Union of India Through Garrison Engineer (East) v R. K. Traders and another
Allahabad High Court
5 July 2013
First Appeal From Order No. – 1483 of 2013
The Order of the Court was as follows :
1. Heard Sri S.K. Mishra, learned Standing Counsel, Union of India, appearing on behalf of the appellant.
2. By means of the present Appeal, the appellant is challenging the order of the District Judge, Bareily, dated 4th March, 2013 by which he has rejected the objection filed by the Garrison Engineer- II, Bareily Cant, Bareily against the order of the award dated 9.10.1998, given by the sole Arbitrator Lt. Colenal S.B. S. Chauhan, awarding a sum of Rs. 1,39,400/= towards loss of profit, Rs.28,000/= towards claim for the work done, Rs.15,000/= towards loss of advance and Rs.30,000/= towards the expenses incurred into during the period when the work remained suspended.
3. Learned counsel for the appellant submitted that the Arbitrator has no jurisdiction to adjudicate the controversy in view of Section 870 of the General Conditions of the Contract (GCC), which clearly provides that the Arbitrator had jurisdiction to adjudicate only those claims or controversies in respect of which, the decision of any other authority, under the contract, is expressed to be final. Since in Clause 7 of the Act, internal remedy was available and the decision of the concerned authority was final, therefore, the learned Arbitrator had no jurisdiction to adjudicate the matter as it fell within the ‘expected matters’. He further submitted that since the respondent-contractor failed to execute the contract, therefore, in exercise of power conferred by Clause 54 of I.A.F.W.-2249, the left over work was got completed through another agency, namely, M/s. Kunal Enterprises, Bareily, which was got completed on 24th February, 1998, but in getting the work completed through another agency, the department suffered a loss of Rs.3,69,468-50/=, thus, the contractor was liable to pay that amount to the department while instead of compensating the department by making award in favour of the department for the loss suffered by it, the award has been made in favour of the opposite party-contractor.
4. I have considered submissions advanced by the learned counsel for the appellant, perused the impugned order passed by the District Judge, Bareily and the award as well as the materials on record. The admitted facts of the case, in brief, are that the appellant for the construction of 12 Single JCOs accommodation for ASC School at Bareily, invited tenders from the registered contractors. The respondent-contractor’s tender, being lowest, was accepted on 11th January, 1996 for an amount of Rs.13,93,336-53/= The date of the commencement of the work was 29th January, 1996 and the date of completion of the work was 28th November, 1996. The construction work was to be performed as per the site plan. As per the respondent, they intended to complete the work at the earliest, therefore, immediately started preparatory work for procurement of men and materials, did boring of well for water supply etc. On 2nd February, 1996, the respondent-contractor was advised not to go ahead till further decision and in the end of February, 1996, the contractor was supplied another drawing with revised lay out. As per the contractor, they again started preliminary works, made burgis, storage tank, mixing platform, bore well etc. earth work for foundation was also done. While digging work was in progress, it came to the notice that there was a rising main underneath across the main building and again the Garrison Engineer advised the respondent-contractor not to proceed with the work.
5. As per the respondent-contractor, various letters were written to the Garrison Engineer/Chief Works Engineer between March to June, 1996, requesting therein to provide revised site-plan as his entire staff, labour and establishment was idle. On 19th July, 1996, yet another further revised site-plan was sent to the respondent-contractor. As per the respondent- contractor, the said revised site plan was altogether different compared to original site plan and it had been given after a considerable lapse of time and in the said site plan there were major changes and deviations from the original site plan as well as scope of work had radically changed. Chief Works Engineer, prepared an amendment to the contract with a financial effect of Rs.5,000/= and wanted it to be signed, which was not acceptable to the contractor. As per the contractor, the loss was much more, due to change in site etc. At this level, it cannot be disputed that all these constituted a clear admission on the part of the department that original agreement had lost its sanctity or validity and had come to an end. The tendered rates remained no longer valid. The decision of change of site was given on 31st May, 1996 and 12th June, 1996. The contractor was required to sign the agreement by the department but he wanted reimbursement of all prevailing rates due to market variations and due to this reason, the contractor did not agree to sign the agreement and did not come on the work on ground. As per department, Rs.5,000/= was financial effect of detachment of scooter shed from the main block and this was only a minor change. Lastly, the contract was cancelled on 23.09.1996 and subsequently, has been awarded to another contractor.
6. Admittedly, the initial site plan was changed and lastly again a revised site-plan was provided for work. The change of site was done by the Department and perusal of all the site plan shows that there were radical changes. Therefore, it appears that there was a fundamental breach of contract on the part of the Department.
7. The District Judge, in the impugned order, has rejected the plea of lack jurisdiction of the Arbitrator on the ground that it has not been raised before the Arbitrator when the proceeding was before him. Further, it has been held that perusal of the award shows that the claims which were precluded by the Chief Engineer (Appointing Authority) and were beyond the scope of the reference have not been considered by the learned Arbitrator. The loss of business opportunity has not been considered by the learned Arbitrator considering it beyond scope of reference and accordingly the objection regarding lack of jurisdiction has been held without any substance.
