award....:
35. … It may be stated that if on a view taken of a contract, the decision of the Arbitrator on certain amounts awarded, is a possible view though perhaps not the only correct view, the award cannot be examined by the court in the manner done by the High Court in the instant case. “
(d) U.P.State Electricity Board Vs Searsole Chemicals Ltd, dt.21-2-2001; (2001) 3 SCC 397; it is held that when the arbitrators have applied their mind to the pleadings, the evidence adduced before them and the terms of the contract, there is no scope for the court, including the Supreme Court to re-appreciate the matter as if this were an appeal, and it is clear that where two views are possible, the view taken by the arbitrator would prevail.
(e) Oil & Natural Gas Corporation Ltd vs Saw Pipes Ltd;dt.
17-4-2003, (2003) 5 SCC 705 as follows:- “15. The result is ------- if the award is contrary to the substantive provisions of law or the provisions of the Act or against the terms of the contract, it would be patently illegal, which could be interfered u/s 34. However, such 11 AOP 38/13 dt.7-3-2017 failure of procedure should be patent affecting the rights of the parties.
“31. Therefore, in our view, the phrase 'Public Policy of
India' used in Section 34 in context is required to be given a wider meaning. It can be stated that the concept of public policy connotes some matter which concerns public good and the public interest. What is for public good or in public interest or what would be injurious or harmful to the public good or public interest has varied from time to time. However, the award which is, on the face of it, patently in violation of statutory provisions cannot be said to be in public interest. Such award/judgment/decision is likely to adversely affect the administration of justice. Hence, in our view in addition to narrower meaning given to the term 'public policy' in
Renusagar's case (supra), 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.” (f & g) Hindustan Zinc Ltd Vs Friends Coal Carbonisation; dt.
4-4-2006; (2006) 4 SCC 445; Associate Builders Vs Delhi
Development Authority; dt. 25-11-2014; 2015(3) SCC 49; The above decision in Saw Pipes case has been followed in these cases. It is further observed in Associate Builders at paras 33 and 56 as follows:- “ 33. It must clearly be understood 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 12 AOP 38/13 dt.7-3-2017 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 on evidence which does not masure up in quality to a trained legal mind would not be held to be invalid on this score.
56...We are at a complete loss to understand how this can be done by any court under the jurisdiction exercised under Sec.34 of Arbitration Act. As has been held above, the expression “justice” when it comes to setting aside an award under the public policy ground can only mean that an award shocks the conscience of the court. It cannot possibly include what the court thinks is unjust on the view and does what it considers to be “justice”. With great respect to the Division Bench, the whole approach to setting aside arbitral awards is incorrect. The Division Bench has lost sight of the fact that it is not a first appellate court and cannot interfere with errors of fact.”
(h) The above decision in Saw Pipes has been followed in ONGC Ltd Vs Western Geco International Ltd; dt.4-9-2014; (2014) 9 SCC 263. It is further observed in this case at para 39 as follows:- “39. No less important is the principle now recognized as a salutary juristic fundamental in administrative law that a decision which is perverse or so irrational that no reasonable person would have arrived at the same will not be sustained in a court of law. Perversity or irrationality of decisions is tested on the touchstone of Wednesbury principle of reasonableness. Decisions that fall short of the standards of reasonableness are open to challenge in a court of law often in writ jurisdiction of the superior courts but no less in statutory processes wherever the same are available.” (I) State of UP Vs Allied Constructions; dt. 31-7-2003; (2003) 7 SCC 396 it is observed as follows:- “4. … Sec.30 of the Arbitration Act, 1940 providing for setting aside an award is restrictive in its operation. Unless one or the other condition contained in Sec.30 is satisfied, an award cannot be set aside. The Arbitrator is a
judge chosen by the parties and his decision is final. The
court is precluded from reappraising the evidence. Even in a case, where the award contains reasons, the interference there with would still be not available within the jurisdiction of the court, unless, of course, the reasons are totally perverse or the judgment is based on a wrong proposition of law. An error apparent on the face of the records would not imply closure scrutiny of the merits of documents and materials on record. Once it is found that the view of the arbitrator is a plausible one, the court will refrain itself from interfering. (see UPSEB Vs Searsole Chemicals Limited) (2001) 3 SCC 397 and Ispat Engineering and Foundry works Vs Steel Authority of India Ltd; (2001) 6 SCC 347).
13 AOP 38/13 dt.7-3-2017
(j) Pure Helium India pvt Ltd Vs ONGC; (2001) 8 SCC 593. It is observed therein that the Arbitrator has jurisdiction to interpret a contract, having regard to terms and conditions of the contract, conduct of the parties, circumstances of the case and pleadings of the parties.
(k) Bharath Cooking Coal Ltd Vs L.K.Ahuja; dt.12-4-2004; (2004) 5 SCC 109 wherein it is held that once Arbitrator had applied his mind to the matter before him court cannot reappraise the matter as if it was an appeal and even if two views are possible, view taken by arbitrator would prevail so long as it is one that a reasonable person would take and that only when arbitrator exceeds terms of the agreement or passes an award in the absence of evidence, which is apparent on the face of the record, can the same be set aside.
(l) Bhagavati Oxygen Ltd Vs Hindustan Copper Ltd; dt. 5-4- 2005; (2005) 6 SCC 462.
It is held that an arbitrator is a judge appointed by the parties and as such, the award passed by him is not to be lightly interfered with and that court while exercising power u/s 30 of the Arbitration Act, 1940 cannot re-appreciate the evidence or examine the correctness of conclusions arrived at by the Arbitrator. It is further held that the jurisdiction is not appellate in nature and an award passed by an arbitrator cannot be set aside on the ground that it was erroneous and it is not open to the court to interfere with the award merely because in the opinion of the court, another view is equally possible. It is observed that it is only when the court is satisfied that the arbitrator had misconducted himself or the proceedings or the award had been improperly procured or is “otherwise” invalid that the court may set aside such award.
12. A perusal of the above decisions indicate that there is no absolute bar for this court to look into the award under any circumstances. Perversity is a ground on which court can interfere with the award. Usually, even in a case, where the award contains reasons, the interference there with would still be not available within the jurisdiction of the court, unless, of course, the reasons are totally perverse or the judgment is based on a wrong proposition of law. Decision which is perverse or so irrational that no reasonable person would have arrived at the same will not be sustained in a 14 AOP 38/13 dt.7-3-2017 court of law. In this context the impugned award shall be examined.
13. The petitioner contended that the arbitrator suomoto raised certain points in the award without giving opportunity to the petitioner to answer those points and therefore, the petitioner was under incapacity and in a disadvantageous position. But, R1 submitted that enough opportunity was given by holding 35 sessions for submission of oral arguments of petitioner and the proceedings spread over 18 months and all points raised in the award were discussed in detail during the arbitration proceedings and the findings are based on evidence and the appreciation is within the jurisdiction of the arbitrator. The points raised by the petitioner saying that the arbitrator suomoto dealt with in the award shall be discussed at the appropriate stages hereafter.
14. The petitioner contended that the arbitrator erroneously found that ONGC alone is responsible for all the delay without attributing even a single day delay to NICCO out of 915 days spreading from commencement of the contract on 23- 8-2017 to termination of contract on 24-2-2010 and such an approach of the arbitrator is perse perverse and patently unjust, contrary to facts, pleadings and terms of contract.
15. NICCO submitted that since as per clause 23.0 of the contract, extension of time without imposition of LD can be granted to NICCO in case of default on the part of ONGC and
NICCO cannot seek extension of time for its default or delay, there arises no necessity to go into the question of examining default on the part of NICCO in causing the delay. This argument is untenable as imposition of LD arises when there is 15 AOP 38/13 dt.7-3-2017 delay attributable to NICCO and NICCO is asking for extension of time without imposing LD. If imposition of LD is justified for default of NICCO, the relief sought by NICCO for extension of time without imposing LD cannot be granted. Therefore, the relief sought by NICCO is interconnected to the right of ONGC to impose LD which necessitates examination of delay if any on the part of NICCO.
16. It is the contention of NICCO that it is entitled to extension of 208 days (218 sic) beyond 8-1-2009 being the extra time period taken to obtain approval of the BED from
ONGC. The actual period of 255 days from 4-10-2007 to 16-6- 2008 was contemplated under the PERT chart, but the BED was approved on 8-1-2009.
17. The Arbitrator held that ONGC caused delay of 206 days in approving BED since it was supposed to approve the document by 16-6-2008 but approved the document on 8-1-2009.
ONGC contended that the arbitrator failed to find even a single day delay of NICCO though there is apparent unexplained initial delay of 174 days in submitting BED and even thereafter. NICCO contends the contract has one completion
date 12-2-2009 and there are no intermediate dates /
milestones for completion of any sections or items of work, being LSTK project. It further says NICCO submitted the entire
BED on 22, 24 and 27 March, 2008, but ONGC approved BED on 10- 1-2009, almost 10 months after submission of BED. It fails to mention what happened in between. These contentions of NICCO are unsustainable for the reason that unless the dates mentioned for each action is examined, it is not possible for the arbitrator to find out who caused the delay so as to 16 AOP 38/13 dt.7-3-2017 decide whether NICCO is entitled to extension of time without
LD or whether ONGC is entitled to impose LD. So, it is required to examine the award on this aspect in the light of the scope of the authority u/s 34 of the Act.
