M/S Bhanu Construction Co. ... vs National Thermal Power Corp. Ltd. ...

on 18 February, 2011

Delhi High Court

M/S Bhanu Construction Co. ... vs National Thermal Power Corp. Ltd. ... on 18 February, 2011
Author: Rajiv Sahai Endlaw
*IN THE HIGH COURT OF DELHI AT NEW DELHI

Date of decision: 18th February, 2011.

+ CS(OS) No.1998 of 1993

% M/S BHANU CONSTRUCTION CO. PVT.LTD. .... Plaintiff

Through: Mr. Ali Naqvi & Mr. Abhishek
Singh, Advocates.

Versus

NATIONAL THERMAL POWER CORP. LTD.

SINCE SUCCEEDED BY POWER GRID CORP. OF
INDIA LTD. .... Defendant/Objector
Through: Mr. B. Datta, Sr. Advocate with Mr.
R.K. Joshi & Mr. Jyotinder Kumar,
Advocates.
CORAM :-
HON'BLE MR. JUSTICE RAJIV SAHAI ENDLAW
1. Whether reporters of Local papers may
be allowed to see the judgment? No.

2. To be referred to the reporter or not? No.

3. Whether the judgment should be reported No.

in the Digest?

RAJIV SAHAI ENDLAW, J.

1. The suit was registered upon arbitration award dated 22 nd July, 1993 being filed by the
arbitrators in this Court. Notice of filing of the award CS(OS) No.1998/1993 was issued. Objections
(I.A. No.4972/1994) under Section 30&33 of the Arbitration Act, 1940 of the defendant to the award
are for consideration. No objections to the award have been preferred by the plaintiff. Usual issues
were framed on 8 th March, 1995. Synopses of submissions were filed by the parties. I.A.
No.12307/1999 has been filed by the plaintiff under Section 17 of the 1940 Act contending that
Arbitral Tribunal had sent intimation to the parties also of the filing of the award in this Court; that
the objections to the award ought to have been filed by the defendant within 30 days from such
intimation and not within 30 days of the service of the notice of filing of the award issued by this
Court; that the objections are liable to be dismissed on this ground only and seeking to immediately
make the award rule of the court. The said application was also directed to be taken up for hearing
along with the objections. However no arguments on the said application were urged at the time of
hearing or in the written synopsis. The counsels for the parties have been heard on the objections to
the award.

CS(OS) No.1998/1993

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2. The disputes and differences arose between the parties out of the contract for the work of 400 KV
Single Circuit Transmission Line from Cuddapah to Bangalore against Specification No.CC-35-176.
The Arbitral Tribunal comprised of three technical experts with two being nominees of each of the
parties and the third having been nominated by the President of the Institution of Engineers India
in terms of the agreement between the parties. Both parties filed claims against each other before
the Arbitral Tribunal. The time for making of the award was extended from time to time; 24 sittings
held and a unanimous award announced allowing ten out of sixteen claims of the plaintiff and
disallowing all the claims of the defendant.

3. Objections to the award running into 67 pages have been preferred by the defendant. It is pleaded
that the work was to be completed by 1 st January, 1985; however the progress of the work from the
very beginning was not commensurate with the Bar chart/work programme agreed upon under the
contract; that the plaintiff did not accelerate the progress of the work inspite of repeated reminders
of the defendant; on the contrary the CS(OS) No.1998/1993 plaintiff requested for financial
assistance and the defendant though not bound to, agreed to and advanced monies on the condition
that the same shall be paid directly to the producers and suppliers nominated by the plaintiff and
the plaintiff shall furnish bank guarantee for equivalent amount to the defendant; that the plaintiff
still delayed the completion even beyond the extension of 13 months, causing huge loss to the
defendant; that resultantly some part of the work was off-loaded from the scope of the work of the
plaintiff and awarded at the risk and cost of the plaintiff to M/s Best & Crompton on 15th July, 1985;
that the plaintiff could not improve the progress of the remaining work inspite thereof; that
resultantly some more work was off-loaded on 15th November, 1985, again to M/s Best & Crompton
with the consent of the plaintiff; that the plaintiff could complete the work only on 30th June, 1986
and sought extension of time for completion till 31st August, 1986. It is further pleaded that the
plaintiff while filing claims before the Arbitrators, preferred new claims (i.e. 17 to

25) and which were not raised earlier and for which the Arbitral Tribunal CS(OS) No.1998/1993 had
not been constituted; that upon objection being taken by the defendant, the Arbitral Tribunal also
held the said claims to be beyond its jurisdiction.

