2017 Supreme(Cal) 9

IN THE HIGH COURT AT CALCUTTA
SOUMEN SEN, J.
State of West Bengal - Petitioner
Vs.
Bharat Vanijya Eastern Pvt. Ltd. - Respondent
A.P. No. 1087 of 2011
Decided On : 04-01-2017

Headnote:

Arbitral Award - Setting aside - Grounds - Public policy of India - Interpretation - Breach of contract - Claims for loss and damages - Arbitrator's failure to provide reasons for allowing claims - Award set aside in part.

Fact of the Case:

The employer challenged an arbitral award in excess of Rs.15 crores inclusive of interest in respect of construction of a two-lane highway. The respondent was awarded a contract for construction of the highway. The petitioner deposited a sum of Rs.5 lakhs by a fixed deposit receipt as performance security. The petitioner also deducted a sum of Rs.8,13,553/- from running bills as security amount. The respondent commenced work on and from 15th February, 1991. The respondent requested the petitioner to fix, determine or agree upon the rate or rates of earth work for construction of embankment by mechanical process. The petitioner, however, failed and neglected to determine the rates for the aforesaid work. In the meantime, the respondent executed huge quantity of the said earth work which the petitioner refused to pay on the ground that the rates thereof were not fixed. The respondent suspended the work. The petitioner constituted an expert committee comprising of the Chief Engineer, PWD, Additional Chief Engineer (NH-1) and Superintendent Engineer (NH, Circle-3) to fix the rates for varied items of earth work and/or to correct/remove other discrepancy/anomaly in the bill of quantities. On the basis of the representation made by the petitioner that the aforesaid issues would be resolved within a short time, the respondent resumed work on 26th December, 1992. Since the expert committee had failed to fix and/or determine the rates, the respondent once again suspended the work from July 1, 1993. In or about July 20, 1993 there was unprecedented flood in or around the work site causing complete inundation of the embankment and extensive damages thereto and other works already executed by the respondent. The respondent gave notice of the aforesaid fact to the Chief Engineer as well as the petitioner. During the suspension of the work the Chief Engineer of the petitioner, by a letter dated 8th March, 1995 communicated the respondent that the rates of the said earth works had been fixed by the Ministry of Surface Transport, Government of India by its letter dated 16th February, 1995 subject to the respondent giving the following undertaking:-that crept in the specification/description of items of work in the bill of quantities of the tender agreement and you will not raise any claim upon rectification of the mistakes.

Finding of the Court:

The Court held that the award could not be passed on the ipse dixit of the arbitrator. Mere reference to documents, deposition, pleadings without discussing the relevancy and cogency of such materials and evidence would make the award an unreasoned award. Since an award is subject to judicial review, it is important that such award must disclose the mind of the arbitrator. The arbitrator, in the Court's view, is required to give some reason for allowing a claim. The Court held that the claim on account of re-execution of the work was reduced from Rs.36,09,083/- to Rs.25,00,000/-. The Arbitrator apart from referring to some of the documents did not disclose any reason for allowing a sum of Rs.25 lakhs on account of re-execution of the work. Moreover, it appears that the said work was done before the parties agreed to have contract extended up to 31st August, 1997 without any claim on either side. The Court held that the claim on account of loss and damage due to hindrance created by Truck Owners’ Association of Falkata was reduced from Rs.45 lakhs to Rs.40 lakhs. The claim of Rs.45 lakhs is based on estimates. It is true that some documents were produced before the arbitrator to show that let or hindrance was caused during the executing of the work but the loss and damage, in the Court's view, has already been factored and/or included in claim no.1. If the hindrance has caused prolongation of the work, the claimant would be entitled to loss and damage under recognizable heads of claim to which the claimant is entitled in law. The said claim is covered under claim no.1. Moreover, even if it is assumed that the claimant would have right to claim damage, the measure of damage has to be quantified and cannot be based on estimate. In the Court's view, the awarding of the said sum is unreasoned and hence, set aside. The Court held that the next immediate larger amount awarded by the arbitrator is on account of infructuous expenses incurred by the claimant by reason of the petitioner failing to perform its obligation under the contract. The learned Advocate General has argued that the claim made in Paragraph 27 of the plaint and the claim made herein are overlapping to which the response of Mr. Gautam Chakraborty, learned Senior Counsel was that they are distinct and different and the claimant is entitled to make the said claim resulted in delayed execution of the contract. The learned Senior Counsel has referred to Paragraphs 61 and 62 of Associate Builders (supra) which read:-

Issues: Whether the arbitrator failed to provide reasons for allowing various heads of claim, thereby rendering the award liable to be set aside?

Ratio Decidendi: The Court held that the award could not be passed on the ipse dixit of the arbitrator. Mere reference to documents, deposition, pleadings without discussing the relevancy and cogency of such materials and evidence would make the award an unreasoned award. Since an award is subject to judicial review, it is important that such award must disclose the mind of the arbitrator. The arbitrator, in the Court's view, is required to give some reason for allowing a claim. The Court held that the claims for loss and damages were overlapping and should not have been allowed. The Court held that the claim on account of re-execution of the work was reduced from Rs.36,09,083/- to Rs.25,00,000/-. The Arbitrator apart from referring to some of the documents did not disclose any reason for allowing a sum of Rs.25 lakhs on account of re-execution of the work. The Court held that the claim on account of loss and damage due to hindrance created by Truck Owners’ Association of Falkata was reduced from Rs.45 lakhs to Rs.40 lakhs. The claim of Rs.45 lakhs is based on estimates. It is true that some documents were produced before the arbitrator to show that let or hindrance was caused during the executing of the work but the loss and damage, in the Court's view, has already been factored and/or included in claim no.1. If the hindrance has caused prolongation of the work, the claimant would be entitled to loss and damage under recognizable heads of claim to which the claimant is entitled in law. The said claim is covered under claim no.1. Moreover, even if it is assumed that the claimant would have right to claim damage, the measure of damage has to be quantified and cannot be based on estimate. In the Court's view, the awarding of the said sum is unreasoned and hence, set aside.

Final Decision: The Court held that the claim Nos. 2, 4, 9 and 10 are disallowed. The application succeeds in part. However there shall be no order as to costs.