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Judgment
S. Rajeswaran, J.—The petitioner has filed this O.P., u/s 34 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the
Act) to set aside the arbitral award of the arbitrator dated 17.12.2003 awarding a sum of Rs. 1,62,04,140/- together with interest at 9% from
15.9.1999 to the date of payment on the grounds of Section 34(2)(iv) of the Act and for costs.
The petitioner company is an expert in the field of electrical and mechanical engineering and the first respondent company are engaged in the
business of execution of civil construction works.
The Government of Andhra Pradesh called for tenders in respect of Andhra Pradesh Irrigation Command Area Development Department
Turnkey Project. In order to submit the tenders, both the petitioner and the 1st respondent entered into a Memorandum of Understanding (MoU)
on 20.1.1999. As per the MoU, the petitioner would bid for both the projects and in the event of the works being awarded to the petitioner, the
1st respondent would be responsible for the entire civil construction for the projects including the supply of the materials plus the works related or
connected with the civil construction required under the terms of the contract. As per the understanding, the 1st respondent was designated as the
associate contractor of the petitioner and the terms and conditions of the contract between the petitioner and the Government of Andhra Pradesh
was applicable to the 1st respondent on Back to Back basis. The tender submitted by the petitioner in respect of the two projects was accepted
by the Government of Andhra Pradesh on 2.4.1999. On 22.4.99, the petitioner entered into a contract agreement with the Irrigation Department,
Govt. of Andhra Pradesh and the date of agreement is reckoned as the date of commencement of the contract. The 1st respondent commenced
the work on 22.4.99. On 30.4.99 the petitioner issued a Letter of Intent to the 1st respondent to proceed and complete the civil and allied work
for a lump sum package of Rs. 7,74,74,626/-. The time schedule for the work was 7-1/2 months. The entire civil construction work in respect of
the bridge was comprised of Hydraulic structures for which the key element was. the design and drawings of these structures. As per the terms of
the contract agreement between the petitioner and the Andra Pradesh Government, the Government has to provide design and drawings for the 10
activities within 15 days of commencement of the contract period and all the designs and drawings were to be finalised before 30 days of
commencement of any activity. The lst respondent claimed that the petitioner herein failed to issue approved designs and drawings as provided
under the agreement. According to 1st respondent, the petitioner issued drawings only for 8.1% of the total contract from 26.5.1999 to 15.9.99.
The 1st respondent also claimed that they executed certain works apart from the original contract. The 1st respondent also alleged that they
engaged external consultants and submitted alternative designs and drawings for the construction of the approach bridge in stage.1 which was
worth 45% of the total contract price and the final approval of drawings was not issued by the petitioner. But the petitioner used the drawings
submitted by first respondent through another party to complete the construction without the concurrence of the 1st respondent. According to the
the 1st respondent, the petitioner has not paid the amount due to them as per the terms of the contract. Therefore misunderstandings and disputes
arose between the parties resulting in allegations and counter allegations. Finally the petitioner terminated the contract with the 1st respondent by
letter dated 15.9.99 alleging slow progress of work. Hence the claim petition was filed by the 1st respondent before the 2nd respondent for a total
claim of Rs. 3,99,22,559.43.
