P.M. Paul v. Union of India [1989 Supp (1) SCC 368] is a case which is almost identical on facts. In this matter the work could not be completed during the period of the contract and the contractor was accordingly granted extension of time to complete the same. By an order of this Court, the dispute was referred to an arbitrator on the reference as to who was responsible for the delay in the completion of the work, what were to be the repercussions of the delay and how to apportion the responsibility and the consequences. The arbitrator made an award in favour of the contractor which was duly challenged by the Union of India with the matter finally reaching this Court at the instance of the contractor and this is what the Court had to say : (SCC p. 373, para 13)
“13. It was submitted that if the contract work was not completed within the stipulated time which it appears was not done then the contractor has got a right to ask for extension of time, and he could claim difference in price. This is precisely what he has done and has obtained a portion of the claim in the award. It was submitted on behalf of the Union of India that failure to complete the contract was not the case. Hence, there was no substance in the objections raised. Furthermore, in the objections raised, it must be within the time provided for the application under Section 30 i.e. 30 days during which the objection was not specifically taken, we are of the opinion that there is no substance in this objection sought to be raised in opposition to the award. Once it was found that the arbitrator had jurisdiction to find that there was delay in execution of the contract due to the conduct of the respondent, the respondent was liable for the consequences of the delay, namely, increase in prices. Therefore, the arbitrator had jurisdiction to go into this question. He has gone into that question and has awarded as he did.”{Para 19}
Civil Appeal Nos. 3376-3337 of 2008
Decided On: 07.05.2008
Associated Construction Vs. Pawanhans Helicopters Pvt. Ltd.
Hon'ble Judges/Coram:
Tarun Chatterjee and H.S. Bedi, JJ.
Author: H.S. Bedi, J.
Citation: AIR2008SC 2911, 2008(2)ARBLR473(SC ), 2008 (3) AWC 3048 (SC ), 2008-4-LW926, 2009(1)RC R(C ivil)34,
2008(8)SC ALE451, (2008)16SC C 128,MANU/SC/7630/2008
1. Leave granted.
2. The respondent, Pawanhans Helicopters Pvt. Ltd. (hereinafter called "Pawanhans")
a Government of India undertaking, floated two tenders for allocation of work for
construction of a compound wall and a bridge over a nala. Pursuant to the aforesaid
information, several tenders were received and the tenders of the appellant
(hereinafter called the "contractor") were ultimately accepted. Pursuant to the
aforesaid, two formal agreements providing for the terms and conditions of the
09-09-2021
contract in the shape of general conditions of the contract and special conditions of
the contract governing the execution of work were duly signed on 12th October 1999.
As per the contract the work was required to be completed within four months. It
appears that on account of some delay which was attributable to Pawanhans, the
work did not proceed as per schedule and the contractor accordingly informed
Pawanhans by letters dated 15th February 1990, 23rd February 1990, 24th March
1990, 26th June 1990 and 6th July 1990 that the work was getting delayed as the
requisite facilities for its completion had not been provided and highlighting several
factors attributable to it had supervened which had led to the delay. The contractor
also in the meanwhile vide letters dated 27th July 1990 and 6th August 1990
requested the respondent to release the outstanding bills against the work already
completed and also requested for the "Virtual Completion Certificate" vide letter dated
25th August 1990. As some work on the compound wall still remained to be
completed, the contractor agreed to take up this assignment subject to waiver of the
discount of 8.2% which was to be given to Pawanhans till then and the completed
works were duly handed over to Pawanhans on the 12th November 1990. The
contractor had also submitted a bill dated 23rd June 1991 and it was conveyed to
Pawanhans that it expected compensation on account of the variation in the terms of
the contract. Pawanhans thereupon advised the contractor to submit a final bill which
too was submitted. The bill was verified by Pawanhans and referred to the contractor
yet again with objections. The contractor vide letter dated 21st November 1991
disputed the verification as being without any foundation and also reserved its right
to seek arbitration. After a protracted correspondence, Pawanhans vide letter of 9th
December 1991 advised the contractor to submit a "No Claim Certificate" as a precondition
for the release of the balance payment. The contractor wrote to Pawanhans
that it was in dire need of finances and was being subjected to duress but
nevertheless submitted a "No Dues Certificate" dated 17th February 1992 once again
specifically highlighting that the same was being issued under duress. It appears that
despite the issuance of the aforesaid certificate, Pawanhans still did not release the
