Bangalore District Court
Central Warehousing Corporation vs Mohammed Azmath on 4 January, 2025
KABC170026022023 Digitally signed by
SUDINDRA SUDINDRA NATH S
NATH S Date: 2025.01.06
15:46:48 +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.166/2023
Dated on this 4th day of January 2025
Plaintiff/s Central Warehousing Corporation,
(Government of India Undertaking)
Regional Office,
No.9, Pallavi Complex,
Mission Road,
Bangalore - 560027.
Represented by
Regional Manager.
(By Sri.M.Aswathanarayana Reddy,
G.L.Ravi, Advocates)
// versus //
Defendant/s 1. Sri.Mohammed Azmath,
Proprietor,
M/s.Zag Transport,
Opp. PWD Quarters,
House No.1-892,
Old Jewargi road,
Gulbarga - 585102.
2. The Arbitral Tribunal of
Pradeep Kumar Gupta,
Sole Arbitrator,
Former Special Director General,
CPWD, T-17,
Green Park Extension,
New Delhi -16.
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(D1 By Sri.Sundar Raj,
Shakthi Prakash.D.T., Pavan Kumar,
Aleemuddin Siddiqui, Advocates)
Date of Institution of suit : 26/08/2017
Nature of the suit : Arbitration Suit under
Arbitration Act
Date of commencement of :
recording of the evidence --
Date on which the : 04/01/2025
Judgment was pronounced.
: Year/s Month/s Day/s
Total duration
07 04 09
JUDGMENT
This is a petition under Section 34 of the Arbitration
and Conciliation Act filed by the claimant before the
Arbitral Tribunal challenging the Arbitral Award passed
by Respondent No. 2 herein, dated 31-5-2017, in case
No. ARB-PKG-914, partly allowing the claim of the
claimant / petitioner herein & awarding Rs. 4,54,508 out
of the total claim of Rs. 20,61,294 and also allowing the
counterclaims raised by the Respondent before the
Arbitral Tribunal, namely Respondent No. 1 herein.
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2. On issuance of notice of present petition, the
Respondent No. 1 has entered appearance through
counsel and filed detailed objections to the present
petition. Notice to Respondent No. 2, who is the learned
arbitrator, is dispensed with.
3. It is to be noted that during the pendency of the
present petition, Respondent No. 1 had filed I.A. No. 2
under Order VII Rule 10 CPC, contending that the
present petition has to be filed before the Gulbarga court
and the courts at Bangalore do not have jurisdiction to
entertain the present petition. Said application has been
rejected by my learned predecessor vide order dated 18-
04-2023.
4. Initially, the present petition was filed before the
Additional City Civil Court, Bangalore, and was
numbered as A.S. 100 of 2017. Thereafter, considering
that the case involves a commercial dispute of value
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which is more than the specified value, the present case
was transferred to this Commercial Court and
renumbered as above Commercial AP 166 of 2023.
5. The arbitration records have been secured and are
available in the file.
6. At the time of arguments, both sides have filed
written arguments and I have perused the same. I have
also perused the records of the case.
7. The only point that arises for my consideration is :-
Whether the impugned arbitral award
dated 31-5-2017 passed by Respondent No.
2 herein in case No. ARB/PKG/914,
dismissing certain claims of the petitioner
herein and allowing the counterclaims of
Respondent No. 1 herein calls for
interference in the present petition?
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8. My answer to the above point is as per finding for
the following :-
REASONS.
9. In the course of this judgment, for the sake of
convenience, the parties are referred as per their rank
before the Arbitral Tribunal i.e. the Petitioner herein is
referred to as the Claimant and Respondent No. 1 herein
is referred to as the Respondent.
10. The facts in brief are that, the claimant is a
corporation established under the Warehousing
Corporation Act, 1962. The claimant floated a tender for
appointment of a handling and transport contractor [H&T
contractor] at Gulbarga, and the respondent, who was
the existing contractor for the earlier period, submitted
his bid. The bid of the respondent was accepted vide
office letter dated 29.09.2010, which culminated in a
formal agreement between the parties dated 15.11.2010.
The respondent was appointed as Handling and
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Transport Contractor (H&T Contractor) for a period of two
years from 18.10.2010 to 17.10.2012.
11. Disputes arose between the parties under the said
agreement, since it is the grievance of the claimant that
the respondent contractor was not deploying sufficient
labor for timely clearance of rakes. This resulted in show
cause notice being issued to the contractor by the
claimant. Due to delay in clearance of the rakes, the
railways was charging substantial demurrage charges,
which were paid by the claimant and adjusted from the
payments due to the contractor / Respondent. On
18.08.2012, the last rake was handled by the contractor
respondent, and thereafter the contractor made himself
unavailable for performing his part of the work under the
contract. In spite of several communications to the
contractor requesting him to resume the work, the
contractor did not respond. Ultimately, the claimant
issued a letter dated 8-10-2012 terminating the contract
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with effect from 8-10-2012 and brought to the notice of
the contractor that the handling and transport work for
the remaining term of the contract, that is, up to 17-10-
2012, would be carried out through a new contractor at
the risk and cost of the respondent.
12. The contract between the parties contained
arbitration clause for the settlement of any dispute
between the parties by arbitration by a sole arbitrator to
be appointed by the MD of the claimant. In view of
disputes having arisen between the parties, initially one
Mr. S.P. Singha was appointed as sole arbitrator, and on
his death, Respondent No. 2 was appointed as the
arbitrator by the MD of the claimant.
13. The claimant filed a statement of claim reiterating
the above facts and raised the following claims. Claim
No. 1 was towards the demurrage charges deducted by
Food Corporation of India and towards payment for
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casual labor. The total amount of such demurrage
charges and amount recoverable towards non-supply of
casual labor was claimed as Rs. 21,37,393. After
adjusting the amount recovered from the bills, as well as
the pending bills of the contractor and the security
deposit viz. Rs. 12,30,264, the net amount claimed under
Claim No. 1 was Rs. 9,07,129.
14. Under Claim No. 2, the claimant sought a sum of
Rs. 6,77,067 towards risk and cost amount for the period
from 8-10-2012 to 17-10-2012, i.e. from the date of
termination of the contract of the respondent till the
completion of the contract period, when the handling and
transport work, was carried out through a new
contractor.
15. Claim No. 3 was for recovery of a sum of Rs.
4,77,098 on the ground that the claimant received a
notice from the recovery officer, office of the Employees’
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Provident Fund Organization, Regional Office, Gulbarga,
demanding payment of penal damages and interest of the
said sum of Rs. 4,77,098. Since the claimant, as the
principal employer, apprehending that the liability may
crystallize, the claimant paid the above amount to the
recovery officer of the Employees’ Provident Fund
Organization. However, since this amount was essentially
payable by the contractor, the claimant sought recovery
of the said amount.
16. Accordingly, the statement of claim was filed
claiming a total sum of Rs. 20,61,294 along with interest.
17. To the said statement of claim, the respondent filed
a detailed statement of defense denying the claims of the
claimant and also raised counterclaims. It was contended
that the deduction of demurrage charges by the Food
Corporation of India was illegal, and therefore there was
no question of the respondent paying the said amounts
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to the claimant. In respect of Claim No. 2, for recovery of
risk and cost amount for 10 days from 8-10-2012 to 17-
10-2012 is concerned, it was contended that there is no
basis for the calculation of the amount of Rs. 6,77,067 as
claimed, and therefore the claimant is not entitled to the
same. Insofar as Claim No. 3 for recovery of PF amount is
concerned, it was contended that the respondent has
already paid the due amount towards PF, and there was
an error in the statement, for which the respondent had
requested the Commissioner of Regional Office Provident
Fund, Gulbarga, to provide records because on some
occasions the claimant was directly depositing the PF
amount, and on other occasions the respondent was
paying the same. Therefore, in fact, no amount was due
and payable to the PF Department, and the claimant was
not justified in paying the said sum to the PF
Department, and therefore the claimant is not entitled to
recovery of the same.
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18. Apart from denying the claims, the respondent
also raised various counterclaims. Firstly, a sum of Rs.
