The Secretary to Government Public Works (D) Department, Government of Kerala v Chandragiri Construction Company

# **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** **THE HONOURABLE MR. JUSTICE P.B.SURESH KUMAR** ## **&** **THE HONOURABLE MRS. JUSTICE C.S. SUDHA** **THURSDAY, THE 27[TH] DAY OF JANUARY 2022 / 7TH MAGHA, 1943** ## **ARB.A NO. 45 OF 2011** **AGAINST THE ORDER DATED 28.04.2011 IN OP(ARB) 129/2009 OF DISTRICT** ## **COURT,TRIVANDRUM** ## **APPELLANT/EMPLOYER:** **THE SECRETARY TO GOVERNMENT PUBLIC WORKS (D) DEPARTMENT, GOVERNMENT OF KERALA, THIRUVANANTHAPURAM BY ADV.T.K.VIPINDAS, SR.GOVERNMENT PLEADER** ## **RESPONDENT/CLAIMANT:** **M/S.CHANDRAGIRI CONSTRUCTION COMPANY THEKKIL P.O., KASARAGOD - 671 541. BY ADVS.SRI.K.BABU THOMAS SMT.MARYKUTTY BABU** **THIS ARBITRATION APPEALS HAVING COME UP FOR ADMISSION ON 22.12.2021, ALONG WITH Arb.A.47/2011, THE COURT ON 27.01.2022 DELIVERED THE FOLLOWING:** 2 Arb.Appeal Nos.45 and 47 of 2011 ## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** **THE HONOURABLE MR. JUSTICE P.B.SURESH KUMAR** ## **&** ## **THE HONOURABLE MRS. JUSTICE C.S. SUDHA** **THURSDAY, THE 27[TH] DAY OF JANUARY 2022 / 7TH MAGHA, 1943** **ARB.A NO. 47 OF 2011** **AGAINST THE ORDER IN OP(ARB) 180/2009 DATED 28.4.2011 OF DISTRICT** ## **COURT,TRIVANDRUM** ## **APPELLANT/PETITIONER:** **M/S.CHANDRAGIRI CONSTRUCTION COMPANY V KARAT ROAD, WEST NADAKVU, KOZHIKODE-673 001, REP.BY ITS PARTNER K.M.MOHAMMED SHERIFF, PADHOOR HOUSE, THEKKIL P.O., KASARAGODE-671 541. BY ADVS.SRI.K.BABU THOMAS SMT.MARYKUTTY BABU** ## **RESPONDENTS/RESPONDENTS:** - **1 THE STATE OF KERALA REP.BY THE PRINCIPAL SECRETARY TO THE GOVERNMENT, PUBLIC WORKS DEPARTMENT, SECRETARIAT, TRIVANDRUM-695 001.** - **2 THE PROJECT DIRECTOR KERALA PWD/KSTP, (TC-47/1795, 2ND FLOOR RAJADHANI COMPLEX, KARAMANA.P.O., TRIVANDRUM-695 002), PRESENTLY T.C.11/339, JAGAD BUILDING, KENSTON ROAD, KAWDIAR.P.O., TRIVANDRUM-695 003.** - **3 THE CHIEF ENGINEER (PROJECTS) KERALA PWD/KSTP/PMT, (TC-47/1795, 2ND FLOOR, RAJADHANI COMPLEX, KARAMANA.P.O., TRIVANDRUM-695 002), PRESENTLY T.C.11/339, JAGAD BUILDING, KENSTON ROAD, KAWDIAR.P.O., TRIVANDRUM-695 003.** - **4 THE SUPERINTENDING ENGINEER KERALA PWD/KSTP/PMT, (TC-47/1795, 2ND FLOOR, RAJADHANI COMPLEX, KARAMANA.P.O., TRIVANDRUM-695 002), PRESENTLY T.C.11/339, JAGAD BUILDING, KENSTON ROAD, KAWDIAR.P.O., TRIVANDRUM-695 003.** 3 Arb.Appeal Nos.45 and 47 of 2011 - **5 THE EXECUTIVE ENGINEER KERALA PWD/KSTP DIVISION, PONKUNNAM, KANJIRAPPILLY.P.O., KOTTAYAM DISTRICT.680 507.** **BY ADV.T.K.VIPINDAS, SR.GOVERNMENT PLEADER** **THIS ARBITRATION APPEALS HAVING COME UP FOR ADMISSION ON 27.01.2022, ALONG WITH Arb.A.45/2011, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** 4 Arb.Appeal Nos.45 and 47 of 2011 P.B.SURESH KUMAR & C.S.SUDHA, JJ. -------------------------------------------------Arb.Appeal Nos.45 and 47 of 2011 ------------------------------------------Dated this the 27[th] day of January, 2022 ## J U D G M E N T ## C.S.Sudha, J. The moot question that needs to be answered in this case is whether the clause relating to payment of Liquidated Damages (LD) in the agreement executed between the parties is enforceable against the claimant/contractor in the absence of a finding by the Arbitral Tribunal holding the contractor liable for the delay in the completion of the work or that he has committed fundamental breach of the contract between the parties. 2. The present appeals under Section 37 of the Arbitration and Conciliation Act, 1996 (the Act) are against the common order dated 28.04.2011 in O.P.Arb.Nos.129/2009 and 180/2009 on the file of 5 Arb.Appeal Nos.45 and 47 of 2011 the District Court, Thiruvananthapuram, on its refusal to set aside the arbitral Award dated 15.06.2009 to the extent challenged by either side. Arb. Appeal No.45/2011 has been filed by the petitioner in O.P.Arb.No.129/2009 and Arb. Appeal No.47/2011, by the petitioner in O.P.Arb.No.180/2009. The appellant in Arb. Appeal No.47/2011 is the claimant before the Arbitral Tribunal (AT) comprising of a Presiding Arbitrator and two other Arbitrators, all of whom are retired Chief Engineers, PWD. The appellant in Arb. Appeal No.45/2011 is the respondent before the AT. The parties in these appeals will be referred to as described in the proceedings before the AT. 3. The claimant/contractor and the respondents entered into an agreement dated 29.12.2004 for the execution of the periodical renewal of Kumali-Poopara Road (Part I) from kilometer 0/000 to kilometer 35/400. The value of the contract was ₹1,54,663,065/-. The intended completion period for the first milestone, i.e., completion of 23 kms. up to Bituminous Macadam (BM) was 15 months and milestone-2, i.e., completion of the whole work, 23 months from 6 Arb.Appeal Nos.45 and 47 of 2011 07.01.2005, the date of issue of notice to proceed with the work. The intended completion date for the 1st mile stone expired on 06.04.2006 and for the 2[nd] milestone of total 23 months on 06.12.2006. Extensions were twice granted for the completion of the work. But the work was not completed. Disputes arose between the parties which resulted in the parties invoking the arbitration clause in the agreement, pursuant to which the AT was constituted. 4. The AT passed an Award dated 15.01.2009 as per which claim number 5,6,9,11,12,14,15,17 and 19 in the claim statement filed by the claimant were partly allowed. The counter claim moved by the respondents was rejected. Both the parties moved the District Court, Thiruvananthapuram under Section 34 of the Act. By the impugned order, the original petitions, namely O.P. Arb.Nos.129/2009 and 180/2009 were dismissed. Aggrieved, the parties have come up in appeal. 5. Heard Sri.T.K.Vipindas, the learned Senior Government Pleader appearing for the appellant in Arb.Appeal No.45/2011 and for 7 Arb.Appeal Nos.45 and 47 of 2011 the respondents in Arb.Appeal No.47/2011 and Sri.K.Babu Thomas, the learned counsel for the respondent in Arb.Appeal No.45/2011 and for the appellant in Arb.Appeal No.47/2011. 6. Before the AT, the claimant contended that immediately after the receipt of the letter of acceptance, they had made all necessary arrangements to complete the work within the intended completion date. The notice to proceed with the work was issued on 07.01.2005. The work envisaged in the contract was widening of the existing narrow Kumali-Poopara Road to a length of 35.04 kms to a road having carriage way of 6.25 mtrs. with a width of 10 mtrs. On 21.02.2005, the claimant requested the respondents to remove hindrances like telephone posts, cables, water supply pipe lines etc. on the work site for carrying out the work. However, these hindrances existing in 23 kms out of the total 35.40 kms of the road were removed by the respondents only in February, 2007. The hindrances existing in the remaining portion of the road were not removed by the respondents. During the course of the intended completion period, there was unprecedented rains for 327 8 Arb.Appeal Nos.45 and 47 of 2011 days, preventing work. Rain on a single day used to obstruct the work at the site for about 