Calcutta High Court
Haldia Development Authority vs M/S. Konarak Enterprise on 17 January, 2025
Author: Sabyasachi Bhattacharyya
Bench: Sabyasachi Bhattacharyya
IN THE HIGH COURT AT CALCUTTA
Ordinary Original Civil Jurisdiction
Commercial Division
The Hon'ble Justice Sabyasachi Bhattacharyya
AP-COM No.229 of 2024
(old no. AP No.464 of 2021)
IA NO: GA 1 of 2021
Haldia Development Authority
Vs
M/s. Konarak Enterprise
With
AP-COM No.255 of 2024
(old no. AP No.95 of 2022)
M/s. Konarak Enterprise
Vs
Haldia Development Authority
For the petitioner in
AP-COM No.229 of 2024 and
For the respondent in
AP-COM No.255 of 2024 : Mr. Swarajit Dey, Adv.
Ms. Debarati Das, Adv.
For the respondent in
AP-COM No.229 of 2024 and
For the petitioner in Mr. Subhabrata Dutta, Adv.
AP-COM No.255 of 2024 : Ms. Munmun Tiwary, Adv.
Hearing concluded on : 13.12.2024
Judgment on : 17.01.2025
Sabyasachi Bhattacharyya, J:-
1. Both the above applications under Section 34 of the Arbitration and
Conciliation Act, 1996 (for short, “the 1996 Act”), having arisen out of
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the self-same award, as subsequently corrected under Section 33 of
the 1996 Act, are taken up together for analogous hearing.
2. The genesis of the case is a work order awarded to the contractor,
M/s. Konarak Enterprise (hereinafter referred to as the „claimant‟) by
the Haldia Development Authority (hereinafter referred to as the
„respondent‟), on the basis of a tender in which the claimant came out
successful, for construction of a road from Gholpukur to Tekhali
Bridge via Amdabad High School, Haldia and maintenance of the said
road.
3. Disputes having arisen between the parties arising out of the said
contract, the claimant referred the matter to arbitration, seeking
refund of security deposit and earnest money which was deposited at
the inception by it, whereas the respondent filed a counter claim
before the Arbitral Tribunal for recovering the risk and cost expenses,
which was the balance amount paid to the subsequent contractor for
completion of the work left unfinished by the claimant.
4. The Tribunal directed the earnest money and security deposit to the
tune of Rs.9,06,091.44p to be refunded to the claimant. The risk and
cost claim of the respondent was partially allowed, to the tune of
Rs.18,00,163/-.
5. Learned counsel appearing for the respondent argues that the refund
of security deposit and earnest money as directed by the Tribunal was
not permissible, since the work was not completed by the claimant.
The completion certificates issued to the claimant at various stages of
the work, it is argued, were restricted to the partial work completed
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upto each such stage and did not pertain to the completion of the
entire work.
6. It is further argued that in view of the three additional years of
maintenance of the construction of road having not been completed,
the claim of refund was premature.
7. Thirdly, it is contended that the claim of refund of security deposit
was barred by limitation, since the work was completed on September
24, 2010 and the claim was made sometime in the year 2016.
8. Learned counsel also contends that the risk and cost expenses
awarded by the Tribunal ought to have been enhanced. The value of
the total work was calculated to be Rs.1,96,49,202/-. The work
actually done by the claimant and paid for was subsequently corrected
under Section 33, on the application of the claimant, and increased
from the original awarded amount of Rs.1,41,39,493/- to
Rs.1,74,05,144/-. As a logical corollary thereto, the work left
unfinished should have been decreased to Rs.22,44,058/-, in view of
the same being the difference between the total contract value and the
work actually done. However, such prayer of the respondent was
refused by the Arbitral Tribunal on the ground that no independent
application under Section 33 of the 1996 Act had been filed by the
respondent, overlooking that no further application by the respondent
was necessary in that regard, since the enhancement of the value of
work done would automatically entail a decrease of the work left
unfinished. Instead of decreasing the said amount, which would
require mere mathematical calculation, to Rs.22,44,058/-, which is
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the difference between the total contract value and the enhanced
value of work done, the Tribunal retained the value of the unfinished
work at Rs.55,09,759/-, thereby committing a patent error of law
apparent on the face of the corrected award.
9. In support of his contentions, learned counsel cites Indian Oil
Corporation Limited v. Shree Ganesh Petroleum Rajgurunagar, reported
at (2022) 4 SCC 463, for the proposition that if the Arbitral Tribunal
passes an award contrary to the specific terms of the contract between
the parties, the same is tainted by patent illegality and can be set
aside under Section 34 of the 1996 Act.