18. Both parties agreed that NICCO shall submit 'BED generated by Ventak with process guarantee' and in 'sequential manner' commencing from 4-10-2007.
19. The documents to be submitted sequentially as agreed were admittedly not so submitted as per the time chart, but were submitted in bulk on 22nd, 24th and 27th March, 2008.
Obviously, time of 255 days between 4-10-2007 to 16-6-2008 was intended to provide to scrutiny of the documents for approval and return or resubmission to NICCO to suit the needs. Thus, submission of documents in bulk is against terms of contract.
20. Arbitrator assumed that NICCO submitted BED in proper form on 27-3-2008. But it is admitted in Ex.R18 which is Minutes of Meeting dt.9-4-2008 that ONGC pointed out that
NICCO submitted BED on 27-3-2008 against the terms of contract without approval of Ventak with the remark that 'these comments do not relieve the document originator of his responsibilities to comply with contract and design requirements'. The same is evident from the clarification and agreeing in the Minutes of Meeting dt.4-3-2008 under Ex.R13
Sl.No.8 that DEP & DE will be prepared along with process guarantee by M/s Ventech and will be submitted by M/s NICCO to
ONGC / PDIL. It was admitted in Ex.R18 MOM (Minutes of
Meeting) dt.9-4-2008 that the drawings / documents related to
BED package were not in conformance of requirement of contract and that they would be resubmitting the BED package generated 17 AOP 38/13 dt.7-3-2017 by the process guarantor Ventech along with the undertaking for over all process performance guarantee. It is only on 23- 5-2008, BED with approval of Ventech was submitted.
21. The period of 8 months 12 days from 4-10-2007 to 16- 6-2008 is allowed as per the agreement for approval of BED by
ONGC, if BED is submitted by NICCO on 4-10-2007. When there is initial delay in submission of BED by NICCO, counting the period of delay from 16-6-2008 or 27-3-2008 is against the terms of contract. It shall be counted from 23-5-2008.
Thereby, the period taken is 7 months 15 days as against approved period of 8 months 12 days. As per contractual clause 2.2.2.1 (a), the simulation should be submitted along with BED. Simulation is necessary for approval of BED. NICCO also submitted arguments that the changes in parameters in simulation was instructed by ONGC and BED could not be finalised till the simulation is finalised is a matter of record. PERT schedule for process data is between 4-10-2007 and 3-1-2008 (Ex.C6 entry 14). ONGC contends that on 2-4-2008, simulation was submitted by NICCO after delay of 180 days and
ONGC asked to submit a readable form (legible copy, but, it was submitted only on 13-6-2008 after a delay of 252 days. At this juncture NICCO submits that two months after submission of simulation data, on 9-6-2008 ONGC instructed NICCO to resubmit the simulation contending that it is unreadable.
Both of them agree that NICCO submitted another copy of simulation data on 19-6-2008, within 6 days. ONGC further says that it gave its comments to simulation; that on 23-6- 2008, within 4 days NICCO resubmitted the simulation; that on 27-6-2008 within 4 days ONGC commented on the resubmitted 18 AOP 38/13 dt.7-3-2017 simulation and NICCO did not comply with all comments earlier made; that on 4-7-2008, after 15 days from 19-6-2008, a reply of Ventech on the simulations was sent and there is no explanation for this time taken; that on 10-7-2008, within 6 days from 5-7-2008, ONGC commented on the replies of Ventech; and that Vide Ex.C35 minutes of meeting 21 / 22-7-2008, the simulation was approved and NICCO was permitted to go ahead with the downstream activities with approval of Ventech and complying with the comments. ONGC further contends that only in Code – 2 approval, downstream activities would be permitted. On 30-9-2008 (Ex.C61) ONGC suggested 4 new parameters to the simulation report and requested NICCO /
Ventech to examine the same. On 13-10-2008 (Ex.C62) NICCO, in consultation with Ventech informed ONGC that Ventech is not in favour of new parameters. ONGC accepted the same. 13 days time elapsed between 30-9-2008 and 13-10-2008. ONGC contends that since making of new suggestion did not hold up the work prior to 30-9-2008 and on the other hand NICCO was asked to go ahead, NICCO cannot claim delay till 30-9-2008 and that this issue took only 13 days but the same was blown out of proportion by the arbitrator. There is no tenable answer from
NICCO to these submissions of ONGC. It merely says that
Ventach did not prepare any BED and merely approved the BED in terms of contract and ONGC also did not reject any BED finally on this ground, but only on account of unreasonable and non- contractual demands / instructions raised by ONGC / PDIL, the finalisation of BED was delayed even after their submission in
March, 2008. None of the submissions of ONGC are against the evidence on record. Rather Ex.C66 MOM dt.6-11-2008 shows that 19 AOP 38/13 dt.7-3-2017 NICCO mentioned that it was going ahead with the project activities basing on approval of ONGC on 21 / 22-7-2008.
Thus, there was no site activity held up causing delay. After 21 / 22-7-2008. ONGC contends that Ventech is responsible for 116 days delay from 21-7-2008 for approving simulation and the contractor alone is responsible for the same.
22. The above information clearly indicates that there is delay on part of ONGC and NICCO, the spells of delay may be different at different stages, but attributing delay to ONGC alone is against the evidence on record and terms of contract.
Strangely NICCO contends that as it submitted BED between 22- 3-2008 and 27-3-2008, before 16-6-2008, ONGC had 3 months time even as per the planning net work to approve the BED. When the planned time is 8 months 12 days, ONGC cannot be expected to approve the document by 16-6-2008 by submitting the BED documents at the end of March, 2008. Had such time been enough, there is no reason for providing such a long period in the PERT by NICCO itself. The period taken for approval of BED from 13-06-2008 to 08-01-2009 is 6 months 21 days only.
Counting the period either from 23-05-2008 or 13-06-2008, the period taken for approval is not more than agreed period 8 months 12 days. Even if the period taken by ONGC for approval is to be ascertained from 27-3-2008, it took 9 months 12 days as against 8 months 12 days and thereby the difference is only 30 days, but not 206 days. But the Arbitrator finds at para 165 of the Award that there is no reasonable or plausible explanation for the time taken by ONGC from 2-4-2008 till 8-1- 2009 (sic 6-1-2009) and that as 16-6-2008 was the last date fixed for approval of BED package, the delay has to be 20 AOP 38/13 dt.7-3-2017 considered only from 17-6-2008 till 8-1-2009 the date on which date Design Engineering and Process were approved and for the said period of 206 days, ONGC shall have to be held responsible. NICCO contends that ONGC, on misconceived premise and to conceive and to mislead this court convuluted calculation delay by deducting an alleged 174 days delay from 208 days delay. NICCO further contends that assessment of delay and who is responsible for such delay is purely question of fact based on appreciation of evidence and interpretation of contract and is out of the scope of Sec.34 of the Act. It is not going into such examination by this court, it is examining the findings of the arbitrator as to whether they are in accordance with the terms of contract and the evidence on record. It is not the finding of the Arbitrator that ONGC is responsible for the initial delay of 174 days from 4-10- 2007 on which day NICCO shall submit BED to 27-3-2008 when it actually submitted BED, that too without approval of VENTECH as required under the contract. Vide Ex.C14 dt.5-4-2008 ONGC sought clarification whether Ventech generated the BED documents as per the contractual requirements and thus 9 days were taken by ONGC to study the documents presented in bulk in stead of sequentially. Vide Ex.C18 dt. 25-4-2008 Ventach gave reply taking 20 days time, but did not answer all queries.
Vide Ex.C19 dt. 29-4-2008 ONGC sought for point wise confirmation on Ventach's responsibility under the contract.
4 days elapsed. Vide Ex.C21 dt. 7-5-2008, ONGC addressed a reminder since no reply was received. Vide Ex.C22 dt.22-5- 2008 Ventach gave partial reply. 24 days elapsed. Vide
Ex.C23 dt. 23-5-2008, ONGC addressed a letter cautioning that 21 AOP 38/13 dt.7-3-2017 if no reply is given, the approval of BED would be kept under hold. Immediately, within a hour vide Ex.C24 e mail from
NICCO enclosing the reply of Ventach clarifying all the points raised by ONGC was sent to ONGC. Thus, out of total period of 48 days from 5-4-2008 to 23-5-2008, 44 days were taken by
NICCO / Ventach. ONGC contends that just for confirming that
Ventach and NICCO own responsibility to their obligations as per the contract terms, they took long time, but the arbitrator has not found a single day delay on the part of
NICCO and on the other hand casts delay only on ONGC contrary to facts and evidence on record. NICCO merely submits that this court cannot re-appreciate the evidence u/s 34 and that since the arbitrator gave a finding appreciating the evidence in terms of contract.