The petitioner filed a detailed reply statement before the arbitrator, the 2nd respondent herein. The petitioner has clearly stated that the delay in
completion of the civil work would ultimately lead to consequent delay in completion of the entire project. The time is essential for the completion
of the work and in case of any undue delay, the the petitioner has to pay liquidated damages at 10% of the contract value of Rs. 2.77 crores. The
1st respondent totally failed to meet their obligations and therefore the petitioner had no option except to terminate their contract. The 1st
respondent had completed hardly 6% of the work entrusted to them as on 15.9.1999, whereas they ought to have completed not less than 7 5%
of the work on that day. Out of the work entrusted, to the first respondent for a total value of Rs. 7,74,74,628/-, the first respondent had
completed the work to the value of Rs. 40,09,000/-. On 15.9.99 when it became obvious that 1st respondent could not complete the work within
the stipulated time, the petitioner terminated the MoU. The petitioner had categorically denied the plea of the 1st respondent that the delay is due
to the approval of the drawings and designs. In fact, it is for the 1st respondent to obtain designs and drawings from Government of Andhra
Pradesh and only on that understanding the 1st respondent was taken as an associated contractor. The petitioner has supplied the drawings to the
claimant to the extent of 40% of the work. Insofar as the additional work executed by the 1st respondent is concerned, it was not at all approved
by the Andhra Pradesh Government. The petitioner denied the claim of the 1st respondent that their drawings were issued by another party and
only after termination of MoU, the designs and drawings supplied by Andhra Pradesh Government were given to the third party to complete the
balance of civil work to meet the time schedule stipulated by the Government. Hence, according to the petitioner, the termination is neither bad nor
improper and they made a counter claim of Rs. 4,81,12,000/-.
The 2nd respondent arbitrator after framing necessary issues passed an award on 17.12.2003 in favour of the 1st respondent for a sum of Rs.
1,6204,136.38 together with interest and rejected the counter claim of the petitioner herein.
Challenging the said award dated 17.12.2003, the petitioner herein filed the above petition u/s 34 of the Act, 1996.
The petitioner assailed the award of the 2nd respondent dated 17.12.2003 on the following grounds:
(1) The 2nd respondent failed to consider the arguments advanced by the petitioner with regard to the available drawings which were 40% of the
total drawings with which the 1st respondent could have very well completed 40% of the work entrusted to them. (2) The 2nd respondent did not
consider the repeated plea of the petitioner by examining all the witnesses of Government of Andhra Pradesh to unravel the truth with respect to
the available drawings with 1st respondent. (3) The 2nd respondent is wrong in proceeding on the basis that one Manoj Khattanrange was the
representative of the Government of Andhra Pradesh. (4) The 2nd respondent went wrong while deciding the issue No. 1. (5) The 2nd respondent
did not give due weightage to the letter of Andhra Pradesh dated 25.8.1999. (6) The 2nd respondent did not consider the evidence of the said
Manoj Khattanrange with regard to the availability of drawings. (7) The 2nd respondent misconstrued the letter dated 24.8.99 issued by the
officials of the Andhra Pradesh Government (8) The 2nd respondent is wrong in not taking note the need of the subsequent events. (9) The 2nd
respondent is wrong in treating the extra work done by the 1st respondent as approved, without petitioner''s consent. (10) The 2nd respondent is
wrong in awarding Rs. 1,09,15,751,97/- towards loss of profit and (11) The 2nd respondent has not considered the loss of reputation of the
petitioner due to delay in completion of the work.
Heard the learned Counsel for the petitioner and the learned Senior Counsel appearing for the 1st respondent. I have also gone through the
documents filed and the judgment referred to by the in respect of their submissions.
Learned Counsel for the petitioner while reiterating the grounds raised in the petition submitted that 2nd respondent has committed a misconduct
in not permitting the petitioner to examine the Officers of the Andhra Pradesh Government who are the competent and best persons to speak
about the drawings and other related facts. Therefore, according to the learned Counsel, the 2nd respondent has failed to afford reasonable
opportunity to the petitioner and the award is consequently bad for violation of principles of natural justice.
The learned Counsel for the petitioner relied on the judgment of the Hon''ble Supreme Court reported in Sohan Lal Gupta (Dead) thr. L.Rs.
and Others Vs. Smt. Asha Devi Gupta and Others, for this purpose. The learned Counsel further contended that awarding a sum of Rs.
1,09,15,751,97 towards loss of profit is contrary to law and the award is to be set aside on that ground also.
