The Tamil Nadu Handloom WeaversCo-operative Society Limited v. M/s. Vijayaraghavan & Co Engineering Contractors

IN THE HIGH COURT OF JUDICATURE AT MADRASDATED : 12-09-2011CoramTHE HONOURABLE MRS. JUSTICE R. BANUMATHIandTHE HONOURABLE MR. JUSTICE B. RAJENDRANO.S.A. No. 210 of 2008The Tamil Nadu Handloom WeaversCo-operative Society Limitedrep. By its Managing Director - Viswanath ShegonkarPantheon Road, EgmoreChennai – 600 008.. Appellant/PetitionerVersus1. M/s. Vijayaraghavan & Co Engineering Contractors rep. By its Managing Partner Mrs. T. Rukmani No.18, Third Street Tamil Nadu NGO Colony Adambakkam, Chennai – 882. Hon'ble Mr. Justice M.A. Sathar Sayeed Sole Arbitrator (Former Judge, High Court, Madras) No.F55, 4th Street, Anna Nagar East Chennai – 600 102.. Respondents/RespondentsAppeal filed under Clause 15 of the Letters Patent read with OrderXXXVI Rule 1 of Madras High Court Original Side Rules against the orderdated 24.08.2007 made in O.P. No. 660 of 2003 on the file of this Court.For Appellant :Mr. T.S. Rajmohan For Respondents :Mr. M.K. Kabir, Senior Counsel for Mr. A. Dhiravianathan for R1 JUDGMENTB. RAJENDRAN, J The present appeal has been filed by the appellant aggrieved by theorder dated 24.08.2007 passed by the learned single Judge, dismissing theO.P.No. 660 of 2003 filed by the appellant under Section 34 of theArbitration and Conciliation Act, 1996. 2. The brief facts of the case is that the first respondent herein https://hcservices.ecourts.gov.in/hcservices/ was awarded the contract for execution of certain works on the basis ofthe tender called for by the appellant on 15.03.1989. The firstrespondent became the highest bidder and his tender was accepted by theappellant on 05.07.1989. An agreement dated 23.10.1989 was entered intobetween the parties. As per the agreement, the contract work has to becompleted within 9 months from the date of handing over the site.According to the appellant, the site was handed over to the firstrespondent as early as on 24.12.1989 and the work should have beencompleted on or before 23.09.1990. Since the work was not completed bythe first respondent, the period of contract was extended upto04.04.1993. Even on 04.04.1993, the first respondent did not completethe work and therefore, the contract was terminated on that date.According to the appellant, originally the contract awarded in favour ofthe first respondent was to construct a building consisting of basementand ground floor, however, that was abandoned and a fresh plan was drawnfor constructing ground floor, first and second floor. The firstrespondent also agreed to construct the building as per the revised plan,in terms of the original agreement dated 23.10.1989. As per theagreement between the parties, steel, cement and other building materialswere supplied by the appellant to the first respondent, which were alsoacknowledged by the first respondent. However, the first respondent,right from the inception, did not adhere to the time schedule and failedto complete the work in time. On account of the lethargic progress ofthe work in the site, the appellant had to suffer administrative problem,apart from objections raised by the audit. No doubt, there was a delayon the part of the appellant due to the change in the plan. However, thefirst respondent insisted for payment of enhanced rate for completing thework. In order to avoid any contraversy in future, complications orunavoidable delay in completing the work, the appellant agreed for suchenhanced rate insisted by the first respondent on 01.08.1991, whichrepresents 5% increase than the originally agreed rate. Even for puttingup construction of second floor, the contract was given to the firstrespondent to avoid civil dispute raised by the first respondent in C.S.No. 224 of 1992 on the file of this Court. It was further contended bythe appellant that an excess amount of Rs.1,38,420.70 was paid to thefirst respondent. On the contrary, the first respondent filed the claimpetition before the learned Arbitrator claiming huge sum of money due andpayable by the appellant. In fact, after terminating the contract on04.04.1993, the appellant called upon the first respondent for takinginventory of the materials on 16.04.1993, but the first respondent didnot come forward to take stock of the inventory. Therefore, theappellant had taken the inventory and found that there was a shortage ofmaterials to the tune of Rs.4,47,924/-. Therefore, the appellant wouldcontend that in view of the fact that there was excess payment made bythe appellant to the first respondent, besides there was shortage ofmaterials, the first respondent is estopped from making any claim beforethe arbitrator and the claim petition filed by the first respondentbefore the learned Arbitrator ought not to have been entertained.Furthermore, the