payment on which the contractor wrote another letter dated 5th May 1992 and several
letters thereafter but again to no effect, and on the contrary received a letter dated
8th June 1992 from Pawanhans asking for a "No Dues Certificate" as per the enclosed
specimen without attaching any condition to the same. The contractor, now in a
desperate situation, submitted yet another "No Claim Certificate" dated 18th June
1992 as per directions. After receiving the aforesaid document, Pawanhans in its
letter dated 9th February 1993 informed the contractor that a period of two months
would be required for the scrutiny of its bills and vide letter dated 21st May 1993
also intimated that the bills had been submitted for verification by the
Architect/Engineer as per the terms of the contract and that in case it was willing to
defray the payment, the matter could be referred to arbitration. The contractor finally
received a communication dated 8th June 1993 pointing out that as all payments due
under the contract had been made and as a "No Dues Certificate" had been furnished,
no further amount was due. The contractor accordingly served a notice dated 28th
June 1993 on Pawanhans invoking the clause relating to arbitration. The matter was
referred to arbitration by two registered Architects as per the clause. The contractor
submitted its statement of claim for the outstanding amount plus compensation and
damages on 6th August 1994. The arbitrators passed two awards on 31st December
1996, one with respect to the contract for the compound wall and the second for the
construction of the bridge awarding certain amounts to the contractor. Aggrieved by
the awards, Pawanhans filed two separate petitions under Sections 30 and 33 of the
Arbitration Act, 1940 before the Bombay High Court for a direction that the awards be
set aside. The learned Single Judge in his judgment and order dated 9th December
1998 held that Clauses 18 and 34 of the contract when read together, provided for
the payment of escalation charges as the work had not been completed within four
months on account of the fault on the part of the respondent and that the said
clauses did not prohibit such a payment, more particularly as time was the essence of
the contract and as the contract was not on a fixed price, the prohibition of escalation
was if at all to be read during the period of contract only. The learned Single Judge
also repelled the arguments of the respondent that after having submitted the final
bill on 25th October 1991, it was not open to the appellant herein to submit a second
final bill on 2nd February 1993 by observing that the payment received on the 4th
July 1993 as a consequence of the bills submitted on 25th October 1991, was under
duress and it is on that account that the appellant had given the aforesaid certificate.
Some objections raised by the respondent herein were however accepted by the
learned Single Judge and the award was accordingly modified and it is the admitted
case that the aforesaid modification has been accepted and was not challenged before
the Division Bench by the contractor.
3. Two appeals were thereafter filed by Pawanhans before the Division Bench of the
Bombay High Court. The Division Bench vide its order dated 7th June 2007 allowed
the appeals and set aside the order dated 9th December 1998 of the learned Single
Judge as also the two awards dated 31st December 1996 by highlighting as a preface
that it could not be disputed that the scope for interference by the court under
Section 30 or 33 of the Arbitration Act was limited as the court could not sit as a
court of appeal on the decisions arrived at by the arbitrator. The Court then applied
the aforesaid principle to the facts of the case and relied on Clauses 18 and 34 ibid
observed that a plain reading of the said clauses did not visualize any claim for
escalation or reduction towards the cost of the work and again reiterated that Clause
34 of the agreement prohibited the contractor from claiming any extra amount on
account of fluctuation of price. The Court further observed, somewhat in
contradiction, that a remedy towards the escalation of price had been provided by
Clause 43 of the contract and Clause 43-1(E) specifically provided, the procedure
whereby such a claim could be made and as the procedure prescribed by the clause
had not been adopted, it was not open to the contractor to contend before the
arbitrator that it was entitled to some payments on account of price escalation. The
Court finally concluded that:
Once it is clear that the respondents are not entitled to claim escalation
charges and the entire dispute, which is the subject matter of the appeals
being related to the escalation charges, the impugned orders, to the extent
they confirm the award in relation to the escalation charges, are liable to be
set aside and the petitions filed by the appellants challenging the awards in
relation to the grant of the escalation charges are liable to be allowed to that
extent. Consequently, the claims for interest on the amount of damages
awarded towards the escalation are also liable to be set aside.