10. Learned counsel for the respondent next relies on Associate Builders v.
Delhi Development Authority, reported at (2015) 3 SCC 49, for the
proposition that perverse and patently illegal judgments, overlooking
vital evidence and/or contrary to the materials on record, can be set
aside under Section 34 of the 1996 Act.
11. Learned counsel next places reliance on Delhi Metro Rail Corporation
Ltd. v. Delhi Airport Metro Express Pvt. Ltd., reported at 2024 SCC
OnLine SC 522 for the self-same proposition.
12. The respondent next cites Oil and Natural Gas Corporation Limited v.
Western Geco International Limited, reported at (2014) 9 SCC 263 and
Madhya Pradesh Power Generation Company Limited and another v.
Ansaldo Energia SPA and another, reported at (2018) 16 SCC 661, in
both of which cases the Supreme Court had modified the award.
Accordingly, it is submitted that it is well within the powers of this
Court under Section 34 to modify the award. It is further contended
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that the parts of the award which are impugned herein by the
respondent are segregable from the rest of the award, and thus may
be interfered with by this court.
13. Learned counsel appearing for the claimant argues that the risk and
cost claim made by the respondent in its counter claim ought not to
have been granted. It is contended that the respondent/employer did
not impose any penal measure on the claimant for non-completion of
the work. Furthermore, the Tribunal itself directed security deposit to
be refunded to the claimant, thus accepting the argument that the
work was duly completed by the claimant.
14. It is contended that the probative value of the measurement books
override that of the letters issued by parties. Hence, proceeding on
such premise, the inevitable conclusion is that the work was duly
completed by the claimant.
15. Moreover, it is submitted that the work awarded to the subsequent
contractor on March 3, 2016 was six years after completion of the
contractual work done by the claimant in the year 2010. That apart,
the said work awarded to the subsequent contractor was merely in the
nature of repair, as opposed to constructional work covered by the
contract with the claimant. Hence, it is argued that the work awarded
to the second contractor was different from that awarded to the
claimant and an entirely new work. As such, the respondent‟s claim
that the same constituted the unfinished work left by the claimant is
not tenable and, accordingly, the respondent is not entitled to any risk
and cost expenses on such score.
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16. Learned counsel for the claimant also controverts the argument of the
respondent on limitation regarding the claim of refund of security
deposit. It is submitted that since the final bill was prepared and
passed on May 18, 2016, whereas the demand for refund of security
deposit with interest was raised on November 11, 2016, the claim was
well within the limitation period as stipulated in Article 137 of the
17. It is further argued on behalf of the claimant that none of the
measures as contemplated under Section 3 of the Conditions of
Contract were taken by the respondent, which might have rendered
the claimant liable to pay compensation. Hence, the respondent was
not entitled to compensation on account of risk and cost principle as
envisaged under Section 3(c) of the Conditions of Contract.
18. It is argued that it is a well-settled proposition of law that an award
cannot be modified in exercise of jurisdiction under Section 34 of the
1996 Act.
19. Lastly, it is argued that the counter claim component of the award is
severable and, as such, can be set aside.
20. Upon hearing learned counsel for the parties, the following issues fall
for consideration:
(i) Whether the claimant is entitled to refund of security
deposit;
(ii) Whether compensation can be awarded to the respondent
on the risk and cost principle;
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(iii) Whether the Arbitral Tribunal could enhance the amount of
risk and cost liability component payable to the respondent
by modifying the same even in the absence of any
independent application to such effect being filed by the
respondent for correction of the award under Section 33 of
the 1996 Act.
21. The above issues are decided as follows:
(i) Whether the claimant is entitled to refund of security deposit
22. The respondent has argued that the claim for refund of security
deposit is barred by limitation. However, such contention is
contradictory with the arguments of the respondent itself. On the one
hand, the limitation ground is taken on the premise that the work was
completed in the year 2010 but the claim was made only in 2016 and
on the other, the respondent argues that the claim for refund of
security deposit is premature, as the three years maintenance period
after the completion of the work has not elapsed after the final bill was
raised in the year 2016.
23. Even apart from such inherent contradiction in the limitation
argument raised by the respondent, the claim for refund of security
deposit cannot be held to be barred by limitation, since the final bill
was admittedly prepared and passed only on May 18, 2016 whereas
the claim for refund of security deposit was made on November 11,
2016, that is, well within the limitation period for making such a
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money claim. Thus, the objection as to limitation taken by the
respondent is turned down.
