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TaxTMI 
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2024 (11) TMI 1509
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....ned award) rendered by the Arbitral Tribunal (hereafter the Arbitral Tribunal) comprising of a Sole Arbitrator. 2. The impugned award was rendered in the context of disputes that had arisen between the parties in connection with an agreement dated 11.01.2007 for designing, supplying, installation, testing and commissioning of high mast signage systems of various heights and types at various IOCL retail outlets in the State of Tamil Nadu and Union Territory of Pondicherry (hereafter referred to as the Work Order). 3. Fiberfill had made five claims, which were the subject matter of arbitration before the Arbitral Tribunal. The same included a claim of Rs.22,08,528/- being an amount that was deducted by IOCL towards price adjustment from the bills raised by Fiberfill for the work done; interest at the rate of 18% on the sum of Rs.22,08,528/- from the date the amounts were withheld by IOCL till the actual date of release; Rs.75,50,000/- towards Escalation; Rs.1,50,00,000/- towards Loss of Business Opportunity; and Rs.80,00,640/- towards Manpower Retention. The Arbitral Tribunal rejected all the aforesaid claims and found that Fiberfill is not entitled to any relief. 4. During ....
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..... Fiberfill is a partnership firm registered under the Indian Partnership Act, 1932. It is primarily engaged in the business of steel fabrication and executing civil and electrical engineering contracts. 9. The bid documents included the SIT, which inter alia, stated the procedure for awarding the contract. It was expressly provided that the SIT and the bid documents would form an integral part of the Contract. Clause 8.0 of the SIT provided that the "the Rate Contract shall be valid for a period of One year from the date of its finalization and shall not be extendable for a further period of one year with mutual consent" [Clause 8 of the SIT]. 10. It was expressly provided that the finalization of the contract would not entail any right to the contractors for securing the work orders from IOCL. The SIT further stated that IOCL intended to shortlist two contractors and to award 60% of the total value of work to the tenderer quoting the lowest acceptable rate (L-1) and balance 40% of the work to a contractor offering the next lowest rate (L-2). 11. Clause 9 of the SIT expressly provided that the work was required to be completed in all respects within a period of twelve wee....
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....rk Order. Apart from the fact that there was delay in issuance of the Call-up Orders - as noted above, IOCL had issued six Call up Orders after the initial term of the Contract had expired - there was also a delay in installation of the high mast signages for various reasons. 17. According to IOCL, the delay in execution of installation of the high mast signages exceeded the period of sixty days as extended by the period of delay on account of justifiable reasons or those that were not attributable to Fiberfill. IOCL, thus, withheld an amount of Rs.22,08,528/- from the amounts payable to Fiberfill. IOCL claimed that the said deductions were made in accordance with Clause 4.4.0.0 of the GCC and Clause 9 of the SIT. A tabular statement setting out the period of delay on account of which IOCL withheld the payments is set out below: CALL UP ORDER NO. DATE, BY WHICH, THE RESPONDENT WAS TO COMPLETE WORKS DATE, BY WHICH, THE RESPONDENT HAD ACTUALLY COMPLETED WORKS NO. OF DAYS, BY WHICH, WORK HAS BEEN DELAYED 2^nd 11.02.2008 16.09.2008 217 days 6^th 04.08.2008 10.11.2008 98 days 8^th 01.12.2008 03.07.2009 210 days 9^th 13.03.2009 ....
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....tatement, which summarises Fiberfill's claims is reproduced below: "42. That this Claim Petition raises the following claims: I). Claim due, wrongfully deducted on account of liquidated damages/Penalty: The Claimant is entitled to Rs. 22,08,528/- deducted from the bills on account of Liquidated damages/penalty alongwith interest @ 18% p.a. from the date the amounts have been withheld i.e. 01.05.2008 till 31.12.2014 amounting to Rs. 26,59,917/- II). Claim due to delay damages. i) Escalation Amount (On material, transportation, execution cost etc) aggregating to Rs. 75,50,000/-. ii) Loss of Business Opportunity aggregating to Rs. 1,50,00,000/-. iii) Manpower recruitment cost over a period of 4 year @Rs.20 Lacs p.a aggregating to Rs. 80,00,640/-, the break-up is provided below: a) Engineers for 48 Months @Rs.65,000/- per month Rs.31,20,000/- b) 3 Nos. Supervisor for 48 Months @Rs.28,000/- per month Rs.40,32,000/- c) Mason & Labour Cost Rs.8,48,640/-" 25. IOCL countered the aforesaid claims by filing its written statement of defence. 26. The arbitral proceedings culminated in the impugned aw....
