Governor of Kerala represented by the Secretary to Government, Public Works Department, Government Secretariat, Thiruvananthapuram v. Vijay Constructions Engineers and Contractors, Mykulangara, Kolenchery represented by its Managing Partner M. P. Ittoop

# **IN THE HIGH COURT OF KERALA AT ERNAKULAM** **PRESENT** **THE HONOURABLE MR.JUSTICE C.T.RAVIKUMAR** **&** **THE HONOURABLE MR.JUSTICE N.NAGARESH** **FRIDAY, THE 28TH DAY OF FEBRUARY 2020 / 9TH PHALGUNA, 1941** **Arb.A.No.33 OF 2019** **AGAINST THE ORDER DATED 28-09-2018 IN OP(ARB).594/2014 OF ADDITIONAL DISTRICT COURT-V, ERNAKULAM** ## **APPELLANTS:** **1 THE GOVERNOR OF THE STATE OF KERALA REPRESENTED BY THE SECRETARY TO GOVERNMENT, PUBLIC WORKS DEPARTMENT GOVERNMENT SECRETARIAT, THIRUVANANTHAPURAM - 695 001. 2 THE SUPERINTENDING ENGINEER PUBLIC WORKS DEPARTMENT, NH CENTRAL CIRCLE, VYTTILA, KOCHI - 682019.** **BY GOVERNMENT PLEADER SRI.K.V.MANOJKUMAR** ## **RESPONDENT:** **VIJAY CONSTRUCTIONS ENGINEERS AND CONTRACTORS MYKULANGARA, KOLENCHERY REPRESENTED BY ITS MANAGING PARTNER M. P. ITTOOP PIN - 682 311.** **BY ADV. SRI.RAJIV ABRAHAM GEORGE BY ADV. SRI.EAPEN ABRAHAM GEORGE** **THIS ARBITRATION APPEALS HAVING BEEN FINALLY HEARD ON 13-02-2020, THE COURT ON 28-02-2020 DELIVERED THE FOLLOWING:** **Arb. A. No.33 OF 2019** **2** ## **J U D G M E N T** ~ ~ ~ ~ ~ ~ ~ ~ ~ ## _**Dated this the 28[th] day of February, 2020**_ ## _**Nagaresh, J.**_ The State of Kerala is in appeal challenging the order dated 28.09.2018 in O.P.(Arbitration) No.594/2014 of the Court of the Additional District Judge-V, Ernakulam, invoking Section 37 of the Arbitration and Conciliation Act, 1996. 2. The appellant-State of Kerala awarded the work of “NH-49 Madhurai-Kochi road Special repairs Crash Programme - Improve riding quality and strengthening of B.T. surface” to the respondent-Firm for an amount of ₹1,29,74,385/-. Agreement was executed on 26.09.2000. The work was to be completed by 31.12.2000 as per the agreement. According to the appellant, the respondent was asked to take over the work site on 30.09.2000 but the **Arb. A. No.33 OF 2019** **3** respondent took over the site only on 12.10.2000. The work started on 21.01.2001. Supplemental Agreements C9 and C19 were executed between the parties whereby time period was extended. The work was completed by 30.04.2001. The respondent issued a No Claim Certificate, based on which their final bill was honoured on 23.01.2002. 3. After settlement of final bill, the respondent made further claim as per Ext.C37 and made an Arbitration Request. A Sole Arbitrator was thereupon appointed. The appellant alleges that the respondent made new claims before the Arbitrator, which were not included in Ext.C37 and which were not referred for arbitration. The Arbitrator entertained those claims also and passed the impugned Award dated 04.04.2014 in favour of the respondent for a sum of ₹41,91,947/- with interest at 9% from 19.08.2002, the date of Ext.C37 notice, with default interest at 12% if payment is not made within three months. 4. The appellant challenged the Award filing O.P. (Arbitration) No.594/2014 in the Court of the Additional **Arb. A. No.33 OF 2019** **4** District Judge-V, Ernakulam, invoking Section 34 of the Arbitration and Conciliation Act, 1996. The Additional District Judge, after considering the materials on record and various binding precedents of the Hon'ble Apex Court, concluded that the Arbitrator has applied his trained legal mind and the views and approach of the Arbitrator were not arbitrary or capricious. Hence, no interference is called for. It is aggrieved by the said order in O.P.(Arbitration) No.594/2014 dated 28.09.2018 that the appellant has preferred this Arbitration Appeal under Section 37 of the Act, 1996. 5. The learned Senior Government Pleader Sri.K.V.Manojkumar representing the appellant urged that the Arbitral Award dealt with disputes not contemplated by and not falling within the terms of submission to arbitration. It contained decisions on matters beyond the scope of the submission to arbitration and consequently Section 34(2)(a) (iv) of the Act, 1996 is violated. Only six claims were made in Ext.C37 notice, ten claims were raised before the Arbitrator and all the ten claims were adjudicated by the **Arb. A. No.33 OF 2019** **5** Arbitrator. As per Section 7 of the Act, disputes should be formulated before arbitration and only those disputes can be arbitrated. The learned Government Pleader relied on the judgment of the Apex Court in _**MSK Projects India (JV) Ltd. v. State of Rajasthan and another** [(2011) 10 SCC 573]_ to urge the point. The Award is in conflict with the public policy of India, thereby offending Section 34(2)(b)(ii) and hence the Award is liable to be set aside. Clause 2(b) of the terms of the contract mandated fine for granting extension of time beyond the grace period. Extension of time was granted as required by the respondent and a fine was levied. The Arbitrator erroneously held that such fine is not leviable. 