4 . The Division Bench then examined the issues raised by the contractor as to
whether that "No Due Certificate" had been given under duress and held that there
was no evidence to show that the said certificate had been given under duress or
coercion and as the certificate itself provided a clearance of no dues, the contractor
could not now turn and say that any further payment was still due on account of the
second final bill. The Division Bench accordingly allowed the appeal. The matter is
before us in these circumstances.
5. Mr. Shyam Divan, the learned senior counsel for the contractor, has raised several
arguments before us during the course of the hearing. He has first pointed out that
the awards rendered by the arbitrator were non-speaking and in this view of the
matter, the scope for judicial interference was extremely limited and interference with
the findings of the Arbitrators was, therefore, not called for. He has also pleaded that
Clauses 18 and 34, as per their plain interpretation themselves visualized a claim for
escalation where the delay had been caused by the opposite party and that in any
case, the bar on the escalation, if at all, could be restricted only for the period of
contract i.e. four months and not thereafter. He has also submitted that Clause 43-
1(C) on which reliance had been placed by the Division Bench for non-suiting the
contractor, was misplaced as this clause too did not specifically or even by
implication whittle down the effects of Clauses 18 and 34. It has also been argued
that the finding of the Division Bench that there was no duress on the contractor
relating to the issuance of the "No Claim Certificates" was incorrect in the light of the
voluminous evidence to the contrary on record.
6. Mr. Raju Ramachandran, the learned senior counsel appearing for Pawanhans has
fairly and at the very outset pointed out that the award in question was non-speaking
and as such the scope for interference by the court was limited. He has further
contended that it would perhaps be difficult to read into the clauses a complete bar
towards escalation, as a court would be reluctant to visualize such a bar in the light
of some unforeseen situations that might arise in the execution of a work and the
gates, thus, could not for ever be closed, but has submitted that Clause 43 provided
for such an opening and as this procedure had not been adopted by the contractor,
the claim under Clauses 18 and 34 was not maintainable. He has also submitted that
the "No Dues Certificate" having once being given by the contractor, it was not open
to it to make a volte-face and to challenge the said certificate on the ground that it
had been given under duress and the finding of the Division Bench on this point was,
therefore, correct.
7 . We have heard the learned Counsel for the parties and gone through the record.
As would be apparent, the matter would rest on an interpretation of Clauses 34, 43
(1) and (2) of the General Conditions of the Contract and Clause 18 of the Special
Conditions of the Contract. We reproduce herein below the clauses abovementioned:
34. The contractor shall not claim any extras for fluctuation of price and the
contract price shall not be subject to any rise or fall of prices.
43 (1) E. Architect's instructions issued in regard to the postponement of any
work to be executed under the provisions of this contract; and if the written
application is made within a reasonable time of it becoming apparent that the
progress of the work or of any part thereof has been affected as aforesaid:
Then the Architect shall ascertain the amount of such loss and/or
expense. Any amount from time to time so ascertained shall be
added to the amount which would otherwise be stated as due in such
certificate.
43 (2) The provisions of this condemn are without prejudice to any
other rights and remedies which the contractor may possess.
18. It is specifically pointed out that the contractor shall not be entitled to
any compensation whatsoever on account of:
1. Any delay in supply of any material.
2. Any increase in costs of any material.
3. Any subsequent increase in cost of any material due to increase in
other charges like Railway, Steamer, freights or taxes and duties.