appellant would contend that only 60% of the work wascompleted by the first respondent, but the first respondent alleged thatthey have completed 90% of the contract work. 3. Mr. Rajmohan, learned counsel for the appellant would contendthat pending arbitration proceedings, the partnership firm of the first https://hcservices.ecourts.gov.in/hcservices/ respondent itself was dissolved and therefore, the first respondent hasno locus standi to prosecute the arbitration proceedings. Unfortunately,this was not taken up for consideration by the learned arbitrator. Thelearned Arbitrator has erroneously interpreted Section 47 of the IndianPartnership Act, failed to take note of the delay in handing over thesite by the first respondent, escalation of cost, idling of men andmachinery and directed the appellant to pay compensation to the firstrespondent. Aggrieved by the same, the appellant filed O.P. No. 660 of2003 before the learned single Judge. The learned single Judge alsofailed to take into consideration that the learned arbitrator, in theabsence of any material to substantiate the claim of the first respondentand the fact that the appellant had sustained loss due to slow progressin the completion of the work attributable to the first respondent,passed the award. The learned single Judge also failed to take note thatthe learned arbitrator, without taking into consideration of Ex.R63wherein the first respondent had categorically admitted that there wasexcess supply of steel and cement passed the award in favour of the firstrespondent. Lastly, the appellant would contend that the application ofHudson's formula was totally misinterpreted by the learned Arbitrator,which is not mentioned in the agreement between the parties that in theevent of dispute between the parties, the hudson formula would beadopted. Therefore, the appellant prays for allowing this appeal. 4. Mr. Kabir, learned Senior counsel appearing for the firstrespondent would contend that even though the original contract was for 9months as per the agreement dated 23.10.1989 between the parties, thesite itself was handed over by the appellant only on 24.12.1989 and theperiod of nine months expired on 23.09.1990. Moreover, the original planwas shelved by the appellant and a new plan was drawn and prepared forthe purpose of putting up a construction of ground floor, first andsecond floor. Further, when the second floor itself was sought to begiven to a third party it was protested by the first respondent andsubsequently the appellant agreed to continue the construction work insecond floor in continuation of the contract. The learned senior counselwould further contend that there was lot of delay in commencing the workand even the contract was awarded only after filing of the suit by thefirst respondent. Undoubtedly, there was a delay only on the part of theappellant and therefore the appellant is bound to pay PWD contract rate,which was prevailing at the relevant point of time and not the originallyagreed rate especially when there is a supplemental agreement enteredinto for payment of enhanced rate also. The learned senior counsel forthe first respondent, relying on the cross-examination of the ChiefEngineer, CW3 in relation to Ex.R64 had categorically stated that hugequantity of materials in the site were diverted to stall the work andfinal measurements were taken when the contract was terminated. Based onsuch a evidence, the learned Arbitrator has rightly passed the awarddirecting the appellant to pay the compensation amount to the firstrespondent. The learned Senior counsel further contended that in theabsence of any material to point out any arbitrariness or lack ofevidence in the award passed by the learned Arbitrator, the OriginalPetition filed by the appellant is not maintainable and this was rightlyconsidered and rejected by the learned single Judge. As far as locusstandi of the first respondent to file the claim petition before thelearned Arbitrator, the learned senior counsel for the first respondent, https://hcservices.ecourts.gov.in/hcservices/ relying upon Section 47 of the Indian Partnership Act, would contend thatdissolution of the partnership firm has nothing to do with the filing ofthe claim petition and the Original Petition is maintainable under law.Lastly, the learned senior counsel for the first respondent would contendthat the jurisdiction of the Court under Section 34 of the Arbitrationand Conciliation Act, 1996 is very limited unless it is shown that theaward passed by the learned Arbitrator is perverse. In the absence ofany material to point out arbitrariness or unreasonableness in the awardpassed by the learned arbitrator, the learned single Judge is justifiedin dismissing the Original Petition filed by appellant and he prayed fordismissal of this appeal.5. We have