6. Clause 6 of the terms required the contractor to take over charge of the site within ten days after executing agreement and commence work. The respondent was required to take over the site on 30.09.2000 but the site was taken over only on 12.10.2000. The work was originally to be completed by 31.12.2000, but the respondent commenced the work only on 21.01.2001. The respondent **Arb. A. No.33 OF 2019** **6** took two months to erect the plant. Any claim by the respondent based on delay in completion of work ought to have been rejected, as the delay is attributable only to the respondent. In Exts.C9 and C19 Supplemental Agreements signed by the respondent, it was agreed that no enhanced rate will be allowed on account of the extension of time. Validity of Exts.C9 and C19 was not questioned or challenged by the respondent. Yet the Arbitrator awarded damages towards infructuous expenses, machinery hire charges, prolongation charges, etc. which is unjustifiable. The Award goes against the observations of the Hon'ble Apex Court in _**Delhi Development Authority v. R.S. Sharma and Company** [(2008) 13 SCC 80]_ , contended the learned Government Pleader. 7. By Clause 9(4) of Special Conditions in the Agreement, it was agreed by the parties that fluctuations in market price should have no bearing on the Department for compensation. By Clause 10, it was agreed that contractor is bound to carry out items of work which are found **Arb. A. No.33 OF 2019** **7** necessary for proper completion of work during execution. Stacking of metal on one side of the road was a condition under Clause 17. Nevertheless, the respondent claimed stacking charges, which were illegally allowed by the Arbitrator, contended the learned Government Pleader. The learned Government Pleader pointed out that respondent's defence to No Claim Certificate signed by them was that it was signed under coercion. The respondent did not allege that Exts.C9 and C19 were signed under coercion. Therefore, the Arbitrator should not have passed the Award, which goes against expressed terms in Exts.C9 and C19. 8. The learned Government Pleader contended that the very eligibility of the respondent to claim interest on arrears of payment was doubtful and the Arbitrator did not consider this aspect. Instead, the Arbitrator illegally granted interest on payment in arrears and the Award is therefore violative of the law laid down by the Hon'ble Apex Court in _**Jaiprakash Associates Ltd. (JAL) through its Director v. Tehri Hydro Development Corporation India Ltd. (THDC)**_ **Arb. A. No.33 OF 2019** **8** _**through its Director** [2019 (2) SCALE 718]_ . The learned Government Pleader further relied on various documents and made factual contentions to urge that the delay in execution of contract is wholly attributable to the respondent since the respondent failed to take over the site and erect necessary machinery in time. On facts, it was also urged that there was no coercion and the respondent signed the No Claim Certificate and Exts.C9 and C19 Supplemental Agreements voluntarily. Relying on the judgment of the Apex Court in _**National Insurance Company Ltd. v. Boghara Polyfab (P) Ltd.** [(2009) 1 SCC 267]_ , the learned Government Pleader argued that coercion is a question of fact which has to be adjudicated on the basis of evidence. The court below miserably failed to appreciate the legal and factual position, urged the learned Government Pleader. 9. The learned counsel for the respondent Mr.Rajiv Abraham George, on the other hand, vehemently opposed the arguments. The counsel pointed out that in the Draft Issues formulated by the appellant, the appellant did not **Arb. A. No.33 OF 2019** **9** raise any question as regards competence of the Arbitrator to decide the issues, arbitrability of the issues or the legality of supplemental agreements. On the other hand, the argument notes submitted by the appellant dealt with every issue and claim on their merits. Arbitrability of the issues was not questioned and was being raked up for the first time in Section 37 proceedings. 10. Relying on Sections 2(9) and 23(3) of the Act, 1996, the counsel for the respondent contended that when the term 'Clause' includes counter claim and 'Defence' includes defence to counter claim, and further, when pleadings can be amended during arbitration proceedings, a claimant cannot be tied down to disputes raised in Arbitration Request. Time was admittedly not essence of the contract. The respondent was forced to sign time extension agreements, failing which the respondent would have been forced to lose cost of material, labour, etc. and would have been condemned to face revenue recovery proceedings. As regards fine illegally levied from the respondent which was **Arb. A. No.33 OF 2019** **10** found to be bad by the Arbitrator, the counsel for the respondent argued that delay up to expiry of grace period is not fineable. Grace period is not defined in the agreement. Therefore, when extension of time was found justified and granted, no fine could have been legally imposed. 