23. Of course, NICCO contended that ONGC contributed for the initial delay during the period of 174 days in submission of BED because on 1-11-2007, 70 days after the contract was awarded, ONGC advised the claimant to design for minimisation of Naphtha production and at the same time retaining the provision for maximisation of diesel and by then the preparation of BED was in advanced stage basing on the contract specifications and the change sought by ONGC caused the delay and thereby NICCO could submit BED only on 22-3- 2008. When it comes to arguments, NICCO submitted that ONGC is entitled to instruct NICCO to maximise diesel or minimise
Naptha, but the delay caused in this regard should not be put to its account. Again says that contract did not contemplate minimisation of Naptha and that it was a new requirement for which NICCO had no option but to comply with the insistence of 22 AOP 38/13 dt.7-3-2017 the same upon post award of contract. Both the versions are diagnolly inconsistent. In the normal course, it is contended that since it is a pure finding of fact based on appreciation of evidence and interpretation of contract, this court cannot interfere u/s 34 of the Act. It failed to assign any reason why it could not submit BED on the agreed day 4-10-2007 or thereafter till 1-11-2007. ONGC contends that letter dt.1-11- 2007 is only a reminder and it is a contractual term and not a new condition to design BED as per the specifications of ONGC even during the chart period as can be seen from the addendum instructing to maximise diesel HSD and HFHSD at point 18 of the contract. ONGC, vide letter dt.1-11-2007 required maximisation of diesel 'if found feasible without any extra time and cost implication'. NICCO did not say that it is not feasible or extra time or money involves. On the other hand, in the meeting held on 4-3-2008 as under the minutes of meeting vide Ex.R13, NICCO informed that they had checked up with Ventach and there is possibility of reduction in Naptha output and they would revert back with the details to ONGC.
It is only long subsequent to 23-5-2008, NICCO brought forth this issue. There is no pleading and proof that extra time was incurred for doing this work. ONGC contends that it is only a computer simulation and does not require any additional time and this fact was not denied by NICCO. However, in the claim,
NICCO contends that the maximisation required by ONGC is unrealistic and unattainable. NICCO could not even make allegation of delay due to intervention of ONGC from 4-10-2007 to 1-11-2007. Basing on Ex.R21 dt. 13-6-2008, minutes of the management review meeting, the Arbitrator observed that though 23 AOP 38/13 dt.7-3-2017 ONGC vide letter dt.1-11-2007 (Ex.C4) asked to carry out design for reduction of naphtha etc only if no extra time or cost is involved, Ex.R21 left no option to the claimant (NICCO) to comply with it. Thereafter, the arbitrator observed that though the contractor was required to follow the instructions and suggestions of ONGC and its consultants, further time is required for complying the same and the same cannot be counted to the claimant. It is pertinent to mention that before 27-3-2008, Ex.R21 was not in existence.
Therefore, basing on Ex.C4, NICCO without raising the contention by then that it does not involve extra cost or time, the observation of the Arbitrator that delay due to change of requirement in the design by ONGC cannot be attributed to NICCO is against evidence. During the initial delay of 174 days from 4-10-2007 to 27-3-2008, in the light of
Ex.C4, no attribution can be made against ONGC basing on
Ex.R21 which came into existence on 13-6-2008. Thus, ONGC cannot be attributed for the delay during the initial period of 174 days in submitting BED. There is no proof that ONGC was responsible for the delay in submission of BED on 27-3- 2008 instead of on 4-10-2007. But, contrary to the evidence on record, the Arbitrator held ONGC accountable for the same stating that it is unfair to count the delay caused by ONGC to the claimant.
24. Since the arbitrator held at para 175.2 of the award that the project was abandoned by ONGC, it is contended by the petitioner that such finding is perverse, patently illegal and contrary to the pleaded facts and evidence and that the 24 AOP 38/13 dt.7-3-2017 allegation of abandonment was pleaded by NICCO for the first time in the claim statement without being supported by any contemporary documents to cover up its lapses and to escape from the liability but on the other hand, the correspondence would show that the completion of the project is very much important for ONGC. In support of the submissions, ONGC further submitted that since the contract is turn key project, the contractor is solely responsible for the entire design, fabrication, procurement, errection, testing, commissioning and performance test to provide process guarantee and all other related matters and any delay occurred in these aspects cannot be attributed to ONGC.
25. Viewing from any angle, the finding of the
Arbitrator that 206 days delay is attributable solely to ONGC is against the terms of contract and the evidence on record and thus perverse and against public policy.
26. The issue of approval of plot planinvolves handing over the plot of land earmarked by ONGC for the purpose of erection of refinery and the preparation of plot plan by NICCO showing the location of various equipments. As per the PERT chart, the time meant for approval of plot plan is 104 days from 4-10-2007 to 16-1-2008. The arbitrator held that 75 days delay was caused by ONGC since it was approved on 31-3-2008 (code - I approval), but as he observed that the said period over lapped the longer period of delay in approving BED, no separate extension of time was granted. ONGC contends that the process of approval of bilateral procedure and the time spent should be equally apportioned and any finding in the 25 AOP 38/13 dt.7-3-2017 absence of specific pleadings and evidence as to how many days each party took to comply with their part of work, the finding about the delay is without evidence and that NICCO did not produce any evidence to prove that the entire period of delay is due to ONGC's fault. The arbitrator failed to see that the plot plan was not submitted on 4-10-2007, but was submitted on 26-10-2007 with unexplained delay of 22 days and the same has not been attributed to ONGC. When there is initial delay, it is an apparent error of the arbitrator counting the delay from 17-1-2008 and arriving at decision that there was 75 days of delay. Therefore, ONGC rightly contends that it amounts to rewriting the terms of contract by the arbitrator beyond his jurisdiction. ONGC further contends that the arbitrator erroneously considered 31-3-2008 which is code – 1 approval as the date of allowing the site activities as the said document under Ex.R61 contains an expression 'released for construction', whereas in fact code – 2 approval given on 11- 2-2008 itself permits downstream activities subject to corrections suggested by ONGC and the said approval was given within 107 days as against the period of 104 days provided in the PERT and the delay is only 3 days. The comments made in code – 2 approval were incorporated in the plot plan and submitted on 20-3-2008 by NICCO taking 37 days time from 11-2- 2008. ONGC took 11 days time to approve the same as against 15 days time available in PERT. Therefore, ONGC rightly contended that the arbitrator failed to take note of 59 days delay (22 + 37 = 59) caused by NICCO and attributed total 75 days to ONGC and hence, such finding is obviously erroneous.
Since code – 2 approval did not contain the expression 26 AOP 38/13 dt.7-3-2017 'released for construction' unlike in code – I approval, the arbitrator observed that it is only from 31-3-2008, NICCO was permitted to carry out the downstream activities. ONGC says that when code – 2 approval is granted, it means that the contractor could proceed with all downstream activities taking into consideration the suggestions or corrections made by ONGC and more over there is no pleading of NICCO that any work of
NICCO was affected. It further contended by ONGC that code – 1 approval depends on when the contractor carries out the corrections suggested in code -2 approval and represent the plan for code – 1 approval and the passage of time between code – 2 and code -1 is attributable to contractor but not to
ONGC and thereby the finding of the arbitrator attributing the total delay only to ONGC is contrary to contract, facts and hence perverse. NICCO does not dispute these submissions as incorrect, but contends that this court cannot go into the merits u/s 34 of the Act by re-appreciating the evidence as the award contained detailed discussion on this subject and that PERT is only to monitor the progress of work and not for calculation of the delay. The scope of enquiry u/s 34 of the
Act has already been discussed above. PERT is the guiding factor to decide the delay on the part of either party and
NICCO cannot rely on it for one purpose to find delay of ONGC and refute the same to count any delay on its part. It further contended that the delay of ONGC ought to be considered up to 6-1-2009 and not just up to 31-3-2008 since
PDIL once again brought additional changes requiring to issue fresh code – 1 on 6-1-2009 and mere stamping 'released for construction' is not adequate proof if subsequent changes are 27 AOP 38/13 dt.7-3-2017 ordered. This argument is not acceptable as no challenge was made by NICCO against the findings of the arbitrator, nor is it a case of NICCO in the pleadings.
27. According to NICCO, all the boilers used in industry should be IBR (Indian Boiler Register) type as per the change in law on 27-5-2008 i.e., after the award of contract, whereas contract provided use of non IBR boilers. The arbitrator found delay of 254 days is due to change in law and thereby neither NICCO nor ONGC is responsible for the said delay.