24. The next objection taken by the respondentto the claim of refund of
security deposit is premised on the ground that the claimant did not
complete the work awarded under the concerned contract and as
such, Clause 3(a) of the Conditions of Contract could have been
invoked, thereby forfeiting the security deposit.
25. Such argument, however, cannot be accepted for several reasons.
26. First, there was no termination of the contract at any point of time.
Clause 3(a) provides that the security deposit of the contractor shall
stand forfeited and be absolutely at the disposal of the Authority only
upon the Authority rescinding the contract. There is nothing on
record to indicate that the contract was ever rescinded. Hence, the
forfeiture provision under Clause 3(a) could not have been invoked by
the respondent at all.
27. On the contrary, instead of terminating the contract, the respondent
went on passing bills till the final bill on May 18, 2016 and continued
to make payments to the claimant from time to time at the different
phases of the work, upon bills being raised for such work by the
claimant.
28. Secondly, completion certificates were issued for different phases of
the work and payments were also made accordingly by the
respondent. Thus, the respondent is estopped from arguing that the
entire work was not done, only in which case the security deposit
could have been forfeited.
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29. The letters issued by the claimant, which are sought to be relied on by
the respondent, were only restricted to a part of the work having not
been completed. However, the measurementbooks, which
aredocuments admitted by both parties, clearly indicate that a
substantial portion of the work was actually completed and final bills
raised, passed and paid for such components of the work.
30. Hence, Clause 3(a) of the Conditions of Contract could not be invoked
at all. Thus, the principle laid down in Indian Oil Corporation Limited
(supra) is not applicable to the present case, as the Tribunal did not
act contrary to the contract between the parties in directing refund of
security deposit.
31. The proposition enunciated inAssociate Builders (supra) is also not
applicable, as the impugned award, to the extent of granting refund of
security deposit, is not perverse. The letters of the claimant, even if
considered, would not make a difference since they only reflected that
a part of the work was not completed. Thus, it cannot be said that
vital evidence was overlooked by the Tribunal.
32. Insofar as the argument of the respondent that the claim for refund of
security deposit is premature, we find from the materials on record
that the work was completed in several phases, for which completion
certificates were issued at different stages. Moreover, since the work
was substantially completed, the claim for refund of security deposit
was justified.
33. Another aspect of the matter ought also to be considered. Clause 3, in
sub-clauses (a), (b) and (c), provides different alternative measures
10
which could have been taken by the respondent in case of non-
completion of the work by the claimant. Since the respondent has
invoked Clause 3(c) by awarding the work to a second contractor, it
cannot be said that it would be entitled to forfeit the security deposit
as well. Such an approach would defeat the claim of the risk and cost
expenses made by the respondent in its counter claim. The above view
being one of the plausible ones, the Arbitral Tribunal cannot be
faulted for directing refund of security deposit to the claimant while
granting the risk and cost expenses to the respondent.
34. Accordingly, this Court comes to the conclusion that the claimant was
entitled to refund of security deposit along with earnest money and
the Tribunal was justified in granting the same.
35. This issue is, thus, decided in favour of the claimant.
(ii) Whether compensation can be awarded to the respondent on
the risk and cost principle
36. The claim of the respondent on the principle of risk and cost has been
sought to be resisted by the claimant on three grounds.
37. First, it is argued that no penal measure was imposed on the claimant
to justify the risk and cost component.
38. However, Clause 3 of the Conditions of Contract makes it a pre-
requisite for imposition of risk and cost composition merely that the
“contractor shall have rendered himself liable to pay compensation
amounting to the whole of his security deposit”. Thus, no imposition
of penalty has been contemplated as a pre-requisite of such liability.
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In the present case, security deposit of Rs.9,06,091.44p has been
directed to be refunded. The claim of compensation on the risk and
cost principle made by the respondent far exceeds the said amount.
Hence, the contractor made himself liable to pay compensation
amounting to the whole of security deposit and as such, the
respondent-Authority acted well within its jurisdiction to invoke
Clause 3(c) on the principle of risk and cost liability. Non-imposition
of penal measure is, thus, a non-issue in the context.
39. The second ground on which the risk and cost claim has been resisted
it that security deposit was directed to be refunded, indicating that the
work was completed by the claimant.
40. However, the remedy of refund of security deposit under the contract
is independent of the claim of risk and cost compensation. In any
event, under Clause 3, any of the alternative measures under sub-
clauses (a), (b) and (c) could be invoked. Even if security deposit was
not forfeited under clause (a) but directed to be refunded, the same
could not be sufficient ground to defeat the claim of risk and cost
liability made by the respondent under clause (c).
