Bangalore District Court
Bharath Heavy Electricals Ltd vs Tirupati Earth And Project Works Pvt Ltd on 23 January, 2025
KABC170013822024 Digitally signed
by SUDINDRA
SUDINDRA NATH S
NATH S Date:
2025.01.28
18:00:01 +0530
IN THE COURT OF LXXXIII ADDL. CITY CIVIL & SESSIONS JUDGE,
COMMERCIAL COURT, BENGALURU (CCH-84)
Present: Sri S. Sudindranath, LL.M., M.B.L.,
LXXXIII ADDL. CITY CIVIL & SESSIONS JUDGE
BENGALURU.
COM.A.P.No.73/2024
Dated on this 23rd day of January 2025
Petitioner/s 1. Bharath Heavy Electricals
Limited
Having its Office at IISc Post,
Prof. CNR Rao Circle, Malleshwaram,
Bengaluru - 560 012.
Represented by General Manager (PG III)
(By Sri.Aditya Narayana, Advocate)
// versus //
Respondent/s 1. Tirupati Earth & Project Works
Private Limited
Having its registered office at
No.3, Sadashiv Properties
Katras Road, Dhanbad - 826 001.
Represented by its Managing
Director
2. Justice N. Kumar
Former Judge, High Court of Karnataka,
Arbitration & Conciliation Centre,
Bengaluru (Domestic & International)
3rd Floor East Wing, Khanija Bhavana,
Race Course Road, Bengaluru,
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Karnataka - 560 001.
(R1 By Sri.Clive Johns, Advocate)
Date of institution of suit : 28/05/2024
Nature of suit Arbitration Suit under
:
Arbitration Act
Date of commencement of
: -
recording of the evidence
Date on which the judgment
: 23/01/2025
was pronounced
Year/s Month/s Day/s
Total duration :
00 07 26
JUDGMENT
This is a petition under Section 34 of the Arbitration
and Conciliation Act, filed by the respondent before the
Arbitral Tribunal, challenging the Arbitral Award dated
24-01-2024, passed by Learned Sole Arbitrator,
Respondent No. 2 herein, in AC 18 of 2021, whereby the
Learned Arbitrator partly allowed the claims of the
claimant / Respondent No. 1 herein, and dismissed all
the counterclaims of the petitioner.
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2. On issuance of notice of the present petition,
Respondent No. 1 [claimant before the learned arbitral
tribunal], has entered appearance through counsel and
filed detailed objections to the present petition. The
notice to the learned arbitrator, Respondent No. 2, is
dispensed with.
3. Thereafter, I have heard the arguments of both
sides and perused the records of the case.
4. The only point that arises for my consideration is :-
Whether the impugned arbitral award
dated 24-01-2024, passed by Respondent
No. 2 in AC 18 of 2021, calls for
interference under Section 34 of the
Arbitration and Conciliation Act?
5. My answer to the above point is in the negative for
the following :-
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KABC170013822024REASONS
6. At the outset, before considering the present
petition on merits, it is necessary to ascertain whether
the present petition is filed within the period of limitation
prescribed under Section 34 [3] of the Arbitration and
Conciliation Act. The impugned Arbitral Award is dated
24-01-2024. The present petition is filed on 27-05-2024.
On 28-06-2024, counsel for petitioner filed a memo
producing extract of the Register of Copy Applications of
the Arbitration Centre, disclosing that the award was
obtained by the petitioner on 01-02-2024. Under Section
34(3) of the Arbitration and Conciliation Act, the
limitation of three months begins to run from the date on
which the petitioner obtained the original award. Since
the original award was obtained on 01-02-2024, the
period of three months’ limitation would expire on 01-05-
2024, which falls within civil vacations. Therefore, the
petition filed on the reopening day, i.e., 27-05-2024,
is within the period of limitation.
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7. In the course of this judgment, for the sake of
convenience, Respondent No. 1 herein is referred to as
the claimant, and the petitioner is referred to as
BHEL.
8. The facts in brief are that, the claimant is a
company in the construction business. BHEL is a
Government of India undertaking. BHEL was engaged by
National Thermal Power Corporation to construct and set
up a Super Thermal Power Project in the state of
Jharkhand. In connection with the said project, BHEL
awarded the contract for setting up coal handling plant
and administrative buildings, to the Claimant. Later on,
additional work of the ash handling plant was also
awarded to the claimant. The letter of Award was dated
13-03-2015.
9. It was the responsibility of BHEL to acquire the land
where the said work had to be carried out, level the
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same, and hand over possession of the same to the
claimant for the purpose of carrying out its work. The
time stipulated for completion of the said work was 30
months, which would expire on 12-09-2017. The work
was not completed within the stipulated period of 30
months, and therefore, the claimant sought an extension
of 18 months. By letter dated 26-12-2017, BHEL
extended the time for completion of the work by 12
months, observing that the delay was not attributable to
the claimant, and thereby the time was extended till 12-
09-2018.
10. By letter dated 31-10-2018, the claimant sought a
second extension of time for six months. There was no
response by BHEL to the said letter, and BHEL neither
extended the time nor terminated the contract. In view of
the same, the claimant continued the work. By letter
dated 05-04-2019, the claimant sought a third extension
of time for nine months. Again, there was no response,
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and neither was the time extended nor the contract
terminated.
11. In June 2019, the workers of the claimant were
stopped at the gate and were prevented from entering the
work site. Therefore, the claimant wrote a letter dated 25-
06-2019, requesting issuance of an extension letter and
issuance of gate pass. BHEL provisionally amended the
work order by extending the time up to 31-07-2019.
However, the workers were allowed to enter the work site
only after 07-08-2019.
12. In view of these facts, disputes arose between the
parties under the contract, which contained an
arbitration clause. After issuance of a Section 21 notice,
the claimant approached the Hon’ble High Court for
appointment of a learned arbitrator, and the Hon’ble
High Court of Karnataka, vide order dated 23-01-2020 in
CMP 344 of 2019, appointed Respondent No. 2 as the
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learned sole arbitrator to decide the dispute between the
parties.
13. On the learned arbitrator entering upon the
reference, the claimant filed a detailed statement of
claim, reiterating the above facts. Further, in the
statement of claim, the delay in completion of the work
was attributed solely to BHEL on the following grounds:
Failure to hand over the site.
Delay in providing requisite drawings for various
structures of CHP and AHP and repeated revision of
drawings.
Delay in providing free issue materials, delaying
contract execution.
Restrictions at the site gates towards ingress of the
claimant’s labor and material, causing inordinate
delay.
Delay in progressive inspection of work and
stoppage of work.
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KABC170013822024 Delay in payments against the claimant’s bills and
unwarranted deductions made therefrom.
Delay caused by other agencies of BHEL.
Closure of designated sources for material
procurement.
Non-provision of electricity by BHEL as per Clause 8
of the technical conditions of the contract.
14. The claimant contended that although the delay
was solely attributable to BHEL and in fact, the first
extension of 12 months (from 12-09-2017 to 12-09-2018)
was given by BHEL with a specific observation that the
delay was not attributable to the claimant, on completion
of said extended time period, BHEL neither responded to
the claimant’s second and third requests for extension of
time nor terminated the contract. Instead, all of a
sudden, BHEL unilaterally terminated the contract by
letter dated 26-08-2019, and thereby, the claimant
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contended that the termination of the contract is wholly
illegal.
15. The following claims were raised in the statement of
claim:
Claim No. 1 : Towards unpaid value for works
done, sum of Rs. 29,46,418, consisting of principal
sum of Rs. 21,66,484, and interest component of
Rs. 7,79,934.
Claim No. 2 : Refund of retention money :- Rs.
3,09,43,957, consisting of principal sum of Rs.
1,75,64,825, together with interest component of
Rs. 1,33,79,132.
Claim No. 3 : Price variation amount of Rs.
4,60,85,671, consisting of principal sum of Rs.
2,57,86,951, and interest component of Rs.
2,02,98,720.
Claim No. 4 : Additional costs incurred due to
prolongation of the contract. Under this claim,
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KABC170013822024Subclaim 4A was for Rs. 49,24,306 towards
additional cost incurred for retention of equipment
due to prolongation. Subclaim 4B was for Rs.
5,42,45,038/= for additional overhead cost during
the extended period. Subclaim 4C was for Rs.