30,000 [sic: Rs. 30 Lakhs] was claimed towards pending
bills. Apart from this, it was contended that the
demurrage had been illegally adjusted out of the
payments to the contractor and therefore sought recovery
of Rs. 9,43,680, which was unlawfully adjusted towards
the demurrages from the amount payable towards the
bills of the contractor respondent. Apart from this,
another counterclaim raised was for recovery of the
security deposit amounts of Rs. 6,25,000 and Rs. 54,800.
Thereby, counter-claim was raised for recovery of a total
sum of Rs. 46,33,480 towards counterclaims.
19. To the said counterclaims, the claimant filed an
objection statement and rejoinder denying all the
counterclaims. The respondent filed a subsequent
pleading styled as a “counter to the rejoinder”, in which
the respondent amplified its counterclaims, by claiming
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sum of Rs. 88,68,451/= towards Difference amount
payable for diverted route of 21 kilometers from 16-8-
2010 to 22-10-2012. This claim was raised on the ground
that during the contract period, as per the orders of the
Deputy Commissioner, Gulbarga, there was a change of
route, as a result of which the respondent had to carry
the goods for an additional distance of 21 kilometers,
which was not covered in the contract. Hence, the
respondent claimed an additional amount of Rs.
88,68,451.
20. Apart from this, another counterclaim raised was
for a sum of Rs. 19,90,034 towards the breakdown of the
weighbridge of the claimant from 14-1-2011 to 22-10-
2012, as a result of which 10% of the weighment had to
be weighed at a distant weighbridge. Hence, for carrying
the goods for the additional distance for weighing 10% of
the goods, this counterclaim was raised.
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21. Thereby, in this subsequent pleading, the
respondent raised a counterclaim for a total sum of
Rs. 1,36,91,965.
22. Before the learned arbitrator, the parties adduced
both oral and documentary evidence. After hearing both
sides, the learned arbitrator passed the impugned award,
whereby, as against the total claim of the claimant of Rs.
20,61,294, the learned arbitrator partly allowed the
claims of the claimant only to the extent of Rs. 4,54,508
and awarded interest thereon of Rs. 2,30,981.
23. Insofar as the counterclaims are concerned, the
learned arbitrator awarded a sum of Rs. 1,36,71,467 and
also awarded interest of Rs. 69,50,707. Thereby, by the
operative portion of the award, the learned arbitrator
held that the total amount, including interest, payable to
the respondent under the counterclaims is Rs.
2,06,22,174, whereas the amount payable to the
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claimant is Rs. 4,54,508 plus interest amount of Rs.
2,30,981, that is Rs. 6,85,489, and held that if the said
amounts are not cleared within 3 months, the said
amounts will carry interest.
24. Aggrieved by the said arbitral award, insofar as it
rejects some of the claims of the claimant and awards the
counterclaims of Respondent, the Petitioner / claimant is
before this court challenging the said award under
Section 34 of the Arbitration and Conciliation Act.
25. In the petition, as well as the written arguments
filed by the learned counsel for the petitioner, it is
contended that the arbitral award suffers from an error
apparent on the face of the record and patent illegality.
Further, it is contended that the learned arbitrator has
passed the award ignoring relevant provisions of the
contract between the parties, thereby going beyond the
terms of the contract, which is impermissible.
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26. Two technical contentions raised are that the award
is passed without framing issues and that the contract
does not provide for the raising of counterclaims by
Respondent No. 1. Therefore, the counterclaims have
been illegally raised and could not have been considered
by the learned arbitrator on merits.
27. Apart from this, all other contentions raised by the
claimant pertain to the findings of the learned arbitrator
in respect of the claims and counterclaims, contending
that they are perverse and suffer from illegality appearing
on the face of the award. On these grounds, the
petitioner seeks to set aside the arbitral award.
28. Per contra, in the objections to the present petition
filed by Respondent No. 1 and the written arguments
filed by the learned counsel for Respondent No. 1, the
findings of the award are supported. It is contended that
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the petitioner has not made out grounds to set aside the
arbitral award under Section 34 of the Act.
29. Having considered the rival contentions, at the
outset, let me deal with the two technical contentions
raised by the petitioner that the award is vitiated since
issues were not framed and that the learned arbitrator
could not have considered the counterclaims on their
merits because there is no clause in the contract
permitting the raising of counterclaims.
30. Insofar as the contention that the award is vitiated
as it was passed without framing issues or formulating
points for consideration is concerned, it is to be noted
that there is an order of the Learned Arbitrator [earlier
Arbitrator : Mr. S.P. Singha] dated 24-04-2014, which
is as follows:
“The revised statement of claims after
correction was submitted on 18th November
2013 by the Regional Manager, Presenting
Officer CWC of the Regional Office, Bangalore.
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KABC170026022023The Respondent, M/s. Zak Transport, has not
filed the defense statement till today.
However, the Respondent has been allowed
time to submit the defense statement and the
counterclaim by 30th November 2014 as
requested in its application.
I have decided to hear both the parties at
Bangalore at 10.30 hours on 26.05.2014 in
the Regional Office, Central Warehousing
Corporation at No. 9, Mission Road,
Bangalore, 560027.
I have also decided that each claim and
counterclaim will be an issue for
adjudication. However, parties are at
liberty to propose any new issues for
consideration.
During the hearing, the rules of procedure
under Section 19 of the Arbitration and
Conciliation Act 1996, venue of the arbitration
proceedings, Section 20 of the Act, language
during the arbitral proceedings, Section 22 of
the Act, and procedure of hearings and
written proceedings, Section 24 of the Act will
be decided after hearing both the parties on
this date.”
(Emphasis Supplied)
31. Therefore, it is clear that in the course of the
arbitral proceedings, there is an order of the learned
arbitrator, viz. the earlier arbitrator Mr. Singha, holding
that each claim and counterclaim will be an issue for
adjudication, but giving liberty to both sides to propose
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any new issues. The claimant, in the course of the
arbitral proceedings, did not raise any grievance with
respect to the said order of the learned arbitrator, nor did
the claimant propose any new issues viz. other than each
claim and counterclaim being considered a distinct issue
for adjudication. It is to be noted that, having not
proposed any new issues and having allowed the arbitral
proceedings to culminate in the passing of the award
without raising any objections at the relevant point of
time or calling upon the Learned Arbitrator to frame
issues, it does not now lie in the mouth of the claimant to
attack the arbitral award on the ground that it is passed
without formally framing issues.
32. On the perusal of the arbitral award, it is noted that
the Learned Arbitrator has considered each head of claim
and counterclaim separately, assigning separate reasons
for the same, and therefore no prejudice is caused to
either side by non-framing of the issues. As rightly noted
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by the Learned Arbitrator in the order dated 24-04-2014,
each claim and counterclaim shall form a distinct issue
to be adjudicated separately, and that is how the learned
arbitrator has proceeded in the impugned award, and
therefore no prejudice has been caused to the claimant
by non-framing of issues since each head of claim and
counterclaim is considered separately and adjudicated
separately. Therefore, this is not a ground for setting
aside of the arbitral award.
33. Even otherwise, it is to be noted that under Section
19 of the Arbitration and Conciliation Act, the arbitral
tribunal is not bound by the procedures enjoined by CPC,
and therefore it is not mandatory for the arbitral tribunal
to frame issues as mandated by Order 14 of the CPC.
Further, under Section 19 [3] of the Act, the arbitral
tribunal, subject to any agreement between the parties
regarding procedure, is free to conduct the proceedings in
the manner it considers appropriate. Therefore, as long
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as the Learned Arbitrator has followed the principles of
natural justice and no prejudice has been caused to
either side, it was not mandatory for the Learned
Arbitrator to frame issues separately.
34. In this regard, reference may be made to the
following rulings, wherein it is held that it is not
mandatory for the Learned Arbitrator to frame issues;
The Citizens Co-operative Bank Ltd. V
Krishan Lal Choudhary and others 2018
SCC OnLine J&K 747
11. It was next contended that the
direction for framing issues while
conducting Arbitration proceedings was
also not necessary. What is stated by the
learned counsel for the appellant may be
correct. While the Arbitrator may be at liberty
to adopt its own procedure for conducting the
Arbitration proceedings in accordance with
the broader parameter laid down in the 1989
Act and the rules frame thereunder, yet in the
absence of any prohibition expressly
prescribed in the Act and the rules, it would
be open to the Arbitrator to even frame issues
for purposes of crystallizing the dispute
pending before the Arbitrator. We, therefore,
modify the judgment and order impugned
to the extent that while it may not be
necessary for the Arbitrator to
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necessarily frame issues for adjudication
of the dispute, yet the Arbitrator may be
at liberty to frame issues, if he deems it
necessary.