However, no extension of time is given to NICCO since the period of delay overlapped with contemporary delay in other items. ONGC contends that the claim for extension of time on the ground of force majeure under clause 41 of the contract,
NICCO shall given ONGC a written notice within 72 hours from the happening of any condition mentioned there under, but though the change in law was made on 27-5-2008, the same was informed to ONGC with 41 days delay only on 7-7-2008 (Ex.C30) which is far beyond the stipulated time of 72 hours and thus the arbitrator misapplied clause 41 to grant extension of time to NICCO under this clause. Further, it is contended that
NICCO alone is responsible for 143 days delay from schedule commencement date 4-1-2008 to 25-7-2008. For better appreciation of contentions of ONGC, the following information is required to be furnished :-
Period provided in PERT:
Enquiry and ordering 4-1-2008 to 7-2-2008 (35 days) Submission and approval of 26-2-2008 to 31-3-2008 (35 days) drawing Manufacturing and inspection 1-4-2008 to 14-7-2008 Delivery and site receipt 15-7-2008 to 25-7-2008 (11 days) 28 AOP 38/13 dt.7-3-2017
Action taken:
Alleged date of initiation of 10-12-2007 (25 days before enquiry by NICCO for purchase of schedule commencement date for Non-IBR Boiler enquiry and ordering) Date of Government notification of 27-5-2008 – 4 months 23 days change in law after schedule commencement date for enquiry and ordering Date of enquiry by NICCO for IBR 2-7-2008 (35 days after change boiler to Thermax in law) Date of NICCO's letter to ONGC 7-7-2008 (40 days after change requesting change of classification in law was notified) as IBR Date of reply by ONGC to NICCO 20-8-2008 (43 days from the date agreeing for IBR boiler of NICCO's request)
Without answering any of these contentions, NICCO submits that they are the matter of appreciation of evidence within the jurisdiction of the arbitrator and cannot be interfered u/s 34 of the Act.
28. The activities of NICCO as per the PERT schedule ought to have been completed long before the change in law.
Even though NICCO made enquiry for non IBR boiler on 10-12- 2007, admittedly nothing was done by NICCO thereafter for 5 months till the change in law on 27-5-2008. For this period of delay of 143 days from 4-1-2008 to 27-5-2008, NICCO alone shall be responsible, however, against the admitted facts and evidence on record, the arbitrator holds contrary that NICCO is not responsible. Moreover, the boiler has never been fabricated by the equipment supplier of NICCO nor was it brought to site by NICCO till the termination of the contract.
Under these circumstances, as rightly contended by ONGC, NICCO cannot seek any extension of time on the ground of change in law. As such, contrary finding of the arbitrator is not 29 AOP 38/13 dt.7-3-2017 sustainable. It is also pointed out by ONGC, even assuming that there is a delay, it could be only 227 days from 4-1-2008 to 20-8-2008 and not 254 days as recorded by Tribunal. NICCO does not dispute this fact, except saying that this court cannot re-appreciate the evidence. Since the finding of arbitrator is against the evidence on record and exhibits apparent errors, the contention of NICCO is not tenable.
29. The arbitrator found that ONGC caused 196 days of delay from 9-1-2009 to 23-7-2009 in furnishing the details of air compressor, generator and cooling tower.
30. Since the eligibility for extension of time for
NICCO is governed by clause 23.0 of the contract, it is pertinent to refer the same at this juncture as ONGC contends on this point that no extension can be given for these items because there was no site work was held up.
“23.0:- Delay in construction (ONGC's defaults):
ONGC will make every reasonable effort to furnish the materials / and required under the Contract and the right of user including the permits required to be furnished by
ONGC under the contract in due time so as not to delay the execution of the work. In case of any hold up of site work of contractor on account of non-availability of any one of these items, no compensation by way of claims admissible but only corresponding extension of time limit would be granted to contractor.”
31. ONGC contends that even NICCO did not claim that there was delay in respect of cooling tower at all and clubbing of the details of 3 items is not proper and correct and resulted in denial of principles of natural justice.
30 AOP 38/13 dt.7-3-2017 NICCO submits that the award discloses at para 170.5 that in the written submissions of ONGC, it referred to cooling tower and disputed the affect of delay and therefore, it is erroneous to say that the arbitrator suomoto took up the matter into consideration. What ONGC contends is regarding the plea of NICCO but not the submissions of ONGC during the course of arguments. NICCO further submitted that the extension of time was granted only with regard to the delay in respect of GG sets and air compressor. PERT provided 105 days from 1-5-2008 to 13-8-2008 for air compressor, but ONGC provided details on 23-5-2008 with delay of 23 days. However, the arbitrator failed to consider that NICCO did not do this work till termination of contract on 24-2-2010. ONGC contends that under the contract clause 23.0, ONGC is required to give the particulars only when it is actually needed and that mere delay in providing details by ONGC would not automatically entitle NICCO for extension of time unless it has caused delay at work site and thereby unless there is a plea and proof that the delay actually held up the site work, time cannot be extended. But in respect of this item, it is not the case of
NICCO that site work was held up and thereby arbitrator should have rejected the claim perse. Since this work was never commenced nor was it proved that the site work was held up due to the delay of 22 days by ONGC, the finding of the arbitrator holding that ONGC is responsible for the delay entitling NICCO for extension of time is obviously against the terms of contract and without evidence. The arbitrator failed to observe that NICCO did not do this work at all.
32. With regard to gas generator, PERT provided 125 days 31 AOP 38/13 dt.7-3-2017 from 5-6-2008 to 10-10-2008, but ONGC provided the details on 8-7-2009 with delay of 398 days. ONGC contends that the details sought were already provided in the tender document and NICCO committed initial delay of 369 days in seeking the details as can be seen from the letter dt.10-6-2009 and if
NICCO needed details earlier, it would have sought the same earlier, however, ONGC provided the details within 28 days from the date of request and more over site work was also not put on hold because of ONGC's delay, but was stopped by NICCO since 24-7-2009 and thereby no extension of time can be given under clause 23. The arbitrator failed to consider the fact that NICCO did not build the platform for gas generator set till the termination of the contract. In addition to that, though ONGC furnished the details for GG set admittedly on 8- 7-2009 and NICCO sought extension of time only till then, the arbitrator granted extension of time till 23-7-2009 basing on the date mentioned on the covering letter and thus, the mistake is apparent on record.
33. With regard to cooling tower PERT provided 105 days from 5-6-2008 to 17-9-2008 and ONGC provided the documents relating to it on 17-10-2008 causing 152 days delay. But, the site work was not stopped or delayed because of the delay caused by ONGC. NICCO did not commence the work at all till termination of the contract. As such, as against clause 23.0, arbitrator cannot grant extension of time. Moreover, ONGC is required to provide particulars only as and when it becomes necessary and no work of cooling tower was started by NICCO
before the date on which the details of cooling tower were
furnished by ONGC. Since no site work was held up, as per 32 AOP 38/13 dt.7-3-2017 clause 23, NICCO cannot seek extension of time, nor can arbitrator grant the same.
34. It is submitted by ONGC that the arbitrator misconstrued clause 19.4 of the contract which is intended to meet the exigency to complete small and marginal works but not for substantial work of the contract and further a new contractor cannot give all process or performance guarantees and warrantees to be given by NICCO which is responsible for its own designs, the contract being LSTK and thereby the observation of the arbitrator is misconceived assumption of impossible performance and against the terms of the contract.
It is also contended by ONGC that the arbitrator erred in observing that ONGC ought to have place expert opinion to prove that 34% of the completed work is not useful and there was no feasibility of completing the remaining work under clause 19.4, firstly because there was no such contention raised by NICCO nor was argued, but arbitrator suo moto raised the same without giving an opportunity to ONGC to reply, secondly, it is the onus of NICCO to plea and prove that it is useful and can be completed. ONGC contends that the arbitrator failed to notice that NICCO itself admitted in the civil suit 27/10 on the file of Calcutta High Court that the plant and machinery are custom made for the subject contract.
NICCO contends that clause 19.4 does not say that it applies to small work in exigencies etc and had ONGC engaged another contractor it could have been ascertained whether 35% of the work done is useful or not, but since ONGC intended to abandon the contract, it did not take recourse to clause 19.4 to complete the work. NICCO further contends it is ONGC which 33 AOP 38/13 dt.7-3-2017 abandoned the contract and with such sinic intention caused hindrances on technical front by non-co-operation from its consultants PDIL, IRS by not checking or approving drawings and documents and demobilising the site supervisors from July, 2009 and not resuming till the date of termination of the contract on 24-2-2010 and financial front by withholding the amounts from the certified bills towards LD and brought about a situation not to proceed with the project, but the same became evident only after the termination of the contract. In fact, NICCO did not place any evidence that contract with PDIL and IRS were terminated as held by the arbitrator without evidence. But, on the other hand, ONGC placed evidence to the contrary that PDIL continued to render its services as is evident from its letters Ex.R47 dt.25-9-2009 and letter Ex.R49 dt.20-10-2009 which go to show that PDIL continued its services beyond 24-7-2009 by which date NICCO totally stopped its work. Similarly, the contract with IRS was extended by
ONGC from time to time as is evident from Ex.R51 and Ex.R54 and that inspection was also done by IRS from July, 2009 to
December, 2009 as evident from Ex.R53 dt.30-12-2009. This evidence negatives the contention of NICCO, but arbitrator gave his finding contrary to the evidence on record. The arbitrator failed to notice that it is for ONGC to decide to invoke either clause 24.2 or clause 19.4.1 and any finding contrary to the same holding that it ought to have completed the work is not in accordance with the contract but is based on equity. For application of equity by the arbitrator, the case should fall within sec.28(2) of the Act. ONGC relied on the following decisions:- 34 AOP 38/13 dt.7-3-2017
Raghuvir Singh Vs Delhi Metro Rail Corporation Ltd and others;
dt.13-2-2007; 2007 SCC online Del 213 = (2007) 138 DLT 792 hwerein it is held that the arbitrator is required to decide ex aequo et bono ie., according to what is just and good provided parties expressly authorised him to do so and MSTC
Limited Vs Jain Traders and others; dt. 8-8-2011; 2011 (125)
DRJ 435 (Del HC) wherein at para 19 it is held that the arbitrator is bound to implement the contractual clauses and cannot go contrary to them and decide on the basis of his notions and equity of fairness, particularly in such a manner that it goes contrary to the specific contractual terms. It is further held that Sec.28(2) of the Act provides that the arbitral tribunal shall decide ex aequo at bono or as amiable compositeur only if the parties have expressly authorised it to do. It is explained that the phrase 'ex aecquo at bono' means according to equity and consciousness. Since the parties in that case have not agreed that the arbitrator may decide on the basis of justice and fairness, the court held that the arbitrator could not have disregarded the plain and grammatical meaning of the general conditions of contract to give way to his own sense of equity, fairness or justice.