4. The senior counsel for the defendant has at the outset contended that the award is liable to be set
aside (i) because two claims have been allowed on equity inspite of finding the claims to be
contractually impermissible;

(ii) The Arbitral Tribunal has itself given extension of time for completion of work and which was
beyond its jurisdiction; (iii) inspite of the letter of the plaintiff that it will not claim any escalation,
allowed the claim for escalation; (iv) claims have been allowed inspite of finding under Issue No.15
of there being no proof; (v) allowed interest at the high rate of 18% per annum which itself runs into
crores of rupees.

5. The senior counsel has thereafter made submission claim-wise.

6. Claim No.I of the plaintiff of `.18.623 lacs for reimbursement of extra expenditure for vetting the
designs by a foreign company has been allowed for `6.18 lacs.

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The Arbitral Tribunal found that though collaboration with a specific foreign party was not
envisaged in the invitation to tender, in the bid or CS(OS) No.1998/1993 even in the extensive post
bid and pre-award correspondence but the defendant had prevailed upon the plaintiff to qualify
themselves by suitable collaboration. However the Arbitral Tribunal in para 52.1.3 of the award
agreed with the defendant that the collaboration was not under duress as pleaded by the plaintiff. It
was however held that since the defendant had reaped the benefit of access to diversified foreign
know-how in design, it was liable to pay 50% of the foreign exchange expenditure incurred by the
plaintiff in this regard i.e. `6.18 lac and which has been awarded to the plaintiff.

7. The senior counsel for the defendant has argued that the plaintiff cannot possibly be entitled to
expenditure incurred by it for being eligible to bid or to enter into the contract with the defendant
and in the face of the finding that the defendant had not so compelled the plaintiff, the award for
`6.18 lac is bad. It is further contended that the contract was an item rate contract and there is no
item providing for the said claim; that the Arbitral Tribunal under Issue No.10 has held that
contractually the expenditure is not reimbursable but has sought to justify the claim by holding that
neither CS(OS) No.1998/1993 of the parties at the time of award of the work were aware of the
implications of adopting U.S. practice in carrying out the design and since there were difficulties and
delays in obtaining release of foreign exchange and different practices in working out L/R ratio etc.;
in equity, extra expenditure is to be considered for reimbursement in the relevant context. It is yet
further shown that the Arbitral Tribunal under Issue No.29 held that the plaintiff did not possess
the qualifying requirement as per NIT when it made the offer and became qualified only in March,
1982 when entered into the foreign collaboration and owing whereto the work was awarded to them.
It is further shown that under Issue No.31 the Arbitral Tribunal has held that the plaintiff was
contractually obliged to furnish to the defendant designs duly vetted by the foreign collaborators.

8. Per contra, the counsel for the plaintiff has contended that once an award is found to be fair and
honest and not based on unsound legal proposition, the Court should not sit in appeal over it and no
case of misconduct can be said to be made out. Reliance is placed on U.P. State Electricity Board v.
Pateshwari Electricals and Associated Industries (P) CS(OS) No.1998/1993 Ltd. 1991 (Supp) 2 SCC
718 to contend that the Arbitrator can award any compensation/claim on the basis of equity.
Reliance is also placed on Section 70 of the Indian Contract Act, 1872 to contend that it itself is an
equitable law and its scope is much larger than the principle of quantum meriut as explained in
Food Corporation of India v. Vikas Majdoor Kamdar Sahkari Mandli Ltd. (2007) 13 SCC 544.