1½ to 2 days, depending on the intensity and duration of the rains. Several variations in quantities were made by the respondents well into the contract period. By 06.12.2006 the claimant was allowed to carry out works valued at 2,66,23,415/- only out of the₹ initial contract price of 15,46,63,065/-. This happened due to the delay₹ and default on the part of the respondents, like wide variations in quantities and approval of variations after considerable delay, nonremoval of obstructions from the site till February, 2007, defaults and delays in making interim payments for the value of works carried out and making price adjustment payments which were due and also due to occurrence of compensation events and rains. On 30.08.2006 the claimants sought extension of the intended completion period pointing out the aforesaid reasons for the non-completion of the work. As per the terms of the agreement, extension of the intended completion period is to be allowed within 21 days of the request being made. The respondents delayed the grant of extension by about 138 days. The 9 Arb.Appeal Nos.45 and 47 of 2011 claimant was forced to execute two supplemental agreements by the respondents withholding payment of 2,01,53,167/- due for the value₹ of works carried out, which was contrary to the terms in the agreement and vitiated by undue influence, duress, coercion and therefore invalid. The claimant had notified their protest against execution of the supplemental agreements. As the respondents withheld and delayed substantial amounts due to the claimant, the progress of the work was adversely affected. The claimant was faced with paucity of funds as he did not have the necessary resources for re-investment to carry out the works. A fundamental breach of contract was committed by the respondents by failing to make timely payments to the claimant for the works done by him. Further, the respondents illegally invoked the bank guarantee of 1,09,28,300/- which had been furnished by the claimant₹ towards performance security, even before the extended period for completion of work was over. This was done by the respondents to cover up the fundamental breaches of the contract committed by them. They invoked the bank guarantee and obtained demand drafts for the 10 Arb.Appeal Nos.45 and 47 of 2011 said amounts, which act was calculated to prevent the works at the site. Hence the claimant was compelled to challenge the illegal invocation of the bank guarantee. An interim order dated 24.05.2007 restraining the respondents from encashment of the bank guarantee was obtained by the claimant in W.P.(C) No.15440/2007. On 29.05.2007, the claimant submitted a formal request for extension of the period till 31.01.2008, subject to payment for the value of works already carried out and other amounts due. As on 05.09.2007, the total value of works allowed to be carried out by the claimant and certified by the respondents was ₹4,47,72,360/-. However, none of the Engineers of the respondents visited the site for supervision or inspection of the works sought up to 09.06.2007, as a result of which, the works had to be suspended at site. The claimant then issued a notice dated 12.06.2007 to the respondents requiring them to show cause as to why the contract should not be terminated at their risk and cost. The respondents illegally levied LD for the period of suspension of works caused at the site from 16.05.2007 onwards and on 13.05.2007 appropriated an amount of 11 Arb.Appeal Nos.45 and 47 of 2011 ₹87,16,629/-. The claimant levied LD at the rate of 83,750/- per day₹ from 16.05.2007 onwards for the suspension of works caused by the respondents and notified them of the same on 19.10.2007. Pursuant to the direction in W.P.(C)No.15440/2007 by which the respondents were directed to consider and pass orders on the request for extension till 31.03.2008, the respondents by order dated 24.08.2007 rejected the request of the claimant. This termination order was challenged by the claimant in W.P.(C)No.27459/2007. By judgment dated 18.10.2007, the order dated 24.08.2007 terminating the contract was quashed and the respondents were directed to re-consider the request of the claimant for extension, after affording him an opportunity of being heard. Thereafter hearings were conducted by the respondents during the course of which the claimant assured to complete the whole works before 31.05.2008, provided interim payment due in IPC 6 certified on 05.09.2007 for ₹3,46,56,623/-, price adjustment payments due were paid to him and on allowing extension without levying LD and granting market rates for the works delayed/variation items. During the hearings conducted, the 12 Arb.Appeal Nos.45 and 47 of 2011 claimant was assured that the period would be extended till 31.05.2008 accepting the aforesaid conditions. On 30.11.2007, the claimant prepared and submitted a statement of the remaining items and quantities to be carried out at the site along with the rates chargeable for the same valued at 18,71,63,345/-. However, the respondents contrary₹ to the assurances given, denied extension by holding that there is no price escalation clause in the agreement and that the payments claimed to be due should be agitated in arbitration. Thus, payments due to the claimant for value of works already carried out, which were included in Interim Payment Certificate (IPC) 6 certified on 05.09.2007 for ₹3,46,56,623/- and price adjustment bill of ₹1,57,40,713/-, were withheld and the agreement illegally terminated. The termination order was passed in violation of the various terms of the agreement and also disregarding the arrangements retained at the site relating to men and machinery to carry out and complete the work, value of which is ₹4,79,50,000/-. The termination of the contract is illegal, unauthorised, wrongful, unwarranted and unjustified and hence null and void ab 13 Arb.Appeal Nos.45 and 47 of 2011 initio. The claimant is therefore not liable for any consequences due to the illegal termination of the contract, which was done only to cover up the defaults/delays and breaches of contract committed by the respondents and to avert termination of contract by the claimant at the risk and cost of the former, for which they had in fact issued notice on 12.06.2007. The disputes were notified for adjudication from time to time by the claimant well before the termination of the contract on 10.12.2007. The respondents have illegally retained huge amounts due and payable to the claimant for the value of works carried out and other amounts due to the claimant as per the terms of the contract, as a result of which, the claimant has sustained heavy losses, which the respondents are liable to compensate. Thus, on the aforesaid grounds claim for a total amount of 14,22,49,377/- wa₹ s made by the claimant. 