TaxTMI 
TaxTMI 
2013 (5) TMI 375
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....use 7.0.9.0 of the General Conditions of Contract. 3. In view of the said termination, the respondent raised certain claims against the appellant and invoked the arbitration agreement contained in the General Conditions of Contract and filed an application under section 11 of the Arbitration and Conciliation Act, 1996 ('Act' for short) before the Delhi High Court for appointment of an arbitrator. The Designate of the Chief Justice of the High Court, by order dated 17.3.2003, appointed a retired High Court Judge as the arbitrator. 4. Before the arbitrator, the respondent filed a statement of claims raising eight claims. However in its written submission before the Arbitrator, the contractor confined its claims to only three, aggregating to Rs.1,31,81,288/-. 5. The appellant made several counter-claims aggregating to Rs.92,72,529/-. Subsequently the statement of counter-claims was amended and the following para was added in regard to the extra cost in getting the work completed through an alternative contractor:- "Since the aforementioned contract is still pending and IOCL is in the process of inducting agency (ies) to complete the said work, the Engineerin- charge of the said co....
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....e arbitrator awarded a sum of Rs.11,10,662. In regard to the averments made by the appellant in regard to the extra cost involved in getting the work completed through an alternative contractor, the arbitrator observed thus : "102. The contract was terminated in October 2002 and till date the balance work of the contract has not been executed. Such damage could have been allowed to the respondent if in a reasonable period after termination of the contract, the respondent had executed the balance work at the risk and costs of the claimant. In case the costs actually incurred have been more than the costs which were required to be incurred under the contract, then the difference between the two costs could have been awarded as damages to the respondent. There is no proper evidence on the record to show that what could have been the costs of the balance work if it had been executed within reasonable period after the termination of the contract. Such damage cannot be awarded on mere opinion of any particular person or on hypothetical basis. Under clause 7.0.9.0 of General Conditions of the Contract, the respondent was entitled at the risk and expenses of the contractor to get complete....
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....rest thereon at 18% per annum if the amount was not paid within seven days) and informed the respondent that if it disputed its liability, to treat the said letter as appellant's notice invoking arbitration. The appellant also suggested a panel of three names (including Justice P.K. Bahri - the arbitrator who had made the award dated 27.10.2008) with a request to select one of them as the arbitrator. The respondent by reply dated 18.3.2009 refused to comply, contending that the counter claim in regard to the risk-execution cost had already been rejected by the arbitrator, by his award dated 27.10.2008 and that award having attained finality, there could be no further arbitration. In view of the said stand of the respondent, the appellant filed a petition under section 11 of the Act praying for appointment of an arbitrator to decide its claim for the extra cost in getting the work completed through the alternative agency. 8. The learned Designate of the Chief Justice of the Delhi High Court (for short 'the Designate') by the impugned order dated 8.12.2009 dismissed the application with costs of Rs.50,000/-. He held that the application under section 11 of the Act by the appellant w....
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....ategory) which the Chief Justice/his designate should leave exclusively to the Arbitral Tribunal are: (i) Whether a claim made falls within the arbitration clause (as for example, a matter which is reserved for final decision of a departmental authority and excepted or excluded from arbitration)? (ii) Merits or any claim involved in the arbitration." 11. To find out whether a claim is barred by res judicata, or whether a claim is "mala fide", it will be necessary to examine the facts and relevant documents. What is to be decided in an application under section 11 of the Act is whether there is an arbitration agreement between parties. The Chief Justice or his designate is not expected to go into the merits of the claim or examine the tenability of the claim, in an application under section 11 of the Act. The Chief Justice or his Designate may however choose to decide whether the claim is a dead (long-barred) claim or whether the parties have, by recording satisfaction, exhausted all rights, obligations and remedies under the contract, so that neither the contract nor the arbitration agreement survived. When it is said that the Chief Justice or his Designate may choose to decide ....
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....oceedings. 13. The question whether a claim is barred by res judicata, does not arise for consideration in a proceedings under section 11 of the Act. Such an issue will have to be examined by the arbitral tribunal. A decision on res judicata requires consideration of the pleadings as also the claims/issues/points and the award in the first round of arbitration, in juxtaposition with the pleadings and the issues/points/claims in the second arbitration. The limited scope of section 11 of the Act does not permit such examination of the maintainability or tenability of a claim either on facts or in law. It is for the arbitral tribunal to examine and decide whether the claim was barred by res judicata. There can be no threshold consideration and rejection of a claim on the ground of res judicata, while considering an application under section 11 of the Act. Re : Question (ii) 14. We extract below the reasoning adopted by the Designate to dismiss the appellant's application under section 11 of the Act :- "5. In my opinion, not only the aforesaid para 102 in the Award dated 27.10.2008 operates as res judicata against the present petitioner, I find that the present petition is misconce....
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....whom risk and cost is tendered, becomes crystallized when the risk purchase tender at a higher cost is awarded. Once a higher cost of work is known as compared to the cost of the work for the earlier work for which the earlier contract was there and with respect to which the earlier contractor was in breach, then not only the amount becomes crystallized but limitation also commences for filing of the legal proceedings against the person in breach of obligations under the earlier contract. It cannot be that limitation and a right continues indefinitely to be extended till the performance is completed under a subsequent risk purchase contract. This would give complete uncertainty to the period of limitation striking at the very root of one of the principles of the Limitation Act and which is that evidence is lost by passage of time and which will cause grave prejudice to the person against whom a stale claim is filed." 15. The appellant submitted that having regard to clause 7.0.9.0 of the contract, damages can be claimed by it (as employer), in regard to the additional amount incurred for getting the work completed through an alternative agency at the risk and cost of the contracto....
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.... cost was not recoverable, nor on the ground that no extra cost was involved in completing the work, but on the ground that as on the date of the award, the appellant had not actually incurred any specific extra cost; and that as the arbitrator clearly held that any claim for extra cost was premature and could not be considered at that stage, the observation that 'I reject this counter claim' only meant that the claim relating to extra cost was not being considered in that award and that appellant should make the claims separately after the amount was actually expended. 17. Clause 7.0.9.0 of the contract relied upon by the appellant reads thus : "clause 7.0.9.0 Upon termination of the contract, the owner shall be entitled at the risk and expenses of the contractor by itself or through any independent contractor(s) or partly by itself and/or partly through independent contractor(s) to complete to its entirety the work as contemplated in the scope of work and to recover from the contractor in addition to any other amounts, compensations or damages that the owner may in terms hereof or otherwise be entitled to (including compensation within the provisions of clause 4.4.0.0 and clau....
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.... commencement of the arbitration proceedings, in the pending proceedings by way of amendment, has no basis either in law or in contract. If the cause of action arose after the completion of pleadings and commencement of hearing in the first round of arbitration, nothing prevented the appellant from making a separate claim by initiating a second arbitration. (iii) Finding : Once a risk and cost tender is issued at the risk and cost of a person, then, the amount which is to be claimed from the person who is guilty of breach.......... becomes crystallized when the risk purchase tender at a higher cost is awarded.. This may be true as a general proposition. But it may not apply if there is a specific provision in the contract (like clause 7.0.9.0) which requires that the employer should claim as extra cost, only the difference between the "amounts as would have been payable to the contractor in respect of the work" and "the amount actually expended by the owner for completion of the entire work". 19. The Designate should have avoided the risks and dangers involved in deciding an issue relating to the tenability of the claim without necessary pleadings and documents, in a proceeding r....