Reliance is also placed on:-

a) Ispat Engineer and Foundry Works v. SAIL (2001) 6 SCC 347 (paras 3,4&5);

b) Pure Helium India Pvt. Ltd. v. Oil & Natural Gas Commission (2003) 8 SCC 593 (paras
19,20,22,23,25,27,31,32,33&36);

c) N. Chellappan v. Secretary, Kerala State Electricity Board (1975) 1 SCC 289 (paras 11,12&13);

d) State of UP v. Allied Constructions (2003) 7 SCC 396 (para 4);

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e) Smt. Santa Sila Devi v. Dhirendra Nath Sen AIR 1963 SC 1677 (paras 10&13);

CS(OS) No.1998/1993

f) Goa, Daman & Diu Housing Board v. Ramakant V.P.

Darvotkar AIR 1991 SC 2089 (para 12);

g) Food Corporation of India v. Joginderpal Mohinderpal Singh AIR 1989 SC 777 (paras 7,8 & 10);

h) Coimbatore Dist. P.T. Sangam v. Bala Subramania Foundry AIR 1987 SC 2045 (para 7);

i) Vikas Majdoor Kamdar Sahkari Mandli Ltd. (supra) (para 5,11,16,19,20 & 21);

j) K.N. Sathyapalan v. State of Kerala (2007) 13 SCC 43 (distinguishes Alopi Parshad & Sons Ltd. v.
UOI AIR 1960 SC

588) - (paras 5,6,11,14,15,16,17,18,24,25,26,27 & 31);

k) Civil Engineers (India) v. DDA 60 (1995) DLT 26 (para 6);

l) MCD v. Jagan Nath Ashok Kumar (1987) 4 SCC 497 (paras 2,3,4,5 & 6);

CS(OS) No.1998/1993

m) Arosan Enterprises Ltd. v. UOI (1999) 9 SCC 449 (paras 1,13,14,15,21,24,26,27 & 39).

n) Sudarsan Trading Co. v. Govt. of Kerala (1989) 2 SCC 38 (paras 28,29 &30).

9. The settled position in law is that an Arbitral Tribunal is a creature of the agreement. Reference in
this regard may also be made to -

(a) Rajasthan State Mines & Minerals Ltd. v. Eastern Engineering Enterprises (1999) 9 SCC 283;

(b) Steel Authority of India Ltd. v. JC Budharaja, Govt. & Mining Contractor (1999) 8 SCC 122;

(c) Grid Corporation of Orissa Ltd. v. Balasore Technical School (2000) 9 SCC 552; and

(d) Ramnath International Construction (P) Ltd. v. UOI (2007) 2 SCC

453. CS(OS) No.1998/1993 The Arbitral Tribunal cannot award beyond the agreement. Once the
Arbitral Tribunal had concluded that under the contract the plaintiff was not entitled to the
expenses incurred on foreign collaboration, the Arbitral Tribunal had no jurisdiction to allow the
said claim for the reason of the defendant having benefited therefrom. Moreover once it was found

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that the plaintiff, to be eligible to enter into the contract, was required to have a foreign
collaboration, the senior counsel for the defendant is correct in contending that the expenses for
becoming eligible could not be claimed. I have therefore no hesitation in allowing the said objection
and in setting aside of the award in so far as allowing Claim No.I of the plaintiff for `6.18 lacs.

10. The Claim No.II of the plaintiff for `50.86 lacs towards reimbursement of extra expenditure
incurred on account of difference in weight of fabricated tower parts and bolts & nuts i.e. difference
between the actual weights and those as per LOA has been allowed for `10.40 lacs.

It was the case of the plaintiff that the foreign collaborator while following the defendant's
specifications worked out the L/R ratio according to the practice prevailing in America - had Indian
design CS(OS) No.1998/1993 practice been followed, there would have been a reduction in the
tower height; owing thereto excess expenditure had to be incurred and which the plaintiff computed
to be of 319 tonnes costing ` 50.86 lacs. The defendant though admitted increased weight owing to
the US practice having been followed, contended that they had nothing to do with it. The Arbitral
Tribunal without giving any reason under Claim No.II as to why the plaintiff was entitled to the said
amount assessed extra weight and the expenditure incurred thereon to be of ` 10.40 lacs which were
awarded to the plaintiff.