(Emphasis Supplied)
Narayandas Chatrabhuj Mawani v.
Hiralal Haribhai Thakkar, 1992 SCC
OnLine Bom 353 : (1993) 1 Bom CR
168 at page 172
12. No legal proposition has been stated by
the arbitrator in the said Award which is the
basis thereof and is erroneous. The Court has
no jurisdiction to investigate into the merits of
the case and to examine the documentary
and oral evidence for the purpose of find out
whether or not the arbitrator had committed
an error of law or fact. Since all questions of
law as well as fact were referred to
arbitration the decisions of the arbitrator
thereon is final, conclusive and binding on the
parties thereto. It was not obligatory for
the arbitrator to frame issues as is done
in trial of a suit. Nor the arbitrator was
required to record separate findings on
each of the contentions raised by the
petitioner before him. In law, the arbirator
was entitled to make a lump sum award and
the lump sum award made by him suffers
from no infirmity. Since the arbitrator has
awarded certain amount without indicating
why he has done what he has done, it can
not be said that be did not decide all matters
in dispute referred to him. There is nothing to
show that the arbitrator did not consider or
decide all the disputes raised to him or that
there is failure on his part in exercising
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jurisdiction vested in him. The claim of the
respondents against the petitioner as on the
date of the said suit was not barred by
limitation. The arbitrator has not
misconducted himself. In the absence of any
reasons for making the Award, it is not open
to the Court to interfere with the Award. There
is no error of law apparent on the face of the
said award.
(Emphasis Supplied)
35. In the light of the above law and for the reasons
discussed supra, I reject the first technical contention
raised in the present petition to set aside the award on
the ground that the Learned Arbitrator did not frame
issues.
36. Now turning to the second technical contention,
that there is no clause in the contract entitling the
respondent to raise the counterclaim, and therefore the
counterclaim could not have been considered by the
learned arbitral tribunal on its merits, it is to be noted
that the arbitration clause is contained in the terms of
the tender, which is incorporated as part of the contract
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between the parties. Clause XIX of the Tender
Documents provides for arbitration and provides that all
disputes arising out of the agreement shall be referred to
the sole arbitration of any person appointed by the
Managing Director of Central Warehousing Corporation,
New Delhi.
37. Ultimately, at the end of Clause XIX, it is provided
as follows: “Subject as aforesaid, the Arbitration and
Conciliation Act 1996 shall apply to the arbitration
proceedings under this clause.”
38. It is to be noted that in Clause XIX, there is no
specific prohibition against the respondent from raising a
counterclaim. Therefore, the general provisions of
Arbitration and Conciliation Act are applicable insofar as
raising the counterclaims are concerned, and since under
the Arbitration and Conciliation Act it is perfectly open to
the respondent in the arbitral proceedings to raise a
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counterclaim, it follows that even in the present case
there was no prohibition on the respondent from raising
the counterclaim, and therefore it is not possible to set
aside the award on the ground that the arbitral tribunal
was barred from considering the counterclaims of the
respondent on merit. Therefore, the second technical
contention raised in the present petition also fails.
39. Now, let me consider each head of the claim and
counterclaim to determine whether the finding of the
arbitral tribunal on any of the claims and
counterclaims is patently illegal appearing on the
face of the award and hence liable to be set aside
under Section 34 of the Act.
40. Claim No. 1 raised by the petitioner / claimant is
for recovery of the demurrage charges and charges for
casual labour. It is to be noted that after deducting the
sums payable to the respondent under unpaid bills and
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security deposit amount, the net amount claimed under
this head is Rs. 9,07,129. However, it is noted at page 8
of the Arbitral Award that, the claimant withdrew the
claim towards non-supply of causal labour and therefore,
it was only the claim for demurrage charges which had to
be considered by the arbitral tribunal.
41. The reasoning of the arbitral tribunal with regard to
this claim is found at pages 7 to 10 of the arbitral award.
Firstly, the Learned Arbitrator has noted that in reply to
the order dated 30-6-2014 of the previous arbitrator, the
claimant stated that they have withdrawn their claim on
account of non-supply of casual labour. Therefore, the
Learned Arbitrator has proceeded to consider Claim No. 1
only in respect of recovery of the demurrage charges
deducted by Food Corporation of India.
42. In this regard, the Learned Arbitrator has noted that
the respondent / contractor had quoted the rates about
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seven months prior to the commencement of the contract
period. Only after the contractor quoted the rates in the
tender on 25th May 2010, the DRM Solapur increased
the demurrage charges to Rs. 600 per wagon per hour.
On this basis, the learned arbitrator has concluded that
it was not possible for the respondent contractor to have
anticipated such an abnormal and “illegal” increase in
the demurrage charges from Rs. 100 to Rs. 600 per
wagon per hour at the time of quoting the rates.
43. Then the learned arbitrator refers to the ruling of
the Hon’ble Bombay High Court in Maharashtra State
Electricity Distribution v DSL Enterprises : 2009 (4) Bom
CR 843, wherein it is held that where there is a breach of
a basic / main term of the contract, which is so primary
that upon such a breach the other reciprocal promises
cannot be performed by the other party, it constitutes a
fundamental breach of the contract.
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44. Then the learned arbitrator observes that in the
instant case, at the time of quoting rates for the tender,
no prudent person could imagine that there would be
such an abnormal increase in demurrage charges of
500%. Apart from this, the Learned Arbitrator observes
that there was a change in rake composition, which was
increased from 42 wagons to 58 wagons, but there was
no corresponding change in the free period allowed for
handling of such rakes. Apart from this, the Learned
Arbitrator relies upon a news report published in The
Hindu newspaper, Gulbarga edition, dated 28-7-2012, to
note that there are no basic facilities for handling goods
at Gulbarga railway station.
45. Then the learned arbitrator has noted that even
when the learned arbitrator personally visited the
Gulbarga railway station on 6-4-2016, the situation had
not improved, and the situation at Gulbarga railway
station is not much different from those in other railway
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stations where the railways have been restrained from
enforcing the policy of round-the-clock working due to a
lack of infrastructure facilities.
46. Ultimately, the Learned Arbitrator has concluded as
follows: “From the various correspondence exchanged by
the parties in CD1, it is clear that there were other reasons
like no specific timing of placing rakes due to the round-
the-clock system, non-availability of infrastructure facilities
for accommodating jumbo rakes, claimant’s inability to
depute any staff to the railway goods shed for overnight
supervision and watch, etc. Obviously, all these factors
are basic factors for the respondent and are beyond his
control, and the respondent cannot be held responsible for
such lack of infrastructural facilities and consequent
breaches on these accounts committed and attributable to
the claimants. I, therefore, award a nil amount against
Claim No. 1 to the claimants.”
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47. Therefore, on reading the above reasons assigned by
the learned arbitrator, it is clear that there was no
dispute raised before the learned arbitrator that, in fact,
the demurrage charges were deducted by Food
Corporation of India due to delay in handling of the rakes
by the respondent contractor. However, the finding of the
learned arbitrator is that there was an abnormal rise in
demurrage charges from Rs. 100 to Rs. 600 per wagon
per hour, which could not have been anticipated by the
contractor, and the delay in handling the rakes is not
attributable to the contractor since there was a lack of
infrastructure facilities, etc.
48. On this ground, the Learned Arbitrator holds that
the contractor is not liable to indemnify the claimant for
the demurrage charges, which have been admittedly
deducted by FCI against the claimant. The Learned
Arbitrator has also noted that the increase in demurrage
charges and lack of infrastructure facilities constitute a
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fundamental breach of the contract, and the contractor
respondent could not be expected to work at the rates
mentioned in the tender when there was such a
fundamental change in the prevailing conditions, which
resulted in a fundamental breach of the contract.