5,38,913 towards bank guarantee extension charges
during the prolongation period.
Claim 5 was for loss on account of wrongful
termination of the contract and consisted of the
following subclaims. Subclaim 5A was for Rs.
3,18,22,570 towards illegal confiscation of the
claimant’s plant, machinery, and equipment
immediately after termination of the contract.
Subclaim 5B was for Rs. 2,45,22,272 for refund of
the performance bank guarantee which had been
encashed by BHEL. Subclaim 5C was for a total
sum of Rs. 5,38,61,424 towards loss of overheads
and profits due to the illegal termination of the
contract.
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KABC170013822024 Claim No. 6 was for Rs. 1,68,09,355 towards
enhanced cost for labour due to a change in the
law.
Claim No. 7 was for interest on delayed payments
of Rs. 21,81,610.
16. Thereby, the claimant laid claim for a total sum of
Rs. 28,20,29,687 and also sought the grant of the cost of
arbitration.
17. To the above statement of claim, BHEL filed a
detailed statement of defence along with the
counterclaim. In the statement of defence, the awarding
of the work under the letter of award dated 13-03-2015
to the claimant was admitted. It was also admitted that
the work had to be completed within a period of 30
months, which would expire on 12-09-2017. It was
contended that in the event of delay, liquidated damages
of 0.5% per week of delay subject to a ceiling of 5% of the
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total work order value was to be levied. It was contended
that the delay in completion of the work within the fixed
period of 30 months was due to lapses on the part of the
claimant, due to not bringing sufficient raw material and
not deploying adequate labour force. And in fact, the
claimant admitted that this was due to financial
constraints faced by the claimant at that point in time.
Thereby, it was contended that from January 2016, that
is, much before the completion date of 30 months, letters
were issued highlighting the delay in completion of the
work due to insufficient labour and tools and machinery.
It was contended that the first extension granted of 12
months was granted in the interest of the project,
although the delay was due to inaction and under-
deployment by the claimant. After the extension of time,
there was a delay on the part of the claimant in
completing the work, which constrained BHEL to issue
letters dated 17-01-2018 and 01-02-2018. The quality of
the work was also not as per the specifications. Although
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the delay in completion was due to the default on the
part of the claimant, the claimant sought a further
extension of six months by letter dated 03-10-2018, and
as on that date, only 41% of the contract work was
completed. BHEL issued letters dated 12-01-2019, 18-
01-2019, and 21-01-2019 to the claimant requesting the
expedition of the work. BHEL issued letters dated 25-01-
2019, 18-06-2019, and 25-06-2019 regarding the poor
quality of the work. In the meantime, on 05-04-2019, the
claimant had issued another letter seeking an extension
of time by nine months. Since there was continuous
default on the part of the claimant in completing the
work, the respondent issued notice dated 17-07-2019
stating that in the event of the claimant’s failure to
complete the work as per the schedule, the contract
would be terminated. Since the claimant neither
completed the contract work nor responded to the said
letter, BHEL was constrained to terminate the contract
by letter dated 26-08-2019 and awarded the balance
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work to an alternative contractor at the risk and cost of
the claimant. As a result of this, the performance bank
guarantee was encashed. Thereby, BHEL took the stand
that the termination was perfectly in accordance with the
law and due to the default on the part of the claimant
and, on this basis, denied all the claims raised by the
claimant. In addition, the following counterclaims were
raised by BHEL;
Counter-Claim 1 was for a sum of Rs. 15,98,82,197
towards the differential value of the contract given to an
alternative contractor at the risk and cost of the
claimant.
Counter-Claim 2 was for a sum of Rs. 2,16,25,276
towards liquidated damages for violation of the contract
by the claimant under clause 7, which, as already noted
supra, provided for levying of liquidated damages at the
rate of 0.5% per week of delay subject to a maximum of
5% of the contract value.
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Counterclaim No. 3 was for a sum of Rs. 5,85,03,549
towards recovery of money for failure to reconcile free
issue material.
Counterclaim No. 4 was for a sum of Rs. 43,59,550 for
estimated expenditure to be incurred by BHEL due to the
wrong location of concreting work by the claimant.
Counterclaim No. 5 was for a sum of Rs. 4,78,500
towards costs incurred towards the demolition of the
office building, cement stores, QA and QC labs, etc.,
constructed by the claimant for the purpose of its own
works, which had to be demolished by BHEL after
termination of the contract.
18. Thereby, counterclaim was raised for a total sum of
Rs. 24,48,49,072 along with interest.
19. The claimant filed detailed objections to the
counterclaim and also filed a rejoinder to the statement
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of objections. BHEL, in turn, filed its rejoinder to the
same and additional rejoinder also.
20. On completion of pleadings of both sides, the
learned arbitrator framed the following issues:
1) Whether the termination of the contract on 26-08-
2019 by the letter of the respondent was arbitrary,
illegal, and unjustified?
2) Whether the claimant proves that they are entitled
to a sum of Rs. 21,66,484 towards the unpaid value
of the work done together with interest at 15%
compounded monthly, amounting to Rs.
7,79,934.40, in all a total amount of Rs.
29,46,418.40?
3) Whether the claimant proves that the respondent is
liable to refund a sum of Rs. 1,75,64,825.30
towards the amount deducted towards retention
money security from the bills of the claimant, along
with interest at a rate of 15 percent compounded
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monthly, amounting to Rs. 1,33,79,132.64, in all a
total amount of Rs. 3,09,43,957.67?
4) Whether the claimant proves that the respondent is
liable to pay an amount of Rs. 2,57,59,951 against
the price variation in terms of Clause 2.17.9 of
GCC, along with interest at a rate of 15%
compounded monthly, amounting to Rs.
2,02,98,750, in all a total amount of Rs.
4,60,85,671?
5) Whether the claimant is entitled to the additional
cost incurred due to prolonged retention of the
equipment during the extended period, amounting
to Rs. 36,45,717.50, along with interest at 15%
compounded, amounting to Rs. 12,78,589/= in all a
total amount of Rs. 49,84,306.50?
6) Whether the claimant is entitled to the additional
overhead cost during the extended period of the
contract, amounting to Rs. 542,45,038.99, along
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with applicable interest amounting to Rs.
1,30,18,809.12?
7) Whether the claimant is entitled to the cost incurred
for the extension of bank guarantees during the
extended period, amounting to Rs. 5,38,913.60,
along with applicable interest amounting to Rs.
1,29,339?
8) Whether the claimant is entitled to a sum of Rs.
2,56,63,633, with applicable interest amounting to
Rs. 61,59,207.12, in all a sum of Rs.
3,18,22,570.12, towards illegal confiscation of
claimant’s plant, machinery, and equipment by the
respondent immediately after illegal termination of
the contract?
9) Whether the claimant is entitled to claim towards
refund of the performance bank guarantee illegally
encashed by the respondent in the sum of Rs.
1,97,76,026, along with applicable interest
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amounting to Rs. 47,46,246, in all an amount of Rs.
2,45,22,272?
10) Whether the respondent is liable to pay
towards loss of overheads and profits in the sum of
Rs. 4,34,36,632.92, along with interest at 18%,
calculated up to 30-11-2020, amounting to Rs.
1,04,24,791.90, and in all a sum of Rs.
5,38,61,424.82?
11) Whether the respondent is liable to pay
enhanced cost for labour due to change in law,
calculated up to 30-11-2020, in a sum of Rs.
1,20,23,874.06, with applicable interest in a sum of
Rs. 47,85,481.19, in all a sum of Rs.
1,68,09,355.25?
12) Whether the claimant is entitled to interest on
delayed payment in a sum of Rs. 21,81,610.57?
13) Whether the claimant proves that, in all, he is
entitled to an amount of Rs. 20,70,29,436.94, with
interest up to 30-11-2020 amounting to Rs.
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7,50,250.0037, in all a sum of Rs.
28,20,,29,681.31?
14) Whether the claimant is entitled to pendente
lite and future interest at 18%?
15) Whether the claimant is entitled to the cost of
arbitration?
Counterclaim Issues
16) Whether the respondent is entitled to a sum of
Rs. 15,98,82,197 towards the differential value of
the orders placed on alternate vendors by invocation
of the risk and cost clause along with departmental
charges at 15%, as per Clause 10 of the CTC, along
with interest at the rate of 18% per annum on Rs.