11. On the allegation of respondent not adducing evidence, the counsel for the respondent submitted that respondent can always rely on the documents produced by the appellant. The respondent had, in fact, called for records from the appellant which were produced and the Award was based on undisputed documents. As regards award of interest, an Arbitrator can award _pendente lite_ interest, as long as it is not barred by the contract. Neither the Award nor the order in O.P.(Arbitration) is vitiated on the grounds alleged by the appellant, contended the counsel for the respondent. 12. We have heard the learned Government Pleader and the learned counsel appearing for the respondent, at length. **Arb. A. No.33 OF 2019** **11** 13. The main contention of the learned Government Pleader is that the Award contained decisions on matters beyond the scope of the submission to arbitration. The allegation is that only six claims were made in Ext.C37 notice, whereas ten claims were raised before the Arbitrator. The Arbitrator has adverted to this issue and found that there are as many as ten claims and some of them are duplications, to which reference was made by the Arbitrator. We also note that the respondent claimed compensation for delayed execution and also towards loss sustained towards infructuous expense, infructuous expenses off-site and onsite and prolongation charges. The learned Arbitrator has applied his mind and allowed claims based on appreciation of evidence. The respondent also gave up one of such claims. 14. Furthermore, we note that the appellant did not object to raising of such claims when draft issues were formulated. The appellant, instead defended all claims on merits. The Hon'ble Apex Court considered the issue of **Arb. A. No.33 OF 2019** **12** making additional claims not included in the notice raising disputes, in _**State of Goa v. Praveen Enterprises** [(2012) 12 SCC 581]._ The Hon'ble Apex Court held that when the arbitration clause does not require the appointing authority to specify the disputes or refer any specific dispute to arbitration nor require the Arbitrator to decide only referred disputes, the Arbitrator can decide all such issues including counter claims. The appellant cannot place reliance on the judgment of the Apex Court in _**Booz Allen & Hamilton Inc. v. SBI Home Finance Ltd. and others** [(2011) 5 SCC 532]_ since it has been held in the said judgment that a dispute will not be arbitrable if it is not enumerated in the joint list of disputes referred to arbitration or does not form part of the disputes raised in the pleadings before the Arbitral Tribunal. In the case on hand, all the claims were not only part of the pleadings, but those claims were contested on merits by the parties also. In view of the afore facts, the argument of the learned Government Pleader regarding the Arbitrator travelling beyond the scope of arbitration violating Section **Arb. A. No.33 OF 2019** **13** 34(2)(a)(iv) of the Act, 1996, is only to be rejected. In view of the law laid down by the Apex Court in _**State of Goa v. Praveen Enterprises** (supra)_ , it cannot be said that the Award is against the public policy of India. 15. As regards the finding of the Arbitrator that levying of Liquidated Damages of ₹5,000/- was unwarranted, the finding of the Arbitrator is that extension up to three months could be granted taking into account climatic conditions and local problems and extension beyond the grace period is not defined in the agreement. The Assistant Executive Engineer, who adduced evidence on the side of the appellant, had stated that the respondent-Claimant had made out a proper case for extension in Ext.C6. The Arbitrator also noted that no fine was levied by the appellant when the respondent was granted second extension. It was for these reasons that the Arbitrator ordered refund of fine levied. We find no illegality or impropriety in the Award on this aspect. 16. The argument on behalf of the appellant that since as per Exts.C9 and C19 Supplemental Agreements **Arb. A. No.33 OF 2019** **14** enhancement of rates on account of extension of time is impermissible, the Arbitrator ought not have ordered damages towards infructuous expenses, machinery hire charges and prolongation charges, is also unacceptable. The Hon'ble Apex Court had considered such restrictive clauses in agreements and held in the judgment in _**Asian Techs Limited v. Union of India and others** [(2009) 10 SCC 354]_ that such clauses restricting enhancement of rates would only restrain the Government from acceding to such enhancements and such clauses cannot affect the power of an Arbitrator to grant enhancement in the interest of justice. The fact that validity of Exts.C9 and C19 was not specifically questioned by the respondent, is not of relevance in the arbitration proceedings. Reliance on the judgment in _**National Insurance Co. Ltd. v. Boghara Polyfab (P) Ltd.