There is no such jurisdiction conferred on the arbitrator by the parties in this case. Since NICCO is the claimant, the initial burden rests on it to establish that 35% of the work done is useful for completing the work left, but conversely the arbitrator holds ONGC responsible to prove the same and such finding is against law. Since it is not a civil contract, but involves technical expertise and special designs, it must be proved that the work finished so far is 35 AOP 38/13 dt.7-3-2017 useful to complete as required by ONGC to suit the project.
More over, NICCO did not take any such plea nor did it raise any such contention during the subsistence of the contract through the correspondence or in the meetings. Thus, the finding of the arbitrator is contrary to contract and evidence. Further, the observation of the arbitrator that
ONGC abandoned the project is also not based on evidence and is contrary to documentary evidence on record.
35. ONGC vehemently contends that NICCO itself abandoned the contract due to its commercial bankruptcy. NICCO contends that this argument is only an afterthought and that the proceedings before BIFR are not to be considered by this court as the same were never an issue before the Arbitrator. This contention of NICCO is not acceptable since ONGC could know about these facts after award was passed and never before and thus, IA 2490/16 was allowed to adduce additional evidence
before this court. Though the period of contract was extended
by ONGC for the second time, even before the expiry of the said period, NICCO stopped the project work on 23-7-2009 and thereafter did not resume the work. ONGC placed the
additional evidence to show that NICCO deliberately withheld
the actual facts regarding its financial condition and thus played fraud on the arbitrator to conclude that NICCO could not proceed with the work as the amounts were withheld by
ONGC. It is clear that the net work of the company got eroded during the financial year 2009-10 itself. NICCO shows profit of 12.54 crores during the year 2007-08. NICCO's accumulated loss of Rs.52.26 crores during the accounting year 2008-09 is on record through evidence, but NOA was signed by NICCO 36 AOP 38/13 dt.7-3-2017 showing solvencies for Rs.100 crores at the time of tender submission with a certificate of Allahabad bank. Similarly, during the accounting year 2009-10 NICCO's accumulated loss is
Rs.12,586.27 lakhs and its board of directors resolved to refer the company to BIFR as the company was unable to pay its creditors, suppliers, sub contractors and in fact during the year 2010-11, NICCO was referred to BIFR and BIFR passed an order appointing O.A. The arbitration proceedings between
NICCO and ONGC in the present case commenced on 25-4-2010.
Therefore, it is evident that by the time when the proceedings commenced before the arbitrator, NICCO knows its financial condition, but suppressed the same. The award was passed on 15-3-2013. Even during the pendency of the proceedings before the arbitrator, these facts were not brought to the notice of the arbitrator. Therefore, NICCO is guilty of suppression of truth in obtaining the finding of the arbitrator in its favour as if it could not proceed with the work due to withholding of the amount. NICCO stopped the work on 24-7-2009. By then,
ONGC withheld the amount under RA bills 11 to 13 amounting to a total value of USD 1,86,262 = Rs.83,81,790/- @ the then dollar value of Rs.45/-. ONGC is right in contending that a company having solvency of Rs.100 crores does not stop work for withholding of payment of a meager sum of Rs.83.82 lakhs and thus the finding of the arbitrator is illogical. There is force in the submission of ONGC that NICCO did not proceed with the work as the banks would realise the amount on cheques given by ONGC for the work if any performed by NICCO as by then NICCO became bankrupt and there is no point in doing the work and hence NICCO abandoned the project.
37 AOP 38/13 dt.7-3-2017
36. NICCO contended that ONGC has not suffered any loss and hence, LD is not leviable. As rightly contended by ONGC, in the event of termination of contract due to the default of
NICCO, all that expenses incurred so far till the termination of contract would go waste and is not only monetary loss of amounts paid to NICCO, salaries of the employees etc, but also of human resources. The arbitrator came to the opinion that
ONGC abandoned the contract basing on assumptions and presumptions as against the evidence on record. ONGC did not withdraw the staff or terminate the contract with PDIL or IRS.
Similarly the finding of the arbitrator that ONGC abandoned the contract since it failed to complete the work by invoking clause 19.4 is also erroneous for the reasons discussed herein.
37. The total value of contract price is USD 10,440,000 and INR 10,500,000. Both parties agree that NICCO executed 34.91% of the total work. NICCO raised RA bills 1 to 17 and admittedly the payment under RA bills 1 to 10 was made and they relate to the work done prior to the schedule date of completion i.e., 12-2-2009. The claim relates to RA bills 11 to 17 which were raised thereafter for an amount of USD 6,39,150. As per clause 21.2, NICCO should submit monthly bills for the actual work done as per the agreed terms and
ONGC or its authorised representative shall examine the bills within 15 days from the date of presentation for certification and ONGC is entitled to disallow certain objected billed amounts and NICCO can claim the disputed amount in the next RA bill after rectifying the work and remove the objection. The 38 AOP 38/13 dt.7-3-2017 certified bill would be paid by ONGC in 45 days. ONGC certified USD 4,11,151 and rejected USD 2,27,999.
38. ONGC contends since it is entitled to impose LD @ 10% of the value of the work which comes to USD 10,44,000 and
INR 10,50,000 which is the counter claim and thereby even if
NICCO is assumed to be entitled, for argument sake, to the total amount under RA bills 11 to 17 for USD 6,39,150, the same needs to be adjusted towards LD and there remains nothing payable in amount to NICCO and thereby the award is illegal.
It depends on the entitlement of ONGC to impose LD.
39. ONGC further contends that the arbitrator erroneously awarded the entire amount of RA bills 11 to 17, though ONGC certified some of them wholly and some of them partly and NICCO could not complete the objections. In this regard, it is to be noted RA bills 11 was fully certified; RA bills 14 and 15, a small part of amount was not certified in respect of USD 1 and 13 and there is no serious dispute about them; in respect RA bills 12, 13, 16 and 17, a certain portion of amount was not certified and there was serious dispute for them; and in respect of non-certified amount under RA bills 12, 13, 16 and 17, the objections were not intimated within 20 days as required under clause 21.2.3 of the contract, however, the arbitrator erroneously ordered the entire amount under RA bills 11 to 17 on the ground that the objection was not raised within 20 days, but the said period should not be read like limitation or extinguisher of the right of ONGC to object the bills and NICCO is not absolved of the liability to perform 39 AOP 38/13 dt.7-3-2017 its duty or else NICCO can claim any amount even if the work is not done merely because the objections were not raised within 20 days, may be due to laxity of ONGC or its representative and that the said period is intended to enable the contractor to remove the objections at an early date so that the amount can be claimed in the next monthly bill. It is further contended by ONGC that the objections raised with regard to work under RA bills 12 and 13 could never be rectified by NICCO since NICCO totally stopped work on site since 24-7-2009 and admittedly no work was done thereafter till the contract was terminated on 24-2-2010. As such, the award directing payment of total amount under those bills is against the terms of contract even if it is assumed that NICCO is entitled to the amount certified under those bills. Clause 21.2.3 reads as follows:- “21.2.3: In the event of the company objecting to any portion of the work covered by the said invoice, such objection shall be communicated to the contractor within 20 days from the date of receipt of invoice by the company at its office located in Rajahmundry. The contractor shall have the right to claim the payment of such amounts objected by the company at Rajahmundry in subsequent invoice after removal of clause of such objection.”
40. Therefore, it is clear that this clause is meant for communication of the objections to enable the contractor to remove the objection and claim the amount in the next bill. As against such condition, the arbitrator erroneously applied the period of 20 days as if it was intended as limitation to raise 40 AOP 38/13 dt.7-3-2017 objection and allowed the claim of NICCO even the amount not certified and objection was raised by ONGC, without fulfilling the other term(s) of the contract i.e, to claim the amount by removing the objection and cl. 11.1 providing that NICCO shall warrant that every work executed shall be free from all defects in design etc and as per cl.29.3, ONGC has right to invoke the performance guarantee and as per cl. 55.2, no certificate other than the discharge certificate issued under cl. 54.2 shall be deemed to constitute approval of any work or shall be taken as an admission of the due performance of the contract. Admittedly, as per the contract, the defects have to be rectified even after the payment, if the defects come to the notice of ONGC after payment. As rightly contended by
ONGC, all the terms shall be read together and clause 21.2.3 cannot be read in isolation. As such, his finding that ONGC is liable to pay the amount under RA bills 12,13,16 and 17 is against the contractual terms because such direction in respect of RA bills 12 and 13 is obviously against the terms of contract since work could not be done till now and similarly RA bills 16 and 17 which were raised on 31-7-2009 and 31-8-2009, but certified after termination of the contract could not be rectified for the objections.