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...., which is beyond the scope of the court's jurisdiction under Section 34 of the A&C Act. 30. We may now proceed to examine IOCL's challenge to the impugned order to the extent that it sets aside the impugned award. As noted above, the controversy is confined to Fiberfill's Claim nos.1 and 2 - Fiberfill's claim for amount of Rs.22,08,528/-, which was deducted by IOCL from its bills, and interest at the rate of 18% per annum on the said amount. 31. It was contended on behalf of IOCL that the learned Single Judge had erred in proceeding on the basis that IOCL was required to establish that it had suffered any loss for sustaining a deduction of the aforesaid amount from the bills raised by Fiberfill. It was submitted that the said deduction was in accordance with Clause 9 of the SIT and Clause 4.4.2.0 of the GCC and the learned Single Judge had erred in proceeding on the basis that Clause 4.4.2.0 of the GCC provides for liquidated damages while ignoring Clause 4.4.2.2 of the GCC, which expressly provided that the provisions of the said Clause 4.4.2.0 of the GCC were not to be understood or construed as liquidated damages or penalty under Section 74 of the Indian Contract Act, 187....
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....laim any damages. Additionally, it was contended that IOCL had neither suffered any loss nor established the same and therefore, it could not claim any compensation. 35. It was also Fiberfill's case that Clause 4.4.0.0 of the GCC was in the nature of penalty inasmuch as it provided for compensation even if there was a delay in execution of a single signage tower. 36. The Arbitral Tribunal found that out of twelve Call up Orders placed by IOCL, work pertaining to six Call up Orders were inordinately delayed. IOCL had, thus, recovered compensation only in respect of six Call up Orders. The Arbitral Tribunal noted that IOCL had granted time extensions to Fiberfill whenever the same was considered justifiable. However, extension of time on account of various reasons including late appointment of the TPI Agency or excessive rains etc. could not be construed as waiver of the contractual clause, which specifically provided that the time was the essence of the contract. 37. The learned Single Judge has declined to interfere with either of the two aforesaid findings given the limited scope of examination under Section 34 of the A&C Act. We concur with the said view. The findings of....
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....on of the works achieved within 6 (six) weeks of time starting date for discount calculation -3% of the total contract value. (vii) For Mechanical Completion of the Unit(s)/ final completion of the works achieved within 7 (seven) weeks of time starting date for discount calculation 3 ½ % of the total contract value. (viii) For Mechanical Completion of the Unit(s) final completion of the works achieved within 8 (eight) weeks of the starting date for discount calculation -4% of the total contract value. (ix) For Mechanical Completion of the Unit(s)/ final completion of the works achieved within 9 (Nine) weeks of the starting date for discount calculation-4 ½ % of the total contract value. (x) For Mechanical Completion of the Unit(s)/ final completion of the works achieved within 10 (ten) weeks of the starting date for discount calculation 5% of the total contract value. (xi) For Mechanical Completion of the Unit(s)/ final completion of the works achieved within 11 (eleven) weeks of the starting date for discount calculation - 5 ½ % of the total contract value. (xii) For Mechanical Completion of the Unit(s)/ fi....
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....constitute purely a provision for price adjustment and/or fixation and are not be understood or construed as a provision for liquidated damages or penalty under Section 74 of the Indian Contract Act or otherwise. 4.4.3.0 Application of price adjustment under Clause 4.4.2.0 above shall be without prejudice to any other right of the OWNER, including the right of termination under Clause 7.0.1.0 and associated clauses thereunder. 4.4.4.0 Nothing in Clause 4.4.2.0 above shall prevent the OWNER from exercising its right of termination of Contract under Clause 7.0.1.0 hereof and associated clauses thereunder, and OWNER shall be entitled, in the event of exercising its said right of termination after the last date for Mechanical Completion of the Unit(s) and/or final completion of the works as stipulated in the relative Progress Schedule without prejudice to any other right or remedy available to the OWNER, to discount as aforesaid in the contractual price of services in addition to any amount as may be due consequent to a termination under Clause 7.0.1.0 hereof and associated clauses there under." "9.0 WORKING TIME AND COMPLETION PERIOD: The work entrusted in e....