11. The senior counsel for the defendant has drawn attention again to the finding of the arbitrators
on Issue No.10 holding that contractually the extra expenditure incurred is not reimbursable and
the finding on Issue No.13 to the effect that the design was to be made by the plaintiff in
collaboration with the foreign party and the plaintiff was liable to execute the work at quoted rates.
It is shown that the basis of the price payable under the contract was per tower basis and no claim
for extra expenditure if CS(OS) No.1998/1993 any incurred by the plaintiff in designing and
manufacturing the tower could be claimed.

12. The arguments of the counsel for the plaintiff in opposition are the same as in the case of Claim
No.I above.

13. I am of the opinion that the award of `10.40 lacs under Claim No.II is not only inconsistent to
the findings under Issues No.10&13 but again beyond the agreement and thus the said award also
cannot be sustained and is set aside. The Apex Court decision in Union of India v. Pundarikakshudu
& Sons (2003) 8 SCC 168 is also an authority on the proposition that arriving at inconsistent
findings as regards breach of contract is a legal misconduct.

14. Claim No.III of the plaintiff for `2.04 lacs towards reimbursement of extra expenditure incurred
on excavation and concreting has been allowed for `51,000/- .

It was the case of the plaintiff itself that excess work was caused owing to intervention of U.S.
practice. The arbitrators for the same reasons CS(OS) No.1998/1993 as for Claim No.II, scaling
down the amount of the claim, awarded `51,000/-.

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15. The arguments of the counsels with respect to the said claim are the same as with respect to
Claim No.II. The award for Claim No.II having been set aside, the award of `51,000/- under Claim
No.III has to necessarily go.

16. Claim No.IV of `52.92 lacs for balance amount payable towards price variation i.e. difference of
the amount entitled to and actually paid has been allowed for `49.86 lacs.

The Arbitral Tribunal held that the date of completion was 1 st January, 1985; owing to prevailing
conditions the same was extended till 31st January, 1986; that the defendant however withheld
further extension to pressurize the plaintiff into completion; that subsequent evidence and
behaviour of the parties justified extension of the completion period up to 30th June, 1986 and the
insistence of the defendant for completion by 31st January, 1986 was not justified. On the said basis
price variation was allowed and the claim of ` 49.86 lacs accepted.

CS(OS) No.1998/1993

17. The senior counsel for the defendant has with reference to Clauses 22.3, 22.4.3, 13.7 of the GCC
Volume-I and Clause 6 of Letter of Award dated 31st March, 1982 contended that no escalation was
payable for the period of time between the scheduled date of shipment and the actual date of
shipment. Attention is next invited to the finding returned under Issue No.12 holding the off-loading
of part of the work as justified and the targets given being very high and incapable of performance.
It is argued that the Arbitral Tribunal cannot re-write the contract or extend time of performance of
the contract. It is also argued that once the targets had been agreed to, the question of arbitrators
holding the same to be high did not arise. It is argued that there is no calculation or formula or basis
given for arriving at the figure of `49.86 lacs awarded. It is urged that the price variation granted is
for the extension allowed from 1st February, 1986 to 30th June, 1986. It is also urged that while on
the same evidence Claim No.V also on account of price variation has been rejected, Claim No.IV has
been allowed. Attention is also invited to the finding under Issue No.15 where the risk between the
owner and the contractor was directed to be CS(OS) No.1998/1993 borne in the percentage of 60%
by the defendant and 40% by the plaintiff. It is argued that even if the Claim No.IV were to be
allowed, there is no reason why the entire burden has been put on the defendant and at least 40%
not directed to be shared by the plaintiff.

18. The counsel for the plaintiff has argued that the findings of the arbitrators with respect to the
time for performance cannot be interfered with. Reliance in this regard is placed on:-

i. Jagan Nath Ashok Kumar (supra);

ii. Arosan Enterprises Ltd. (supra);

iii. McDermott International Inc. v. Burn Standard Co. (2006)

11 SCC 181 (paras 86,87 &88)

iv. J.K. Industries Ltd. v. Texmaco Ltd. MANU/DE/1314/2009

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v. Hind Construction Contractors v. State of Maharashtra

(1979) 2 SCC 70 (paras 7,8,9 & 10).

CS(OS) No.1998/1993

19. Though I agree with the contention of the plaintiff that the findings regarding time of
performance returned in the award are not to be interfered but I am unable to find any reason in the
award for allowing the claim for `49.86 lacs. The award does not state that the defendant had
admitted the said claim, for there being no need for the plaintiff to prove the same. The award does
not even state as to how and in accordance with which formula price variation has been worked out.