7. The respondents filed defense statement denying all the aforesaid allegations. According to them, they had done all what was necessary on their part to enable the claimant/contractor to complete the work. However, the claimant failed in executing the contract. The 14 Arb.Appeal Nos.45 and 47 of 2011 reasons for the delay stated are all false and baseless. No delay, default or fundamental breach of the contract was ever committed by the respondents. No compensation event(s) occurred as alleged by the claimant. All payments due to the claimant were cleared in time and no payments were withheld as alleged by the claimant. The supplemental agreements were executed on mutual consent and the allegation of undue influence, coercion etc. are false and hence denied. In spite of the fact that extension of time as requested was granted on two occasions, the claimant failed to complete the works because of their own lapses. When two extensions were availed, the claimant had agreed that they would not seek any price escalation, further extension of time or any extra cost. In spite of extensions being granted twice, the claimant could complete only 25% of the work. The variation orders were sanctioned on time. When the third extension was sought, it was found by the respondents that even if further extension as requested by the claimant was granted, the latter would not be in a position to complete the work and hence the reason why the request for further extension of time was 15 Arb.Appeal Nos.45 and 47 of 2011 rejected. The allegation that the claimant was assured of being granted extension of time in the hearings conducted by the respondents, is false. In the hearings conducted pursuant to the orders of the High Court, the claimant had nothing new to add other than the conditions they had already put forward, which had been rejected by the respondents. Therefore, the request of the claimant for the award of the rest of the work for a higher value of 35% with extension of time, being against the provisions of the contract, was rejected and the contract terminated. The termination of the work is legal, authorised, warranted and justified. Fundamental breach of the contract was committed by the claimant and not by the respondents. 8. A counter claim had also been raised by the respondents. According to them, it was due to the poor performance of the claimant, they were forced to terminate the contract. In order to complete the balance abandoned work, the respondents had no other option but to re-arrange the same at the risk and cost of the claimant. Competitive tenders were invited to carry out the balance work. The 16 Arb.Appeal Nos.45 and 47 of 2011 lowest bid received was 26,06,53,316/-. The loss suffered by the₹ respondents was due to the fault on the part of the claimant. As the respondents had to re-tender the work, they suffered loss amounting to ₹11,65,89,268/-, which the claimant is liable to pay. Hence the respondents sought an award for the aforesaid amount with interest from the claimant. 9. Rejoinder was filed by the claimant reiterating the allegations in the claim statement and denying the liability in the counter claim raised by the respondents. 10. We will first deal with the appeal of the claimant, i.e., Arb. Appeal No.47/2011. In this appeal, the claimant's challenge is limited to the Award relating to recovery of 73,46,025/- towards LD,₹ which finding, according to the claimant has been wrongly upheld by the court below. In the appeal memorandum it is alleged that the court below failed to exercise the jurisdiction vested in it under Section 34 of the Act by illegally upholding the award relating to recovery of the LD, when the default was always on the part of the respondents. The Award 17 Arb.Appeal Nos.45 and 47 of 2011 and the impugned order, according to the claimant, has been passed relying on two illegal supplemental slips, which they were made to sign by the Project Director, who was never a party to Ext.C1 agreement executed between the parties. The impugned order has been passed even without considering the fact that the there is no privity of contract between the signatories in the supplemental agreements. The terms of Ext.C1 cannot be altered by unauthorised supplemental slips got executed by the Project Director, who is not a party to the contract and hence the same are patently illegal, perverse, without jurisdiction and liable to be set aside. The supplemental agreements were signed by the claimants under protest and without prejudice to their rights and claims for payment. They were signed under undue influence, coercion and duress, which contention was not appreciated in the correct perspective either by the AT or the court below. The contract was not terminated on the ground of any fundamental breach of the contract by the claimant. On the other hand, it was terminated for the convenience of the employer as stipulated in clause 59.4 of the General Conditions of 18 Arb.Appeal Nos.45 and 47 of 2011 Contract (GCC). When there was no default or breach committed by the claimant, the Award of the AT directing the claimant to pay ₹73,46,025/- as LD to the respondents, is perverse, illegal and liable to be set aside, contends the claimant. 11. Per contra the respondents support the finding of the AT on this score and contends that the AT was perfectly right in doing so in the light of clause 49.1 of the GCC and the terms contained in the supplemental agreements. 12. The AT considered the question as to whether the termination of the contract by the respondents on 10.12.2007 by way of Ext.R3 was justified and whether they had committed breach of the contract by denying the request of the claimant for extension by time. The AT on a consideration of the pleadings, documents and arguments advanced by either side, found that there was pre-mature recovery of the mobilisation advance and LD of 3.8 lakhs in violation of the terms₹ of the agreement by the respondents; that there was premature invocation of bank guarantee without the claimant being given proper 19 Arb.Appeal Nos.45 and 47 of 2011 notice or time to reply; that hardship had been caused to the claimant as they had to repeatedly approach the High Court when the respondents invoked the bank guarantee and attempted to encash the same ; that there was failure on the part of the respondents to examine whether extensions granted were adequate and realistic, failure to take appropriate remedial measures after effectively conducting review of the performance; that there was failure by the respondents to consider and pass appropriate orders in accordance with law on the request for extension, and that the decision taken was against the directions of this Court in the Writ Petitions filed by the claimant; that there was failure and refusal on the part of the respondents to disclose the materials on which they decided to deny grant of extension to the claimant, which again was in violation of the directions of this court; that the respondents before 05.05.2007 never had a case that the claimant had committed any fundamental breach of the contract and finally when they raised it in Ext.R25 letter, the details were not furnished to substantiate the same and that no grounds for termination of the 20 Arb.Appeal Nos.45 and 47 of 2011 contract as contemplated in clause 59 of the GCC could be established by the respondents. 