Per contra, the learned Senior Counsel appearing for the 1st respondent submitted that the scope for setting aside the award is limited to the
grounds available under the Act, 1996 and setting aside of an arbitral award is restricted to the grounds enumerated u/s 34 of the Act, 1996. He
further submitted that when the termination of the contract is proved to be illegal, the erring party is legally bound to compensate the other party to
the agreement and therefore the 2nd respondent has properly awarded damages as expected profits out of the contract.
The learned Senior Counsel relied on the following judgments in support of his submissions : (1) State of Rajasthan and Another Vs. Nav
Bharat Construction Co., (2) A.T. Brij Paul Singh and Others Vs. State of Gujarat, (3) Dwaraka Das Vs. State of Madhya Pradesh and Another,
and (4) M. Anasuya Devi and Another Vs. M. Manik Reddy and Others, .
Section 34 of the Act, 1996 deals with setting aside an arbitral award on the grounds enumerated thereunder and none other. Therefore, the
scope u/s 34 is limited to the grounds available u/s 34. I am aware of the fact that this Court is not an appellate court to re-appreciate and re-
evaluate the evidence. In the light of the legal position.if the grounds raised in the petition are gone into, none of them would attract the provisions
contained and enumerated u/s 34. It is not for this Court to go through the entire evidence let in before the 2nd respondent to come to a different
conclusion even if it is possible and appears to be more reasonable. Therefore, I do not go into the appreciation of the evidence resorted to by 2nd
respondent to set aside the award as it is outside the purview of Section 34.
Insofar as the violation of the principles of the natural justice is concerned, it is for the petitioner to prove the misconduct of the arbitrator in
denying the principles of natural justice and it was otherwise unable to represent his case.
The learned Counsel for the petitioner vehemently contended that by not permitting the petitioner to examine the Government officials of
Andhra Pradesh who would throw more light on the drawings and other related works, a reasonable opportunity was denied to them to prove
their case.
I am unable to accept the submissions because the 2nd respondent has applied his mind and considered this question and clearly stated that
both the parties before him agreed that the issue of drawings was discussed in detail, it was not necessary to issue subpoena to the officials of the
Andhra Pradesh Government. The 2nd respondent in para 56 and 57 of the award dealt with this issue, which is as follows:
Before completing the award, I have to mention about 2 petitions filed by the parties. One petition was filed by the complainant to issue
subpoena to the Project Administrator and Superintending Engineer, Jagalnadu Lift Irrigation and Command Area Development Department,
Government of Andhra Pradesh to produce the documents listed in the schedule to the petition. The respondent undertook to produce all the
documents and contended that there is no need to take up the subpoena. It was also represented that after the production of the documents by the
respondent if any particular document is wanting then, the issue of subpoena may be considered. The claimant themselves produced all the
documents referred to in the petition and the respondent did not dispute the genuineness of those documents also. Hence the parties agreed that no
order is necessary on the petition and proceeded with their arguments as there is no oral evidence as agreed by.
Another petition was filed on behalf of the respondent after two hearings, to issue subpoena to the Project Administrator and Superintending
Engineer to come and explain the drawings contained in Vol. IV and also regarding the work to be carried based on the said drawings to the
Arbitrator. Here again, the learned Senior Counsel for the respondent represented that the purpose of examining the Project Administrator is only
for the limited purpose of establishing that 40% of the work could have been completed with the plan available with the claimant. However, the
learned Senior Counsel undertook to produce an officer of the Andhra Pradesh Government to explain the same and accordingly Mr. Manoj
Kharangad came and explained as to how the claimant could have proceeded with the drawings already available with them. This aspect has
already been discussed in detail in the earlier part of the award and as such no separate order is necessary on this petition also. Hence, both the
petitions are closed.