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....o ask for compensation on any ground whatsoever. Only actual work done till that stage will be paid." [emphasis added] 39. It was Fiberfill's case before the Arbitral Tribunal that Clause 4.4.2.0 of the GCC is in the nature of a penalty and not a measure of reasonable damages. Paragraph 33 of the statement of claim is relevant and is set out below: "33. That, however, an amount of Rs.22,08,528/- has been deducted by the Respondent on account of delay in completion of the work. It is relevant to point out that even though the Clauses 4.4.0.0, 4.4.1.0, 4.4.2.0 of Section 3 of the General Conditions of Contract state that the Respondent can adjust price for delay in completion, the deduction of the amount payable to the Claimant on account the purported delay is in essence a penalty/liquidated damaged imposed on the Claimant, which is impermissible under the law. The said Clauses are harsh, penal in nature and unenforceable inasmuch as the penalty imposed is a percentage of the total contract value even for a delay in mechanical completion of one unit of the work order." 40. IOCL countered the said assertion. It denied that the Clause 4.4.2.0 of the GCC read with Cla....
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.... Clause 4.4.2.0 of the GCC provided for a genuine pre-estimate of damages as claimed by IOCL. It also did not refer to Clause 4.4.2.2 of the GCC. 45. However, the Arbitral Tribunal rejected Fiberfill's contention that the amount deducted was by way of penalty as IOCL had not made any claim for loss or injury. The relevant extract of the Arbitral Tribunal's conclusion is set out below: ".... Thus the deductions made in the bills of the Claimant, which were on account of the price adjustments for the delayed completion of works by them, being in line with Clause 4.4.0.0 of the GCC and Clause 9 of Special Instructions to Tenderers/Contractors were contractual and valid. The argument of the Claimants as to that "the amount deducted by the respondent is by way of penalty and not compensation, since the Respondent makes no claim for loss or injury" is not acceptable in as much as the deductions were made by Respondents strictly in line with terms and conditions of the contract." 46. It is also important to note that there is no finding of the Arbitral Tribunal to the effect that Clause 4.4.2.0 of the GCC embodies a measure for genuine pre-estimate of damages on ac....
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....ntract, which are to be found inter alia in Section 73 of the Contract Act. 43.3. Since Section 74 awards reasonable compensation for damage or loss caused by a breach of contract, damage or loss caused is a sine qua non for the applicability of the section. 43.4. The section applies whether a person is a plaintiff or a defendant in a suit. 43.5. The sum spoken of may already be paid or be payable in future. 43.6. The expression "whether or not actual damage or loss is proved to have been caused thereby" means that where it is possible to prove actual damage or loss, such proof is not dispensed with. It is only in cases where damage or loss is difficult or impossible to prove that the liquidated amount named in the contract, if a genuine pre-estimate of damage or loss, can be awarded. 43.7. Section 74 will apply to cases of forfeiture of earnest money under a contract. Where, however, forfeiture takes place under the terms and conditions of a public auction before agreement is reached, Section 74 would have no application." [emphasis supplied] 49. In Mahanagar Telephone Nigam Ltd. v. Finolex Cables Limited, 2017 SCC OnLine Del 1049....
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....7.4 signifies a genuine pre-estimate of damages, MTNL was not relieved of showing that it had suffered some loss. Both legally and factually, this is the correct position. 36. On application of the above well settled principle, there can be no manner of doubt, that it was incumbent on MTNL to prove before the Arbitrator that it had suffered some loss, even though it may not have to prove the actual loss. xxx xxx xxx 47. It is to be noted that the arbitral tribunal rejected the counter claim of the MTNL, yet proceeded to award liquidated damages. We are unable to agree with Mr. Abhinav Vasisht, ld. Senior Counsel for the appellant - MTNL that the contract was of such nature that it was not possible to evaluate the damages and therefore, that 10% of the amount quantified in the contract between the parties as liquidated damages had to be treated as being reasonable award of damages. 48. It is clearly stated in para 43.6 of Kailash Nath that in case where damages are difficult or impossible to prove, the claimants would be entitled to the liquidated damages if they were a genuine pre-estimate of the damage. No material at all in this regard was produced b....