13. According to the AT, when the applications for extension of time were considered, the respondents ought to have made an objective and thorough appraisal of all aspects involved in the matter, its advantages and disadvantages, the extra time that would be required for re-arrangement of the work, before arriving at a decision to deny the request for extension and terminate the contract. Before such a drastic action was taken, the chances or possibility or the course to be adopted for an early completion of work at minimum cost ought to have been kept in mind. Natural justice demanded that the materials relied on by the respondents which prompted them to arrive at the conclusion that extension could not be granted, ought to have been disclosed to the claimant as directed by this Court in Ext.C70 order. The AT found that the manner in which the request for extensions were considered by the respondents was not in compliance with the directions of this Court or in accordance with the terms of the agreement. The steps taken to 21 Arb.Appeal Nos.45 and 47 of 2011 invoke the bank guarantee prematurely, indicated that the respondents had already made up their mind to brand the claimant as a defaulter and penalise the claimant. On these grounds an inference was drawn by the AT that all subsequent actions taken by the respondents were only an attempt to justify their invocation of the bank guarantee. The AT further noticed that Clause 28 of the GCC, which provides for grant of extension of time, indicated that time was not the essence of the contract. The AT also found that the period for which the two extensions had been granted was not made on a realistic analysis of the actual time required for completion of the remaining works, the value of which amounted to around 10 Crores. If such a huge amount of₹ work was to be completed within five months, a miracle needed to happen. According to the AT there were good grounds for granting a further extension till May, 2008. 14. At the same time the AT also took note of the fact there was delay on the part of the claimant which could have been avoided by them had they mobilized plant and machinery as per the 22 Arb.Appeal Nos.45 and 47 of 2011 schedule given by them in the agreement. This omission on the part of the claimant had delayed the start of the bituminous works. However, the respondents did not promptly take any penal action for the lapse on the part of the claimant. The respondents on the other hand, gave a long rope to the claimant without properly or effectively monitoring the progress of work during the period from 07.01.2005 to 15.02.2007. One or two letters written by the respondents in 2006 citing slow progress of work, in the opinion of the AT, could not be said to have relieved the respondents from their responsibility to have taken timely action, including penalisation by inflicting LD when extension of time for the completion of the first milestone was granted twice. It was also noticed by the AT that the claimant had admitted that they brought the Hot Mix Plant to the site only on 12.04.2006 (intended completion date for the 1st mile stone was 06.04.2006) whereas as per the programme schedule, the same ought to have been brought to the site by March, 2005. It was further noticed that when 23 kms of BM work was to be completed for the first milestone by 06.04.2006, nothing had actually been done by 23 Arb.Appeal Nos.45 and 47 of 2011 the claimant till then. But still the respondents never took any action, which means that they had condoned the delay/default of the claimant. In such circumstances the AT found that, it was the over enthusiasm of the respondents which resulted in the termination of the contract on 30.06.2007, which action was held to be unjustifiable. From the aforesaid circumstances it was inferred that Ext.C45 letter dated 16.05.2007 invoking the bank guarantee was a step initiated to repudiate the contract, which was held to have been substantiated by the subsequent events and the repeated litigations between the parties which finally culminated in the formal termination of the contract by Ext. C78 order dated 10.12.2007 on the ground of public interest. The AT therefore held that the termination of the contract is to be treated as at the employer's convenience as per clause 59.4 of the GCC and so clause 60.2 of the agreement had to be followed for the payments to be made on termination. 15. The allegation of the claimant that the supplemental agreements had been executed due to undue influence and coercion, did 24 Arb.Appeal Nos.45 and 47 of 2011 not find favour with the AT. The AT after analysing the documentary evidence relied on by the parties on this aspect, found the same unsubstantiated and so rejected it. The court below confirmed the said finding. 16. After having found that the contract had been unjustifiably terminated by the respondents, the AT held that the claimant would be eligible as per clause 47 of the GCC to price adjustment for the works done during the extended period till 15.02.2007 and that for the works done after 15.02.2007, LD is to be levied based on the supplemental agreements. The relevant portion in the Award relating to the direction to pay LD reads - “The Tribunal holds that the claimant is liable to pay liquidated damages from 16.02.2007 till 30.6.2007 i.e., 135 days for non completion of the Mile Stone 1. Beyond that no further extension was granted and the contract was terminated by the respondent. As per the agreement the termination of the contract can be done only as per clause 59, if any of the parties causes a fundamental breach of contract. Further, fundamental breaches are defined under clause 59.2. The respondent could not establish that a fundamental breach of contract has been committed by the claimant before 30.06.2007. 25 Arb.Appeal Nos.45 and 47 of 2011 It is also not covered by till 59.2(g) at that time. The Tribunal therefore holds that as the termination is done at the employer's convenience, the payment on termination is to be done as per clause 60.2 according to which the claimant is not liable for any damages beyond 30.06.2007. The total amount of liquidated damages recoverable from the claimant is thus limited to 135 days x 54415 ie., Rs.73,46,025/-. The respondent has realised/recovered an amount of Rs.90,97,534/- (Rs.3,80,905/- in IPC.5 and Rs.87,16,629/- in IPC.6) from the claimant. The difference of Rs.17,51,509/- is payable by the respondent to the claimant. The amount of Rs.3,80,905/- was recovered as liquidated damages from IPC.5 for works carried out prior to 15.2.2007 which is not proper. The liquidated damages can be imposed only for the works executed after 15.2.2007 based on the supplemental agreement executed. So the recovery of Rs.3,80,905/- as liquidated damages in IPC.5 is not correct as per agreement. Interest for the premature recovery of liquidated damages of Rs.3,80,995/-, 237 days before the due date (17.10.2007) i.e., date of passing of IPCs is also to be paid by the respondent. The rate of interest awarded is 10% per annum based on which the interest works out to Rs.25,567/-. The Tribunal directs the respondent to pay Rs.17,51,509/plus the interest of Rs.25,567/- totalling Rs.17,77,076/(Rupees Seventeen lakhs seventy seven thousand and Seventy six only) to the claimant. ” 26 Arb.Appeal Nos.45 and 47 of 2011 17. According to the claimant, the AT went wrong in was never imposing LD on them because there any default on their part. There is no such finding also by the AT. The termination of the contract was also not due to any fault on the part of the claimant. On the other hand, the finding of the AT is that the termination was at the employer's convenience. The AT, the claimant contends, failed to take into account the relevant clauses in Ext.C1 agreement. Had a harmonious interpretation been given to all those relevant terms; the irresistible/ inescapable conclusion could only have been that the claimant is not at fault and so cannot be held liable for the LD, goes the argument. Reference was made to the decision in J.G. Engineers Private Limited vs. Union of India [(2011) 5 SCC 758] in support of the argument advanced. 