Arbitration Case Study

 

Indian Institute of Technology Technology Delhi Hauz Khas, New Delhi-110016 Delhi-110016

CEL 767 : CONSTRUCTION CONSTRUC TION AND CONTRATS MANAGEMENT MOCK ARBITRA ARBIT RATION TION TRIAL   For case

PUNJAB NATIONAL BANK vs M/s BIJLEE CONSTRUCTION Delhi High Court , Case No. O.M.P. 75/2006 Submitted to : Dr. K.C. Iyer Submitted by

:  1. Bhusani Saikrishna

2011CEC3674

2. Nilesh Gadge

2011CEC3670

3. Amit kumar Singh

2011CEX5528

 

Petitioner

Arbitrat or

Respondent

JUSTICE S. MURALIDHAR

Punjab National Bank (PNB)

M/s Bijlee Constructions

 

CASE DETAILS  DETAILS  PUNJAB NATIONAL BANK vs M/s BIJLEE CONSTRUCTION 

Court : Delhi High Court, New delhi

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Case No. : O.M.P. 75/2006

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Reserved on: 22nd March 2012

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Decision on: 11th April 2012

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Petitioner : PUNJAB NATIONAL BANK Through : Mr. A.P.S. A.P.S. Ahluwalia, Ahluwali a, Senior Advocate with Mr. S.S. Ahluwalia, Advocate.

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Respondent : M/S BIJLEE CONSTRUCTION Through : Mr. Mr. Joy Basu and

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Mr. Sanjoy Bhaumik, Advocates. Mr. Judgment by : JUSTICE S. MURALIDHAR

 

BACKGROUND  CONTRACT BACKGROUND  

The Petitioner Punjab National Bank (PNB) and Respondent M/s Bijlee Construction entered into contract on 3rdMar 1997 for the electrical work in construction of RTC Building at Gomti Nagar, Lucknow (UP) 

Tendered amount of Rs.91,92,853/- 

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Scheduled date of start of the work was 24th February 1997 rd

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Scheduled date of completion was 23 May 1998 Actual date of completion was extended till 16th July 2001

The work was awarded to Respondent by PNB through its letter dated 10th Feb 1997.

 

DETAILS DETAILS OF ARBITRA ARBITRATION TION 

M/s Bijlee Construction invoked Arbitration.

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Dispute aroused due to the delay in project completion.

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Extension of time was granted by the PNB up to 21 stApr 2001 without levy of compensation and up to 16thJul 2001 with Rs.50,000/- as Liquidated Damages. Actual Date of Completion is -16thJul 2001 An Award was passed on 28thNov 2005, by the sole arbitrator against various disputes between PNB and Respondent. Claims were awarded by the Sole Arbitrator for varying amounts.

 

Objection Against Award : The Petitioner PNB filed this petition vide. Case no O.M.P O.M.P.75/2006 .75/2006 in Delhi High Court under S.34 of Arbitration and Conciliation Act 1996 to challenge the Award of sole arbitrator against Respondent’s Claim Nos. 1, 2, 4, 5, 8 and 17.

 

Objection by Petitioner Against Respondent's claim no. 1

 

Award of Arbitrator 

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Claim No.1 was for Rs. 3,21,324/- towards illegal recovery from Respondent for the work of conduit pipes laid by M/s M.G. Contractors. Prior to the award of the electrical work, certain laying of conduit work was got executed by PNB through a civil contractor, M/s M.G. Contractors. Respondent found the said conduit work improper. Despite several requests, PNB did not furnish the Respondent with any information of defect or remedy.

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Consequently, the Respondent had to repair and replace the damaged work to start his part of work. The details of the work done was forwarded to the PNB during the progress. And it was included in the final bill dated 22nd /24th Dec 2001. The learned Arbitrator relied upon the evidence produced by the Respondent in the form of correspondence. Consequently, although PNB had made payment to the earlier civil contractor, the Respondent had a genuine case and therefore was entitled

to seek reimbursement. The learned Arbitrator awarded the Respondent a  

Contention by Petitioner : 

Petitioner

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Referring to Clause Nos. 2.3 and 2.4 of contract, it was submitted on by PNB that the responsibility of getting accustomed to site was that of the Respondent. No

claims

based

upon

any

lack

of

information on the part of the Respondent would be entertained or payable by the PNB. 