15,98,82,197 calculated from the date of invocation
of the risk and cost clause until the date of filing of
this statement of defence?
17) Whether the respondent is entitled to interest
at the rate of 18% per annum on Rs. 15,98,82,197
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during the pendency of this arbitration until the
award is passed or any such amount that may be
awarded to the respondent?
18) Whether the respondent is entitled to
liquidated damages at 5% of the contract value,
being Rs. 2,16,25,276.28, along with interest at the
rate of 18% per annum on Rs. 2,16,25,276.28,
calculated from the date of invocation of the risk
and cost clause, i.e., 26-08-2019, till the date of
filing of this statement of defence, i.e., 29-03-2021?
19) Whether the respondent is entitled to interest
at the rate of 18% per annum on Rs. 2,16,25,276.28
during the pendency of this arbitration until the
award is passed or any such amount that may be
awarded to the respondent?
20) Whether the respondent is entitled to Rs.
3,25,61,588.50 towards the cost of unaccounted
free issue material for non-reconciled free issue
items, along with interest at a rate of 18% per
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annum on Rs. 3,25,61,588.50 calculated from the
date of invocation of the risk and cost clause, i.e.,
26-08-2019, till the date of filing of the statement of
defence, i.e., 29-03-2021?
21) Whether the respondent is entitled to adjust
the sum of Rs. 32,80,470 from retention monies
withheld by the respondent in respect of the project
and under the contract?
22) Whether the aforesaid adjustment sought by
the respondent is barred by law?
23) Whether the respondent is entitled to interest
at the rate of 18% per annum on Rs. 5,85,03,549
during the pendency of this arbitration until the
award is passed, or any such amount that may be
awarded to the respondent?
24) Whether the respondent is entitled to Rs.
43,59,550.18 towards expenditure to be incurred by
the respondent for demolition and reconstruction of
wrongly located TR4-5 of BCN5A-B by the claimant,
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along with interest at a rate of 18% per annum on
Rs. 43,59,550.18 calculated from the date of
invocation of the risk and cost clause, i.e., 26-08-
2019, till the date of filing of the statement of
defence, i.e., 29-10-2019?
25) Whether the respondent is entitled to interest
at the rate of 18% per annum on Rs. 43,59,550.18
during the pendency of this arbitration until the
award is passed, or any such amount that may be
awarded to the respondent?
26) Whether the respondent is entitled to Rs.
4,78,500 towards dismantling the site office and
allied constructions of the claimant, removal and
disposal of the debris, along with interest at the rate
of 18% per annum on Rs. 4,78,500 calculated from
the date of invocation of the risk and cost clause,
i.e., 26-08-2019, till the date of filing of the
statement of defence, i.e., 29-03-2021?
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27) Whether the respondent is entitled to interest
at the rate of 18% per annum on Rs. 4,78,500
during the pendency of this arbitration until the
award is passed or any such amount that may be
awarded to the respondent?
28) Whether the respondent is entitled to future
interest from the date of the award on the aforesaid
claims as awarded at such rate of interest as this
Hon’ble Tribunal may deem fit till the date of
realization thereof?
29) Whether the respondent is entitled to the costs
of these arbitral proceedings?
21. In the inquiry before the learned arbitrator, the
authorized representative of the claimant was examined
as PW1 and got marked Ex. C1 to C686. On behalf of
BHEL, the authorized representative was examined as
RW1 and got marked Ex. R1 to R221.
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22. After hearing both sides, on Issue No. 1, the learned
arbitrator held that the termination of the contract by the
BHEL by letter dated 26 August 2019 is contrary to law
and illegal. In respect of Claim No. 1, as against the
claimed sum of Rs. 29,46,418, the Learned Arbitrator
awarded Rs. 21,66,484, along with interest at 10% from
the date of termination till the date of claim petition. In
respect of Claim No. 2, as against the claimed sum of Rs.
3,09,43,957.67, the Learned Arbitrator awarded a sum of
Rs. 1,75,64,825.30 along with interest at 10% from the
date of termination of the contract till the date of claim.
The Learned Arbitrator rejected Claim No. 3 and Claim
No. 4, which consisted of three sub-claims. In respect of
Claim No. 5A, as against the claimed sum of Rs.
3,18,22,570.12, the Learned Arbitrator awarded Rs.
1,92,47,725 without pre-claim interest. In respect of
Claim 5B, as against the claimed sum of Rs. 2,45,22,272,
the Learned Arbitrator awarded Rs. 1,97,76,026 along
with interest at 8% per annum. In respect of Claim 5C,
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the learned arbitrator awarded Rs. 2,17,18,316.46. The
learned arbitrator rejected Claim No. 6 and Claim No. 7.
23. Insofar as the counterclaims, the learned arbitrator
rejected all the counterclaims. On the sums awarded to
the claimant, the learned arbitrator awarded pendente
lite interest at 10% from the date of claim petition till the
date of award and future interest at the rate of 12% from
the date of award till the date of realization. The Learned
Arbitrator also awarded the proportionate cost of the
proceedings to the claimant. Since all the counterclaims
were rejected, the claim for interest on the counterclaims
also stood rejected. The respondent was held not entitled
to any cost of the proceedings.
24. Aggrieved by this arbitral award, the BHEL, which
was the respondent before the learned arbitrator, is
before this court under Section 34 of the Arbitration and
Conciliation Act.
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25. In support of the petition, Learned Counsel for the
Petitioner vehemently argued that the primary finding of
the learned arbitrator that the termination of the contract
by letter dated 26-08-2019 is illegal and contrary to law
is itself perverse, riddled with contradictions, and
erroneous on the very face of the award. He submitted
that the learned arbitrator ought to have considered the
case in the background of the fact that the work awarded
to the claimant was a crucial part of the total project for
setting up the thermal power project at the site, and
therefore, any delay on the part of the claimant in
completing the work and any non-adherence to the time
schedule would have adverse and cascading effects upon
the completion of the entire project. In this background,
he submitted that several letters were addressed to the
claimant to pick up the pace of the work and to rise to
the occasion. In particular, emphasis was placed upon
the letters at Ex. R57, R64 and R66. It was argued that,
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in spite of all these letters and communications directing
the claimant to expedite the work, when the claimant did
not rise to the occasion and continued to work in a
slipshod manner, the BHEL had no option but to
terminate the contract under the Letter dated 26-08-
2019.
26. He further argued that the learned arbitrator has
contradicted himself by holding in one place that time is
not the essence of the contract and, at another place,
when Section 46 of the Contract Act was invoked, holding
that time is the essence of the contract. Thereby, it was
argued that the entire finding of the learned arbitrator
regarding the termination of the contract besides being
illegal is riddled with contradictions and suffers from
errors apparent on the face of the record, making it liable
to be set aside.
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27. It was argued that once this finding is set aside,
most of the claims will also have to go, and insofar as a
few other claims, such as the claim towards unpaid value
of work, such claims are allowed without any material in
support thereof, and therefore, the award is also liable to
be set aside on this ground.
28. It was further argued that, once the finding of the
Learned Arbitrator regarding the illegal termination of the
contract is set aside and it is held that the contract was
lawfully terminated by the BHEL, without being left with
any other option due to default on the part of the
claimant in carrying out the work, then the
counterclaims will have to be allowed. Apart from these
arguments, the Learned Counsel for the Petitioner has
reiterated all the contentions taken in the grounds of the
present petition.
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29. Per contra, Learned Counsel for Respondent No. 1
[claimant before the arbitral tribunal], supported the
impugned arbitral award.
30. Having considered the rival contentions, at the
outset, the admitted facts may be taken note of. It is
admitted that certain work, which was part of the overall
project of setting up a super thermal power project in the
state of Jharkhand, was awarded by BHEL to the
claimant by the letter of award dated 13-03-2015.
31. Admittedly, the stipulated period for completion of
the works was 30 months, which expired on 12-09-2017.