41. The finding of the arbitrator about the quantum of amount payable by ONGC is challenged on the ground of calculation error saying that USD 1,74, 824 was awarded excessively as follows:-
USD INR
Total contract price 10,440,000 10,500,000 34.91% of the total contract value (A)36,44,604 36,65,550 41 AOP 38/13 dt.7-3-2017
Value of RA bills 1 to 17 (B)18,70,437 0 Amount claimed and granted in issue No.6 17,74,167 36,65,550 (A-B)
Description USD Amount paid under RA Bills 1 to 10 14,05, 109 recorded in para 177.7 of the award (A) Amount awarded for RA bills 11 to 17 in 6,39,150 para 225.3 of the award (B) Amount awarded for 34.91% work after 17,74, 169 deducting RA bills 1 to 17 recorded in para 177.7 of the award (C) Total amount awarded (A+B+C) = D38,18,428 34.91% of the total contract value (E)36,44,604 Excess amount awarded (D-E)1,73,824
NICCO merely cotnends that the error in calcualtion can be corrected by this court and it would invalidate the award.
The above calculation shows the apparent error in the finding of the arbitrator. Since this court can only set aside the award on the grounds established u/s 34 of the Act, there is no possibility to correct the award.
42. It is seriously contended by ONGC that the arbitrator, having rejected the claim of NICCO relying upon clause 19.3.2 of GCC at para 177.2 of the award, erroneously suo moto granted the amount basing on sections 73 and 74 of the Indian Contract Act and referring to page 892 of Mc Gregor on Damages and the decision of privy council in Lodder Vs
Slowey (1904) AC 442 (PC). In this regard, it is contended firstly that as the provisions were applied suo moto in violation of principles of natural justice without giving an opportunity to ONGC to argue on that point; secondly that these provisions have no application to the present case as they are applicable to cases where there is breach of contract 42 AOP 38/13 dt.7-3-2017 and ONGC did not commit any such breach; and thirdly that
NICCO did not make its claim basing on these provisions and did not plead and prove its entitlement under these provisions and the arbitrator cannot go beyond the pleadings of the parties and the terms of the contract. The arbitrator observed that since the contract was not terminated under clause 19.3.1 or any of the clauses contained in the contract, the question of availing the benefit under clause 19.3.2 by
NICCO does not arise. As rightly contended by ONGC, without providing an opportunity to ONGC to argue and without there being any plea and proof and without examining whether the entitlement of NICCO would fall under Sec.73 and 74 of Indian
Contract Act, the arbitrator awarded the amount for the value of the work done, against the contractual terms and provisions of law and principles of natural justice.
43. ONGC contends that the arbitrator erroneously adopted the method of 'progressive measurement' to 'progressive payment', though they are not interchangeable since progressive measurement technique is a method adopted to evaluate the work done and to measure the various progress of work under different heads to facilitate timely assessment and monitor the progress of work and for sufficient allocation of resources of man power and materials and no payment can be claimed as per the progress measurement, whereas progressive payment methodology is only a methodology for payment. It is further submitted that the arbitrator, relying upon Ex.C5, misquoted at page 279 of the award 'progressive payment and reporting' for 'progressive measurement and reporting' and thus his observations based on such assumptions is per se 43 AOP 38/13 dt.7-3-2017 incorrect and patently illegal being contrary to facts and evidence. According to ONGC, the payment procedure is separate and provided under clause 21 in the contract (Ex.C1).
NICCO contends that ONGC is deliberately misrepresenting contract i..e, clause 1.5.2 (vi) Progressive Measurement
Methodology which details method of measurement of physical work done and the measurement method and all its components was finalised and approved by ONGC at the commencement of the contract and has never questioned and that on termination of the contract, the work executed by NICCO was measured as 34% accordingly and the payment procedure under Annexure F referred by ONGC is for progressive payment schedule for releasing interim bills / running account payment and may not reflect the actual work done. NICCO also submits that the arbitrator dealt in paras 186 to 190 of the award about the payment procedure and progressive payment should be to consider the payments claimed in R/A bills 12, 16 and 17 and this has nothing to do with undisputed 34.91% of work done which comes to effect on termination of contract and that the payment to the contractor is to be made under payment procedure during execution of the contract, however, it further contends that on termination of the contract, the contractor becomes eligible for total work done in terms of
Progressive Measurement Methodology and the arbitrator correctly assessed the value of work done by adopting the methodology agreed by the parties for physical realisation of the work and the contract being lump sum, the proportionate payment was rightly ordered. NICCO calls it as a typewriting error by the arbitrator in citing progressive measurement and 44 AOP 38/13 dt.7-3-2017 reporting for progressive payment and reporting at page 279 of the award, but ONGC is blowing out of proportion. It is further contended that it could have been clarified u/s 33 of the Act. Obviously, the claim for USD 17,74,167 is based on the contention that NICCO is entitled to the amount for the value of 34.91% work done less by the amount raised under RA bills 1 to 17 i.e., 36,44,604 – 18,70,437 = 17,74,167. NICCO says that since the contract is lumpsum work, it is entitled to proportionate value of the work measured as per the agreed method. The same is the contention with regard to freight and insurance claim for Rs.36,65,550/-. ONGC contends that for every payment, NICCO has to raise bill but no bill was raised for these amounts. NICCO to claim any amount payable by ONGC, it has to show the term of contract either specific or under
GCC or any provision of statute. ONGC shows clause 21.2.1 of
GCC for provisional progressive payment for the part of the work executed pending completion of the whole works and 21.2.2 of GCC for the procedure for the payment i.e., the contractor shall submit its invoices once in each month along with the 5 copies of the work completed and to be certified by the ONGC representative as per the agreed mile stone formula with all required supporting document. Therefore, invoices are required for the payment pending completion of the whole work or for the work done. NICCO could not show that it is entitled to USD 17,74,167 under any of the contractual terms, nor is its case that such claim is based on secs 73 and 74 of the Indian Contract Act or could lay any foundation to establish the ingredients necessary to award such claim under these provisions. Even if the contention of NICCO that it is 45 AOP 38/13 dt.7-3-2017 a typographical error in mentioning 'progressive payment and reporting' for 'progressive measurement and reporting' is accepted, adoption of progressive measurement and reporting for making ONGC liable for payment for the work done measured on the basis of Progressive Measurement Methodology is not supported by either the terms of the contract or provision of law. This claim is covered by issue No.6 and relief (c).
NICCO contends that being a lumpsum contract, the individual items of work are not valued and only assessment / measurement of work by stages / weightages was identified and agreed between the parties and that since as per the agreed progress measurement, 34.91% of the work as completed by NICCO as on the date of termination of the contract, this amount was claimed after deducting the value of RA bils. The general claim of costs and expenses specifically claimed by NICCO under relief (a) by virtue of clause 19.3.2 of the contract.
Therefore, the relief (c) is distinct from relief (a). Thus, relief (c) is not covered by clause 19.3.2. As rightly contended by ONGC, Sec.73 and 74 do apply to cases where breach of contract on the part of ONGC could be established.
Therefore, the claim under issue No.6 covered by relief (c) for seeking or granting USD 17,74,167 has no legal basis at all and as such, the award of the arbitrator directing such payment by ONGC is beyond the terms of contract and law.
44. Since the question of validity of imposition of LD by ONGC is mainly in dispute and is related to the question whether NICCO is entitled to extension of time without imposition of LD, the findings of arbitrator on this aspect are significant. Clause 24.2 enables ONGC to levy LD at the 46 AOP 38/13 dt.7-3-2017 rate of 0.5% for every week of delay subject to a maximum of 10% of the total contract price (for 140 days = 20 weeks).
Therefore, entire amount of LD can be imposed if NICCO commits 20 weeks of delay. ONGC strongly contends that, the arbitrator totally ignored any delay caused by NICCO and held
ONGC alone is responsible for all the delay found on all counts discussed above, but failed to hold even a single day delay on account of NICCO and thus the approach of the arbitrator is biased, contrary to the evidence etc.