It was open to the Respondent to seek clarification from the PNB. However, it did not do so.

 

Contention by Respondent : 

Respondent submitted that the previous work was not visible during the inspection of site. The removal of defective work and replacement of damaged conduit pipes was beyond the scope of the original work and was not included in the specification or the original

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drawing. Clause 5.31 which deals with the variation and deviation of work was referred to.

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Reference

was

also

made

to

the

correspondence between the parties which showed that the Respondent had sought

Responde nt

permission of the PNB before proceeding with  

Arbitrator Judgment by Court : 

Referring to the correspondence, which indicate that the work was improperly the knowledge of PNB.done by earlier contractor was with

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There is merit in the contention of the Respondent. The work done by the Respondent was to the benefit of PNB. The Respondent was required to be compensated under Section 70 of the Contract Act. The view taken by the Sole Arbitrator was reasonable based on the relevant clauses of contract and evidence in form of correspondence between the parties. The Court was unable to find any illegality in the learned Arbitrator awarding Rs.2,75,000/- in favour of the Respondent under Claim No.1 and the same was upheld.

 

Objection by Petitioner Against Respondent's claim no. 2 & 4

 

Award of Arbitrator 

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Claim No.2 was for Rs.20,49,433/- towards loss of turnover/profitability. Claim No.4 was for Rs.14 lakhs towards loss on account of Non/partial utilization of men. These claims were based on the difficulty faced in the execution of the electrical work which resulted in delays that were not attributable to Respondent. Clauses 5.12, 5.13.2 and 5.38 of the contract dealt with the extension of time with Liquidated Damages. This is in no way prevents the Respondent from claiming loss and damages. Reference was made to Sections 55 and 73 of the Contract. Arbitrator held that, delay upto 21stApr 2001 was attributable to the PNB. Even PNB admitted the same. For the quantum of claim, Certificate of Chartered Accountant produced by Respondent, was referred, which Arbitrator awarded profit & overhead at 15% by applying the Hudson depicted 1991-92, 2000-2001. Formula: the gross profit for• fiscal C(∑) =years Contract Sum • C(days) = Contract Period T = Period of Delay HO = Head Office Overheads (offsite overheads are usually known in the construction industry as ‘Head Office Overheads’) Overheads’)   •

•

 

Contention by Petitioner : 

Petitioner

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Claim is unjustified since escalation had already been awarded in form of Liquidated Damages for Rs.50,000/Letters dated 13thOct 1998, 8thMay 1999 and 15thMar 2001 was referred to prove that extension of time was being granted only for price variation adjustment (PVA). Once the Respondent had accepted the extension with LD unconditionally, it was prohibited in law from claiming further damages. This was accepted by the Respondent without protest. Under Cl.5.38, no claim of idle labour is to be entertained. Under Cl.5.12 the tendered rates are inclusive of

 

Continued 

Petitioner

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..

…

The Respondent failed to file documentary evidence as proof of the apparent loss suffered. Decision of the the provisions learned Arbitrator in this respect was contrary to of the contract and beyond the scope of the submissions and materials placed on record.