In Sohan Lal Gupta (Dead) thr. L.Rs. and Others Vs. Smt. Asha Devi Gupta and Others, , the Hon''ble Supreme Court held as follows:
There cannot, therefore, be any doubt that a party does not have an unfettered right. The arbitrator cannot only ask a party to comply with
procedural orders and directions including those imposing limits as to time and content of submissions and evidence but the arbitrator also has a
right of managing the hearing. In Russell on Arbitration, 22nd Edn. the law is stated thus:
5-057 Managing the hearing Similarly, a Tribunal cannot be expected to sit through extended oral hearings listening to long-winded submissions on
irrelevant matters. The Tribunal is entitled, and u/s 33 is obliged and encouraged, to avoid the unnecessary delay and expense that would be
caused by such an approach. The Tribunal should take a grip on the proceedings and indicate to the parties those areas on which it particularly
wishes to be addressed and those which it does not consider relevant to the real issues in dispute. If a party fails to heed such guidance, the
Tribunal might seek to focus, the proceedings by allocating the remaining hearing time between the parties. This the Tribunal is entitled to do,
provided it will allow a reasonable time for both parties to put forward their arguments and evidence.
For constituting a reasonable opportunity, the following conditions are required to be observed:
Each party must have notice that the hearing is to take place.
Each party must have a reasonable opportunity to be present at the hearing, together with his advisers and witnesses.
Each party must have the opportunity to be present throughout the hearing.
Each party must have a reasonable opportunity to present evidence and argument in support of his own case.
Each party must have a reasonable opportunity to test his opponent''s case by cross-examining his witnesses, presenting rebutting evidence and
addressing oral argument.
The hearing must, unless the contrary is expressly agreed, be the occasion on which the parties present the whole of their evidence and
argument.
In the above judgment, the Hon''ble Supreme Court observed that for constituting a reasonable opportunity, each party must have notice of
hearing, each party must have a reasonable opportunity to be present at the hearing with witnesses, each party must have witness to present
evidence and arguments, each party must have opportunity to cross-examine the present evidence and to address oral argument, etc. It is not the
case of the petitioner that 2nd respondent has not allowed the party to be present in the hearings, to present their witnesses, argue the matter, to
examine the witnesses or to submit oral evidence and arguments. Therefor, it cannot be said that the principles of natural justice was violated by the
2nd respondent and no reasonable opportunity was afforded to the petitioner.
Insofar as awarding a sum of Rs. 1,09,15,751. 97 for loss of profit due to abrupt wrong termination is concerned, I am of the opinion that
there shall be a -reasonable expectation of profit which is implicit in a works contract and its loss has to be compensated by way of damages if the
other party is guilty of breach of contract. What would be the measure of profit would depend upon the facts and circumstances of each case. In
the present case the 2nd respondent has applied his mind to the evidence adduced before him and awarded the aforesaid amount towards the loss
of profit after clearly rendering a finding that the termination of the contract by the petitioner is not proper. In such circumstances, I cannot go
through the evidence again to come to a different conclusion which is different from that of the arbitrator, the 2nd respondent herein.
In A.T. Brij Paul Singh and Others Vs. State of Gujarat, , the Hon''ble Supreme Court held that when the party entrusting the work, commits
breach of contract, the contractor would be entitled to claim damages for loss of profit which he expected to earn by undertaking the works
contract.
In Dwaraka Das Vs. State of Madhya Pradesh and Another, , the Hon''ble Supreme Court held that when the breach of contract is held to
have been proved, being contrary to law and terms of the agreement, the erring party is legally bound to compensate the other party to agreement.
The other grounds raised by the learned Counsel for the petitioner is outside the scope of Section 34 and in M. Anasuya Devi and Another Vs.
M. Manik Reddy and Others, , the Hon''ble Supreme Court has clearly held that the scope of setting aside the award is limited to the grounds
available under the Arbitration Act and if the award does not come within the purview of the provisions of Section 34, the same cannot be set
aside.
Hence, I do not find any merits in the above petition and the same is liable to be dismissed. Accordingly, the above O.P. is dismissed. No
costs.