Arbitration Case Study

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Indian Institute of TechnologyDelhi

Hauz Khas, New Delhi-110016

CEL 767 : CONSTRUCTION AND CONTRATSMANAGEMENT

MOCK ARBITRATION TRIAL

For case

PUNJAB NATIONAL BANK vs M/s BIJLEECONSTRUCTION

Delhi High Court , Case No. O.M.P. 75/2006

Submitted to : Dr. K.C. Iyer

1. Bhusani Saikrishna 2011CEC3674

2. Nilesh Gadge 2011CEC3670

3. Amit kumar Singh 2011CEX5528

Submitted by :


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CASE DETAILS

Court : Delhi High Court, New delhi

Case No. : O.M.P. 75/2006

Reserved on: 22nd March 2012 Decision on: 11th April 2012

Petitioner : PUNJAB NATIONAL BANK

Through : Mr. A.P.S. Ahluwalia, Senior Advocate with

Mr. S.S. Ahluwalia, Advocate. Respondent : M/S BIJLEE CONSTRUCTION

Through : Mr. Joy Basu and

Mr. Sanjoy Bhaumik, Advocates.

Judgment by : JUSTICE S. MURALIDHAR

PUNJAB NATIONAL BANK vs M/s BIJLEE CONSTRUCTION


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CONTRACT BACKGROUND

The Petitioner Punjab National Bank (PNB) and Respondent

M/s Bijlee Construction entered into contract on 3rdMar 1997

for the electrical work in construction of RTC Building at

Gomti Nagar, Lucknow (UP) Tendered amount of Rs.91,92,853/-

Scheduled date of start of the work was 24th February 1997

Scheduled date of completion was 23rdMay 1998

Actual date of completion was extended till 16th July 2001

The work was awarded to Respondent by PNB through its

letter dated 10th Feb 1997.


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DETAILS OF ARBITRATION

M/s Bijlee Construction invoked Arbitration.

Dispute aroused due to the delay in project completion.

Extension of time was granted by the PNB up to 21stApr 2001

without levy of compensation and up to 16

th

Jul 2001 withRs.50,000/- as Liquidated Damages.

Actual Date of Completion is -16thJul 2001

An Award was passed on 28thNov 2005, by the sole arbitratoragainst various disputes between PNB and Respondent.

Claims were awarded by the Sole Arbitrator for varying amounts.


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Objection Against Award :

The Petitioner PNB filed this petition vide. Case no O.M.P.75/2006in Delhi High Court under S.34 of Arbitration and Conciliation Act1996 to challenge the Award of sole arbitrator againstRespondents Claim Nos. 1, 2, 4, 5, 8 and 17.


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Objection by PetitionerAgainstRespondent's claim no. 1


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Award of Arbitrator

Claim No.1 was for Rs. 3,21,324/- towards illegal recovery fromRespondent for the work of conduit pipes laid by M/s M.G. Contractors.

Prior to the award of the electrical work, certain laying of conduit work wasgot executed by PNB through a civil contractor, M/s M.G. Contractors.Respondent found the said conduit work improper. Despite severalrequests, PNB did not furnish the Respondent with any information ofdefect or remedy.

Consequently, the Respondent had to repair and replace the damagedwork to start his part of work. The details of the work done was forwardedto the PNB during the progress. And it was included in the final bill dated22nd/24th Dec 2001.

The learned Arbitrator relied upon the evidence produced by theRespondent in the form of correspondence.

Consequently, although PNB had made payment to the earlier civil

contractor, the Respondent had a genuine case and therefore was entitledto seek reimbursement. The learned Arbitrator awarded the Respondent a


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Petitioner

Contention by Petitioner :

Referring to Clause Nos. 2.3 and 2.4 of

contract, it was submitted on by PNB that theresponsibility of getting accustomed to sitewas that of the Respondent.

No claims based upon any lack ofinformation on the part of the Respondent

would be entertained or payable by the PNB.

It was open to the Respondent to seekclarification from the PNB. However, it didnot do so.


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Responde

nt

Contention by Respondent :

Respondent submitted that the previous workwas not visible during the inspection of site.

The removal of defective work andreplacement of damaged conduit pipes wasbeyond the scope of the original work and wasnot included in the specification or the originaldrawing.

Clause 5.31 which deals with the variation anddeviation of work was referred to.

Reference was also made to thecorrespondence between the parties which

showed that the Respondent had soughtpermission of the PNB before proceeding with


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ArbitratorJudgment by Court :

Referring to the correspondence, which indicate that thework was improperly done by earlier contractor was with

the knowledge of PNB. There is merit in the contention of the Respondent. The

work done by the Respondent was to the benefit of PNB.The Respondent was required to be compensated underSection 70 of the Contract Act.

The view taken by the Sole Arbitrator was reasonablebased on the relevant clauses of contract and evidence inform of correspondence between the parties. The Courtwas unable to find any illegality in the learned Arbitratorawarding Rs.2,75,000/- in favour of the Respondent under

Claim No.1 and the same was upheld.


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Objection by PetitionerAgainstRespondent's claim no. 2 & 4


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Award of Arbitrator

Claim No.2 was for Rs.20,49,433/- towards loss of turnover/profitability.Claim No.4 was for Rs.14 lakhs towards loss on account of Non/partialutilization of men. These claims were based on the difficulty faced in theexecution of the electrical work which resulted in delays that were notattributable to Respondent.

Clauses 5.12, 5.13.2 and 5.38 of the contract dealt with the extension oftime with Liquidated Damages. This is in no way prevents the Respondentfrom claiming loss and damages. Reference was made to Sections 55and 73 of the Contract.