49. In respect of his findings on Claim No. 1, where
the learned arbitrator has committed a cardinal error
is in failing to appreciate that if indeed there was a
fundamental breach of the contract due to the change in
prevailing conditions, such as the increase in demurrage
charges from Rs. 100 to Rs. 600, increase in the
composition of the rakes from 42 wagons to 58 wagons
without a corresponding increase in the free period for
handling the rakes, and lack of infrastructure facilities
for handling the rakes around the clock (24 hours a day),
then it was for the contractor to terminate the contract
on the ground that, in view of the fundamental breach of
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the contract, the contractor cannot be expected to work
at the rates quoted in the tender.
50. However, admittedly, the contractor has at no point
of time terminated the contract on this ground. Instead,
the contractor has continued to take benefit under the
contract by raising bills. This being the case, after the
contract was terminated by the claimant due to the
contractor not being available at the spot, the contractor
cannot turn around at this stage and claim that the
contractor could not do the work at the rates quoted in
the tender for the above reasons. Having taken advantage
of the contract all along, when the dispute arises between
the parties, the contractor cannot contend that there was
a fundamental breach of the contract by the claimant
due to a change in the prevailing conditions, such as an
increase in demurrage charges, etc. If really there was a
fundamental breach of contract, the option was available
to the contractor to terminate the contract.
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51. In this regard, reference may be made to the law
laid down by Hon’ble Apex Court in the case of
Maharashtra State Electricity Distribution Co. Ltd.
v. Datar Switchgear Ltd., (2018) 3 SCC 133 : (2018) 2
SCC (Civ) 65 : 2018 SCC OnLine SC 20 at page 176,
as follows;
67. In the aforesaid backdrop, we agree with
the approach of the High Court in spelling
out the proposition of law that once it is
established that the party was justified in
terminating the contract on account of
fundamental breach thereof, then the said
innocent party is entitled to claim damages for
the entire contract i.e. for the part which is
performed and also for the part of the contract
which it was prevented from performing.
(Emphasis Supplied)
52. In the light of the above law, it follows that in the
event of a fundamental breach of contract, it is open to
the affected party to terminate the contract. But without
terminating the contract, the respondent cannot raise the
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ground of increasing demurrage charges, change in
composition of the rake, etc., as a ground for not doing
the work under the contract effectively and efficiently.
Ultimately, it is to be noted that it is the responsibility of
the handling and transport contractor, to handle the
rakes within the free period. If the rakes are not disposed
of within the free period, then it attracts the demurrage
charges. When admittedly demurrage charges have been
deducted against the claimant, then since the demurrage
charges have been raised due to failure of the contractor
to handle the rakes within the free period given by
railways, certainly it is the liability of the contractor to
indemnify the claimant to the extent of demurrage
charges admittedly deducted, and the contractor cannot
raise justifications such as an increase in demurrage
charges, change in composition of the rakes, etc., as a
ground for denying the said liability. In this regard,
reference may be made to the terms of the tender, which
form part of the contract between the parties. As per
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clause XII of the terms of the tender between the parties,
it is laid down as follows:
Liability of contractors for losses etc.
suffered by the corporation.
(a) The contractor shall be liable for all
costs, damages, demurrage, wharfages,
forfeiture of wagon registration fee,
charges, and expenses suffered or incurred
by the corporation due to the contractor’s
negligence and unworkmanlike
performance of any services under this
contract or breach of any terms thereof or
their failure to carry out the work with a
view to avoid incurrence of damages, etc.,
and for all damages or losses occasioned
to the corporation due to any act, whether
negligent or otherwise, of the contractors,
themselves or their employees. The
decision of the regional manager regarding
such failure of the contractor and their
liability for the losses etc. suffered by the
corporation shall be final and binding on
the contractor.
(b) The corporation shall be at liberty to
reimburse themselves for any damages,
losses, charges, costs, or expenses
suffered or incurred by them due to the
contractor’s negligence and unworkmanlike
performance of service under the contract
or breach of any terms thereof. The total
sum claimed shall be deducted from any
sum then due or which at any time
hereafter may become due to the contractor
under this or any other contract with the
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may be due from the corporation as
aforesaid being insufficient, the balance of
the total sum claimed and recoverable from
the contractors as aforesaid shall be
deducted from the security deposit
furnished by the contractors as specified in
paragraph XI. Should this sum also be not
sufficient to cover the full amount claimed
by the corporation, the contractor shall pay
to the corporation on demand the
remaining balance of the aforesaid sum
claimed.”
(Emphasis Supplied)
53. Therefore, from the above terms of the contract
between the parties, it is clear that for any demurrage
charges incurred due to the contractor’s negligence and
unworkmanlike performance of the services, it is the
contractor / respondent who is liable to face such
demurrage charges.
54. In the case on hand, the respondent contractor has
quoted rates for handling the rakes within the free period
allotted by the railways. The scope of work of the
contractor respondent under the contract is that the
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contractor has to handle and transport the rakes from
the railway platform to the godowns within the free
period allotted by railways. For this purpose, the
contractor has to depute sufficient manpower and labor
at the spot. The justification raised by the respondent
contractor for not clearing the rakes from the railway
platform within the free period is threefold. Firstly, it is
contended that earlier there were specific working hours,
and subsequently, the clearing had to be done round the
clock for all 24 hours. Secondly, the abnormal increase in
the demurrage charges from Rs. 100 to Rs. 600 per
wagon per hour. Thirdly, the lack of infrastructure
facilities. Fourthly, the change in composition of the rake
from 42 to 56 wagons per rake.
55. Insofar as the lack of infrastructure facilities is
concerned, the same cannot be a ground for the
respondent to justify non-handling of the rake within the
free period provided by railways because under the
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contract, as per page 3 of the tender documents, it is
specifically provided as follows:
“The tenderers must get themselves fully
acquainted with the size and location of
the godowns vis a vis loading and
unloading points before submission of
tenders, and rates quoted by them for
loading into and unloading from trucks and
wagons shall be deemed to have been done
after such acquaintance. Once a tender is
submitted by a tenderer, he shall be
deemed to have fully acquainted himself
with the size and location of the godowns
vis a vis loading and unloading points,
and shall not be entitled to any compensation
arising out of any discrepancy in the size and
location of the group of godowns found later
on, or on the ground that the workers
employed by him are demanding higher rates
of wages, if the load involved in certain
operations is more, or the bags to be handled
are heavier.”
(Emphasis Supplied)
56. Therefore, the contractor was expected to acquaint
himself fully and thoroughly with the infrastructure or
the lack of infrastructure before submitting the tender. In
fact, from the records, it is forthcoming that the
respondent was the handling and transport contractor
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even for the earlier period, and therefore it is clear that,
being fully aware of the infrastructure facilities available,
the contractor submitted the bid, and therefore the
contractor cannot now turn around and claim lack of
infrastructure as one of the reasons for not clearing the
rakes within the free period allotted by railways.
57. Insofar as the change of timings to 24 hours a day,
the increase in demurrage charges from Rs. 100 to Rs.
600, and the change in composition of the rake from 42
wagons to 56 wagons without a corresponding increase
in the free period is concerned, it is to be noted that if
these factors were responsible for the delay in handling
and transporting the rake from the railway platform, and
if as a result of these changes, there was a fundamental
breach of the contract as held by the Learned Arbitrator,
it was open to the contractor to terminate the contract on
this ground, claiming fundamental breach of the contract
due to the above changes. However, instead of doing so,
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the contractor has continued with the contract,
continued to raise bills, and received the charges under
the contract from the claimant, which is evident from the
fact that the learned arbitrator himself holds that no
amount is due under counterclaim No. 1 towards
pending bills.
58. In this regard, the learned arbitrator at page 16 of
the award, while dealing with counterclaim No. 1, holds
as follows:
“Claimants gave clarifications to order dated
22-08-2016, vide their letter No. H-700(18)/
GLB-II/ ARBN/ 2016/4831, dated 14-09-
2016, (CD-10), enclosing therewith Annexure
1 to Annexure 6. Respondents were therefore
directed to examine Annexure 6 and intimate
specifically the bills which are not paid by the
claimant so far, if any. In the absence of any
satisfactory reply by the respondent, written
or otherwise, I assume that all bills have
been settled as explained by claimants,
and I give nil award against
counterclaim No. 1 to the respondents.”