Admittedly, the works were not completed within the said
period of 30 months, as a result of which, on 04-09-
2017, the claimant sought an extension of 18 months,
and BHEL, on 26-12-2017, by way of Amendment No. 2
to the work order, extended the time from 12-09-2017 to
12-09-2018, that is, an extension of 12 months. It is the
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specific finding of the learned arbitrator at paragraph 50
of the Award that when this extension of time was
granted up to 12-09-2018 as per Ex. C 186, it is clearly
mentioned that the delay is not attributable to the
contractor. This finding of fact is not challenged before
me, and even otherwise, this is a fact borne out from the
records of the case.
32. Therefore, what emerges is that, at the time of
granting the extension of time by 12 months, there is a
specific admission by the BHEL that the delay is not
attributable to the claimant herein. Thereafter, since the
work was not completed even within the extended period
of time of 12-09-2018, the claimant sought two more
extensions of time, namely, on 03-10-2018, wherein the
claimant sought an extension by six months, and on 05-
04-2019, wherein the claimant sought an extension of
time by nine months. Admittedly, the BHEL neither
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granted the extension of time nor disallowed the same
nor terminated the contract on ground of lapse of time.
33. In this background, the legality of the termination
by the letter dated 26-08-2019 has been decided by the
learned arbitrator. The findings of the learned arbitrator
in this regard are in paragraph 46 to 56 of the award.
Essentially, the findings of the Learned Arbitrator are
that time was not the essence of the contract because the
contract provided for extension of time and acting on
such clause, in fact, BHEL had extended the time in the
first instance from 12-9-2017 to 12-9-2018, by making a
specific admission that delay is not attributable to the
contractor. When the extended time expired on 12-09-
2018 and the contractor sought for two more extensions
of time, the same was not rejected, but the contractor
was permitted to continue with the work. Thereby, the
learned arbitrator recorded a specific finding that, far
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from time being the essence of the contract, time for
completion was set at large.
34. In this background, the learned arbitrator
considered the question whether, when on 17-07-2019,
BHEL issued a letter to the claimant which was a prelude
to the termination letter dated 26-08-2019, whether the
time fixed was reasonable for completion. The Learned
Arbitrator noted that in the said letter dated 17-07-2019,
BHEL asked the claimant to rise to the expected level of
progress within 14 days, failing which they will be left
with no option but to get the work done by other agency
at risk and cost of the claimant. It is to be noted that, in
the said letter, the contractor was called upon to raise to
the expected level of progress within 14 days without
clarifying what is the expected level. This letter was
followed by the termination letter dated 26-08-2019. The
Learned Arbitrator has held that when 49% of the work
took 4 years and 9 months, giving 14 days to complete
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the remaining 51% of the work is totally unreasonable
and therefore held that the termination of the contract is
illegal.
35. Another ground on which the termination of the
contract was set aside was that as per the terms of the
contract, any notice to the other party had to be issued
by RPAD and the contract also required 2 weeks notice
before termination. In the case on hand, the notice giving
2 weeks pre-termination notice [dated 17-07-2019] was
issued by email. Learned Arbitrator held that, when the
contract provides for the doing certain things in a certain
manner, the parties are expected to comply with the
same. Therefore, the Learned Arbitrator held at
paragraph 56 of the award that, admittedly, the notice at
Ex.R 66 [letter dated 17-07-2019] giving 2 weeks notice
having not been sent by RPAD as provided under clause
2.7.2 of the GCC, compliance of which was a condition
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precedent for valid termination, the notice of termination
is contrary to the agreed terms and therefore illegal.
36. This finding of the Learned Arbitrator that, the
termination of the contract was illegal, forms the fulcrum
of the entire award, since most of the claims and
counterclaims are decided on the basis of this finding.
Therefore, this finding has been vehemently attacked in
the present petition. Grounds attacking this finding
regarding termination of contract being illegal are at
paragraph 19 to 60 of the grounds of the present petition.
37. It is firstly contended that the learned arbitrator
erroneously held that time is not the essence of the
contract. Considering the background in which the LOA
was awarded, that is, the works awarded to the claimant
forms part of the larger work of setting up the thermal
power plant and any delay would have cascading effect
upon the completion of the entire project, it is contended
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that this finding of the learned arbitrator that time is not
the essence of the contract is erroneous. This contention
cannot be accepted because, the contention that, time
was essence of the contract is falsified by the very act of
BHEL in granting first extension of time from 12-09-2017
to 12-09-2018 by admitting that the delay is not
attributable to the claimant. More importantly, when the
extended time came to an end and the work had not yet
been completed, if really time was the essence of the
contract, then certainly the BHEL ought to have
immediately terminated the contract on the ground that
work is not completed within the stipulated period.
Instead, BHEL permitted the claimant to continue to do
the work without either extending the time nor
terminating the contract. This clearly indicates that even
BHEL accepted that time is not the essence of the
contract and that is the reason it permitted the
contractor to continue the work in spite of the stipulated
extended period having come to an end. In this
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background, the finding of the learned arbitrator that
time was not the essence of the contract is certainly in
accordance with law and does not call for interference.
38. The finding of the learned arbitrator that the time
for performance having been set at large all of a sudden
by the letter dated 17-07-2019, the BHEL expected the
contractor to finish 51% of the work in 14 days which is
totally unreasonable and on that ground holding the
termination of the contract by letter dated 26-08-2019 is
illegal is attacked in the present petition at paragraph 28
and 29 by relying upon Ex. R-57 and R-64, to contend
that under the letters at Ex. R-57 and R-64 specific time
frame was given to complete a specific work for which the
work front was given, that is, the contractor was called
upon to complete such portion of its work that was
required for achieving boiler light up in September 2019
and it was also specifically stated that in case of failure
to meet the said deadline, the BHEL will be constrained
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to terminate the contract. Thereby, it is contended that
since the said time frame fixed for completion of boiler
light up was reasonable and on failure to comply with
said time frame, the contract was terminated and this
vital evidence has escaped the notice of the learned
arbitrator and therefore the award suffers from
perversity. It is further argued that under the letter at Ex.
R-66 dated 17-07-2019, the BHEL called upon the
contractor to rise up to the occasion and to expedite the
work and it is not as if the BHEL expected the contractor
to complete 51% of the work within 14 days. Since the
work was not expedited and the claimant did not rise up
to the occasion, the BHEL had no option but to terminate
the contract. On these grounds, it is contended that the
finding of the Learned Arbitrator that the termination is
illegal, requires to be set aside.
39. Although reappreciation of evidence is
impermissible in a Section 34 petition, for the sake of
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completeness, I have looked into the afore stated Ex. R-
57, R-64, R-66, and also Ex R-67 (termination letter).
40. If Ex. R57 dated 17-04-2019 is looked into, it is
seen that, no doubt, at Page 1, it is stated that BLU
[boiler light-up] has been planned for September 2019,
but in conclusion of the said letter, the demand upon the
claimant is to achieve target in “reasonable / schedule
time”. Therefore, no specific timeframe was fixed even
under Ex. R57 for completion of any stage of the work.
Under Ex. R64, which is dated 25-06-2019, it is stated
that boiler light-up is scheduled in October 2019, which
is contrary to the statement made in Ex. R57 that boiler
light-up / BLU is scheduled in September 2019. This
shows that BHEL itself was not clear about the schedule
and even in Ex. R64, no specific timeframe is given for
completion of the work and only the direction is made to
submit plan and deploy resources to meet the schedule
and reserving the right to terminate the contract. Even in
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Ex. R66, which is the letter dated 17-07-2019, again no
specific targets or dates are furnished but it is only
demanded that, the contractor should raise up to
expected level of progress within 14 days. In Ex.R 67
dated 26-08-2019 which is the termination letter, no
reference is made to violating the timeframe for
completion of BLU [boiler light-up] within September or
October 2019. Instead, general allegations are made that
during the original contract period and extended period,
execution of the contract was not on expected lines. It is
stated that since the contractor is not in a position to
continue and expedite the work, BHEL chose not to
extend the contract further, which is solely due to
inadequate manpower deployment and other resources,
including delay in non-submission of bank guarantee. It
is stated that the contractor has ignored the notice dated
17-07-2019 wherein BHEL had given a final chance to
come out with an action plan and schedule for
completion of the balance work. However, it is crucial to
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note that in Ex. R66 dated 17-07-2019, the contractor is
only demanded to rise to the expected level of progress
within 14 days, failing which the contract will be
terminated. But, under the said letter, nowhere was the
contractor demanded to come up with an action plan and
schedule for completion of the balance work.