18. J.G. Engineers ( supra) is a case in which the respondents UoI, awarded a works contract to the appellant contractor. As the work was not completed within the contractual period, extension was granted without levying LD. The contractor continued the work 27 Arb.Appeal Nos.45 and 47 of 2011 even thereafter. At a later stage, finding the progress to be slow, UoI terminated the contract. Matter was referred for arbitration. The arbitrator found that the contractor was not responsible for the delay or breach, that the termination of the contract was illegal and hence allowed the claim moved by the contractor. The counter claim moved by UoI was rejected. The District Court dismissed the Section 34 petition moved by the UoI for setting aside the Award. The High Court while setting aside the award inter alia found that some of the claims allowed by the Arbitrator related to “excepted matters” and that the counter claim had been wrongly rejected by the Arbitrator and so remanded the matter to the arbitrator for a fresh consideration. The contractor took up the matter in appeal. The Hon’ble supreme Court held thus- “18. Thus what is made final and conclusive by Clauses (2) and (3) of the agreement, is not the decision of any authority on the issue whether the contractor was responsible for the delay or the Department was responsible for the delay or on the question whether termination/rescission is valid or illegal. 28 Arb.Appeal Nos.45 and 47 of 2011 What is made final, is the decisions on consequential issues relating to quantification, if there is no dispute as to who committed breach. That is, if the contractor admits that he is in breach, or if the Arbitrator finds that the contractor is in breach by being responsible for the delay, the decision of the Superintending Engineer will be final in regard to two issues. The first is the percentage (whether it should be 1% or less) of the value of the work that is to be levied as liquidated damages per day. The second is the determination of the actual excess cost in getting the work completed through an alternative agency. The decision as to who is responsible for the delay in execution and who committed breach is not made subject to any decision of the respondents or its officers, nor excepted from arbitration under any provision of the contract. 19. In fact the question whether the other party committed breach cannot be decided by the party alleging breach. A contract cannot provide that one party will be the arbiter to decide whether he committed breach or the other party committed breach. That question can only be decided by only an adjudicatory forum, that is, a court or an Arbitral Tribunal. 20. xxxx ## 21. xxxx “22. In view of the above, the question whether appellant was responsible or respondents were responsible for the delay in execution of the work, was arbitrable. The arbitrator has 29 Arb.Appeal Nos.45 and 47 of 2011 examined the said issue and has recorded a categorical finding that the respondents were responsible for the delay in execution of the work and the contractor was not responsible. The arbitrator also found that the respondents were in breach and the termination of contract was illegal. Therefore, the respondents were not entitled to levy liquidated damages nor entitled to claim from the contractor the extra cost (including any escalation in regard to such extra cost) in getting the work completed through an alternative agency. Therefore, even though the decision as to the rate of liquidated damages and the decision as to what was the actual excess cost in getting the work completed through an alternative agency, were excepted matters, they were not relevant for deciding Claims 1, 3 and 11, as the right to levy liquidated damages or claim excess costs would arise only if the contractor was responsible for the delay and was in breach. 23. In view of the finding of the arbitrator that the appellant was not responsible for the delay and that the respondents were responsible for the delay, the question of the respondents levying liquidated damages or claiming the excess cost in getting the work completed as damages, does not arise. Once it is held that the contractor was not responsible for the delay and the delay occurred only on account of the omissions and commissions on the part of the respondents, it follows that provisions which make the decision of the Superintending 30 Arb.Appeal Nos.45 and 47 of 2011 Engineer or the Engineer-in-Charge final and conclusive, will be irrelevant. Therefore, the Arbitrator would have jurisdiction to try and decide all the claims of the contractor as also the claims of the respondents. Consequently, the award of the Arbitrator on Items 1, 3 and 11 has to be upheld and the conclusion of the High Court that award in respect of those claims had to be set aside as they related to excepted matters, cannot be sustained.” ## 19. Clause 49 of the GCC in this case reads- ## “49. Liquidated Damages 49.1 The Contractor shall pay liquidated damages to the Employer at the rate per day stated in the Contract Data for each day that the Completion Date is later than the Intended Completion Date (for the whole of the works or the milestone as stated in the contract data). The total amount of liquidated damages shall not exceed the amount defined in the Contract Data. The Employer may deduct liquidated damages from payments due to the Contractor. Payment of liquidated damages does not affect the Contractor's liabilities. 49.2. If the intended Completion Date is extended after liquidated damages have been paid, the Engineer shall correct any overpayment of liquidated damages by the Contractor by adjusting the next payment certificate. The Contractor shall be paid interest on the over payment calculated from the date of payment to the date of repayment at the rates specified in Sub-Clause 43.1.” 