Arbitrator held that, delay upto 21stApr 2001 was attributable to the PNB.Even PNB admitted the same. For the quantum of claim, Certificate ofChartered Accountant produced by Respondent, was referred, whichdepicted the gross profit for fiscal years 1991-92, 2000-2001. C() = Contract Sum

T = Period of Delay

C(days) = Contract Period

Arbitrator awarded profit & overhead at 15% by applying the HudsonFormula:

HO = Head Office Overheads (offsite overheads are usually known in the constructionindustry as Head Office Overheads)


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Petitioner


Claim is unjustified since escalation had already beenawarded in form of Liquidated Damages forRs.50,000/-

Letters dated 13thOct 1998, 8thMay 1999 and 15thMar2001 was referred to prove that extension of time wasbeing granted only for price variation adjustment(PVA).

Once the Respondent had accepted the extension

with LD unconditionally, it was prohibited in law fromclaiming further damages. This was accepted by theRespondent without protest.

Under Cl.5.38, no claim of idle labour is to beentertained.

Under Cl.5.12 the tendered rates are inclusive of


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Petitioner

Continued..

The Respondent failed to file documentary evidenceas proof of the apparent loss suffered.

Decision of the learned Arbitrator in this respect was

contrary to the provisions of the contract and beyondthe scope of the submissions and materials placed onrecord.


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Responde

nt

Contention by Respondent : There is a distinction between loss of profit and

escalation on account of price variation. The Hudson formula has been applied in past by the

Supreme Court for awarding damages resulting from

delays not attributable to the contractor. Referred the para15 of the decision in General

Manager, Northern Railways v. Sarvesh Chopra, whichimplies Delay in performance of contract is governed by Section

55 and 56 of the Indian Contract Act, 1872. A failure to perform obligation by the stipulated time will

entitle the innocent party to;(a) terminate performance of the contract and thereby putan end to all the primary obligations of both partiesremaining unperformed and,

(b) claim damages from the contract-breaker on the basisthat he has committed a fundamental breach of the contract


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The Award was purely based on the evidence on record.

Applying the Hudson formula, Arbitrator awarded only a

part of the claim made which worked out to around 12.4%of the profit. This was a matter within the discretion ofArbitrator.

PNB has been unable to point out any of the delay in theexecution of the work attributable to the Respondent.

The clauses of the contract cannot deprive the contractorfor claiming for damages when delay is not attributable tothe contractor.

The computation of the damages was also based on theaudited accounts of the Respondent and cannot be saidto be arbitrary.


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Objection by Petitioner

AgainstRespondent's claim no. 5 & 8


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Award of Arbitrator

Claim No.5 was for a sum of Rs.53,000/- on account of chargespaid to the civil contractor by Respondent towards electricity andwater consumption for the extended period of the contract.

Claim No.8 was for a sum of Rs.87,238/- towards insurance

charges borne by Respondent during the extended period.


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Petitioner


For Claim No. 5, reliance was placed by the PNB

on Clause 5.12 to contend that no such claim wasentertainable.

Under Cl.5.12 the tendered rates are inclusive ofeverything and nothing extra was to be allowed forincidental or contingent work, labour and/ormaterials.

For Claim No. 8, PNB relied on Clauses 5.12, 5.25and 5.26 of the contract to contend that the tenderrates were to be inclusive of everything necessaryto complete the work and no extra was admissible.


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Arbitrator

Judgment by Court :

The extension of time was granted by PNB and the

delay could not be attributed to the Respondent. Further, the Respondent was able to produce evidence

to prove the payment of the extra charges for water andelectricity.

Similarly, the corresponding increase in the insurance

charges for the extended period had to necessarily beborne by the PNB.

In the circumstances, this claim was justified and,therefore, rightly awarded by the learned Arbitrator. TheAwards in respect of Claim No.5 & 8 are, therefore,

upheld.


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Objection by Petitioner

AgainstRespondent's claim no. 17


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Award of Arbitrator

The learned Arbitrator granted the Respondent simple interest at12% per annum on the amounts awarded under Claim Nos. 1, 5 & 8from 1stJan 2003 up to the date of the Award and post-award simpleinterest at 12% per annum from the date of the Award till the date of

payment.


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Petitioner


Petitioner claimed that the interest rate granted by

sole arbitrator is groundless, arbitrary andexcessive


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Responde

nt

Contention by Respondent :

Based on section 31(7)-b of The Arbitration and

Conciliation Act, A sum directed to be paid by anarbitral award shall, unless the award otherwisedirects, carry interest at the rate of 18% perannum from the date of the award to the date ofpayment.


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Section 31(7)-b of The Arbitration and Conciliation Actgives authority to arbitrator for award of interest at the rateof 18% per annum from the date of the award to the dateof payment, on sum directed to be paid.

In a recent case of Krishna Bhagya Nigam Ltd vsG.Harischandra Reddy (2007) the Supreme court heldthat after economic reforms in our country the interest

regime has changed and the rates have substantiallyreduced.

Holding so, the apex court has reduced interest from 9%to 18% of interest awarded by the Arbitrator. Thus, theaward of this simple interest at 12% per annum cannot be

said to be excessive or arbitrary. The Award in re ard to Claim Nos. 17 is, therefore,


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FINAL JUDGMENT

For the aforesaid reasons, this Court finds no grounds havingbeen made out by the Petitioner under Section 34 of theArbitration and Conciliation Act, for interference with theimpugned Award.

The objections of the Petitioner PNB are thus herebyrejected.

The award given by learned arbitrator is upheld.

The petition is dismissed with costs of Rs.10,000/- which will

be paid by the Petitioner PNB to the Respondent within aperiod of four weeks from the date of Judgment i.e. 11thApr2012.


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Arbitration Case Study

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