41. Therefore, it becomes clear that the BHEL initially
granted one-year extension from 12-9-2017 to 12-9-2018
by categorically admitting that the delay is not
attributable to the contractor. But then, after the lapse of
the extended time period, the contractor was permitted to
continue to do the work and BHEL neither granted
extension explicitly when the second and third
extensions of time were sought by the contractor, and
neither did the BHEL terminate the contract on 12-09-
2018 when the extended time period came to an end. At
no point of time, BHEL in its subsequent letters has fixed
any deadline for completion of work by the contractor. All
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of a sudden, on 17-07-2019 a letter was issued calling
upon the contractor to rise to the expected level of work.
On 26-08-2019, the contract is terminated on the ground
that the work is not expedited. This is precisely the
reason why the learned arbitrator has held that, having
set the time for performance at large, out of the blue,
BHEL suddenly fixed unreasonable timeframe of 14 days
for completion and for non-adherence to such
unreasonable time frame, BHEL could not have
terminated the contract. On this ground, the learned
arbitrator has held that termination of the contract is
illegal and contrary to law. For the reasons noted supra,
the above findings of the Learned Arbitrator are perfectly
in accordance with law and do not call for interference.
This is because in all the letters relied upon by BHEL at
Ex. R57, 64, and 66, nowhere was a timeframe fixed for
the contractor to complete the work. Having earlier
extended the work and having not terminated the
contract when the extended time period came to an end
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and instead, having allowed the contractor to continue
with the work, BHEL could again terminate the contract
only after fixing a reasonable time for completion. Having
not done so and instead having abruptly terminated the
contract on 26-08-2019, the termination of the contract
was rightly held to be illegal by the learned arbitrator.
42. At paragraph 40 of the grounds of the present
petition, reliance is placed upon clause 2.7.2 of the GCC,
which gives the right to BHEL to terminate the contract
by giving a two-week notice. However, this is not an
unqualified and unrestricted right, but BHEL can
terminate the contract by two weeks notice only for
contractors’ continued poor performance, contractors’
inability to progress the work as depicted in the contract,
or for poor quality of the work. Be it noted that in the
termination letter dated 26-08-2019 at Ex. R67, poor
quality of work is not raised as a ground for termination.
Only two grounds are raised, that is, non-furnishing of
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the bank guarantee within time and failure to complete
the work within the stipulated period. However, insofar
as failure to complete the stipulated work is concerned,
as already noted, supra, after having extended the time
and having set the time for completion at large, it was
expected of BHEL to fix a reasonable time for completion
and only on failure to adhere to the reasonable timeline
could the contract have been terminated, which has not
been done in the present case. Therefore, clause 2.7.2
will not come to the aid of BHEL to terminate the
contract.
43. One of the principal grounds argued by Counsel for
Petitioner was that there is an inherent contradiction in
the award since in one place the learned arbitrator holds
that time is not the essence of the contract and in
another place holds that time is, in fact, the essence of
the contract, and on this ground, the award is liable to be
set aside. In this regard, it is to be noted that the so-
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called contradiction highlighted by the Counsel for
Petitioner is that in paragraph 49, the learned arbitrator
records the specific finding that in view of the clauses of
the agreement providing for extension of time, time is not
the essence of the contract. Whereas, at paragraph 53,
the learned arbitrator holds that this is not a contract
where no time is specified and hence section 46 has no
application to the contract in question. However, in my
view, there is no contradiction because these two
observations are made by the learned arbitrator in
different contexts. The learned arbitrator after analyzing
the provisions of the agreement in view of the extension
of time for the first time by clearly admitting that delay is
not attributable to the contractor and then allowing the
contractor to continue to do the work even after lapse of
extended time held that time is not the essence of the
contract. The observation at paragraph 53 that section
46 has no application since this is not a contract where
no time is specified has to be viewed in the context of the
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fact that this observation is made in response to the
contention raised by BHEL that under section 46 of the
Contract Act, even if time is not the essence of the
contract, the work should have been completed within a
reasonable time. This contention has been answered by
holding that after setting the time for completion at large,
no reasonable time was fixed for completion of the work
because the BHEL expected the contractor to complete
51% of the work in 14 days. Having recorded the said
finding, at paragraph 51, at paragraph 53, a passing
observation is made that section 46 has no application
since this is not a case where no time was specified.
What the learned arbitrator has held is that, originally
time was specified and thereafter time was set at large
and therefore in order to terminate the contract it was
again necessary for the BHEL to fix reasonable time for
completion of the work. It is this principle which is
applicable and not the general principle of section 46
which requires the promiser to complete the work within
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reasonable time. It is in this context that the above
observations of the Learned Arbitrator have to be
understood and therefore the contention that there is a
contradiction in the award is unacceptable and
accordingly rejected.
44. Against the finding of the Learned Arbitrator that
termination of the contract was illegal, it is next
contended that the Learned Arbitrator has ignored the
slow progress of the work made by the contractor. It is to
be noted that the Learned Arbitrator has analyzed the
various reasons for delay and in certain cases attributed
the delay to BHEL and in certain cases, attributed the
delay to both the parties. These findings are found at
paragraph 155 of the award. These are factual findings
which cannot be interfered in Section 34 petition.
However, these findings will not have any bearing on the
question of legality of the termination of the agreement
because ultimately although the Learned Arbitrator has
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held that on certain aspects the delay was also
attributable to the claimant, the fact remains that the
finding of the Learned Arbitrator that time was not the
essence of the contract is unassailable and essentially
the termination of the contract is held to be invalid
because after having set the time for performance at
large, no reasonable time was fixed for completion and
abruptly the contract was terminated. Therefore, the fact
that the learned arbitrator has held against the claimant
on some grounds of delay and held that the claimant was
equally responsible for delay on some aspects will not
have a bearing insofar as the finding of the learned
arbitrator holding that the termination of the contract
was illegal, is concerned.
45. It is then contended at paragraph 59 of the grounds
of the petition that in the statement of admission and
denial of the claimant, the letter dated 17-07-2019 is
admitted. Therefore, the finding of the Learned Arbitrator
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at paragraph 56 that, since said letter was issued by
email and not by RPAD, the termination of the contract is
not as per the terms of the contract is unsustainable.
What has been held by the learned arbitrator at
paragraph 56 of the award is that, as per the terms of the
contract, any notice to the other side has to be issued by
registered post. Further 2 weeks notice had to be issued
before termination. Whereas in the case on hand, the
pre-termination notice is issued by email and therefore,
the requirement of giving 2 weeks notice before
termination is not satisfied and this is another ground to
hold the termination to be illegal. It is to be noted that,
even if the receipt of the pre-termination notice is
admitted, the fact is that, when the contract requires a
party to do a certain act in a certain manner, it was
expected of BHEL to comply with the same. Therefore,
when the contract requires the notice to be issued by
RPAD, BHEL cannot issue the same by email and
contend that it is in compliance with the terms of the
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contract. This is precisely what has been held by the
Learned Arbitrator by holding that clause 2.7.2 required
the letter giving 2 weeks notice of termination to be
issued by RPAD and compliance of this requirement is a
condition precedent for valid termination and this
condition precedent having not been complied, even on
this ground the termination is illegal.
46. Therefore, in conclusion, I hold that for all the
reasons noted supra, the finding of the Learned
Arbitrator holding the termination of the contract by
the BHEL as illegal, is perfectly in accordance with
law and certainly cannot be interfered in a section 34
petition.
47. Let me now consider the findings of the Learned
Arbitrator on each claim and counter-claim to determine
whether the same calls for interference in any manner.
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48. The first claim raised by the claimant is for unpaid
value of work which is claimed on the ground that there
were certain unjustifiable deductions from the RA bills of
the claimant. The Learned Arbitrator has held at
Paragraph 61 that, it is an admitted fact that Rs.
21,66,484 has been deducted from the RA bills and it is
the case of BHEL in written arguments at paragraph 303
that any and all deductions from RA bills have been
made in accordance with the terms of the contract. The
finding of the learned arbitrator at Paragraph 63 is that,
the reason why the amounts have been deducted is not
forthcoming and BHEL has also not produced any
evidence to show why this amount is not payable and
therefore, Learned Arbitrator has held that the claimant
is entitled to recover the said sum. This finding of the
Learned Arbitrator being a purely factual finding cannot
be interfered with in a section 34 petition.