20. It is also not the case that the arbitrators were required to give a non- speaking award. The
arbitrators are required to give reasons and not finding any reason whatsoever for allowing the
claim in entirety of `49.86 lacs, there is no option but to set it aside.

21. Claim No.VI of `11,29,711/- was for refund of amount recovered unjustly on account of
off-loading portion of the work of tower erection and stringing to M/s Best & Crompton.

The said claim has been allowed in entirety for the findings under Issue No.12 i.e. of the targets set
being high.

CS(OS) No.1998/1993

22. It is undisputed that the work was off-loaded with the consent of the plaintiff and at the cost and
risk of the plaintiff. Once that was so, the reasoning of the arbitrators that the targets were high and
incapable of achievement is nothing but misconduct. The arbitrators again have entered into the
arena of changing the contract between the parties and of which the Arbitral Tribunal being itself a
creature of the contract, could not have done. Once the plaintiff had agreed to the targets, it did not
lie in the mouth of the plaintiff to plead that the targets were unrealistic or beyond achievement. The
plaintiff could have been relieved of the said targets only on the ground of a contributory failure on
the part of the defendant. That is not the case here. Without that being the case, the defendant was
justified in deducting from the amounts due to the plaintiff the extra amount incurred by it in
off-loading part of the work to M/s Best & Crompton at the risk of the plaintiff. The award against
Claim No.VI is also accordingly set aside.

CS(OS) No.1998/1993

23. Claim No.VII of `.20.46 lacs for reimbursement of extra expenditure incurred on extra cut
points for single and double circuits of the transmission line has been allowed for `13,81,000/- .

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The defence of the defendant to the said claim was that such variation was a normal feature. The
Arbitral Tribunal found the variation to be against the industry norm and assessed in Appendix-12
to the award the amount to which the plaintiff was entitled to on this account at `13,81,000/-.

24. The senior counsel for the defendant has argued that the arbitrators, for allowing the said claim
have relied on their own professional experience in the matter and also claimed to have consulted
practicing professionals in the field. It is argued that neither any notice of the same was given to the
defendant nor the defendant given any opportunity to cross examine the said professionals. From
the Tender documents/contract it is shown that there is no mention of cut points. It is thus urged
that no award for additional work for excess cut points could have been made. CS(OS)
No.1998/1993

25. I am unable to agree. The parties had chosen technical persons as their own nominees as
arbitrators and had entrusted the appointment of the third arbitrator also to an expert body. The
appointment of such experts was not without reason. The parties understood that the adjudication
required expert knowledge possessed by the Arbitral Tribunal and relied on that for making of the
award. The defendant cannot now be heard to state that such experts ought not to have used their
knowledge and expertise in the field. The Division Bench of this Court in Em & Em Associates Vs.
DDA AIR 2003 Delhi 128 has held that the modern tendency especially in commercial arbitrations
is to uphold the awards of skilled persons that the parties themselves have selected. Similarly the
consultation by the arbitrators with professionals currently in the field also cannot tantamount to
misconduct. The arbitrators though experts were no longer in active practice. No error can be found
in their re-assuring themselves that their knowledge/expertise had not been outdated and as to the
prevalent norms. The arbitrators were not required to involve the parties or to give an opportunity
of cross examination qua the said consultation. The arbitrators CS(OS) No.1998/1993 have in
Appendix-12 given the reasons for arriving at the awarded amount of `13,81,000/-. Thus the
objections qua award on Claim No.VII are without any merit and are dismissed.

26. Claim No.IX of `15.03 lacs for reimbursement of extra cost incurred in fabricating extra tonnage
of tower parts has been allowed for `9 lacs.

It was the admitted position that in the exigencies and urgencies of the project the plaintiff was
required to carry out the said work. The arbitrators as aforesaid had apportioned the said liability as
60% of the defendant and 40% of the plaintiff. There does not appear to have been any dispute of
the amount spent in the same. The arbitrators accordingly apportioned the liability of the defendant
as 60% i.e `9 lacs.