 

Contention by Respondent : There is a distinction between loss of profit and  escalation on account of price variation. The Hudson formula has been applied in past by the 

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Supreme Court for awarding damages resulting from Responde nt delays not attributable to the contractor. contractor. Referred the para15 of the decision in General Manager, Northern Railways v. Sarvesh Chopra, which implies 

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Delay in performance of contract is governed by Section 55 and 56 of the Indian Contract Act, 1872. A failure to perform obligation by the stipulated time will entitle the innocent party to; (a) terminate performance of the contract and thereby put an end to all the primary obligations of both parties remaining unperformed and, (b) claim damages from the contract-breaker on the basis

that he has committed a fundamental breach of the contract  

Arbitrator Judgment by Court : 

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The Award was purely based on the evidence on record. Applying the Hudson formula, Arbitrator awarded only a part of the claim made which worked out to around 12.4% of the profit. This was a matter within the discretion of Arbitrator. PNB has been unable to point out any of the delay in the execution of the work attributable to the Respondent. The clauses of the contract cannot deprive the contractor for claiming for damages when delay is not attributable to the contractor. The computation of the damages was also based on the audited accounts of the Respondent and cannot be said

to be arbitrary.  

Objection by Petitioner Against Respondent's claim no. 5 & 8

 

Award of Arbitrator 

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Claim No.5 was for a sum of Rs.53,000/- on account of charges paid to the civil contractor by Respondent towards electricity and water consumption for the extended period of the contract. Claim No.8 was for a sum of Rs.87,238/- towards insurance charges borne by Respondent during the extended period.

 

Contention by Petitioner :

Petitioner

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For Claim No. 5, reliance was placed by the PNB on Clause 5.12 to contend that no such claim was entertainable. Under Cl.5.12 the tendered rates are inclusive of everything and nothing extra was to be allowed for incidental or contingent work, labour and/or materials. For Claim No. 8, PNB relied on Clauses 5.12, 5.25 and 5.26 of the contract to contend that the tender rates were to be inclusive of everything necessary to complete the work and no extra was admissible.

 

Arbitrator Judgment by Court : 

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The extension of time was granted by PNB and the delay could not be attributed to the Respondent. Further, the Respondent was able to produce evidence to prove the payment of the extra charges for water and electricity. Similarly, the corresponding increase in the insurance charges for the extended period had to necessarily be borne by the PNB. In the circumstances, this claim was justified and, therefore, rightly awarded by the learned Arbitrator. The Awards in respect of Claim No.5 & 8 are, therefore, upheld.

 

Objection by Petitioner Against Respondent's claim no. 17

 

Award of Arbitrator 

The learned Arbitrator granted the Respondent simple interest at 12% per annum on the amounts awarded under Claim Nos. 1, 5 & 8 from 1stJan 2003 up to the date of the Award and post-award simple interest at 12% per annum from the date of the Award till the date of payment.

 

Contention by Petitioner :

Petitioner

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Petitioner claimed that the interest rate granted by sole arbitrator is groundless, arbitrary and excessive

 

Contention by Respondent : 

Based on section 31(7)-b of The Arbitration and Conciliation Act, A sum directed to be paid by an arbitral award shall, unless the award otherwise directs, carry interest at the rate of 18% per annum from the date of the award to the date of payment.

Responde nt

 

Arbitrator Judgment by Court :  :  

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Section 31(7)-b of The Arbitration and Conciliation Act gives authority to arbitrator for award of interest at the rate of 18% per annum from the date of the award to the date of payment, on sum directed to be paid. In a recent case of Krishna Bhagya Nigam Ltd vs G.Harischandra Reddy (2007) the Supreme court held that after economic reforms in our country the interest regime has changed and the rates have substantially reduced.

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Holding so, the apex court has reduced interest from 9% to 18% of interest interest awarded by the Arbitrator. Arbitrator. Thus, the award of this simple interest at 12% per annum cannot be said to be excessive or arbitrary. arbitrary.

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The Award Award in re re ard to to Claim Claim Nos. Nos. 17 17 is, therefore therefore,,

FINAL JUDGMENT  JUDGMENT  

For the aforesaid reasons, this Court finds no grounds having been made out by the Petitioner under Section 34 of the Arbitration and Conciliation Act, for interference with the

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impugned Award. The objections of the Petitioner PNB are thus hereby rejected.

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The award given by learned arbitrator is upheld.

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The petition is dismissed with costs of Rs.10,000/- which will be paid by the Petitioner PNB to the Respondent within a period of four weeks from the date of Judgment i.e. 11 thApr 2012.