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49. Insofar as another sum of Rs 7,85,519 is concerned,
which is deducted from the RA bill, it is the case of BHEL
that it is towards liquidated damages due to delay in
work. The finding of the Learned Arbitrator in this regard
is that there was extension of time for completion of work
by BHEL itself by admitting that delay is not attributable
to the contractor and also, time is not the essence of the
contract and the second and third extension of time
sought for by the contractor was not outrightly rejected
but the contractor was permitted to do the work. On this
ground, the Learned Arbitrator has held that, there
cannot be any deduction on the ground of liquidated
damages for delay in the work and therefore ultimately
the Learned Arbitrator has held that the claimant is
entitled to the principal sum due under this claim of Rs.
21,66,484 but in so far as interest component is
concerned, only awarded interest at rate of 10% percent
on the principal sum from date of termination till date of
claim petition. This finding of Learned Arbitrator also
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cannot be interfered with, since, once it is held that,
BHEL set at large the time for completion of the contract
by not terminating the contract on lapse of time on 12-
09-2018 and permitted the claimant to continue the work
and also did not reject the request of claimant for II and
III Extension of time, it was impermissible for BHEL to
levy liquidated damages on ground of delay in the work.
50. Claim No. 2 which has been awarded is for recovery
and refund of retention money. In this regard the
Learned Arbitrator has held that the retention money
becomes payable on successful completion of the
contract and since the claimant has been prevented from
completing the contract due to illegal termination of the
contract, the claimant is entitled to recovery of the
retention money. This finding essentially depends upon
the finding regarding termination of the contract. Once it
is held that the finding of the learned arbitrator that the
contract was illegally terminated is in accordance with
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law, it follows that since the contract was illegally
terminated and thereby, claimant was prevented from
completing the work by the illegal act of the BHEL, BHEL
cannot take advantage of its own wrong and hold on to
the retention money on the ground that, work was not
completed. Therefore, BHEL is bound to refund the
retention amount to the claimant. Therefore this finding
of the Learned Arbitrator also does not call for
interference.
51. Claim No 3 and 4A to 4C have been rejected and
therefore it is not subject matter of the present petition
since the claimant has not filed independent section 34
petition challenging that portion of the award rejecting
these claims.
52. Claim No. 5 consists of subclaims 5A to 5C. Sub-
claim 5A has been allowed towards illegal confiscation of
the claimants Plaint, machinery and equipment. In this
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regard, the Learned Arbitrator has held at paragraph 100
of the award that, from the correspondence on record, it
is forthcoming that, after termination of the contract on
26-08-2019, the officers and workers of the claimant
were denied access to the work site and therefore the
claimant’s entire tools and machinery were lying in the
custody and care of the BHEL, for which BHEL is only
accountable. At paragraph 103, page 71 of the award, the
Learned Arbitrator has recorded the factual finding that
it was only in December 2020 that claimant was issued
gate pass and permitted to remove its equipment from
the work site. Although the claimant had claimed Rs 2.56
crores under this sub-claim, ¼ of the said amount was
deducted towards salvage value of the plant and
machinery and rent received from leasing out the same to
subsequent contractor and on this basis the Learned
Arbitrator has awarded Rs. 1,92,47,725. It is to be noted
that no interference is called for with the said finding of
the Learned Arbitrator because admittedly the contract
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was abruptly terminated when the claimant was
proceeding with the work on 26-08-2019 and on the very
next day the claimant’s workmen were denied access to
the work site. Therefore obviously all the plant and
equipment which were being used for doing the work
were left lying at the work site. And the factual finding of
the Learned Arbitrator is that, from the date of
termination of contract on 26-08-2019 up to December
2020 that is for a period of nearly 1 year and 3 months,
the claimant could not have access to the plant and
machinery and in the meantime, the plant and
machinery would have deteriorated due to lack of timely
maintenance and therefore only the salvage value of the
same could be obtained. In the meantime, during the
said period, the said plant and machinery were leased
out by the claimant to subsequent contractor. After
deducting the salvage value and the rents that would
have been received, 3/4th of the claimed amount is
awarded. In the present petition, this finding is
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challenged on the ground that, without any material
being produced by the claimant, the said sum has been
awarded. The above findings are recorded by the learned
arbitrator on the appreciation of the material on record
and the law is settled that in a section 34 petition, re-
appreciation of evidence is barred. Therefore, when these
findings are based on material on record and cannot be
said to be perverse, this finding of the Learned Arbitrator
does not call for interference.
53. Claim 5B which has been awarded is for refunding
of the performance bank guarantee. When the
termination of the contract is held to be illegal, it follows
that the BHEL could not have encashed the performance
bank guarantee and the reasons noted in respect of
Claim No. 2 [retention amount] are equally applicable to
this claim also and therefore the Learned Arbitrator was
perfectly justified in awarding this claim and this does
not call for interference.
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54. Claim 5C is for loss of overheads and profits due to
termination of the contract. The Learned Arbitrator has
relied upon the ruling of Hon’ble Apex Court in A.T. Brij
Paul Singh v. State of Gujarat, (1984) 4 SCC 59,
wherein it held that, “where in a works contract, the party
entrusting the work commits breach of the contract, the
contractor would be entitled to claim damages for loss of
profit which he expected to earn by undertaking the works
contract.”
55. However, the learned arbitrator has not granted
any amount under head of loss of overhead charges.
Insofar as loss of profit is concerned the Learned
Arbitrator has noted that even as per the say of the
BHEL, 49% of the work was completed which means that
59% of the work was pending and if the contract had not
been terminated the contractor could have performed the
remaining 59% of the work and earned proportionate
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profit. Thereby, for the remaining 59% of the work, 10%
of the value of the balance work is awarded under the
head of the loss of profit. This finding is challenged at
paragraph 79 of the grounds of present petition by
contending that there is no reasoning whatsoever for
arriving at 10% as reasonable profit and the impugned
award does not rely on any formula to justify such
percentage. Conventionally, the contractor’s profit margin
is fixed at 10% of the contract value and therefore it
cannot be said that the finding of the learned arbitrator
awarding loss of profit at 10% of the value of the balance
work is either contrary to law or perverse. Therefore, this
finding of the learned arbitrator does not call for
interference.
56. Claim No. 6 and 7 have been rejected and
therefore, need not be considered in the present petition
since claimant has not filed any separate petition
challenging rejection of those claims.
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57. Now turning to the counterclaims, Counterclaim
No. 1 is for differential value of orders placed on
alternate vendors by invoking the risk and cost clause.
Once it is held that the termination of the contract was
illegal, it follows that, BHEL cannot impose the risk and
cost of award of balance work to subsequent contractor,
on the claimant. Therefore, BHEL is not entitled to
counterclaim No. 1 and Learned arbitrator was perfectly
justified in rejecting the same.
58. The counter-claim No. 2 is for liquidated damages
at 5% of the contract value. As already noted supra, the
contract provides for liquidated damages at the rate of
0.5% of the contract value per week of delay subject to
maximum of 5% of the contract value. In this regard, as
already noted at paragraph 155 of the award, the
Learned arbitrator has analyzed in detail the various
causes for delay and in respect of failure to hand over the
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site, the Learned arbitrator has held that the claimant
cannot be held responsible for the delay on said ground.
In respect of delay in supply of duly approved
construction drawings the Learned Arbitrator has held
that the drawings were not furnished by BHEL and
claimant also did not execute the work even after
handing over the said drawings and thus, both parties
are equally responsible for the delay. In respect of non
availability and delay in issuance of free issue material,
the Learned arbitrator has held that though there was
some delay in supplying the cement, claimant had
requisite free issue materials to take up construction. In
respect of delay due to introduction of gate pass and
biometric confirmation by NTPC at the entry gate, it is
held that both parties are equally responsible for the said
delay. In respect of delay in progressive inspection, again
it is held that both parties are equally responsible for the
delay. In respect of delay in making payment against
claimant’s RA bills, it is held that neither party can be
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held responsible for the said delay. Therefore, the
Learned Arbitrator has essentially held that both parties
were responsible for delay. This is a purely factual finding
which cannot be interfered in a Section 34 petition.