27. The senior counsel for the defendant has argued that the said claim is the same as Claim No.II
(supra). I am unable to agree. The said claim was not on account of the American design but owing
to extra cost admittedly incurred owing to exigencies and urgencies of the project. CS(OS)
No.1998/1993

28. The senior counsel has next argued that the arbitrators have overlooked the contention of the
defendant, of the plaintiff under the contract being required to take out insurance against such risks.

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Attention is invited to the terms of the contract in this regard. It is also argued that the award is in
ignorance of the pleadings. It is thus contended that the responsibility for the risk was to be solely of
the plaintiff and 60% thereof could not have been saddled on the defendant.

29. The courts have held that merely because an arbitrator has wrongly construed a contractual
provision is no ground for setting aside of the award. When the parties agree to refer their disputes
to arbitration they are bound by the interpretation by the Tribunal of the terms of the contract
whether right or wrong. Reference in this regard can be made to -

(a) Hindustan Construction Co. Ltd. v. State of J&K (1992) 4 SCC 217;

CS(OS) No.1998/1993

(b) Himanchal Pradesh State Electricity Board v. R.J. Shah & Co.

(1999) 4 SCC 214 .

If such grounds were to be permitted, then the jurisdiction exercised in the matter of the perversity
would be appellate and which the legislature has not provided for. A case for interference is made
out only when perversity is shown. I am unable to find any element of perversity in the award qua
Claim No.IX. The objections of the defendant to the award under the said claim are accordingly
dismissed.

30. Claim No.XII for `124.21 lacs towards extra expenditure incurred on overheads beyond the
stipulated agreement period has been allowed for `23 lacs.

While it was the contention of the defendant that the delays beyond 1stJanuary, 1985 were
attributable to the plaintiff and thus the plaintiff should bear the entire costs in full, the plaintiff
attributed the delays to the defendant. The Arbitral Tribunal in view of the finding aforesaid that
insistence by the defendant on completion by 31 st January, 1986 was not justified, and further in
view of the finding that the plaintiff after 31st CS(OS) No.1998/1993 January, 1986 repeatedly
promised performance to agreed levels and then repeatedly failed, held that both parties should
share the overheads equally. The Arbitral Tribunal computed the overheads for 18 months of delay
i.e. from 1st January, 1985 to 30th June, 1986 at `44.34 lacs and accordingly passed an award for
half of that amount i.e. `22.17 lacs say `23 lacs as aforesaid.

31. The senior counsel for the defendant has argued that the heading of the claim itself shows that
the claim is de hors the contract. It is contended that the said claim again amounts to re-writing of
the contract by the arbitrators. Reliance is placed on:-

1) Rickmers Verwaltung GMBH v. Indian Oil Corporation Ltd.

1999(1) SCC 1 (para 13);

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2) Asstt. Excise Commissioner v. ISSAC Peter 1994(4) SCC 104;

3) Shin Satellite Public Co. Ltd. v. Jain Studios Ltd. (2006) 2 SCC 628 (para 15);

CS(OS) No.1998/1993

4) Forbes Gokak Ltd. v. Central Warehousing Corporation 2003 (1) RAJ 200 (Del) (paras 50,51).

32. It is further urged that though in para 35.1 the arbitrators have held that the damages for
respective breaches have to be arrived at on the basis of actual loss sustained, in paragraphs 52.12.2,
"in the absence of hard unchallengeable evidence" assessment has been made on rough estimates. It
is thus argued that the award is without any basis. Claiming inconsistency and relying on:-

1) K.P. Poulose v. State of Kerala AIR 1975 SC 1259;

2) V.G. George v. Indian Rare Earths Ltd. AIR 1999 SC 1409 ;

3) Bombay Ammonia Pvt. Ltd. v. UOI AIR 1987 Delhi 148, setting aside of the award
is sought.

33. Reliance is also placed on:-

A. Sikkim Subba Associates v. State of Sikkim (2001) 5 SCC 629;

B. Bombay Ammonia Pvt. Ltd. (supra)

CS(OS) No.1998/1993

to contend that award without evidence is liable to be set aside.

