2007 Supreme(Cal) 824

IN THE HIGH COURT AT CALCUTTA
SANJIB BANERJEE, J.
Videsh Sanchar Nigam Ltd.
Versus
Shapoorji Pallonji & Company Ltd.
A.P. No. 288 of 2005
Decided On : November 15, 2007

Headnote:

CONTRACT - Construction of Office Building - Extension of Time - Arbitral Tribunal's Authority - Delay and Consequences - Escalation - Time Related Cost Components - Counter-Claim - Interest - Setting Aside of Award - Grounds - Serious Irregularity - Substantive Injustice - Arbitrator's Authority - Applicability of Hudson Formula - Caveat - Interest Rate.

Fact of the Case:

A contractor claimed an extension of time for completion of the construction of an office building, which was granted by the employer for 180 days beyond 27th February, 1996. However, the work continued beyond the agreed extended date of completion on the employer's representation that the tenure would be extended till the date of actual completion without imposition of any liquidated damages that the contract permitted the employer to levy if the work spilled over beyond the agreed date of completion. The employer suggests that there was no representation of such nature and an odd sentence in a particular letter cannot be read out of context to imply that the employer had altogether abandoned its contractual rights and had submitted to the contractor taking as much time as it chose to make the building ready. The building was not completed by August, 1997 and the work continued thereafter. The parties’ versions as to what happened thereafter differ.

Finding of the Court:

The court held that the arbitrators did not commit any grave error touching upon their authority to adjudicate upon the matters in issue, except in the matter of escalation for the period after December 31, 1997 and the award of interest in the post-reference period at a high rate. The award on account of escalation for the period between January 1, 1998 and March 31, 1998 is set aside with liberty to the contractor to seek a fresh reference in respect thereof. The remainder of the award except on account of interest for the period after June 30, 2002 is not interfered with.

Issues: 1. Whether the Arbitral Tribunal had the authority to grant an extension of time for completion of the work beyond the admitted extension till December 31, 1997? 2. Whether the award is at variance with the agreement between the parties? 3. Whether the award does not spell out who was responsible for non-completion of the work within the stipulated extended period and as to how the employer could be held responsible for the delay beyond December 31, 1997 and liable for the consequences thereof? 4. Whether the arbitrators failed to consider the documents on record allowed escalation as claimed without any reason and without testing the claim on such account? 5. Whether the arbitrators proceeded as if delay would automatically lead to escalation and awarded damages without any subjective satisfaction that damages had, indeed, been suffered by the contractor?

Ratio Decidendi: 1. The court held that there are three points urged by the petitioner in this context. First, that the reason put forward for extension should be only on the ground of additional work or special circumstance; secondly, the engineer must be approached and the assessment by the engineer is final; and, thirdly, the request should be made within the period of 30 days or, on a liberal construction of clause 9.4, within a period of 60 days for such grounds being looked into. 2. The court held that the letter of April 28, 1999 can neither be read in isolation nor can it be said to be the only basis on which the contractor claimed extension of time for completion of the work. The letter of April 28, 1999 comes upon heaps of previous letters exchanged between the parties and the arbitrators cannot be faulted for not confining themselves to what directly appears from such letter but in going back to the previous letters to find support for the contractor on its claim for extension. 3. The court held that the arbitrators' finding on extension of time for completion of the work cannot be set aside. It is possible that the Court may have arrived at a different conclusion and may not have interpreted the petitioner's letter of February 10, 1999 in the manner the arbitrators have. It is possible, as the petitioner suggests, that the letter of February 10, 1999 implied that the petitioner was of the view that the contractor had proffered reasons for an extension upto August 31, 1998, but had not elicited much on the extension sought beyond August 31, 1998, prompting the petitioner to seek better reasons for the period beyond August 31, 1998. It is equally likely that the petitioner in informing the respondent by the letter of March 25, 1999 that the project management consultant would remain at site till March 31, 1999 merely stated a fact without intending to convey to the contractor that the close out date had to be March 31, 1999 or that the employer was not averse to extending time for completion till March 31, 1999. But just as the letter of February 10, 1999, the arbitrators chose to read the letter of March 25, 1999 to convey a tentative acceptance of the time for completion of the work by March 31, 1999.

Final Decision: The award on account of escalation for the period between January 1, 1998 and March 31, 1998 is set aside with liberty to the contractor to seek a fresh reference in respect thereof. The remainder of the award except on account of interest for the period after June 30, 2002 is not interfered with.