Therefore, when delay is not attributable solely to the
claimant, the BHEL cannot seek to levy liquidated
damages against the claimant on ground of delay.
Further, the Learned Arbitrator held that, although the
contract provided for liquidated damages, the same is
subject to proof of actual loss or damage suffered by
BHEL. In this regard, the Learned Arbitrator has relied
upon the law laid down by Hon’ble Apex Court in the
case of Kailash Nath Associates v. DDA, (2015) 4 SCC
136, wherein it is held that, where a sum is named in a
contract as a liquidated amount payable by way of
damages, the party complaining of a breach can receive
as reasonable compensation such liquidated amount
only if it is a genuine pre-estimate of damages fixed
by both parties and found to be such by the court. Else,
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proof of damage or loss caused is a sine qua non for
award of damages. The Learned Arbitrator has held at
Paragraph 160 that, BHEL has failed to prove the loss or
damage caused to it, since, the documents produced
clearly demonstrate that, no L.D. [liquidated damages]
was deducted from the invoices of BHEL in respect of
subject contract by NTPC. Therefore, when loss or
damages suffered is not proved, no liquidated damages
can be awarded. These findings are factual findings
based on material on record and after appreciating the
documents relied upon by BHEL to show loss / damage
suffered and therefore, these factual findings which are
in consonance with the material on record cannot be
interfered, under Section 34 of the Act and therefore, the
finding of Learned Arbitrator rejecting this counter-claim
does not call for interference.
59. Counter claim No. 3 is for unaccounted free issue
material. In this regard, the Learned Arbitrator has held
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that the free issue material would be at the work site and
once the contract was terminated, the claimant was
denied access to the work site. Therefore, there was no
chance of the claimant taking out the free issue material
from the work site and therefore the free issue material
would be utilized by the subsequent contractor and on
this ground denied this counterclaim. These findings
being factual findings and based on material on record
cannot be interfered in section 34 petition.
60. The next counterclaim raised is for charges for
demolition and reconstruction of wrongly located TR45
by the claimant. In this regard, the finding of the Learned
Arbitrator is that no material is produced to show that
the work was wrongly located by the claimant and no
material is produced to show the amount, if any, paid to
subsequent contractor for such demolition and
reconstruction and therefore disallowed this
counterclaim. Again, this finding is based on material on
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record and purely factual finding and hence cannot be
interfered in section 34 petition.
61. The last counterclaim is towards dismantling site
office and allied construction of the claimant and even
this counterclaim is rejected for want of material in
support thereof and being a factual finding cannot be
interfered in the present petition. The other
counterclaims are only for interest and the cost of
arbitration and when all the counterclaims have been
rejected the question of awarding the cost of arbitration
or interest does not arise and therefore they were rightly
rejected by the Learned Arbitrator.
62. Therefore, in conclusion, the finding of the Learned
Arbitrator partly awarding the claims and rejecting the
counterclaims in toto does not call for interference in the
present petition.
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63. Before parting, the citations relied upon by Learned
counsel for petitioner needs to be taken note of. Reliance
is placed upon the following rulings in support of
propositions of law, as to when time can be considered
the essence of the contract; that when there is a promise,
there is obligation on the promisor to perform the
promise within reasonable time, even if time is not the
essence of the contract; that time can be made essence of
the contract by notice and even without notice, the
promisor is bound to perform the promise within
reasonable time under Section 46 of the Contract Act;
that Section 55 and Section 73 of the Indian Contract Act
are part of public policy and therefore, any findings
contrary thereto can be set aside under Section 34 on the
ground that the award is in conflict with the public policy
of India;
AIR 1984 AP 110
ILR 2008 Del 353
2018 SCC Online Del 8913
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1998 (2) Mad LJ 751
2002 (1) SCC 134
AIR 1981 Pat 69
1969 SCC Online Cal 40
(1993) 1 SCC 519
2003 SCC Online Ker 323
1949 SCC Online MP 22
1979 (2) SCC 70
1983 SCC Online Del 236
1957 SCC Online Pun 137
AIR 1962 Pat 155
2015 (4) SCC 136 – Kailashnath Associates case
which is already referred to supra.
2010 SCC Online Del 821
2021 SCC Online Del 4699
2019 SCC Online Del 9037
2024 SCC Online Del 5435
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64. However, all these rulings are not applicable
because in the peculiar facts and circumstances of this
case, as already noted supra, BHEL initially extended the
contract by admitting that delay is not attributable to the
contractor and thereafter did not terminate the contract
when the extended time period came to an end, but
allowed the contractor to continue to and thereby setting
time for performance at large (in the words of the learned
arbitrator). And thereafter when although the claimant
sought for two additional extensions of time the BHEL
neither terminated the contract nor explicitly granted
extension and thereafter abruptly issued the notice dated
17-07-2019 calling upon the contractor to show progress
in 14 days and thereafter abruptly terminated the
contract and in this background on facts the Learned
Arbitrator has held that after setting at large the time for
performance of the contract thereafter no reasonable time
was fixed and no reasonable schedule was given for
completion of the work and therefore the abrupt
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termination of the contract is illegal. The facts of the
present case being peculiar, the aforestated citations will
not come to the aid of the petitioner in the present case.
65. Reliance is also placed upon Batliboi
Environmental Engineers Ltd. v. Hindustan
Petroleum Corpn. Ltd., (2024) 2 SCC 375 and Unibros
v. All India Radio reported in 2023 SCC Online 1366
regarding computation of loss of profit.
66. In Batliboi Environmental Engineers Ltd. v.
Hindustan Petroleum Corpn. Ltd., (2024) 2 SCC 375 :
2023 SCC OnLine SC 1208 at page 399, it is held as
follows;
23. Ordinarily, when the completion of a
contract is delayed and the contractor
claims that s/he has suffered a loss arising
from depletion of her/his income from the
job and hence turnover of her/his business,
and also for the overheads in the form of
workforce expenses which could have been
deployed in other contracts, the claims to
bear any persuasion before the
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KABC170013822024arbitrator or a court of law, the
builder/contractor has to prove that
there was other work available that he
would have secured if not for the delay,
by producing invitations to tender
which was declined due to insufficient
capacity to undertake other work. The
same may also be proven from the
books of accounts to demonstrate a
drop in turnover and establish that
this result is from the particular delay
rather than from extraneous causes. If
loss of turnover resulting from delay is not
established, it is merely a delay in receipt of
money, and as such, the builder/contractor
is only entitled to interest on the capital
employed and not the profit, which should
be paid.
(Emphasis Supplied)
67. In Unibros v. All India Radio reported in 2023
SCC Online 1366, it is held as follows;
16. To support a claim for loss of profit
arising from a delayed contract or
missed opportunities from other
available contracts that the appellant
could have earned elsewhere by taking
up any, it becomes imperative for the
claimant to substantiate the presence of
a viable opportunity through compelling
evidence. This evidence should convincingly
demonstrate that had the contract been
executed promptly, the contractor could have
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secured supplementary profits utilizing its
existing resources elsewhere.
17. One might ask, what would be the
nature and quality of such evidence? In our
opinion, it will be contingent upon the facts
and circumstances of each case. However, it
may generally include independent
contemporaneous evidence such as other
potential projects that the contractor
had in the pipeline that could have been
undertaken if not for the delays, the
total number of tendering opportunities
that the contractor received and
declined owing to the prolongation of
the contract, financial statements, or
any clauses in the contract related to
delays, extensions of time, and
compensation for loss of profit. While this
list is not exhaustive and may include any
other piece of evidence that the court may
find relevant, what is cut and dried is that in
adjudging a claim towards loss of profits, the
court may not make a guess in the dark; the
credibility of the evidence, therefore, is the
evidence of the credibility of such claim.
18. Hudson’s formula, while attained
acceptability and is well understood in
trade, does not, however, apply in a
vacuum. Hudson’s formula, as well as other
methods used to calculate claims for loss of
off-site overheads and profit, do not directly
measure the contractor’s exact costs.
Instead, they provide an estimate of the
losses the contractor may have suffered.
While these formulae are helpful when
needed, they alone cannot prove the
contractor’s loss of profit. They are useful
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in assessing losses, but only if the contractor
has shown with evidence the loss of profits
and opportunities it suffered owing to the
prolongation.