45. The arbitrator held that NICCO is entitled to extension of 402 days without imposition of LD as ONGC is liable for delay of 206 days in approval of BED and 196 days in the issue of 3 items of gas generator, cooling tower and air compressor. The extended period of 402 days ends by 21-3- 2010, whereas ONGC terminated the contract on 24-2-2010 extending the period from time to time and thus the difference is only 24 days between the times extended by ONGC and the time which the arbitrator holds that NICCO is entitled. As can be seen from the undisputed facts, ONGC granted 260 days from 12-2-2009 to 30-10-2009 extended period by first extension and vide Ex.C102, ONGC for the second time provisionally extended the period of 75 days till 14-1-2010 with a direction to NICCO to submit supporting documents to prove their claim for completing the project by 31-12-2010 and ONGC was willing and ready to extend further time for 426 days till 31-12-2010 for the third time as sought by NICCO , but NICCO did not reply and furnish the action plan. Meanwhile, ONGC, suomoto extended time for 31 days till 15-2-2010. After ONGC issued show cause 47 AOP 38/13 dt.7-3-2017 notice on 1-2-2010, NICCO approached High Court of Calcutta on 12-2-2009 and obtained stay of the notice and on 22-2-2010 the order of High Court was vacated. Ultimately, the contract was terminated by ONGC on 24-2-2010. It is the submission of ONGC that when NICCO could complete only 35% of the work from 23-8- 2007 till the termination of contract on 24-2-2010, it is impossible for NICCO to complete the remaining substantial work of 65% in 24 days i.e., on or before 21-3-2010. NICCO contends that the fact remains that the termination of the contract was only on the ground of delay for reasons / causes which were alleged and attributed to NICCO by ONGC and the arbitrator found such termination of the contractor as illegal since NICCO was entitled to extension of time and that the issue of what was the balance period available to complete the work is not relevant as the issue is to be decided as on the date when ONGC took a decision to terminate the contract. But there is no tenable answer from NICCO to this submission of
ONGC. Even after 21-3-2010, ONGC is entitled to imposing LD for non-execution of 65% of the contract as it is impossible to complete the same before 21-3-2010.
46. It is pertinent to mention that when ONGC vide letter Ex.C75 dt.12-2-2009, acting upon the recommendation of
PDIL letter Ex.R26 dt.6-2-2009, extended 260 days till 30-10- 2009 with LD and NICCO willingly accepted the extension and assured to complete the work vide its letter Ex.C76 dt. 16-2- 2009. If NICCO is entitled to extension of time without LD, it could have mentioned the same in its letter. It is also to be noted that NICCO itself requested ONGC to deduct LD @ 10% on 48 AOP 38/13 dt.7-3-2017 every RA bill instead of lump sum deduction. It amounts to the fact that NICCO admitted its liability for LD as the same was not denied and on the other hand accepted the same with such request to deduct proportionately. In the said context, observation of the arbitrator that NICCO is entitled to extension without LD is against the evidence and the case of
NICCO.
47. ONGC vehemently argues that the observation of the arbitrator that ONGC ought to have given written notice explaining for the levy of LD is reading a new clause into the contract and amounts to rewriting the contractual terms as there is no such term in the contract. It is also not the case of NICCO that there is such a requirement. Thus, the finding of the arbitrator is obviously incorrect. Similarly, the observation of the arbitrator that ONGC as an instrumentality of State is strongly criticised basing on the decision of the Hon'ble Supreme Court in Indian Oil
Corporation Vs Amritsar Gas Service; (1991) 1 SCC 533; wherein it was held that while deciding on the rights based on the contract and particularly in non-statutory contracts, public sectors are not to be treated as State but must be treated as a contract in party strictly bound by the terms of contract.
There is no dispute about the legal proposition. Thus, in the light of such proposition of law, the observation of the arbitrator is an apparent error of law. In the same context,
ONGC placed reliance on the decisions of Supreme Court in
Asst.Excise Commissioner and others Vs Issac Peter and others;
dt. 22-2-1994; (1994) 4 SCC 104 and Kerala State Electricity
49 AOP 38/13 dt.7-3-2017 Board and another Vs Kurien E Kalathil and others; dt. 19-7- 2000; (2000) 6 SCC 293.
48. ONGC further contends that the arbitrator went wrong in observing that ONGC ought to have heeded the demand of
NICCO and should have deducted LD at 10% on every RA bill.
Since clause 24.2 of the contract enables ONGC to recover LD from any amount payable to the contractor, the observation of the arbitrator is against the terms of contract. In the same context, the observation of the arbitrator that ONGC was unreasonable and this lead to the halt of the project works is contrary to the facts and evidence.
49. With regard to the observations of the arbitrator on the project authority certificate for originally
Rs.65,14,750/-, reduced by amendment to Rs.16,83,216/-which
NICCO claims to be entitled, ONGC contends that this amount cannot be claimed as the Deemed Export Benefits is not applicable to the refineries set up during the 10th plan period (from 2002 to 2007) and is applicable only to refineries set up during the 9th plan period (from 1997 to 2002) spilling over to 10th plan period, whereas the present contract for setting up the refinery was awarded on 23-8-2007 during the 10th plan period only. The arbitrator held that this benefit is applicable to the project in question observing that it does not state the refinery set up during 10th plan period are not eligible for the Deemed Export Benefit. ONGC produced the evidence before the arbitrator that this benefit was available to refineries set up during the 9th plan period and spilled over to the 10th plan period, but NICCO could not place any 50 AOP 38/13 dt.7-3-2017 evidence that it was extended to refineries set up during the 10th plan period. Since the contract was entered on 23-08- 2007, it falls under the 10th plan period. In the absence of evidence that this benefit is applicable to refineries set up in this period also, merely because the benefit is applicable to refineries spilled over to this period, it is beyond the jurisdiction of the arbitrator to extend the benefit to such refineries at his whims and fancies and is without evidence.
50. ONGC further contended that NICCO cannot take advantage of claiming the amount subsequent to entering into the contract by changing the stand like as rules cannot be altered after the game started and it cannot take advantage of quoting less price without this element in the tender and succeed in entering into contract, while its opponents quoting higher price inclusive of this element are out of bidding. It further contended that if the bidder did not understand the legal position correctly before submitting the bill, thereafter it cannot claim any amount on duties and taxes which were omitted due to incorrect understanding and therefore, the only question to be decided is whether the
Deemed Export Benefit is applicable to the refinery in question. As per Cl 36.1.3, the domestic suppliers will quote net price after taking into account the Deemed Export Benefit, if applicable and the bidders were requested to check the latest position on the subject on their own and ONGC does not accept any liability, whatsoever, on the account for any changes in the policy of the government at any stage. The arbitrator rightly observed about the burden of the bidder to ascertain the latest position about the applicability of the 51 AOP 38/13 dt.7-3-2017 benefit to the project in question, but failed in applying the benefit to this contract as noted above.
51. NICCO claims that ONGC agreed to issue a project authority certificate and the same was considered by all the bidders to the contract as a matter of record and it was only during the course of oral submissions before the arbitrator,
ONGC for the first time sought to contend that NICCO was not entitled to the certificate without taking such stand even in the statement of defence. Since it is a question of law and fact, without answering the contention raised by ONGC about the applicability of the benefit in the 10th plan period, it would not be complete to adjudicate the disputed the relief.
Hence, this contention has no force to stand.
52. During the pendency of the proceedings before the arbitrator, the proceeds of sale of scrap materials lying in the premises to the value of Rs.1,63,354 was kept in fixed deposit in the name of NICCO the entitlement of which is subject to the result of the arbitration. ONGC contends that the arbitrator misplaced reliance on the irrelevant contracts 1.13 and 4.2 of the contract and that cl. 13.0 deals with cleaning of surplus and rubbish materials after completion of the works and the contractor should remove only temporary works erected by it and clean the site and thus the phrase “surplus and rubbish” only relates to and limited to the surplus materials which arises when the temporary structures are removed and not the scrap materials which are the left over after completion of the works and that clause 13 is applicable only to materials which do not have any monetary 52 AOP 38/13 dt.7-3-2017 value but scrap material has a monetary value. It further contends that as per clause 4.3 of contract, NICCO is to procure all materials, equipments etc and the cost of the same is to be included in the lump sum price and granting this amount to NICCO would amount to making double payment. It further contended that as per cl.22.0 of GCC, NICCO is bound to return all the excess, surplus materials utilised for construction to ONGC and clauses 13 and 22 operate in different fields and if clause 13 relates to surplus material, there would be conflict between these two clauses and clause 22 being in annexure A shall have priority over clause 13 in annexure E. NICCO contends that it is a question of fact based on appreciation of evidence and cannot be interfered u/s 34 of the Act. As per GCC 22, ONGC is entitled to this amount and as such, the finding given by the Arbitrator is against the terms of contract. Even a question of fact decided by the arbitrator, if found to be without evidence or against terms of contract, there is no bar under Sec.34 of the Act under the grounds specified in the above discussed case law.
53. In so far as costs awarded by the arbitrator is concerned, it is contended by ONGC that the award is contrary to the terms of contract under clause 48.1.1 which reads that the fees of the arbitrators shall be borne by the parties nominating them and the fees of the presiding arbitrator, cost and other expenses incidental to the arbitration proceedings shall be borne equally by the parties. However, the arbitrator awarded costs of Rs.51,91,206/- sought by NICCO and directed to be paid by ONGC to NICCO. Since the sole arbitrator was appointed, his fee and the other expenses, 53 AOP 38/13 dt.7-3-2017 costs shall be borne equally as per the said clause.
Components of costs shown by NICCO are as follows.
