AI Drafter 
TaxTMI 
TaxTMI 
2019 (11) TMI 417
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....urpose hall service block underground water tank etc. and other work for ONGC. The appellant-claimant raised certain claims which were refuted by the respondent and thus, the claimant invoked the arbitration Clause 25 of the General Conditions of the contract vide letter dated 07.09.2001. The appellant-claimant had also entered into a contract dated 05.01.1996 bearing No.DHL/Civil/NOIDA/5/94 for construction of Multi-storeyed Residential flats 20 Nos. 'B' type for ONGC. The appellant-claimant raised certain claims which were refuted by the respondent and here again, the claimant invoked the arbitration Clause 25 of the General Conditions of the contract vide letter dated 07.09.2001. 3. The designated authority vide its order dated 03.01.2002 appointed Justice P.K. Bahri (Retd.) as the sole Arbitrator to adjudicate upon the claims of the parties. The learned Arbitrator vide award dated 01.07.2005 allowed the claim of the claimant and disallowed the liquidated damages/compensation and rejected the counter claim of respondent-ONGC. Various claims made by the contractor and the amount awarded by the learned Arbitrator in both the arbitration cases are as under:- Arbitral Award in....
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....- Rs. 12,00,000/- 3. Escalation claimed by the Petitioner as per provisions of the contract Rs. 29,56,110/- Rs. 29,56,110/- 4. Losses and damages incurred by the Petitioner in the shape of overheads due to prolongation of contract Rs. 18,23,613/- Claim rejected by the Ld. Arbitrator 5. Loss of turnover suffered by the Petitioner due to prolongation of contract Rs. 46,91,973/- Claim rejected by the Ld. Arbitrator 6. Declaration sought by the Petitioner that the penalty under Clause 2 imposed by ONGC was illegal and unwarranted and the amount withheld by ONGC was payable to the Petitioner with interest @ 24% Rs. 36,80,142/- [amount that was withheld by ONGC towards liquidated damages] Amount of Rs. 36,80,142/- withheld by ONGC as liquidated damages was to be refunded and adjusted towards payment of Claim No.1 and 2 7. Interest payable on final bill Rs. 9,84,680/- - 8. Interest payable on withheld amount Rs. 6,36,000/- - 9. Interest payable on escalation amount Rs. 18,91,910/- - 10. ....
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....Superintending Engineer to levy liquidated damages under Clause 2 being final, the same was an "excepted matter" and not arbitrable. 7. The Division Bench set aside the findings of the award passed by the learned Arbitrator and the order of the learned Single Judge by holding that Clause 2 of the agreement provided that the decision of the Superintending Engineer on the question of levy of liquidated damages is final and that the same could not have been agitated in the arbitration proceeding. The Division Bench held that when the parties have consciously provided that the decision of the Superintending Engineer shall be final only to exclude the issue of "excepted matter" from the scope of the arbitration, the Arbitrator ought not to have dealt with the same and passed the award. The Division Bench has also pointed out that when the respondent- ONGC first gave notices to the appellant-contractor to rectify the defects and thereafter, gave a notice to levy liquidated damages on 15.05.2001 followed by the letter dated 25.05.2001 to the appellantcontractor that the final bill was ready and that the appellant was required to reconcile the final bill to ensure the settlement of the ....
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....ract between the parties is "arbitrable"? (ii) Whether the respondent-ONGC is right in contending that the levy of liquidated damages in terms of Clause 2 of the contract is final and an "excepted matter" not falling within the jurisdiction of the Arbitrator and whether the learned Arbitrator has travelled beyond the terms of the contract? 11. ONGC's claim of liquidated damages in terms of Clause 2 of the agreement:- The salient features of the contract in Arbitration Case No.297A/2002 are that the work was to commence on 22.02.1996 and was stipulated to be completed by 21.08.1997. But the work was completed only on 24.05.1999. Insofar as Arbitration Case No.297/2002, the work was to commence on 21.02.1996 and was stipulated to be completed by 21.08.1997. But the work was completed only on 24.05.1999. In its statement of defence, the respondent-ONGC asserted that there has not been any significant delay caused by the respondent-ONGC which could delay the work of the claimant. In its statement of defence, the respondent-ONGC mentioned that total delay which has occurred was 640 days out of which claimant is responsible for the delay of 39 weeks (39 x 7 = 273 days) and on....
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....to ensure good progress during execution of the work, Clause 2 of the agreement provides for determination/quantification of compensation for delay or certain inactions, on the part of the contractor. In terms of Clause 2 of the agreement, the Superintending Engineer shall assess and quantify the compensation. By the terms of the agreement, the parties have consciously agreed that in case the contractor fails to comply with the conditions and complete the work with due diligence, the Superintending Engineer may decide the compensation in terms of Clause 2 of the agreement. 15. In order to appreciate the claim of ONGC in levying the damages in terms of Clause 2, it is necessary to refer to Clause 2 of the agreement which reads as under:- "Clause 2: Compensation for Delay The time allowed for carrying out the work as entered in the tender shall be strictly observed by the contractor and shall be deemed to be the essence of the contract on the part of the contractor and shall be reckoned from the 15th day after the date on which the order to commence the work is issued to the contractor. The work shall throughout the stipulated period of the contract be proceeded ....