(Emphasis Supplied)
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59. Therefore, the specific finding of the Learned
Arbitrator is that there are no pending bill amounts
payable by the claimant to the respondent. This means
that till the contract was terminated by claimant with
effect from 8-10-2012, the respondent continued to raise
bills and receive the bill amounts without any demur or
objection. Having taken advantage of the contract all
along, at this stage, the respondent cannot turn
around and contend that there was a fundamental
breach of the contract due to an increase in
demurrage charges and a change in composition of
the rakes or change in working hours.
60. Ultimately, it is to be noted that the very purpose of
appointment of H&T contractor, (handling and transport
contractor), is to clear the rakes from the railway
platform. Therefore, if there is any delay in clearing the
rakes, resulting in the levying of demurrage charges, then
it is certainly the liability of the contractor to indemnify
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the claimant for such demurrage charges. Therefore, by
holding the contrary, the learned arbitrator has
committed an illegality which is writ large on the face of
the arbitral award itself because as per the tender clause
XII (extracted supra), it is the liability of the contractor to
pay for any demurrage charges resulting from the
contractor’s negligence or unworkmanlike performance.
The very fact that there was delay in handling and
transporting the rakes within the free period points to
negligence on the part of the contractor and the
contractor cannot take shelter in specious grounds such
as change in timings and change in composition of the
rakes when the contractor has not raised grievances in
this regard and has not terminated the contract on these
grounds but continued to take benefit under the contract
till the contract was terminated by the claimant with
effect from 8-10-2012. For all these reasons, I hold
that the arbitral award insofar as rejecting claim No.
1 for demurrage charges calls for interference under
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section 34 of the Act on the ground that it is
contrary to the terms of the contract between the
parties, namely clause XII extracted supra and suffers
from patent illegality appearing on the face of the
award since the liability of the contractor is denied
on the ground of fundamental breach of the contract
due to increase in demurrage charges etc., but at no
point of time did the contractor himself terminate
the contract on such grounds. Accordingly, the above
finding suffers from patent illegality appearing on the
face of the award and hence the award insofar as
claim No. 1 is liable to be set aside under section 34
[2A] of the Act.
61. Claim No. 2, raised by the claimant, is for risk and
cost amount for the period from 8-10-2012, that is, the
effective date of termination of the contract, till 17-10-
2012, the date on which the contract period would have
actually come to an end. It is to be noted that the basis of
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this claim is that since the contractor did not appear at
the work site for carrying out the contract work, the
claimant was constrained to terminate the contract with
effect from 8-10-2012 and from said date till the end of
the contract period, that is up to 17-10-2012, for a period
of about 10 days, the work was done at the risk of the
contractor through a new contractor, namely Sunny
Transport Company, and for the difference in rates
between the rates quoted by the respondent and the
rates of the new contractor, this claim is raised, which is
quantified at Rs. 6,77,067 as per the statement of claim
and which is modified to Rs. 8,95,900 in the course of
the inquiry.
62. In this regard, the learned arbitrator at pages 10 to
12 of the award has noted that the claimant has
produced two bills, one for handling of wheat and one for
handling of rice by the new contractor. Whereas the bill
for handling of rice is for the work done on 13-10-2012 &
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14-10-2012, which is within the contract period, the bill
for wheat is for the period from 8-10-2012 to 31-10-
2012, which is beyond the contract period. The learned
arbitrator has observed that rate-wise work slips for
wheat have not been produced and therefore it cannot be
established that the entire work dealt with under the bill
was done during the contract period. Therefore, in so far
as the charges towards handling of wheat are concerned,
the learned arbitrator has presumed that the work was
done uniformly and awarded a proportionate amount of
the said bill, that is, the bill is for 8-10-2012 to 31-10-
2012, and proportionate amount only for 8-10-2012 to
17-10-2012 is awarded in respect of wheat. On this
basis, the learned arbitrator has awarded a sum of Rs.
1,58,927/= towards wheat and allowed the entire bill
towards rice i.e. Rs. 2,95,581/= and thereby awarded
total sum of Rs. 4,54,508 towards claim No. 2.
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63. When the claimant failed to produce the date-wise
work slip for wheat to show what was the quantity of
wheat handled between 8-10-2012 to 17-10-2012, no
fault can be found with the learned arbitrator in refusing
to award the entire bill amount for handling of wheat,
since the bill was dated from 8-10-2012 to 31-10-2012,
which is well beyond the contract period which ended on
17-10-2012. Therefore, the contention of the claimant
that the entire claimed amount of Rs. 8,85,900 ought to
have been awarded is unacceptable. In any event, this
court in a section 34 petition cannot enter into the realm
of appreciation of evidence and therefore, viewed from
any angle, the finding of the learned arbitrator partly
awarding claim No. 2 does not call for interference in
the present petition.
64. Claim No. 3 raised by the claimant was for recovery
of Rs. 4,77,098 towards EPFO payment made by the
claimant on behalf of the respondent, to the PF
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department. The learned arbitrator has essentially taken
note of two facts to reject this claim. Firstly, the learned
arbitrator has noted that the sum of Rs. 4,77,098 directly
paid by the claimant to the department is in respect of PF
claims for the period from October 2007 onwards,
whereas the contract period in the instant case is from
18-10-2010 to 17-10-2012. Therefore, the learned
arbitrator firstly holds that the claim for recovery of Rs.
4,77,098 which is paid by the claimant on behalf of the
respondent to the PF department is in respect of a period
which is earlier to the contract between the parties and
therefore the learned arbitrator does not have the
jurisdiction to entertain this claim since it does not relate
to the contract period. Secondly, the learned arbitrator
has noted that from various correspondence between the
parties, it is forthcoming that the entire PF amount had
already been either deducted from the various bills of the
contractor or directly paid by the contractor, and
therefore, when there was such a serious dispute
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regarding the liability in respect of the PF amount, the
claimant could not have directly paid the demanded
amount to the department and expect the respondent to
indemnify the claimant to the extent of the paid amount.
In this regard, the learned arbitrator has appreciated the
material on record and noted that a letter of the claimant
dated 24-3-2011 states that 10% payment is being
withheld from the bill for default in EPFO recoveries.
There is another letter written by the respondent dated 7-
3-2011 wherein the respondent requested the claimant to
obtain a DD for Rs. 3,68,998 on account of PF dues up to
28-2-2011. There is another letter from the respondent
requesting for deduction of EPFO arrears of Rs. 1,50,000
from the bills. Apart from this, there is a claimant’s
letter dated 7-5-2012 remitting Rs. 6,60,691, out of the
demand of Rs. 11,60,691. The balance of Rs. 5 lakhs had
already been paid by way of deduction from the bills.
Therefore, on the basis of the appreciation of
evidence, the learned arbitrator has observed that
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there was in fact no liability of the respondent
towards arrears of PF and therefore the claimant
cannot recover the said sum of Rs. 4,77,098, which
was unjustifiably paid by the claimant to the PF
department. These findings of the learned arbitrator are
in consonance with the material on record and therefore
do not call for interference in the section 34 petition.
Accordingly, I hold that the finding of the learned
arbitrator rejecting claim No. 3 does not call for
interference in the present petition.
65. Claim No. 4 of the claimant considered in the
award at page 14-15 is for approving the recovery of Rs.
12,30,264 made from bills and security deposit amount
towards the demurrage charges. However, no such claim
is raised in the statement of claim. This claim is rejected
by the learned arbitrator on the short ground that while
dealing with claim No. 1, the claim for demurrage
charges has been rejected and therefore it follows that it
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is not possible for the claimant to adjust the bill amount
and the security deposit amount towards demurrage
charges. In this regard, I have already held supra that
the finding of the learned arbitrator rejecting claim No. 1
suffers from patent illegality appearing on the face of the
records. Once the conclusion is reached that the
claimant is entitled to the demurrage charges as claimed,
it follows that, since under the terms of the tender, the
claimant is entitled to set off any amount of the
respondent lying with the claimant against dues payable,
it follows that, the claimant was entitled to adjust the
demurrage charges from the bill amount and also from
the security deposit charges. Therefore, the finding of the
learned arbitrator rejecting claim No. 4 is liable to be set
aside, for the same reasons as applicable to claim No. 1.