Arbitrator 28,90,000/-
Secretarial 90,500/-
Solicitor / advocate 13,16,907/-
Local conveyance 68,333/-
Hotel expenses 1,17,278/- 1,14,063/- 1,35,057/-
Air fare 4,59,068/- ------------ Rs.51,91,206/- ------------
54. Since as per the above clause, both parties shall bear these costs equally, award directing such amount to be paid by ONGC to NICCO is against the terms of contract and is liable to be set aside.
55. The arbitrator awarded interest @ 10% per annum on all the sums awarded in favour of NICCO consisting of components of USD and INR from the date of the commencement of the proceeding i.e., 30-3-2010 till the date of realisation.
But as per clause 21.2.4, in the event that the payment of undisputed amounts of the invoice is not remitted within 45 days of receipt of invoice(s) by the company, then no interest on such undisputed amount shall be payable by the company to the contractor. Award consists the following amounts:-
USD INR
1.RA Bills 11 to 17 6,39,150 2.Value of work executed 17,74,169 36,40,599 after deducting RA bills 11 to 17 54 AOP 38/13 dt.7-3-2017
3. Illegal encashment of 4,38,55,000 B.G
4. Reimbursement of 16,83,260 excise duty paid by NICCO
56. Items 1 and 2 are covered by clause 21.2.4. But even with regard to items 3 and 4, clause 21.2.4 cannot be applied. Since the contract prohibited payment of interest without any qualifying words limiting any period, ONGC contends that the arbitrator cannot read into the terms what is not there, however, the arbitrator restricted the application of clause 21.2.4 to pre-arbitration period and the same amounts to exceeding his jurisdiction. But the arbitrator refused the pre-arbitration interest, but awarded pending and post arbitration interest relying on the decision of Supreme Court in State of Haryana Vs M/s S.L.Arora and company; AIR 2010 SC 1511.
57. The relevant provision in the Act dealing with jurisdiction of the arbitrator to award interest is as follows:- "31(7)(a) Unless otherwise agreed by the parties, where and insofar as an arbitral award is for the payment of money, the arbitral tribunal may include in the sum for which the award is made, interest, at such rate as it deems reasonable, on the whole or any part of the money, for the whole or any part of the period between the date on which the cause of action arose and the date on which the award is made.
(b) A sum directed to be paid by an arbitral award shall, unless the award otherwise directs, carry 55 AOP 38/13 dt.7-3-2017 interest at the rate of eighteen per cent per annum from the date of the award to the date of payment."
In State of Haryana Vs M/s S.L.Arora and company, (supra) at para 17 it is held as follows:- “17.The difference between clauses (a) and (b) of section 31(7) of the Act may conveniently be noted at this stage. They are :
(i) Clause (a) relates to pre-award period and clause
(b) relates to post- award period. The contract binds and prevails in regard to interest during the pre- award period. The contract has no application in regard to interest during the post-award period.”
58. On the other hand, ONGC relied on the decision of
Supreme Court in Tehri Hydro Development Corporation Limited and another Vs Jayaprakash Associates Ltd, dt. 25-9-2012; (2012) 12 SCC 10 wherein arose the question of granting pendente lite interest by the arbitrator when there is a specific bar thereon in the agreement and court held the arbitrator did not have power to award such interest. In this case, the earlier decision of Supreme Court in State of
Haryana (supra) or Sec.31(7) of the Act were not considered.
59. Similarly, ONGC relied on decision in M.B.Patel and company Vs ONGC, (2008) 8 SCC 251 wherein the Supreme Court observed as follows:- 'Clause 18 of the Arbitration Agreement reads :
"INTEREST ON AMOUNTS
No interest will be payable on the security deposit or any other amount payable to the CONTRACTOR under the contract." 56 AOP 38/13 dt.7-3-2017 The Arbitrator has awarded the interest at the rate of 12% on the amount with effect from 09.02.1984 to 03.05.1985 (pendente lite). He has also awarded interest from the date at the rate of 12% on the amount as shown in 1 & 3 above till the date of decree or actual date of payment, whichever is earlier.
In view of the aforesaid premises, the Arbitrator has not at all considered clause 14 of the Arbitration Agreement. The interest has been awarded in violation of clause 14 of the
Agreement. Apart from others these two legal aspects have not been considered by the Arbitrator. We are, therefore, in full agreement with the reasoning given by the High Court. The
Arbitrator may now proceed with the arbitration but in the light of the judgment of the High Court. We direct the
Arbitrator to consider the matter afresh in the light of the reasoning of the High Court.'
60. This decision has no application to the present case as Sec.31(7) of the Act which is applicable to the question
before this court has not been in question in that case,
whereas in the decision in M.B.Patel and company (supra), the point is directly answered with reference to Sec.31(7) of the
Act. Therefore, the limitation imposed by the term of contract applies to pre-arbitration period and it cannot bind the parties for interest payable pending and post arbitration period.
61. Therefore, the arbitrator cannot be found fault in awarding the interest pendente lite and post award. However, since this finding does not independently survive as it becomes operative only if the other finding to make payment survives, the award is liable to be set aside.
62. Admitting the fact that as on date, no vendor has made any claim on NICCO, it contends that the claim is only for 57 AOP 38/13 dt.7-3-2017 indemnity and not for recovery or or payment of any amount to
NICCO and the claim follows on the termination of the contract being found to be unlawful. NICCO submitted that there is no perversity of the award on this issue. Since the arbitrator allowed the claim of indemnity without there being a term in the contract, ONGC contends that the arbitrator, exceeding his jurisdiction, supplies a provision of law to grant a claim wherever he finds no term in the contract to support the claim and thus, supported his finding by relying on Chapter 8 of
Contract Act. ONGC rightly contended that the contract of indemnity is independent and in the absence of such contract, it cannot be applied as an implied contract. Therefore, the award on this aspect is without the contract between the parties. It is also pertinent to note that contract of indemnity requires stamp duty vide schedule 1(a) Art 30 r/w
Art 48. It further contended that so far no claim was raised by third party and it is more than three years and any such claim is barred by limitation. It is further contended that the claim is hypothetical, presumptive, anticipatory future event and vague and therefore, it cannot be granted. As rightly contended by ONGC, by the date of passing award on 15- 3-2013, claims of 3rd parties would be barred by limitation as the contract was terminated on 24-2-2010. That apart, the claim is not specific and uncertain and is also hypothetical.
No tenable answer could be given by NICCO to support the award of the arbitrator in this regard.
63. Since the invocation of bank guarantee by ONGC becomes valid due to non-performance of contract by NICCO, the 58 AOP 38/13 dt.7-3-2017 award directing payment of amount of bank guarantee is not sustainable.
60. ONGC asked the relief to award counter claims. NICCO contends that the counter claims are primarily claims for damages on the ground that breach was committed by NICCO and when the arbitrator found that NICCO is not in breach of the contract and the termination is held to be illegal, those counter claims would automatically fail and only one counter claim for cost of power supply has been allowed. This court has no authority u/s 34 of the Act to grant counter claim since award can only be set aside on the grounds mentioned u/s 34(2) and the proceedings may be adjourned under clause (4) on receipt of an application under sub-section (1), where it is appropriate and it is so requested by a party, for a period of time determined by court in order to give the Arbitral
Tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the opinion of arbitral
Tribunal will eliminate the grounds for setting aside the arbitral award and Sec.34(1) and (3) do not confer any such authority.
64. In view of the above discussion, the award is liable to be set aside.
65. In the result, the petition is allowed and the award dt.15-3-2013 passed by R2 is set aside. Each party do bear their respective costs.
Typed to my dictation, corrected and pronounced by me in open court, on this the 7th day of March, 2017.
District Judge.
59 AOP 38/13 dt.7-3-2017
Additional documents marked on behalf of petitioner
herein as per orders in IA 2490/15 dt.7-3-17.
For Petitioner:
Ex.No Date Description of documents Ex.R70 April,2007 Profit and loss statement of respondent for the period from 1-4-2006 to 31-3-2007 as taken from ROC website. Ex.R71 April,2008 Profit and loss statement of respondent for the period from 1-4-2007 to 31-3-2008 as taken from ROC website. Ex.R72 April, 2009 Profit and loss statement of respondent for the period from 1-4-2008 to 31-3-2009 as taken from ROC website. Ex.R73 21-5-2010 Page 32 and 33 of the balance sheet of respondent for the period from 1-4-2009 to 31-3-2010 as taken from the annual report Ex.R74 2-2-2011 Summary record of BIFR proceedings in case No.3 of 2011 Ex.R75 16-5-2011 Summary record of BIFR proceedings in case No.3 of 2011 Ex.R75 10-3-2012 Plaint filed by Shiva constructions in
O.S.17/12 on the file of Principal District
Judge, Rajahmundry.
Ex.R76 14-6-2012 Affidavit of NICCO filed in IA 2687 of 2012 in O.S.17/12 on the file of Principal
District Judge, Rajahmundry.
Ex.R77 6-8-12 Summary record of BIFR proceedings in case No.3/11 Ex.R78 10-4-13 Written statement of NICCO in O.S.17/12 on the file of Principal District Judge, Rajahmundry. Ex.R79 28-5-13 Summary record of BIFR proceedings in case No.3/11
District Judge.
60 AOP 38/13 dt.7-3-2017