31 Arb.Appeal Nos.45 and 47 of 2011 20. The relevant portion of Ext.C20 supplemental agreement dated 22.07.2006 executed when the first extension was granted reads- “………………. hence the meeting decided to extend the milestone I up to 6/10/06 with the following targets. As per C1.1.1 of G.C.C and as per Contract Data the Intended Completion Date for the whole of work is 23 months with the following milestones. xxxxxxxx The contractor and KSTP hereby mutually agree to extend the first milestone for six months ie., upto 6/10/2006 with the following sectional targets. The contractor agreed to apply these sectional targets with respect to C1.49 of the agreement. xxxxxxxx It is also agreed that a review on progress shall be conducted on 18[th] September 2006 to ascertain the completion targets, if not completed Employer shall terminate the work without further notice. It is also agreed that no extra rate shall be allowed due to this extension. Now it is mutually agreed that in consideration of the said conditions the contractor shall complete the first milestone on 6/10/06.” 32 Arb.Appeal Nos.45 and 47 of 2011 ## 21. Ext.C33 supplemental agreement dated 16.01.2007 executed when the second extension was granted reads - “………………… The contractor could not achieve the 1[st] milestone on 6.4.2006 and the same was Extended to 6.10.2006. A supplementary Agreement in this regard was executed on 22.7.2006. The contractor could not carryout the agreed work as per the agreed time and requested for further extension. The Executive Engineer, KSTP Division, Ponkunnam vide letter No.PNW/52/04 dated 9.11.06 has submitted his recommendation for extension. The Executive Engineer, KSTP Division, Ponkunnam vide letter dated 5/01/2007 has forwarded the revised work programme submitted by the contractor. As per the revised work programme the contractor agreed to complete the 1[st] milestone by 15/02/2007 and the whole work by 30/06/2007. The contractor has also agreed to complete BM for the full length on 15/03/2007 and MSS on 31/05/2007. The contractor and KSTP mutually agreed to extend the 1[st] milestone up to 15.2.2007 and final completion up to 30.6.2007 under the following conditions. 1. LD shall be imposed if the contractor fails to complete the milestone-1 by 15.2.2007 and the whole work on 30.6.2007 as per contract condition of contract. 2. No extra rate or price escalation shall be allowed for the 33 Arb.Appeal Nos.45 and 47 of 2011 works executed during the extended period. Now it is mutually agreed that in consideration of the said conditions the contractor shall complete all the works before 30.6.07.” (Emphasis supplied) 22. Therefore, as per clause 49.1 of Ext.C1, and the clauses in Exts.C20 and C33, the claimant becomes liable to pay LD, in the event of the work not being completed in time. Exts.C20 and C33 say that the conditions were mutually agreed to and that it is in consideration of the said conditions, the contractor had agreed to complete all the works before 30.06.2007. The claimant has no case that Ext.C1 had been executed under any vitiating circumstances. The AT after considering the documentary evidence rejected the contention of the claimant that Exts.C20 and C33, the supplemental agreements, had been executed under undue influence or coercion. Now the question is based on the clauses contained in Exts. C1, C20 and C33, was the AT right in imposing LD on the claimant. Here there is no dispute that the work had not been completed in spite of two extensions being granted. 34 Arb.Appeal Nos.45 and 47 of 2011 Both sides accuse each other for the failure. Though the AT did notice that delay and default on the part of the claimant in the initial stage of the work, to which we have already referred to, found that the respondents had condoned the same as no action whatsoever, including failure to levy LD, had been taken by them. In fact, the AT did notice that no work had been done by the claimant till 06.04.2006. The relevant part of the Award on this point reads - “It is astonishing to note that when 23 km of BM work is to be completed for 1[st] Mile Stone on 6.4.2006 nothing was done and still the respondent did not take any action.” Though the AT did find that there was delay on the part of the claimant, it did not hold the claimant responsible for the breach or that that the claimant had committed any fundamental breach. However, it needs to be noted that the AT also does not hold the respondents liable for the delay. The respondents were only found to have been too lenient in dealing with the situation. The termination of the contract was held to be at the employer's convenience. This finding has been arrived at by the AT on an appreciation of the evidence before it. This cannot be 35 Arb.Appeal Nos.45 and 47 of 2011 interfered with by a court under Section 34 or the High Court sitting in appeal under Section 37 of the Act, as it is now well settled that the power of the court in setting aside an award in exercise of its supervisory jurisdiction is very limited. It is not permissible for a Court to examine the correctness of the findings of the Arbitrator as if it were sitting in appeal over an award. As such, a Court while considering the objections under Section 34 of the Act is not expected to re - appreciate the entire findings and reassess the whole case of the parties. The Arbitrator is the best judge of the quality as well as quantity of evidence and it is not for the Court to take upon itself the task of being a judge of the evidence before the Arbitrator. Having found no breach on the part of the claimant and concluding that whatever breach or delay had been committed had been condoned by the respondents, the question is, was the AT right or justified in imposing LD on the claimant? 23. Section 34 read with Section 5 makes it clear that an arbitral award can be set aside only on the grounds mentioned under Section 34 (2) and not otherwise. Substitution and insertion have been 36 Arb.Appeal Nos.45 and 47 of 2011 brought into sub-section (2) by Amendment Act 3/2016, which came into retrospective effect from 23.10.2015. Section 34, as amended, will apply only to Section 34 applications that have been made to the Court on or after 23.10.2015, irrespective of the fact that the arbitration proceedings may have commenced prior to that date (Ssangyong Engineering and Construction Co. Ltd. v. NHAI) (2019 KHC 6554) . Here O.P.Arb.No.129/2009 and O.P.Arb.No.180/2009 are apparently filed before 23.10.2015. Therefore, it is the unamended provisions of sub-section (2) of the section 34 Act that would have to be applied in the instant case. 24. The grounds canvassed on behalf of the claimant challenging the finding of the AT does not fall under any of the clauses mentioned in Section 34(2) (a) of the Act. Apparently, the challenge is mounted based on Section 34(2)(b)(ii). S.34(2)(b)(ii) before its substitution by way of amendment in 2015, read- “(ii) The arbitral award is in conflict with the public policy of India. Explanation. - Without prejudice to the generality of sub-clause (ii) it 37 Arb.Appeal Nos.45 and 47 of 2011 is hereby declared, for the avoidance of any doubt, that an award is in conflict with the public policy of India if the making of the award was induced or affected by fraud or corruption or was in violation of S.75 or S.81.” 