66. Insofar as claim No. 5 is concerned towards
interest, the learned arbitrator awarded a uniform rate of
interest to both the parties at rate of 11% p.a. both on
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the amounts awarded to the claimant and the
counterclaim amounts awarded to the respondent and
therefore since uniform rates of interest have been
awarded to both sides, the claimant can have no
grievance with regard to the findings of the learned
arbitrator on claim No. 5.
67. Now turning to the counterclaims, Counterclaim
No. 1 for pending bill amount of Rs. 30 lakhs has been
rejected by the learned arbitrator, which has not been
challenged by the respondent. Therefore, in this petition
filed by the claimant, there is no need to consider the
correctness of the findings on counterclaim No. 1.
68. Counterclaim No. 2 is for recovery of Rs.
58,76,523, which has been adjusted towards demurrage
charges. This counterclaim has been awarded on the
short ground that while dealing with claim No. 1, it has
been held that the claim for demurrage charges is illegal
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and not payable by the respondent. For the same reasons
as applicable to claim No. 1, wherein I have already held
that the contractor is liable to pay the demurrage
charges, it follows that the allowing of this counterclaim
for recovery of the amount adjusted from the bills
towards demurrage charges calls for interference. Hence,
for the same reasons as applicable to claim No. 1, I
hold that the finding of the learned arbitrator on
counterclaim No. 2 is liable to be set aside.
69. Insofar as counterclaim Nos. 3 and 4 are concerned,
they are for recovery of security deposit amounts. These
counterclaims have been awarded by the learned
arbitrator on the short ground that the levying of
demurrage charges is illegal and therefore, the security
deposit amounts could not have been adjusted towards
demurrage charges. For the reasons already noted supra
while dealing with claim No. 1 and 4, I have held that
this finding of the learned arbitrator is patently illegal
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and calls for interference in the present petition. Hence,
it follows that since the Respondent was liable to pay the
demurrage charges and the security deposit amounts
have been adjusted towards the demurrage charges,
there is no question of the respondent seeking to recover
the security deposit amount. Hence, for the same
reasons as applicable to claim No. 1, the finding of
the learned arbitrator on counterclaims Nos. 3 and 4
is liable to be set aside.
70. Counterclaim No. 5: This counterclaim is raised by
the respondent for recovery of a sum of Rs. 88,68,451
due to additional expenditure incurred since there was
an increase in distance to be traversed between the
Gulbarga railway goods shed and CWC warehouse. It is
an admitted fact between the parties that originally the
distance between the above two points was only 4 km. In
August 2010, a decision was taken by the district
authorities to impose restrictions on the movement of
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heavy vehicles, which resulted in an increase in the
distance to be traversed between the railway goods shed
and CWC warehouse. According to the respondent, the
distance increased to 21 kilometers, whereas the learned
arbitrator has accepted the contention of the claimant
that the actual distance traversed increased to only 16
kilometers. The respondent is claiming an additional
amount since the respondent had to transport the goods
over a longer distance due to the restrictions on the
movement of heavy vehicles imposed by district
authorities.
71. The learned arbitrator, with regard to this
counterclaim, firstly takes note of the fact that although
the restriction on the movement of heavy vehicles was
brought into force in August 2010, which is much earlier
to the commencement of the contract period on 18-10-
2010, the rates were quoted by the contractor much
earlier, in March 2010 itself. And at the time of quoting
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the rates, the contractor could not have anticipated that
there would be restrictions imposed by district
authorities resulting in increasing the distance between
the railway goods shed and CWC warehouse from 4 km
to 16 km. The learned arbitrator further takes note that
as per Annexure R44 dated 2 November 2010, the
contractor had claimed extra payment for the additional
distance. The learned arbitrator has rejected the
contention that the lead of 16 kilometers is within the
specified limit of 17 kilometers as per the tender
documents by referring to rulings of the Hon’ble Apex
Court and Hon’ble Bombay High Court holding that
revised rates can be provided even where the contract
does not provide for the same, and the concept of
fundamental breach of contract. Ultimately, the learned
arbitrator has awarded an additional amount of Rs.
58,37,790 towards the 12 kilometers additional distance
over which goods had to be transported by the
respondent.
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72. In this regard, at the outset, it has to be noted that
even as per the finding of the learned arbitrator, as a
result of traffic restrictions imposed by district
authorities, the distance to be traversed increased to 16
km. This specific finding is recorded at page 22 of the
Arbitral Award wherein the learned arbitrator has
observed as follows:
“The additional distance required to be
traversed by the respondent is 12 kilometers,
(actual distance traversed 16 kilometers
minus original distance 4 kilometers.)”
(Emphasis Supplied)
73. Therefore, the learned arbitrator has recorded a
factual finding that even after the increase in the
distance, the total distance to be traversed was only 16
kilometers and not 21 kilometers as contended by the
respondent.
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74. In the background of this specific factual finding
recorded by the learned arbitrator, it is now necessary to
look into the tender document under the head of general
information, wherein in the contract between the parties,
it is laid down as follows:
“General information
A. Place of operation:
The works in and around Gulbarga-II in these
presents shall mean and include the area
within the radius of 17 km from the
railway station of Gulbarga-II/ Municipal
Corporation, and CWC warehouse comprises
following groups of godowns.”
75. Therefore, as per the tender document, the lead of
17 kilometers is factored into the contract between the
parties, and on that basis, the contractor has submitted
the rates. When, even as per the finding of the learned
arbitrator, the increase in distance is only 16 kilometers,
the increased distance to be traversed is only 16 km,
which is well within the 17 km radius / lead, prescribed
by the tender document. The learned arbitrator could
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not have applied equity to grant an additional rate for
the additional distance of 12 km to be traversed by
the respondent.
76. In this regard, the law is well settled that the
learned arbitrator, being a creature of the contract, has
to decide the dispute strictly in terms of the contract and
cannot apply general principles of justice and equity to
grant relief to the party. In this regard, reference may be
made to the following rulings;
Food Corpn. of India v. Chandu
Construction, (2007) 4 SCC 697 : 2007
SCC OnLine SC 496 at page 702
11. It is trite to say that the arbitrator
being a creature of the agreement between
the parties, he has to operate within the
four corners of the agreement and if he
ignores the specific terms of the contract,
it would be a question of jurisdictional
error on the face of the award, falling
within the ambit of legal misconduct
which could be corrected by the court. We
may, however, hasten to add that if the
arbitrator commits an error in the construction
of contract, that is an error within his
jurisdiction. But, if he wanders outside the
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contract and deals with matters not allotted to
him, he commits a jurisdictional error
(see Associated Engg. Co. v. Govt. of
A.P. [(1991) 4 SCC 93] and Rajasthan State
Mines & Minerals Ltd. v. Eastern Engg.
Enterprises [(1999) 9 SCC 283] ).
Board of Control for Cricket in India v
Deccan Chronicle Holdings Ltd. 2021 SCC
OnLine Bom 834 : (2021) 4 Bom CR 481 :
(2021) 3 Arb LR 125
233. Given the wording of the Arbitration Act, a
longer examination of the antecedents of these
concepts is unnecessary. The statute itself is
clear and unambiguous; and in Associate
Builders, the Supreme Court in paragraph 42.3
extracted Section 28 and said that a
contravention of it is a sub-head of patent
illegality. Ssangyong Engineering does not
change this position. Given this now-settled
position in law, it is unnecessary to examine
the additional authorities on which Mr. Mehta
relies, all to the same effect. They also say this
: commercial arbitrators are not entitled
to settle a dispute by applying what they
conceive is ‘fair and reasonable,’ absent
specific authorization in an arbitration
agreement. Section 28(3) also mandates
the arbitral tribunal to take into account
the terms of the contract while making
and deciding the award. Section 28 is
applicable to all stages of proceedings before
the arbitral tribunal and not merely to the
making of the award. Under Section 28(2), the
Arbitral Tribunal is required to decide ex aequo
et bono or as amiable compositeur only if the
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Arbitrator is bound to implement the
contractual clauses and cannot go
contrary to them. He cannot decide based
on his notions of equity and fairness,
unless the contract permits it.