heard the counsel for both sides and perused thematerials on record. The short point for consideration in this appealis whether the award passed by the learned Arbitrator is not inaccordance with law.6.Before dealing with the questions of law, the facts involved inthis case has to be considered. Originally, an agreement dated23.10.1989 was entered into between the appellant and the firstrespondent in which the time for completion of the contract was mentionedas 9 months. However, after a long delay, the appellant handed over thesite to the first respondent for commencing the work only on 24.12.1989.Thereafter, the drawings were supplied by the appellant to the firstrespondent on 03.05.1990 and the delay was attributable by the appellantdue to the post and pre-agreement consultative process entertained bythem in completing the contract work. Thereafter, the appellant suppliedsteel, cement and other construction materials only from 01.08.1990. 7. The learned arbitrator, considering the above chronologicaldates and events, found that there was an inordinate delay on the part ofthe appellant and the appellant cited the modification in the plan andchange of pattern of the work originaly proposed as reasons for thedelay. The learned Arbitrator also taken into consideration Exs. C47 andC48 series to hold that cement and steel originally supplied for thecompletion of the work were diverted for other works at the direction ofthe appellant and this has resulted in the delay in completing theproject work by the first respojndent. The learned Arbitrator also foundthat the appellant, in order to substantiate their defence, have notproduced the log book or beam card to show the quantity of the materialsuppplied to the first respondent or available at the site store and theissue thereof to the first respondent for continuing the work.Therefore, the learned arbitrator concluded that the commencement orcompletion of the work by the first respondent was delayed only due tothe act of the appellant and passed the award granting compensation tothe first respondent under various heads which are as follows:- https://hcservices.ecourts.gov.in/hcservices/ S.No.Nature of claimAmount AmountClaimed AllowedRs. Rs.1.Amount due for work done24,71,451 24,71,4512.Refund of deposits 38,000 38,0003.Idling of men & material 8,16,005 1,22,4804.Material handling charges 20,180 Nil5.Expenditure for plan and Design 99,430 Nil6.Loss of profit 33,12,894 7,59,0757.Change in lead 1,28,568 Nil8.Materials detained at site 1,67,085 78,500 38,53,414 8. It is evident that even though the claimant/first respondentherein claimed Rs.2,25,84,657/- as compensation, the arbitrator awardedonly Rs.38,53,414/-.9. The main argument of the counsel for the appellant was that thelearned arbitrator granted Rs.7,59,075/- towards over head charges(wrongly mentioned in the award as loss of profit) by applying theformula propounded by Hudson. According to the learned counsel for theappellant, the hudson formula ought not to have been applied in this casewhen there is no agreement between the parties in the contract forinvoking Hudson formula10. From a careful reading of the award passed by the learnedArbitrator, it is seen that the learned arbitrator has not discussedanything and the learned Arbitrator has only stated this - "the claim foroverhead charges is based on the formula propounded by Hudson and it iscalculated for the period of 133 weeks. I do not think the same cannotbe allowed in entirety. Taking into consideration the delay caused bythe respondent (appellant herein) I hold that the claimant (firstrespondent herein) is entitled to Rs.1,22,480/- for idling of men andmaterial and Rs.7,59,075/- towards over head charges (wrongly stated asloss of profit in the award) under the formula propounded by Hudson".Unfortunately, the learned Arbitrator has not given any reasoning at allas to how the Hudson formula is made applicable for determining theclaim, whether there was any agreement between the parties for applyingthe Hudson formula. We do not see any reasoning for the learnedarbitrator to apply Hudson formula. Therefore, excepting the award ofoverhead charges to the tune of Rs.7,50,075/-, which has been awarded as'Loss of profit" by the learned arbitrator, we do not see any reason tointerfere with the award passed by the learned arbitrator. In fact, thelearned single judge also did not give any reason as to how and why thelearned arbitrator had invoked the formula propounded by Hudson andgranted amount under the head Over head charges (loss of profit). Eventhough lesser amount was awarded by the learned arbitrator than the oneclaimed by the claimant (first respondent herein) we are inclined to setaside the award passed by the learned arbitrator only in so far as grantof over head charges by applying the formula propounded by Hudson. https://hcservices.ecourts.gov.in/hcservices/