25. What is “public policy” has been explained by the Hon’ble Supreme Court in Associate Builders Vs. Delhi Development Authority [(2015) 3 SCC 49] after referring to several other decisions on the point. The Apex Court referred to ONGC v. Saw Pipes , [(2003) 5 SCC 705] , wherein it has been held that the phrase "public policy of India" is required to be given a wider meaning. The concept of public policy connotes some matter which concerns public good and the public interest. What is for public good or in public interest or what would be injurious or harmful to the public good or public interest has varied from time to time. However, the Award which is, on the face of it, patently in violation of statutory provisions cannot be said to be in public interest. Such award/judgment/decision is likely to adversely affect the administration of justice. Hence, in addition to 38 Arb.Appeal Nos.45 and 47 of 2011 the narrower meaning given to the term "public policy" in Renusagar Power Co. Ltd. vs. General Electric Co. [1994 Supp (1) SCC 644] it is required to be held that the Award could be set aside if it is patently illegal. The result would be that an Award could be set aside if it is contrary to: (a) fundamental policy of Indian law; or (b) the interest of India; or (c) justice or morality, or (d) in addition, if it is patently illegal. Illegality must go to the root of the matter and if the illegality is of trivial nature, it cannot be held that Award is against the public policy. Award could also be set aside if it is so unfair and unreasonable that it shocks the conscience of the court. Such an Award is opposed to public policy and is required to be adjudged void. What would constitute public policy is a matter dependent upon the nature of transaction and nature of statute. For the said purpose, the pleadings of the parties and the materials brought on record was held to be relevant to enable the court to judge what is in public good or public interest, and what would otherwise be injurious to the public good at the relevant point, as contra distinguished from the policy of a particular 39 Arb.Appeal Nos.45 and 47 of 2011 Government (State of Rajasthan v. Basant Nahata), [(2005)12 SCC 77] . As far as fundamental policy of India is concerned, it was held relying on Renusagar supra, disregarding orders of superior courts in India would be regarded as being contrary to the fundamental policy of Indian law. In addition to that ground, it was held that the binding effect of the judgment of a superior court being disregarded would be equally violative of the fundamental policy of Indian law. Further, reference was made to ONGC Ltd. v. Western Geco International Ltd., [(2014)9 SCC 263] , wherein three other distinct and fundamental juristic principles which must be understood as part and parcel of the fundamental policy of Indian law, were added. The Court held that the expression must, include all such fundamental principles as providing a basis for administration of justice and enforcement of law in this country. The first and foremost principle being that in every determination whether by a court or other authority that affects the rights of a citizen or leads to any civil consequences, the court or authority concerned is bound to adopt what in legal parlance is called a 40 Arb.Appeal Nos.45 and 47 of 2011 "judicial approach" in the matter. They cannot act in an arbitrary, capricious or whimsical manner. Judicial approach ensures that the authority acts bona fide and deals with the subject in a fair, reasonable and objective manner and that its decision is not actuated by any extraneous consideration. Judicial approach in that sense acts as a check against flaws and faults that can render the decision of a court, tribunal or authority vulnerable to challenge. Equally important and indeed fundamental to the policy of Indian law is the principle that the principles of natural justice must be satisfied. Besides the audi alteram partem rule, one of the facets of the principles of natural justice is that the court / authority deciding the matter must apply its mind to the attendant facts and circumstances while taking a view one way or the other. Non - application of mind is a defect that is fatal to any adjudication. Application of mind is best demonstrated by disclosure of the mind and disclosure of mind is best done by recording reasons in support of the decision which the court or authority is taking. The requirement that an adjudicatory authority must apply its mind is, in 41 Arb.Appeal Nos.45 and 47 of 2011 that view, so deeply embedded in our jurisprudence that it can be described as a fundamental policy of Indian law. The other principle recognised as a salutary juristic fundamental in administrative law is that, if a decision is perverse or so irrational that no reasonable person would have arrived at the same, then the same would not be sustained in a court of law. However, it was held that when a court applies the "public policy" test to an arbitration Award, it does not act as a court of appeal and consequently errors of fact cannot be corrected. A possible view by the arbitrator on facts has necessarily to pass muster as the arbitrator is the ultimate master of the quantity and quality of evidence to be relied upon when he delivers his arbitral award. (See paragraphs 25, 26, 27 and 28 of Associate Builders supra) 26. Applying the aforesaid principles, the question now we are called upon to answer is- whether the finding of the AT relating to LD is so patently illegal that it shocks the conscience of this court? We are afraid that will have to answered in the negative because the AT rightly relied on the clauses relating to LD in the agreements, which 42 Arb.Appeal Nos.45 and 47 of 2011 agreements were found to have been validly executed. As observed by the AT, it is seen that no work whatsoever had been done by the claimant till the expiry of the time provided for the completion of the 1st milestone. It was seen that even the machinery required for the work had been brought to the site after the expiry of the time prescribed for the completion of the first milestone. Taking note of the fact that this default on the part of the claimant had been condoned by the respondents by their inaction in not taking any action, including nonimposing of LD, the AT found no fundamental breach by the claimant. The AT for reasons stated in the Award rejected the allegation of undue influence and coercion in the execution of the supplemental agreements, both of which refer to the liability of the claimant to pay LD, if work is not completed within the extended period. Admittedly the work was not completed in spite of two extensions being granted. The AT imposed LD only for the period beyond the expiry of the second extension granted, that is, after 15.02.2007, which cannot be faulted in any way taking into account the facts and circumstances in 43 Arb.Appeal Nos.45 and 47 of 2011 this case. The facts and circumstances in the case (which are relevant in deciding what is public good, as held by the Apex Court in the aforesaid decision) must certainly have weighed in the mind of the AT while arriving at the decision to impose LD. The AT manned by retired Chief Engineers, PWD, are certainly experts and best judges in this matter to assess the situation and order accordingly. In our considered opinion the AT, was only acting in public good or public interest, and not against it or causing injury to the public good. It is public money that is involved and so the failure or lethargy or inaction deliberate or otherwise of the Officers concerned of the respondents in taking appropriate action at the right time, cannot prevent the AT from noticing the same and directing remedial measures for the same based on the conditions in the agreements executed between the parties. Hence, we find that the finding regarding LD is not in violation of public policy as contemplated under Section 34(2) (b) (ii) of the Act or patently illegal as canvassed on behalf of the claimant. 