34. It is yet further pleaded that the contract period having been extended from 1st January, 1985 to
31st January, 1986, no overhead for the said period in any case could have been awarded. Attention
is also invited to para 52.12.2 (a) of the award where it is recorded that the PV formula applied by
the arbitrators comprised of overheads also.

35. Per contra, the counsel for the plaintiff has contended that the arbitrators having recorded that
full and fair opportunity had been given to the parties, no case for misconduct can be said to have
been made out. Reliance is also placed on paras 85 to 88 of McDermott International Inc. (supra) to
contend that time is not of the essence in construction contracts. Attention is invited to the letter
dated 3rd September, 1984 listing delays attributable to the defendant and to the bid proposal to
show that the prices were valid for six months. It is contended that all specifications were as per
Indian standards and arbitrators having returned a factual finding of CS(OS) No.1998/1993
American standards having been used and the defendant having benefitted therefrom, there is no
defect capable of interference in the award.

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36. The senior counsel for the defendant has rejoined by drawing attention to para 108 of the
judgment in McDermott International Inc. to contend that in that case also the Ld. Arbitrator had
insisted that sufferance of actual damages must be proved by bringing on record books of accounts.

37. Having held the extension of period of performance from 1 st February, 1986 to 30th June, 1986
by the arbitrators to be bad, the award awarding overheads for the said period has to be
axiomatically set aside. The question which arises is whether the award for the period 1 st January,
1985 to 31st January, 1986 requires interference or not. Need is not felt to go into the said question
since from the award as it stands, the amount awarded of `23 lacs cannot be segregated. Thus the
entire award under Claim No.XII has to be set aside.

CS(OS) No.1998/1993

38. I am also of the opinion that no award could have been made on "imponderables and rough
estimate" admittedly used by the arbitrators. The PV formula used of 25% was for the fixed elements
"including" overheads and not overheads alone. There is no basis whatsoever for the arbitrators
assuming that overheads formed 50% of the fixed elements. Similarly, the other formula adopted
was also on estimates. The arbitrators failed to render an award of the claim on merits and to return
a finding on whether the claim of the plaintiff of overheads of `124.21 lacs was established or not.
The only conclusion which follows is that the plaintiff had failed to establish the claim. The
arbitrators instead of dismissing the claim tried to make out a new case and which is not permissible
in law.

39. Claim No.XIII of `.3.40 lacs towards reimbursement of extra expenditure incurred in furnishing
bank guarantee beyond the stipulated agreement has been allowed for ` 1,51,526/-

The said amount was claimed by the plaintiff for expenses incurred in furnishing Bank Guarantee
beyond the originally stipulated completion date of 1st January, 1985. The arbitrators on the basis of
finding that both CS(OS) No.1998/1993 parties were equally to blame for the delays awarded half of
that amount i.e. `1,51,526/-.

40. The senior counsel for the defendant has contended that as per the contract the plaintiff was
bound to keep the Bank Guarantee alive for a period of 15 months from the original date of
completion; that the plaintiff had completed the line on 30 th June, 1986 and as such was bound to
keep the bank guarantee alive in any case till 30 th September, 1987 and thus the claim for expenses
incurred could not have been allowed. The counsel for the plaintiff has again contended that the
findings are factual in nature not capable of interference. The senior counsel for the defendant also
invited attention to statement XIII A giving the computation of the amount of `3.40 lacs claimed by
the plaintiff. It is shown that though the claim was in respect of contract performance guarantee
only but the amount claimed included expenses of other guarantees also and with respect to which
no claim was made.

CS(OS) No.1998/1993

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 M/S Bhanu Construction Co. ... vs National Thermal Power Corp. Ltd. ... on 18 February, 2011

41. The counsel for the plaintiff has not argued that the objections now raised by the defendant did
not form the defence of the defendant to the claims before the arbitrators. The award is completely
silent with respect to the defences of the defendant. I find the arbitrators to have misconducted
themselves in not adjudicating the dispute raised before them and in not even considering the pleas
of the defendant. The award is liable to be dismissed on this ground alone.

42. The Arbitral Tribunal has awarded interest (i) at 18% per annum pre reference amounting to `
25,07,436/-, (ii) at 18% per annum pendente lite from the date of reference i.e. 20 th June, 1988 to
the date of award and also

(iii) at 18% per annum from the date of the award i.e. 22 nd July, 1993 till the date of actual payment
or date of decree whichever is earlier.