41. The claimant thirdly argues that the work awarded to the second
contractor was on March 3, 2016, that is, six years after completion of
the claimant‟s work on 2010 and, thus, such work was a new project
unconnected with the work awarded to the claimant.
42. Yet, such argument is mutually contradictory, since the respondent‟s
argument of limitation for the claim of refund of security deposit is
resisted by the claimant on the ground that the final bill was passed
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on May 18, 2016. It is evident, thus, that the work was not completed
at the juncture when the second contractor was awarded the balance
work on March 3, 2016.
43. Furthermore, from both the measurement books and the letters
written by the claimant itself, it is evident that the total work awarded
to the claimant/contractor was not completed. Hence, the respondent
was justified under Clause 3(c) of the Conditions of Contract to
measure up the work of the contractor and to hand over the
unexecuted portion of the work to a subsequent contractor. The
materials on record sufficiently show that such measuring up was
duly done by the respondent and, as such, the award of the work to
the second contractor attracted the risk and cost principle under
Clause 3(c) of the Conditions of the Contract.
44. The claimant argues that the work awarded to the second contractor
pertains to repair work and is not constructional in nature. However,
the tender on the basis of which the original work was awarded to the
claimant was not restricted to construction of the road but also
included subsequent maintenance work for three years and the work
awarded to the subsequent contractor was primarily for repair of the
road, which comes under the broader purview of „maintenance‟. That
apart, it is evident from the nature of the work awarded to the
subsequent contractor (including repair work) that the same also
pertained to construction of the balance portion of the road
contemplated by the contract between the claimant and the
respondent. Hence, there is no occasion for this Court, under Section
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34 of the 1996 Act, to enter into a re-appreciation of evidence and
interfere with the view of the Arbitrator that the respondent is entitled
to the risk and cost claim. Since the ratio of the impugned award for
grant of the risk and cost expenses was one of the plausible views on
the facts of the case and clause 3 (c) of the Conditions of Contract
permitted the respondent to claim the same, there is no scope for this
Court to substitute its own views for that of the Arbitral Tribunalin the
factual matrix of the case.
45. Hence, this issue is decided against the claimant and in favour of the
respondent, by holding that the Tribunal was justified in awarding
risk and cost compensation to the respondent.
(iii) Whether the Arbitral Tribunal could enhance the amount of
risk and cost liability component payable to the respondent
by modifying the same even in the absence of any
independent application to such effect being filed by the
respondent for correction of the award under Section 33 of
the 1996 Act
46. The respondent has raised a vital question as to whether, in the
absence of an independent application by the respondent under
Section 33 of the 1996 Act, the Arbitrator had the power to enhance
the risk and cost component payable by the claimant to the
respondent.
47. The Arbitral Tribunal proceeded on the premise that it did not, since
the respondent had not filed any such independent application under
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Section 33 of the 1996 Act, and restricted its correction to the prayer
made by the claimant in its application under the said provision.
48. However, such view of the Arbitral Tribunal is patently illegal, being in
contravention of Section 33(3) of the 1996 Act. The said provision
empowers the Arbitral Tribunal to correct any error of the type
referred to in Clause (a) of sub-section (1) on its own initiative within
30 days from the date of arbitral award.
49. Clause (a) of sub-section (1) of Section 33 provides inter alia that the
Arbitral Tribunal may correct any computation errors and the error
pointed out by the respondent pertains to simple calculation.
50. Admittedly, in the present case, the Tribunal allowed the application
of the claimant under Section 33 and altered the second component of
the risk and cost claim. This Court is required to delve a bit more into
the said aspect of the matter.
51. For considering the risk and cost counter claim, the Tribunal
enumerated three components.
52. The first of such components was the total contract value, which was
assessed at Rs.1,96,49,202/-, to which there is no demur from either
side.
53. The second component was the work actually done by the claimant
and paid for. In the initial award, the said amount was computed by
the Tribunal to be Rs.1,41,39,493/-. Subsequently, on the application
of the claimant, the second component was enhanced to
Rs.1,74,05,144/-, to which the respondent did not have any objection.
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54. Notably, the third component, that is, the unfinished work of the
claimant, for which he was obviously not paid, was retained by the
Tribunal at Rs.55,09,759/-, as calculated in the original award.
55. However, such approach is perverse, since, even by a logical deduction
on application of rudimentary arithmetic, the third component ought
to have automatically decreased upon the second component being
increased, since the third component was the difference between the
first and the second.
56. If the first component, that is the total contract value, is taken to be of
value „A‟ and the second component, that is, work done by the
claimant as „B‟,then the third component, that is, the unfinished work
of the claimant is of value „C‟, which is equal to the figure: (A – B).