(Emphasis Supplied)
77. Therefore, the finding of the learned arbitrator on
counterclaim No. 5 is liable to be set aside is that even as
per the factual finding recorded by the learned arbitrator,
as a result of the traffic restrictions on the movement of
heavy vehicles, the distance between the railway goods
shed and CWC warehouse increased to 16 km, which is
within the 17 km radius prescribed by the tender
document. Therefore, going by the terms of the contract
between the parties, the learned arbitrator could not have
awarded any extra amount by considering equity, by
holding that the respondent is to be compensated for
damages suffered due to the increase in the lead distance
when such lead distance was already factored into the
contract, which provided for a lead distance of 17
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kilometers, whereas on facts, the actual lead distance
traversed by the respondent was only 16 km.
78. To get over this term of the contract, the learned
arbitrator has relied upon two rulings. Firstly, reliance is
placed upon the ruling of the Hon’ble Apex Court in the
case of Rashtriya Chemicals and Fertilizers v Chowgule
Brothers, where the proposition of law laid down is that
the original understanding of the parties at the time of
making the offer and its acceptance is important. Relying
upon this ruling, the learned arbitrator observes that at
the time of submission of the rates by the contractor, the
distance was only 4 km, and no normal person could
anticipate that there would be an increase in the
distance. The learned arbitrator has also referred to the
ruling of Bombay High Court in Maharashtra State
Electricity Distribution v. DSL Enterprises and held that
the imposition of traffic restrictions, which increased the
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distance from 4 kilometers to 16 kilometers, constitutes a
fundamental breach of the contract.
79. However, as in the case of finding in respect of
demurrage charges, the learned arbitrator has committed
an error in failing to appreciate that, if there was a
fundamental breach of the contract due to an increase in
the distance to be traversed by the respondent, then it
was for the respondent to terminate the contract on that
ground. Further it is to be noted that, admittedly as on
the date of commencement of the contract period, the
traffic restrictions were already in force, and therefore,
the traffic restrictions were not a development
subsequent to the commencement of the contract period.
This is because traffic restrictions were brought into force
in August 2010, whereas the contract period commenced
from 18-10-2010.
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80. Therefore, if there was really a fundamental breach
of the contract as held by the learned arbitrator by
imposition of traffic restrictions, then, at inception of the
contract itself, the contractor ought to have raised
grievance or, and in case the grievance were not met,
ought to have terminated the contract on the ground of
fundamental breach of the contract, on the ground that
the conditions on which the rates were submitted no
longer prevail. Having not done so and having taken
advantage of the contract, by raising bills and receiving
amounts under the contract, after the contract is
terminated by the claimant, the respondent cannot turn
around and raise a claim for payment higher than that
prescribed under the contract on the ground that he had
to traverse longer lead distance. Therefore, the finding of
the learned arbitrator awarding sum of Rs. 58,37,790
towards larger distance to be traversed by respondent is
liable to be set aside on two grounds. Firstly, the
increased lead even after imposition of travel restrictions
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was within the lead of 17 kilometers prescribed by the
tender document. Secondly, the travel restrictions were
in force as on the date of commencement of the contract
and without any demur in respect of increase in distance,
the respondent entered upon the contract and has taken
advantage of payments under the contract and therefore
after the contract is terminated, the respondent cannot
turn around and claim higher prices due to increase in
distance. For these reasons, the finding of the learned
arbitrator partly allowing counterclaim No. 5 suffers
from patent illegality appearing on the face of the
award and therefore liable to be set aside.
81. Counterclaim No. 6 : Under this counterclaim, the
respondent is seeking ₹19,90,034 due to breakdown of
weighbridge of the claimant. In this regard, the case of
the respondent is that the weighbridge at CWC
warehouse No. 2 was not functioning since November
2011. Therefore, the claimant orally directed respondents
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to weigh at least 10% of the goods at CWC Warehouse
No. 1, which resulted in an additional distance of 22 km.
And therefore, for such additional distance of 22 km in
respect of 10% of the weightment, this counterclaim is
raised.
82. With regard to this counterclaim, the learned
arbitrator has held that the fact of breakdown of the
weighbridge is not disputed. The learned arbitrator has
noted that the claimant, being a government of India
undertaking, ought to be a model employer and the
claimant should have appointed a committee for
verification of the distance. The learned arbitrator further
notes that, generally during the period of the contract,
the contractor is advised to concentrate and continue
with the work with an assurance that payment for the
same would be finalized and made soon and the
contractor also accepts the same in good faith. Therefore,
the learned arbitrator has noted that inaction on the part
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of the claimant initially in getting the committee
appointed and later on putting the onus on the
respondent themselves cannot be accepted. Thereby,
ultimately, the learned arbitrator has held that the
respondent is to be compensated for damages for the
additional distance traversed and under this head
awarded sum of Rs. 12,77,354.
83. In reaching this finding, the learned arbitrator has
failed to take note of Clause XV of the Tender dealing
with remuneration, which is as follows.
“Remuneration:
A. The contractor shall be paid the remuneration
in respect of services described in Para XIX
and performed by them at the contract rate.
B. If the contractor is required to perform any
service in addition to those specifically
provided for in the contract and the annexed
schedule, the contractor’s remuneration for
the same will be paid at the rates as
negotiated and fixed by mutual agreement.
C. The contractor will have the right to
represent in writing to the regional
manager that a particular service which they
are being called upon to perform is not
covered by any of the services specifically
provided for in the contract or, as the case
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services. Provided that such
representation in writing must be made
within 15 days after the date of actual
performance of such services. If no such
representation in writing is received
within the said time, the contractor’s
right in this regard will be deemed to
have been waived.
D. The question whether a particular service is or
is not covered by any of the services
specifically described and provided for in the
contract, or is not auxiliary or incidental to
any of such services shall be decided by the
regional manager, whose decision shall be
final and binding on the contractor.”
(Emphasis Supplied)
84. Therefore, on plain reading of above clause XV of
the tender / contract between the parties, it is clear that
as per sub-clause A, the contractor is only entitled to
remuneration at the contract rate. In case any additional
service is provided, then the contractor’s remuneration
shall be as negotiated and fixed by mutual agreement. In
the case on hand, admittedly there was no such mutual
agreement to pay extra remuneration for additional
distance. In such a case, if according to the contractor,
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the contractor performed any additional services over and
above that prescribed by the contract, then the
contractor had the right to give a representation to the
regional manager within 15 days from the date of
performance of such additional services. And if no such
representation was given within 15 days, then it is
deemed that the contractor has waived his right to
additional remuneration for additional services. In the
case on hand, the only representation given by the
contractor seeking extra payment for extra distance
traversed due to breakdown of the weighing machine
is the representation dated 25 November 2011 which
is marked as annexure R45. However, this
representation is given to the manager of the CWC
Unit 2 and not to the regional manager as mandated
by Clause XV [C] of the contract. As already noted
supra, as per clause XV of the contract, the contractor is
only entitled to remuneration at the contract rate. Any
additional remuneration should either be fixed by mutual
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consent under clause B or a demand for such additional
remuneration should be made within 15 days to the
regional manager and in case no such demand is made to
the regional manager, it is deemed that the contractor
has waived his right to claim additional remuneration for
additional work. Admittedly, in this case, the only
representation given seeking additional remuneration for
additional distance due to breakdown of the weighing
machine is annexure R45, but the said representation is
not given to the regional manager. Therefore, there is
non-compliance with Clause XV sub-clause C and
therefore it follows that the contractor is deemed to have
waived his right to seek additional remuneration for the
additional work. Without appreciating this vital clause of
the contract between the parties, the learned arbitrator
has made general observations that generally during the
contract period the contractor is advised to concentrate
and continue the work with assurance that payment for
the same would be finalized and the contractor also
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accepts the same in good faith. However, in the case on
hand there was absolutely no material on record before
the learned arbitrator to reach such a conclusion that
such an assurance was made for extra payment by the
claimant to the respondent. As already held supra, the
learned arbitrator, being the creature of the contract, has
to decide the dispute strictly in terms of the contract.
When there was a breach of clause XV [C] by the
respondent in failing to give a representation to the
regional manager within 15 days of the additional work,
then it is deemed that the contractor has waived his right
to claim additional remuneration for the additional work.