43. The senior counsel for the defendant has contended that the award of pre reference interest is
contrary to the Interest Act, 1978; it is urged that the notice claiming interest as mandated by
Section 3 (b) of the Interest Act, 1978 was given only on 15 th November, 1987 and thus CS(OS)
No.1998/1993 interest prior thereto could not have been awarded. Reliance in this regard is placed
on Superintending Engineer v. B. Subba Reddy AIR 1999 SC 1747. Objection is also taken to the rate
of interest awarded claiming it to be highly excessive. Lastly, it is contended that no interest could
have been awarded for the period for making the award Rule of the Court. Reference in this regard is
made to Section 29 of the Arbitration Act, 1940.

44. I am unable to, in exercise of jurisdiction under Sections 30&33 of the 1940 Act find a ground
for interference with the award of interest for pre reference period. The Supreme Court recently in
Sree Kamatchi Amman Constructions v. Railways (2010) 8 SCC 767 relying upon the Constitution
Bench judgment in Dhenkanal Minor Irrigation Division v. N.C. Budharaj (2001) 2 SCC 721 held
that the arbitrator has the jurisdiction to award interest pre-reference, pendente lite and future if
there is no express bar in the contract regarding award of interest. No such bar has been shown in
the present case. As far as award of interest pendente lite is concerned also, in view of the judgments
in (a) M/s. Manalal Prabhudayal v. Oriental Insurance Co. Ltd. AIR 2006 SC 3026; CS(OS)
No.1998/1993

(b) Bihar Sponge Iron Ltd. (BSIL) v. Rail India Technical & Economic Services Ltd. 132 (2006) DLT
489 (DB); (c) MMTC Ltd. v. Sineximco Pte. Ltd. 2009 (V) AD (Del.) 748; (d) Union of India v.
Saraswat Trading Agency JT 2009 (9) SC 648 and (e) Sayeed Ahmed & Co. v. State of U.P. (2009) 12
SCC 26, interference with rate awarded is impermissible. Section 29 of the Act only empowers the
Court to award interest from the date of the decree to the date of payment. However the fact
remains that the proceedings for making the award Rule of the Court have remained pending in the
Court for an unusually long time. On account thereof only, it is deemed appropriate to balance the
equities. The Supreme Court in (i) Pure Helium India (P) Ltd.(supra) (ii) Krishna Bhagya Jala
Nigam Ltd. v. G. Harish Chandra Reddy (2007) 2 SCC 720 and (iii) U.P. Coop. Federation Ltd. v.
Three Circles (2009) 10 SCC 374 has reduced the rate of interest from 18% per annum. In the facts
and circumstances of the case, it is deemed expedient to vary the rate of interest from the date of
filing of the award in this Court and till this date from 18% per annum to 10% per annum. The

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 M/S Bhanu Construction Co. ... vs National Thermal Power Corp. Ltd. ... on 18 February, 2011

plaintiff shall also be entitled CS(OS) No.1998/1993 to interest from the date of the decree till the
date of payment at 10% per annum.

45. In so far as the counter claims of the defendant are concerned, the senior counsel for the
defendant has made submissions only with respect to the rejection of the Counter Claim No.V of `
22.99 lacs for liquidated damages. The Arbitral Tribunal has rejected the said counter claim of the
defendant on account of the defendant being equally responsible for the delays.

46. The finding of the Arbitral Tribunal of the defendant also being responsible for delay, is a finding
of fact and cannot be interfered with in exercise of jurisdiction under Sections 30 & 33 of the Act. No
merit is therefore found in the objections of the defendant to the rejection of the said counter claim.
The said objection is accordingly rejected.

47. No other arguments have been raised.

CS(OS) No.1998/1993

48. The award as modified hereinabove is accordingly made Rule of the Court and a decree in terms
thereof is passed as aforesaid. The plaintiff shall be entitled to interest on the principal amount from
the date of the decree till the date of payment @10% per annum. No order as to costs.

RAJIV SAHAI ENDLAW (JUDGE) FEBRUARY 18th, 2011 pp..

CS(OS) No.1998/1993

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