4. Any increase in labour costs.
8. We have examined the arguments raised by the learned Counsel in the light of the
aforesaid and other provisions. It is the admitted position that as per Clause 38, the
date of the commencement of the contract was 1st November. 1989 and the date
stipulated for the completion of the work was 28th February 1990. It is also clear
from Sub-clause (7) of Clause 1 of the General Conditions that time would be the
essence of the contract. We also see from Clause 43 aforequoted that this clause has
within itself the clear indication that the embargo placed by Clauses 18 and 34 was
not sacrosanct as has been found by the Division Bench as there could be a situation
where the contractor had suffered loss for whatever reasons which was required to be
reimbursed as per procedure prescribed in Clause 43. Clause 43 (2) also specifically
provided that Clause 43 was without prejudice to any other rights and remedies that
the contractor might possess. We find from a reading of the judgment of the Division
Bench that the contractor has been non-suited on the plea that it had failed to
proceed under Clause 43. On the contrary we believe that Clause 43 is a clause which
should be read in aid of the contractor as it clearly provides for indemnity in case
there was a delay in the completion of the work which could be attributable to
Pawanhans. We are, further, of the opinion that even assuming for a moment that
there could be no price escalation during the period of 4 months i.e. during the
pendency of the contract, such embargo would not be carried beyond that period as
time was the essence of the contract. The learned Division Bench has relied upon a
large number of judgments in support of its decision that in case of a clause barring
the escalation in the price, it was not open to the contractor to claim any amount
under that head. A perusal of the aforesaid judgments, however, do not show any
provision in terms of Clause 43, and that in any case, these judgments pertain to a
claim of price escalation during the period of contract. It must also be borne in mind
that a court does not sit as one in appeal over the award of the arbitrator and if the
view taken by the arbitrator is permissible, no interference is called for on the
premise that a different view was also possible. We also feel that in commercial
transactions all situations cannot be visualized and the positive and unchallenged
finding in the present case is that the delay in the execution of the work was
occasioned on account of reasons attributable to Pawanhans. It cannot, therefore, be
said that the award of the arbitrator was so unconscionable that it required
interference. In MCD v. Jagan Nath Ashok Kumar and Anr. MANU/SC/0013/1987
: [1988]1SCR180 , it was observed thus:
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 cannot be said to be vitiated by nonreception
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 and considers. The parties have selected
their own forum and the 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 our opinion is
the sole judge of the quality as well as 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.
and further concluded:
After all an arbitrator as a judge in the words of Benjamin N. Cardozo, has to
exercise a discretion informed by tradition, methodized by analogy,
disciplined by system, and subordinated to "the primordial necessity of order
in the social life.
9 . P.M. Paul v. Union of India MANU/SC/0399/1989) is a case which is almost
identical on facts. In this matter the work could not be completed during the period
of the contract and the contractor was accordingly granted extension of time to
complete the same. By an order of this Court, the dispute was referred to an
Arbitrator on the reference as to who was responsible for the delay in the completion
of the work, what were to be the repercussions of the delay and how to apportion the
responsibility and the consequences. The arbitrator made an award in favour of the
contractor which was duly challenged by the Union of India with the matter finally
reaching this Court at the instance of the contractor and this is what the Court had to
say.
It was submitted that if the contract work was not completed within the
stipulated time which it appears was not done then the contractor has got a
right to ask for extension of time, and he could claim difference in price. This
is precisely what he has done and has obtained a portion of the claim in the
award. It was submitted on behalf of the Union of India that failure to
complete the contract was not the case. Hence, there was no substance in the
objections raised. Furthermore, in the objections raised, it must be within the
time provided for the application under Section 30 i.e., 30 days during which
the objection was not specifically taken, we are of the opinion that there is
no substance in this objection sought to be raised in opposition to the award.
Once it was found that the arbitrator had jurisdiction to find that there was
delay in execution of the contract due to the conduct of the respondent, the
respondent was liable for the consequences of the delay, namely, increase in
prices. Therefore, the arbitrator had jurisdiction to go into this question. He
has gone into that question and has awarded as he did.