19. The law, as it should stand thus, is
that for claims related to loss of profit,
profitability or opportunities to succeed,
one would be required to establish the
following conditions : first, there was a
delay in the completion of the contract;
second, such delay is not attributable to the
claimant; third, the claimant’s status as
an established contractor, handling
substantial projects; and fourth,
credible evidence to substantiate the
claim of loss of profitability. On perusal
of the records, we are satisfied that the
fourth condition, namely, the evidence to
substantiate the claim of loss of profitability
remains unfulfilled in the present case.
(Emphasis Supplied)
68. On this basis, it was argued for BHEL that without
evidence adduced by the claimant to show that the
claimant could have earned elsewhere by taking up any
other project, and evidence regarding other potential
projects the claimant had in the pipeline that could have
been undertaken if not for the delays, the total number of
tendering opportunities that the claimant received and
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declined owing to the prolongation of the contract,
financial statements, etc., the claim for loss of profits
could not have been awarded by the Learned Arbitrator.
It is to be noted that, on facts, both the above rulings of
the Hon’ble Apex Court dealt with a fact situation where
the contractor was constrained to remain at the site
beyond the contract period and hence loss of profit was
sought for period beyond the contract period. In these
circumstances, Hon’ble Apex Court has said that for
such a claim it is necessary for the contractor to prove
that there were other contracts which the contractor had
to miss out on due to being stuck in the same project.
69. However, the case on hand is distinguishable, in
that, loss of profit is being claimed not for being at the
site beyond the contract period but for being unable to
complete the project and earn the estimated profit, due to
illegal termination of the contract. In this regard, the
Learned Arbitrator has relied upon A.T. Brij Paul Singh
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v. State of Gujarat, (1984) 4 SCC 59 at page 63, as
follows;
8. Once it is held that the respondent was
guilty of breach of works contract, part of
which was already performed and for
performing which the appellant, a Poona
based contractor had transported machinery
and equipment from Poona to the work site
near Rajkot in Saurashtra, certainly he would
be entitled to damages. One of the heads of
damages under which claim is made is “loss
of expected profit in the work”. The claim
under this head as canvassed before the High
Court was in the amount of Rs 4,30,314.
9. It was not disputed before us that
where in a works contract, the party
entrusting the work commits breach of
the contract, the contractor would be
entitled to claim damages for loss of
profit which he expected to earn by
undertaking the works contract. What
must be the measure of profit and what proof
should be tendered to sustain the claim are
different matters. But the claim under this
head is certainly admissible. Leaving aside
the judgment of the trial court which rejected
the claim for want of proof, the High Court
after holding that the respondent was not
justified in rescinding the contract proceeded
to examine whether the plaintiff contractor
was entitled to damages under the head “loss
of profit”. In this connection, the High Court
referred to Hudson’s Building and
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Engineering Contracts (1970), tenth edition
and observed that “in major contracts subject
to competitive tender on a national basis, the
evidence given in litigation on many occasions
suggests that the head-office overheads and
profit is between 3 to 7 per cent of the total
price of cost” which is added to the tender. In
other words, the High Court was of the view
that the claim under this head was
admissible. The High Court, however,
addressed itself to the question whether
adequate proof is tendered to sustain the
claim. In this connection, it was observed that
the loss of profit when it is sought to be
recovered on the percentage basis has to be
proved by proper evidence. Having settled the
legal position in this manner, the High Court
proceeded to reject the claim observing that
the bare statement of the partner of the
contractor’s firm that they are entitled to
damages in the nature of loss of profit at the
rate of 20 per cent of the estimated cost is no
evidence for the purpose of establishing the
claim. The High Court further observed that
the appellant has not proved by any primary
documents the basis of its pricing for the
purpose of quotation in reply to the tender
and more so when it has quoted at 7½ per
cent less than the original estimated cost and
in this view of the matter the claim for loss of
profit is unsustainable.
11. Now if it is well-established that the
respondent was guilty of breach of
contract inasmuch as the rescission of
contract by the respondent is held to be
unjustified, and the plaintiff contractor
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had executed a part of the works
contract, the contractor would be
entitled to damages by way of loss of
profit. Adopting the measure accepted by
the High Court in the facts and
circumstances of the case between the
same parties and for the same type of
work at 15 per cent of the value of the
remaining parts of the work contract, the
damages for loss of profit can be
measured.
(Emphasis Supplied)
70. Reference may also be made to MSK Projects (I) (JV)
Ltd. v. State of Rajasthan, (2011) 10 SCC 573 :
(2012) 3 SCC (Civ) 818 : 2011 SCC OnLine SC 986 at
page 586, wherein it is held as follows;
38. In common parlance, “reimbursement”
means and implies restoration of an
equivalent for something paid or expended.
Similarly, “compensation” means anything
given to make the equivalent. (See State of
Gujarat v. Shantilal Mangaldas [(1969) 1 SCC
509 : AIR 1969 SC 634] , TISCO Ltd. v. Union
of India [(2001) 2 SCC 41 : AIR 2000 SC
3706] , GDA [(2004) 5 SCC 65 : AIR 2004 SC
2141] and HUDA v. Raj Singh Rana [(2009)
17 SCC 199 : (2011) 2 SCC (Civ) 136 : AIR
2008 SC 3035] .) However, in Dwaraka
Das v. State of M.P. [(1999) 3 SCC 500 : AIR
1999 SC 1031] it was held that a claim by
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a contractor for recovery of amount as
damages as expected profit out of
contract cannot be disallowed on ground
that there was no proof that he suffered
actual loss to the extent of amount
claimed on account of breach of contract.
39. In A.T. Brij Paul Singh v. State of
Gujarat [(1984) 4 SCC 59 : AIR 1984 SC 1703]
, while interpreting the provisions of Section
73 of the Contract Act, 1972, this Court held
that damages can be claimed by a
contractor where the Government
is proved to have committed breach by
improperly rescinding the contract and
for estimating the amount of damages,
the court should make a broad
evaluation instead of going into minute
details. It was specifically held that where in
the works contract, the party entrusting the
work committed breach of contract, the
contractor is entitled to claim the
damages for loss of profit which he
expected to earn by undertaking the
works contract. Claim of expected
profits is legally admissible on proof of
the breach of contract by the erring
party. It was further observed that : (SCC pp.
64-65, para 10)
“10. … What would be the measure of profit
would depend upon the facts and
circumstances of each case. But that there
shall be a reasonable expectation of profit is
implicit in a works contract and its loss has to
be compensated by way of damages if the
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other party to the contract is guilty of breach
of contract cannot be gainsaid.”
(Emphasis Supplied)
71. From the above law laid by Hon’ble Apex Court, it is
clear that the contractor is entitled to claim loss of profits
for failure to earn the profit as a result of the fault of the
employer. If the contractor claims loss of profit for period
beyond the contract period after completing the project
and the loss of profit is claimed for the period of
prolongation, then as per the law in Batliboi
Environmental Engineers Ltd. (supra) and Unibros
(supra), it will be necessary for the contractor to prove
that the contractor missed out on other projects due to
being stuck in the earlier project. However, where the
contractor claims loss of profit not for the period of
prolongation but on the ground that due to the fault of
the employer, the contractor could not complete the
project and earn the estimated profit, then it will not be
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necessary for the contractor to prove that there were
other projects which the contractor was unable to take
up due to being stuck in the current project. Therefore,
in the present case, even without adducing evidence and
proof of other projects which the claimant was unable to
take up, the Learned Arbitrator was perfectly justified in
awarding the claim of loss of profits.
72. For all the reasons noted supra, I hold that the
impugned arbitral award does not call for interference in
any manner and accordingly, answering the point for
consideration in the negative, I proceed to pass the
following :-
ORDER.
The petition under section 34 of the
Arbitration and Conciliation Act is
dismissed, with cost.
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KABC170013822024Office to issue soft copy of this
judgment to both sides by email if
furnished.
[Dictated using Dragon Professional Speech Recognition
Software Version 15.3, transcript revised, corrected,
signed and then pronounced by me in open court on this
the 23rd day of January, 2025](Sri. S. SUDINDRANATH)
LXXXIII ADDL.CITY CIVIL AND SESSIONS JUDGE,
COMMERCIAL COURT, BANGALORE.
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