11. Though the appellate Court normally would not sit in appealover the decision of the learned Arbitrator especially in granting ordetermining amount, in this particular case, we find that the learnedarbitrator is not justified in applying the formula propounded by Hudsonand awarded over head charges when it was not agreed upon between theparties. Therefore, we are constrained to interfere with the awardpassed by the learned arbitrator. In all other respects, we hold thatthe learned arbitrator has passed a reasoned award and the same was alsoconfirmed by the learned single Judge.12. A feeble attempt was made by the learned counsel for theappellant that in the statement of account given in page No.128 of thetyped set of papers, regarding the amount due for work done, the learnedArbitrator has only looked into the first page and passed the award,ignoring the next page namely Page No.129 of the typed set of paperswherein, amount was arrived at after giving deduction and this vitiatesthe award. 13. We are not inclined to accept this submission of the learnedcounsel for the appellant. Taking into consideration the statement asgiven in page No.128, where there is a consolidated amount is mentionedas due and payable by the appellant to the first respondent to the tuneof Rs.27,51,678/- and also after taking into consideration the deductionsgiven in the next page i.e., page No.129 of the typed set of papers whichshows the excess amount paid to the contractor to the tune ofRs.5,67,773.20, the learned arbitrator has rightly pointed out that inthe absence of any counter-claim by the appellant, the appellant is notentitled to such a claim. Therefore it is clear that the learnedarbitrator has considered the deductions pointed out by the appellant,which is available in page No.129 of the typed set of papers, and itcannot be said that the learned arbitrator omitted or failed to considerthe same. Therefore, this argument of the learned counsel for theappellant is rejected.14, The learned Senior Counsel appearing for the first respondentrelied on the decisions reported in (Oil and Natural Gas CorporationLimited vs. Saw Pipes Limited) (2003) 5 SCC 705 (ii) (McdermottInternational Inc., vs. Burn Standard Co., Limited and others) (2006) 11SCC 181 (iii) (Leo Oils & Lubricants and others vs. Bharat PetroleumCorporation Limited and another) (2008) (5) RAJ 232 (Mad) (DB) and (iv)(Sumitomo Heavy Industries Limited vs. Oil and Natural Gas CorporationLimited) (2010) 11 SCC 296 for the proposition that an award can be setaside if it is contrary to the grounds enumerated in Section 34 (2) (b)of the Arbitration and Conciliation Act. 15. The scope and ambit of the Court to interfere with an awardpassed by the learned Arbitrator is limited except on the grounds whichare enumerated under Section 34 of the Arbitration and Conciliation Act,1996. Section 34 of the Act clearly stipulates that the Courts cannotsit on appeal over the decision of the learned Arbitrator or to reviewthe award or re-examine the award passed by the learned arbitrator. Infact, the learned single Judge also extracted various decisions for theabove said proposition and held that the Court would not normally https://hcservices.ecourts.gov.in/hcservices/ interfere with the award passed by the arbitrator unless it is shown thatsuch award passed is perverse, irregular or unresonable. Section 34 (2)(b) of the Arbitrartion and Conciliation Act deals with the grounds onwhich an award passed by the arbitrator can be set aside, if the award iscontrary to (i) fundamental policy of Indian law (ii) interest of Indiaand (iii) justice or morality. Therefore, considering the groundsenumerated in Section 34 (2) (b) of the Arbitration and Conciliation Act,1996, we are of the view that the appellant has not made out any case forinterference with the award. As pointed out above, we are only settingaside the sum of Rs.7,59,075/- awarded by the learned arbitrator towardsover head charges (wrongly stated as loss of profit in the award)inasmuch as the learned arbitrator had adopted the formula propounded byHudson in the absence of any agreement between the parties.16. In the result, the appeal is partly allowed by modifying theaward passed by the learned arbitrator only to the extent of disallowingthe sum of Rs.7,59,075/- awarded by the learned arbitrator towards overhead charges (wrongly stated as loss of profit in the award). In allother respects, the award passed by the learned arbitrator is confirmed.No costs. Sd/ Asst.Registrar /true copy/ Sub Asst.RegistrarrshToThe Sub-Assistant Registrar,Original Side,High Court,Madras.+1cc to Mr.A.Dhiravianathan, Advocate Sr 56230+1cc to Mr.T.S.Rajamohan, Advocate Sr 56389NG(CO)km/11.10.OSA No. 210 of 2008