10. A similar view has been taken by this Court in K.N. Sathyapalan (D) By Lrs. v.
State of Kerala and Anr. MANU/SC/5270/2006 : 2006(12)SCALE654 . It has been
held as under:
We have intentionally set out the background in which the Arbitrator made
his award in order to examine the genuineness and/or validity of the
appellant's claim under those heads which had been allowed by the
Arbitrator. It is quite apparent that the appellant was prevented by
unforeseen circumstances from completing the work within the stipulated
period of eleven month and that such delay could have been prevented had
the State Government stepped in to maintain the law and order problem
which had been created at the work site. It is also clear that the rubble and
metal, which would have been available at the departmental quarry at
Mannady, had to be obtained from quarries which were situated at double the
distance, and even more, resulting in doubling of the transportation charges.
Even the space for dumping of excess earth was not provided by the
respondents which compelled the appellant to dump the excess earth at a
place which was for away from the work site entailing extra costs for the
same.
In the aforesaid circumstances, the Arbitrator appears to have acted within
his jurisdiction in allowing some of the claims on account of escalation of
costs which was referable to the execution of the work during the extended
period, In our judgment, the view taken by the High Court was on a rigid
interpretation of the terms of contract and the Supplemental Agreement
executed between the parties, which was not warranted by the turn of events.
11. We are, therefore, of the opinion in the light of the aforesaid judgments, that it
was open to the contractor to contend that it was liable to be compensated on
account of the fact that delay had been occasioned on account of reasons attributable
to Pawanhans. It is significant that the Division Bench of the High Court has been
silent on this aspect of the matter and has not referred to the finding of the learned
Single Judge with regard to the responsibility for the delay.
1 2 . We are further of the opinion that Clause 43 and 43 (1) and (2) when read
together clearly visualize escalation of price on account of reasons beyond the control
of the contractor and attributable to the other side. Moreover Clause 43 (2) clearly
states that the remedy under Clause 43(1) would be in addition to such other remedy
that may be open to the contractor under the other provisions.
13. We have also gone through the record with respect to the finding of the Division
Bench that there was no duress or coercion on the contractor which had compelled it
to give a "No Dues Certificate". Mr. Raju Ramachandran has, however, submitted that
the story about duress was an after thought in the background that the first final bill
had been submitted by the contractor on the 3rd June 1991 and the second final bill
on 2nd February 1993 i.e. almost 2 years later and that in any case, a second final bill
was not visualized under the contract. He has submitted that the observation of the
arbitrator that submission of the second final bill was sanctioned as a trade practice
was without any basis. We have gone through the record in the light of the
submissions of the learned Counsel. We first refer to the letter of the contractor of
11th July 1990 to which reference has been made by the Division Bench requesting
Pawanhans to ensure a regular power supply. The letter of 27th July 1990 by the
contractor refers to the statement of accounts submitted by it and requests for
payment as per the accounts which had been cleared by the Architect. It is to be
noted that these letters are on the record and were written by the contractor at the
time when the work was in the process of completion. The desperate tone of the
contractor is however supported by the letter of 10th January 1991 in which it was
noted that though repeated requests had been made for the payment atleast against
the bills certified by the Architect, a huge amount had been blocked arbitrarily over a
long period of time and a request was made for its release. The letter dated 21st
November 1991 is again a reminder to Pawanhans asking for payment and that in
case there was a dispute, the matter be referred to the arbitrator and submitting that
payment should be made atleast with respect to those dues which had been certified
by the Architect. The letter dated 9th December 1991 from Pawanhans to the
contractor shows that payment could be considered provided the contractor submitted
a "No Claim Certificate". It appears that such certificate was indeed issued but with
no result on which the contractor in his letter dated 26th December 1991 in reply to
the letter dated 9th December 1991, once again submitted that the payments be
released in so far as they had been certified by the Architects/Consultants and if there
was a dispute regarding the other payments, they should be referred to an arbitrator
and in desperation further adds:
However, if you want to hold us to economic duress by not paying what you
wish to pay, without "No Claim Certificate", we shall treat it as "Duress" and
issue you such a certificate much against our willingness as we cannot afford
to liquidate our dues by such a certificate.
Please do not hold us to a ransom and arrange to pay. In case you would still
like to insist, let us know, so that we could issue you such a certificate under
duress as we have serious financial problems.