8. The learned District Judge further held that the department has changed the site plan thrice and detachment of the scooter shed from the main building, delay in communication on the part of the department in this regard, goes to suggest that the department committed breach of contract. Admittedly, amendment to the original contract was issued by the department but at the same time it was not agreed by the respondent- contractor, therefore, the original agreement automatically came to an end. It has further been observed that the department initially handed over the site on 29th January, 1996, but the work plan was got supplied on 2nd February, 1996 and it was only on 19th July, 1996 when the department sent the third site plan, which was totally different from the initial contract drawing and the department took six months in deciding and finalizing the site plan while the contract period itself was only for ten months. The change in the initial drawing was a major change and as such considering all the attending circumstances, the award of Rs.1,39,400/= towards loss of profit, Rs.28,000/= towards claim for the work done, Rs.15,000/= towards loss of advance and Rs.30,000/= towards the expenses incurred into, during the period when the work remained suspended cannot be said to be unreasonable.
9. On the facts and circumstances, the learned District Judge found that the amount awarded at Rs. 1,39,400/= as 10% of the contract amount towards loss of profit as reasonable. It has been held that the award is based on the evidence available on record and on consideration of entire facts and circumstances and as such the same has been upheld.
10. Clause 70 of the I.A.F.W. 2249 provides that unless both the parties agree in writing such reference shall not take place until after the completion or alleged completion of the Works or termination or determination of the Contract under Condition Nos. 55, 56 and 57. In the present case, the reference was made upon the agreement of both the parties and, therefore, it was not open to the appellant to raise the plea of lack of jurisdiction of the Arbitrator.
11. On the facts and circumstances, I do not find any error in the impugned order. The sole Arbitrator has been appointed vide letter dated 22nd November, 1997, in terms of the contract. No plea has been taken by the appellant about the lack of jurisdiction before the Arbitrator and the proceedings before the Arbitrator have been allowed to continue. The award has been given by the Arbitrator, after hearing the appellant. The learned District Judge has also held that the award was within the scope of the reference in which I also do not find any error. I also do not find any error in awarding the amount under various heads under the facts and circumstances stated in the impugned order. The present case, in fact, is a case of breach of contract and unilateral termination of the original contract by the appellant entered into between the parties and is not a case of non-execution of the alleged contract inasmuch as the second contract has not been agreed upon by the respondent-contractor and as such has not been executed.
12. Scope and ambit of Section 34 of the Arbitration and Reconciliation Act, 1996 by which the power has been given to object the award of the Arbitrator, is not so comprehensive as of an Appeal. The scope is only to examine the propriety and legality of the award and has no scope of reappraisal of evidence. In my opinion, the award rendered by the Arbitrator is a well reasoned award, based on the material and evidence on record, and the impugned order of the District Judge rejecting the objection of the appellant is also a well reasoned order and has been passed in accordance to law, which does not calls for any interference by this Court.
13. In the case of Dwaraka Das Vs. State of Madhya Pradesh & Anr., reported in AIR 1999 SC 1031 1999 Indlaw SC 35, it was held that a claim by a contractor for recovery of amount as damages as expected profit out of contract cannot be disallowed on ground that there was no proof that he suffered actual loss to the extent of amount claimed on account of breach of contract.
14. In the case of M/s A.T.Brij Paul Singh & Ors. Vs. State of Gujarat, reported in AIR 1984 SC 1703 1984 Indlaw SC 445, while interpreting the provisions of Section 73 of the Indian Contract Act, 1972, this Court held that damages can be claimed by a contractor where the Government is proved to have committed breach by improperly rescinding the contract and for estimating the amount of damages, court should make a broad evaluation instead of going into minute details. It was specifically held that where in the works contract, the party entrusting the work committed breach of contract, the contractor is entitled to claim the damages for loss of profit which he expected to earn by undertaking the works contract. Claim of expected profits is legally admissible on proof of the breach of contract by the erring party. It was further observed that what would be the measure of profit would depend upon facts and circumstances of each case. But there shall be a reasonable expectation of profit is implicit in a works contract and its loss has to be compensated by way of damages if the other party to the contract is guilty of breach of contract cannot be gainsaid.
15. In the case of B.S.N.L. Vs. Reliance Communication Ltd., reported in (2011) 1 SCC 394 2010 Indlaw SC 1006, the Apex Court held as under :
“Lastly, it may be noted that liquidated damages serve the useful purpose of avoiding litigation and promoting commercial certainty and, therefore, the court should not be astute to categorize as penalties the clauses described as liquidated damages.”
16. In view of discussions made above, in the result, the Appeal, being devoid of merits and substance, fails and is dismissed.
Appeal dismissed