57. The value of „A‟ was an agreed and fixed amount and remained the
same as the original award even after correction. However, „B‟ was
increased from Rs.1,41,39,493/- to Rs.1,74,05,144/- after the original
award was corrected under Section 33 at the behest of the claimant.
58. By basic mathematics, if figure C = (A – B), and „B‟ is increased, „C‟
automatically comes down.
59. As per the original award, C = (1,96,49,202 – 1,41,39,493) =
Rs.55,09,759.
60. However, after correction of the award, „B‟ was changed to
1,74,05,144. Accordingly, C should have been equal to (1,96,49,202 –
1,74,05,144) = Rs. 22,44,058.
61. For arriving at such figure, no further correction on merits or
reappreciation of any legal or factual facet of the matter was
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necessary. The said change was a logical and inevitable corollary of
the correction effected to component „B‟ by the Tribunal.
62. The Tribunal had proceeded to calculate the risk and cost
compensation payable to the respondent by deducting the figure „C‟
from the total amount paid to the subsequent contractor that is
Rs.73,09,922/-.
63. Accordingly, the amount payable to the respondent on such count was
calculated to be Rs.18,00,163/- = (73,09,922 – 55,09,759).
64. However, since the figure „C‟ would have to be reduced upon the
correction from Rs.55,09,759/- to Rs.22,44,058/-, the automatic
effect of the correction would be that the amount payable under the
head of “Risk and Cost Liability” by the claimant to the respondent
would become Rs.(73,09,922 – 22,44,058) = Rs.50,65,864/-.
65. Accordingly, even if the Tribunal merely allowed the Section 33
application of the claimant, as a logical result thereof, the risk and
cost amount payable to the respondent would increase to
Rs.50,65,864/- even without any further application by the
respondent being necessitated.
66. Even otherwise, as discussed above, Section 33(3) empowers the
Tribunal to suo moto correct any computation error as envisaged
under Section 33(1)(a). Having not done so within the statutory 30
days, it was incumbent upon the Arbitral Tribunal to suo moto correct
such error, at least as a resultant effect of the correction done by it on
the application of the claimant under Section 33 of the 1996 Act.
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67. Thus, the refusal of the Arbitral Tribunal to correct the award insofar
as the risk and cost element of the award was concerned and to
enhance the risk and cost compensation payable to the respondent to
Rs.50,65,864/- is patently illegal and perverse, being contrary to its
own corrected award and as such, amenable to being set aside under
Section 34 of the 1996 Act. The proposition laid down in Delhi Metro
Rail Corporation Ltd. (supra) is apt in the context.
68. In Oil and Natural Gas Corporation Limited (supra) and Madhya
Pradesh Power Generation Company Limited (supra) the Supreme
Court had modified the respective awards therein. In the present case
as well, the refusal to enhance the risk and cost counter claim can be
segregated from the rest of the claims. Hence, by the own correction
effected by the Tribunal itself, the risk and cost awarded to the
respondent ought to have been enhanced to Rs.50,65,864/-. Since
such patent illegality hits at the root of the counter claim, the said
refusal can very well be set aside under Section 34 of the 1996 Act by
this Court, which would not tantamount to or be restricted merely to a
modification of the award.
69. Hence, this issue is decided in favour of the respondent and against
the claimant.
70. In fine, on the basis of the considerations above, this Court is of the
opinion that the component of the award of the claim for refund of
security deposit and earnest money to the claimant does not call for
any interference under Section 34 of the 1996 Act.
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71. However, insofar as the risk and cost counter claim is concerned,
although the Tribunal was justified in granting the same, the
quantum of such counter claim amount ought to have been
Rs.50,65,864/-.
72. Accordingly, AP-COM No.255 of 2024 (old no. AP No.95 of 2022),
preferred by the claimant M/s Konarak Enterprise, is dismissed on
contest.
73. AP-COM No.229 of 2024 (old no. AP No.464 of 2021) is allowed on
contest in part, thereby granting the respondent its counter claim on
account of risk and cost principle to the tune of Rs.50,65,864/-.
Hence, the balance amount, after deducting the amount of claim of
security deposit and earnest money awarded to the claimant from the
counter claim awarded to the respondent to the tune of
Rs.50,65,864/-, comes to Rs.41,59,772.56p, which shall be paid by
the claimant to the respondent/Haldia Development Authority within
February 28, 2025.
74. IA No. GA 1 of 2021 is also disposed of accordingly.
75. There will be no order as to costs.
76. Urgent certified server copies, if applied for, be issued to the parties
upon compliance of due formalities.
( Sabyasachi Bhattacharyya, J. )