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....presentatives or assigns in connection with or arising out of the contract, or in respect of meaning of specifications, design, drawings, estimates, scheduled, annexures, orders, instructions, the construction, interpretation of this agreement, application of provisions thereof or anything hereunder containing or arising hereunder or as to rights, liabilities or duties of the said parties hereunder or arising hereunder any matter whatsoever incidental to this contract or otherwise concerning the works of execution or failure to execute the same whether during the progress of work or stipulated/extended period or before or after the completion or abandonment thereof shall be referred to the sole arbitration of the person appointed by a Director of ONGC Ltd. at the time of dispute. There will be no objection to any such appointment that the arbitrator so appointed is an employee of ONGC Ltd. or that he had to deal with the matters to which the contract relates and that in the course of this duties as ONGC Ltd. employees, lie had expressed views on all or any of the matters in dispute or difference. If the arbitrator to whom the matter is originally referred dies or refuses t....
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....determined by the arbitrator. Vide letters dated 08.12.1999, 09.12.1999, 17.12.1999, 11.02.2000 and 17.04.2000, ONGC called upon the respondent/contractor to remove the defects failing which it would get the defects remedied at his cost. According to ONGC, the completion time was extended without prejudice to the right of ONGC to recover compensation in accordance with Clause 2 of the agreement. The contention of ONGC is that by the letter dated 15.05.2001, the contractor was put on notice that in exercise of the power conferred on the Superintending Engineer under Clause 2, the contractor is liable to pay 10% of the contract value by way of compensation. The contractor was informed by the said letter dated 15.05.2001 that the compensation is levied on him for the period of 39 weeks at half per cent per week subject to maximum of 10% of the contract value and that the actual amount of compensation shall be worked out on checking the final bill and the same shall be recovered by ONGC from the final bill. By the subsequent letter dated 25.05.2001, the claimant was informed that the final bill is ready and the claimant was required to reconcile the final bill after adjusting the compe....
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....certain judicial decisions regarding the meaning of the word "final" in various statutes, the Division Bench concluded that the finality cannot be construed as excluding the jurisdiction of the arbitrator under Clause 25. We are unable to accept this view. Clause 25 which is the arbitration clause starts with an opening phrase excluding certain matters and disputes from arbitration and these are matters or disputes in respect of which provision has been made elsewhere or otherwise in the contract. These words in our opinion can have reference only to provisions such as the one in parenthesis in clause 2 by which certain types of determinations are left to the administrative authorities concerned. If that be not so, the words "except where otherwise provided in the contract" would become meaningless. We are therefore inclined to hold that the opening part of clause 25 clearly excludes matters like those mentioned in clause 2 in respect of which any dispute is left to be decided by a higher official of the Department. Our conclusion, therefore, is that the question of awarding compensation under clause 2 is outside the purview of the arbitrator and that the compensation, determined u....
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....2 of the agreement in Food Corporation of India reads as under:- "The decisions of the Senior Regional Manager regarding such failure of the contractors and their liability for the losses etc. suffered by the Corporation shall be final and binding on the contractors....". 21. While interpreting the clause on 'excepted matters', in Food Corporation of India, the Supreme Court held as under:- "3. "Excepted matters" obviously, as the parties agreed, do not require any further adjudication since the agreement itself provides a named adjudicator - concurrence to the same obviously is presumed by reason of the unequivocal acceptance of the terms of the contract by the parties and this is where the courts have been found out lacking in their jurisdiction to entertain an application for reference to arbitration as regards the disputes arising therefrom and it has been the consistent view that in the event of the claims arising within the ambit of excepted matters, the question of assumption of jurisdiction of any arbitrator either with or without the intervention of the court would not arise. The parties themselves have decided to have the same adjudicated by a particu....
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.... to collect the damages in case of any delay in supply on the part of the supplier under Clause 16(2). While interpreting Clause 16(2) and Clause 21 of the contract which was under consideration in BSNL's case, in paras (23) and (26), the Supreme Court held as under:- "23. The question to be decided in this case is whether the liability of the respondent to pay liquidated damages and the entitlement of the appellants, to collect the same from the respondent is an excepted matter for the purpose of Clause 20.1 of the general conditions of contract. The High Court has pointed out correctly that the authority of the purchaser (BSNL) to quantify the liquidated damages payable by the supplier Motorola arises once it is found that the supplier is liable to pay the damages claimed. The decision contemplated under Clause 16.2 of the agreement is the decision regarding the quantification of the liquidated damages and not any decision regarding the fixing of the liability of the supplier. It is necessary as a condition precedent to find that there has been a delay on the part of the supplier in discharging his obligation for delivery under the agreement. ........... ....