14. It appears that despite the pleading tone of the aforesaid letter no payment was
made on which the contractor wrote yet another letter dated 17th February 1992 in
which it was submitted as under:
Inspite of our claim statements, you have insisted on "No Claim Certificate",
we hereby give you this certificate that we have "No Claims" and hence you
pay us what you might have worked out as our "Final Dues".
In case, you have a particular draft in which a "No Claim" Certificate need be
issued to receive our dues of our bill, please let us have the deft, or else this
letter may be treated as the certificate of "No Claim" from our side.
15. When no action was taken, another letter dated 5th May 1992 was addressed to
Pawanhans by the contractor stating that as they were facing economic duress on
account of the payment being held back, and as a "No Claim Certificate" had been
issued, the payment be defrayed as promised or else they might have to refer the
matter to the arbitrator. The letter dated 8th June 1992 is again tell-tale and we
reproduce the contents hereunder:
Kindly let us know what is it that we have to do to get money which you say
is payable but only on your extracting "No Claim" certificate under duress.
Please take note if you fail to pay us our dues, we shall be constrained to
take you to court for which you will blame yourself if it inconvenience is
caused. It is a clear 15 days notice please.
16. It appears however that no steps were taken on which the contractor addressed a
letter dated 2nd February 1993 for payment of dues and again stated that if the
payment was not made, the dispute should be referred to the arbitrator. In response
to this letter, Pawanhans in its letter dated 9 th February 1993 replied that the matter
was under scrutiny and it would take about 2 months for verification and that the
contractor would be informed in due course. As no reply was received, a letter dated
21st May 1993 was addressed by the contractor relating to the undertaking that the
enquiry would be completed within 2 months but complaining that nothing had been
done and on the contrary on 8th June 1993 the claim for any payment was rejected
by Pawanhans observing that as a "No Dues Certificate" had been submitted by the
contractor, the question of any balance payment being due did not arise. It is at this
stage that the contractor had invoked the clause for arbitration. We have reproduced
the correspondence in extenso to show that the contractor was compelled to issue a
"No Dues Certificate" and in this view of the matter, it could not be said that the
contractor was bound by what he had written. It is also clear that there is voluminous
correspondence over a span of almost 2 years between the submission of the first
final bill on 3rd June 1991 and the second final bill dated 2nd February 1993 and as
such the claim towards escalation or the plea of the submission of a "No Dues
Certificate" under duress being an after thought is not acceptable. In Ambica
Construction v. Union of India MANU/SC/5180/2006 : 2006(12)SCALE149 it was
observed as under:
A glance at the said clause will immediately indicate that a No Claim
Certificate is required to be submitted by a contractor once the works are
finally measured up. In the instant case the work was yet to be completed
and there is nothing to indicate that the works, as undertaken by the
contractor, had been finally measured and on the basis of the same a No
Objection Certificate had been issued by the appellant. On the other hand,
even the first Arbitrator, who had been appointed, had come to a finding that
No Claim Certificate had been given under coercion and duress. It is the
Division Bench of the Calcutta High Court which, for the first time, came to a
conclusion that such No Claim Certificate had not been submitted under
coercion and duress.
From the submissions made on behalf of the respective parties, and in
particular from the submissions made on behalf of the appellant, it is
apparent that unless a discharge certificate is given in advance, payment of
bills are generally delayed. Although, Clause 43(2) has been included in the
General Conditions of Contract, the same is meant to be a safeguard as
against frivolous claims after final measurement. Having regard to the
decision in the case of Reshmi Constructions's (supra), it can no longer be
said that such a clause in the contract would be an absolute bar to a
contractor raising claims which are genuine, even after the submission of
such No Claim Certificate.
1 7 . We are therefore of the opinion that the judgment of the Division Bench is
erroneous and we accordingly set it aside. The judgment of the learned Single Judge
is accordingly restored. In the facts and circumstances of the case, in that Pawanhans
has taken advantage of a beleaguered contractor, and has behaved in a most
unbecoming manner in pushing it ever deeper into the chasm, the contractor will
have its costs which are computed at Rs. 10,000/-. The appeals are accordingly
allowed.
No comments:
Post a Comment