** (supra)_ by the learned Government Pleader on the issue of coercion in signing No Claim Certificate is of no help to the appellant. In the said judgment, the Hon'ble Apex Court has only held that coercion has to be proved before the Arbitrator **Arb. A. No.33 OF 2019** **15** on the same manner it is considered by a civil court. In the Award, after considering the evidence on record, the Arbitrator has categorically found that the No Claim Certificate was obtained under pressure. The judgment in _**State of Kerala and another v. M.A. Mathai** [(2007) 10 SCC 195]_ relied on by the learned Government Pleader on 'free will' and 'free consent' will also of no help since the said judgment was delivered in a proceeding under the Code of Civil Procedure, and not under Arbitration proceedings. 17. The learned Government Pleader relied on the judgment of the Apex Court in _**Union of India and others v. Talson Builders** [(2008) 14 SCC 502]_ to contend that when final bill was settled after the contractor certifying that he has no further claim, a reference cannot be made to the Arbitrator to decide disputes on additional claims. A perusal of the said judgment of the Apex Court would show that it was a case where in the arbitration request itself the employer had objected to any reference to the Arbitrator. In the case on hand, though such a contention was taken, and the High **Arb. A. No.33 OF 2019** **16** Court upheld the contention initially, the issue was taken up to the Hon'ble Apex Court and the Hon'ble Apex Court in Civil Appeal No.6111/2011 set aside the order of this Court which held that there was no voluntary full and final settlement. In fact, as can be seen from the Award, the Hon'ble Apex Court in CA No.6111/2011 deprecated the procedure adopted by the appellants to force the Claimant to give a No Claim Undertaking. In the circumstances, reliance placed on the judgment in _**Union of India and others v. Talson Builders** (supra)_ is unfounded. 18. The learned Government Pleader argued that in spite of Clause 10 of the Agreement which made stacking of metal a part of the work, the respondent raised separate claim towards stacking charges, which was illegally allowed by the Arbitrator. Going through the Award, we find that the Arbitrator has, in fact, rejected the claim of ₹1,09,324/- of the respondent for stacking. The Arbitrator only held that deduction of ₹51,197/- made by the appellant towards non-stacking of metals, is unjustified. The Arbitrator found **Arb. A. No.33 OF 2019** **17** that due to the peculiarity of hilly terrain, no stacking area was designated and stacking could not have been carried out. The Arbitrator further found that stacking was stipulated in the agreement to measure each individual quantity of metals. This object could be achieved by ascertaining the difference between initial and final levels and this method was resorted to by the appellant. It was under these circumstances that the Arbitrator found the deduction towards non-stacking to be illegal. We do not find any impropriety in the findings of the Arbitrator in this regard. 19. As regards awarding interest, the Arbitrator granted 12% interest from 01.05.2001 to 23.01.2002 on the final bill and 9% interest from 19.08.2002 (date of Ext.C37 notice) till payment, with a default rate of 12% if amount is not paid within three months. As regards exclusion of payment of interest, it has to be noted that such clauses no matter how widely they are expressed, only avail the party when he is carrying out his part of the contract in its essential respects. A party cannot be allowed to use such exclusion **Arb. A. No.33 OF 2019** **18** clauses as a cover for indifference or to enable him to turn a blind eye to his obligations. The inordinate delay in settling the final bill was not attempted to be justified by the appellant giving cogent reasons. As regards interest awarded from the date of Ext.C37 notice, the Hon'ble Apex Court has held in the judgment in _**M/s.Ambica Construction v. Union of India** [AIR 2017 SC 2586]_ that an Arbitrator is competent to award _pendente lite_ interest. In the circumstances, we find that the learned Arbitrator was justified in awarding _pendente lite_ interest and interest for delayed payment of final bill. 20. Challenge against the findings of the Arbitrator on attributability of delay and other instances pointed out by the learned Government Pleader, is purely within the realm of fact adjudication. The learned Arbitrator found that taking of initial levels by the Department commenced only on 21.10.2000 and was completed only on 08.01.2001. The quantity calculations were completed only on 27.03.2001. These facts contributed to the delay in execution. The learned Arbitrator has come to such findings of facts, based **Arb. A. No.33 OF 2019** **19** on the materials before him. The Court of the Additional District Judge-V, Ernakulam rightly refused to reappraise the evidence on record in the absence of any perversity in the Award, relying on the judgment of the Hon'ble Apex Court in _**Navodaya Mass Entertainment Ltd. v. J.M. Combines** [(2015) 5 SCC 698]_ . We find no illegality on these aspects in the Award or in the Order of the Additional District Judge. For all the above reasons, we find no merit in the Arbitration Appeal and consequently, it is dismissed. Sd/- **C.T. RAVIKUMAR, JUDGE** Sd/- **N. NAGARESH, JUDGE** aks