27. Now coming to Arb. Appeal No.45/2011. This 44 Arb.Appeal Nos.45 and 47 of 2011 appeal filed by the respondents is challenging the findings of the AT regarding claims 14,15 and also the finding that the termination order was unjustified. The respondents also challenge the rejection of the counter claim by the AT. According to the respondents, due to the poor performance by the claimant they terminated the contract and the balance works had to be rearranged. The loss suffered was estimated at ₹11,65,89,268/-, which the respondents claimed with interest. In the rejoinder that was filed by the claimant before the AT, it was contended that balance work was arranged at a cost of ₹26,06,53,361/-. This was done after the respondents had rejected the offer of the claimant to complete the balance works at a cost of ₹18,17,34,500/-. The AT found that the termination was improper and that the claimant ought to have been given an extension by incorporating strict conditions relating to the time frame within which the work was to be completed. Had that been done, the loss claimed to have been suffered by the respondents could have been avoided. As the respondents were found to have not acted diligently and 45 Arb.Appeal Nos.45 and 47 of 2011 reasonably, it was held by the AT, that they were not justified in raising a counter claim for the difference in cost for the rearranged work. This again is a finding arrived at by the AT based on the evidence adduced before it. Same is the case relating to the findings of the AT on the release of the bank guarantee and release of the retention amount. The AT held that the invocation of the bank guarantee on 16.05.2007, 45 days before the date for completion of the works was a drastic action taken in haste. The AT held that though the claimant had asked for market rate and that the other claims were quite inflated, the respondents could have given an extension for a reasonable time taking into account the pros and cons involved and the fact that the claimant had successfully completed three other works of the respondents. The bank guarantee given as performance security is usually invoked for non-performance by abandoning the work or due to fundamental breach of the contract, which is not the case here. Finding so the AT directed the respondents to return the bank guarantee totalling 1,09,28,300/-.₹ 46 Arb.Appeal Nos.45 and 47 of 2011 28. The respondents had recovered an amount of ₹26,83,500/- as retention, which the claimant sought return of with interest @ 14% from 10.12.2007. The respondents contended that on account of the willful delay of the claimant, they had suffered loss which had to be recouped before amounts were released to the claimant. The AT rejected the said contention also of the respondents for the very same reasons given for directing return of the bank guarantee. These findings were arrived at by the AT on an appraisal of the pleadings and evidence before it. We do not find any reason(s) for interference on this aspect as it is now well settled that an Award passed by an Arbitrator can be set aside on limited grounds and the supervisory role of the Court is at a minimum level. Court while exercising jurisdiction under Section 34 of the Act does not sit as the Court of appeal. The Arbitral Tribunal is the final adjudicator of facts and evidence adduced before it. It is not permissible for the Court to examine the correctness of the findings of the Arbitrator as if it were sitting in appeal over an Award. As such, a Court while considering the 47 Arb.Appeal Nos.45 and 47 of 2011 objections under Section 34 of the Act is not expected to re - appreciate the entire findings and reassess the whole case of the parties. 29. As held in Kuldeep Singh v. Commr. of Police, (1999) 2 SCC 10 and Associate Builders supra, if a decision is arrived at on no evidence or evidence which is thoroughly unreliable and no reasonable person would act upon it, the order would be perverse. But if there is some evidence on record which is acceptable and which could be relied upon, howsoever compendious it may be, the conclusions cannot be treated as perverse and the findings cannot be interfered with. It must clearly be understood that when a court is applying the "public policy" test to an arbitration Award, it does not act as a court of appeal and consequently errors of fact cannot be corrected. A possible view by the arbitrator on facts has necessarily to pass muster as the arbitrator is the ultimate master of the quantity and quality of evidence to be relied upon when he delivers his arbitral award. Thus, an Award based on little evidence or on evidence which 48 Arb.Appeal Nos.45 and 47 of 2011 does not measure up in quality to a trained legal mind would not be held to be invalid on that score. Very often an arbitrator is a lay person not necessarily trained in law. Once it is found that the arbitrator’s approach is not arbitrary or capricious, then he is the last word on facts. If the view taken by the Arbitral Tribunal is a plausible view and just because the Court may have a different view, the arbitral award should not be interfered with. The High Court is not permitted to reappreciate the evidence placed before the Arbitrator as he is the best judge of the quality as well as quantity of evidence and it will not be for the Court to take upon itself the task of being a judge of the evidence before the Arbitrator. Further, when two parties agree to have their disputes resolved through arbitration reference, they should be bound by the Award of the Arbitral Tribunal unless, of course, rules of natural justice have been breached or there is something so shocking in the Award staring at the face of the court that would prompt the Court to interfere. We find no such infirmity or perversity in the findings of the AT which have been challenged by the respondents in 49 Arb.Appeal Nos.45 and 47 of 2011 Arb. Appeal No.45/2011. In the result, Arb. Appeal No.45/2011 and Arb. Appeal No.47/2011 are dismissed. No order as to costs. Interlocutory applications if any pending, shall stand disposed of. Sd/- P.B.SURESH KUMAR JUDGE Sd/- C.S.SUDHA JUDGE ami/