The learned arbitrator was bound by the said term of the
contract between the parties and therefore could not
have awarded extra remuneration under counterclaim
No. 6. Therefore, the said finding of the learned
arbitrator partly allowing counterclaim No. 6 is
against the specific terms of the contract and
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therefore suffers from illegality appearing on the face
of the record and is therefore liable to be set aside.
85. Insofar as counterclaim No. 7 is concerned, it is in
respect of interest, but since for the above reasons I have
set aside the award, insofar as awarding the
counterclaims, the question of granting interest on the
counterclaims does not arise.
86. Before parting, reference may be made to the
rulings relied upon by Learned Counsel for Respondent
No. 1. Firstly, reliance is placed upon the judgment of the
Hon’ble Apex Court in Mahakali Sujatha v. Future
Generali India Life Insurance Co. Ltd., (2024) 8 SCC
712. Specifically, reliance is placed upon paragraph 41
and 42 of this judgment. In said paragraph 41 and 42 of
the judgment, discussion is made in respect of the
burden of proof. The said ruling is inapplicable to the
facts of the present case because in a Section 34 petition,
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the court cannot enter into the realm of appreciation of
evidence, and therefore, the question of appreciating
burden of proof and the onus of proof does not really
arise in the present petition. In fact, the arbitral award
has been set aside on the ground that the relevant terms
of the contract have been ignored by the learned
arbitrator and on the ground that there is illegality writ
large on the face of the award insofar as denial of the
demurrage charges to the claimant. Therefore, viewed
from any angle, this ruling is not helpful to Respondent
No. 1.
87. Secondly, reliance is placed upon the ruling of the
Hon’ble Apex Court in Kailash Nath Associates v. DDA,
(2015) 4 SCC 136. Specifically, reliance is placed upon
paragraphs 33 to 40 and 43 of this judgment. In this
judgment, the findings are summarized at paragraph 43.
This ruling essentially deals with compensation payable
towards breach of contract and provides that where a
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contract names a specified amount as liquidated
damages or as penalty, the party complaining of breach
is only entitled to reasonable compensation not exceeding
the amount so stated. This ruling has no application to
the facts of the present case because the respondent has
failed to prove that there was any breach of contract and
this is not a case where the contract between the parties
specified any amount payable as either liquidated
damages or as penalty.
88. Having recorded the above findings, it is to be
noted that, the law as it presently stands is that the
court in the Section 34 petition cannot modify the award,
but the court can either set aside the award in whole or
in part.
89. In this regard, in the case of J.G. Engineers (P) Ltd.
v. Union of India, (2011) 5 SCC 758 : (2011) 3 SCC
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(Civ) 128 : 2011 SCC OnLine SC 704 at page 775,
Hon’ble Apex Court held as follows;
25. It is now well settled that if an award deals
with and decides several claims separately
and distinctly, even if the court finds that
the award in regard to some items is bad,
the court will segregate the award on items
which did not suffer from any infirmity and
uphold the award to that extent. As the
award on Items 2, 4, 6, 7, 8 and 9 was upheld by
the civil court and as the High Court in appeal did
not find any infirmity in regard to the award on
those claims, the judgment of the High Court
setting aside the award in regard to Claims 2, 4,
6, 7, 8 and 9 of the appellant, cannot be
sustained. The judgment to that extent is liable to
be set aside and the award has to be upheld in
regard to Claims 2, 4, 6, 7, 8 and 9.
(Emphasis Supplied)
90. Therefore, in the light of the above law, it is clear
that where the award deals with various aspects which
are severable and the Court finds that it is only part of
the award which is liable to be set aside, then only such
portion of the award has to be set aside. That this
position of law has not undergone any change is evident
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from observation made in latest ruling of Hon’ble Apex
Court in the case of Larsen Air Conditioning and
Refrigration Company v. Union of India and Others
2023 SCC OnLine SC 982, as follows;
13. In the present case, given that the
arbitration commenced in 1997, i.e., after the
Act of 1996 came into force on 22.08.1996, the
arbitrator, and the award passed by them,
would be subject to this statute. Under the
enactment, i.e. Section 31(7), the statutory rate
of interest itself is contemplated at 18% per
annum. Of course, this is in the event the
award does not contain any direction towards
the rate of interest. Therefore, there is little to
no reason, for the High Court to have interfered
with the arbitrator’s finding on interest accrued
and payable. Unlike in the case of the old Act,
the court is powerless to modify the award and
can only set aside partially, or wholly, an
award on a finding that the conditions spelt
out under Section 34 of the 1996 Act have
been established. The scope of interference by
the court, is well defined and delineated [refer
to Associate Builders v. Delhi Development
Authority11, Ssangyong Engineering
Construction Co. Ltd v. National Highways
Authority of India (NHAI)12 and Delhi Airport
Metro Express Pvt. Ltd. v. Delhi Metro Rail
Corporation Ltd.13].
(Emphasis Supplied)
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91. Therefore, it is clear that, award can be set aside
“partially or wholly” and only because portion of award
which is severable from rest of the award is tainted, there
is no need to set aside the award as a whole.
92. Be it noted that, in Gayatri Balasamy v. M/S ISG
Novasoft Technologies Limited in Special Leave to
Appeal (C) Nos.15336-15337/2021 in orders dated 20-
02-2024, the question which has been referred to the
larger bench is whether, under Section 34 of the Act,
court has the power to modify the award and it has not
been doubted that, the Court has the power to partially
set aside the award and it is not necessary to set aside
the award as a whole.
93. In view of my above findings, answering the point
for consideration accordingly, I proceed to pass the
following :-
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The Petition under Section 34 of the
Arbitration and Conciliation Act is allowed,
in part.
Consequently, the Impugned Arbitral
Award passed by the Learned Sole Arbitrator
[Respondent No. 2 herein] dated 31-5-2017,
in case No. ARB/PKG/914 is partly set
aside in respect of the following findings
and claims / counterclaims;
i) The award insofar as rejecting claim
No. 1 for demurrage charges is hereby
set aside. However, since this court
cannot modify the award in a Section
34 petition, it follows that having set
aside the award rejecting the
demurrage charges, this court cannot
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but it is left open to the claimant to
initiate fresh arbitration insofar as
claim No. 1 is concerned.
ii) The award rejecting claim No. 4 is set
aside. However, this claim is only for
approving recovery of Rs. 12,30,264/=
made from bills and security deposit
amount and since, the corresponding
counterclaim No. 1 for recovery of
balance bill amount has been rejected
by Learned Arbitrator himself and
corresponding counterclaim No. 3 and
4 for recovery of security deposit
amounts, are being rejected vide
present judgment, the question of
initiating fresh arbitration for this
claim No. 4 does not arise.
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iii) The award in respect of awarding
Counterclaim No. 2 to 6 is set aside.
The award in respect of partly allowing
Claim No. 2 & rejecting Claim No. 3 and
Counterclaim No. 1 is confirmed and so also
the rate of interest awarded in respect of
the claim No. 2 [under claim No. 5] is
confirmed. Since all the counterclaims have
been set aside, the rate of interest on
counterclaim amounts [awarded under
counterclaim No. 7] does not survive.
In view of confirmation of award in
respect of Claim No. 2, the claimant is
entitled to recover the sum of Rs. 4,54,508
as awarded under claim No. 2, along with
interest at 11% per annum, which is
quantified at Rs. 2,30,981 in the award and
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accordingly, the award holding that the
Petitioner / claimant is entitled to recover
the sum of Rs. 6,85,489 from the
respondent is confirmed.
That portion of the award allowing the
counterclaims and holding that the
respondent No. 1 is entitled to recover the
sum of Rs. 2,06,22,174 from the
Petitioner / claimant is hereby set aside.
Considering the facts and
circumstances of the case and the fact that,
some claims / counterclaims have been set
aside and some have been confirmed, both
sides to bear their respective costs.
Ordered accordingly.
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Office 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 04th day of January, 2025]
(Sri. S. Sudindranath)
LXXXIII ADDL.CITY CIVIL AND SESSIONS JUDGE,
COMMERCIAL COURT; BANGALORE.