Coal India Ltd vs M/S.

Paul Builders on 1 December, 2016

Calcutta High Court

Coal India Ltd vs M/S. Paul Builders on 1 December, 2016
ORDER SHEET
AP No.1385 of 2013
IN THE HIGH COURT AT CALCUTTA
Ordinary Original Civil Jurisdiction
ORIGINAL SIDE

COAL INDIA LTD.

Versus
M/S. PAUL BUILDERS

BEFORE:
The Hon'ble JUSTICE SOUMEN SEN
Date : 1st December, 2016.

Appearance:
Mr. Abhrajit Mitra, Sr. Adv.
Mr. A. Mitra, Adv.
Mr. P. Basu, Adv.
Mr. S. Prasad, Adv.
Mr. P. Bose, Adv,

Mr. Goutam Brahma, Adv.

Mrs. Pompa Saha, Adv.
Mr. Arijit Dey, Adv.

The Court : The respondent was awarded a contract for construction of B

type, C-1 type and Sub-Station building at VIP Road Housing Complex. The claimant submitted his
offer of Rs.11576634.00/- for the aforesaid job which was revised to Rs.11363421.80/-. The
petitioner issued the letter of intent on 20th February, 1987 for the said work having an aggregate
value of Rs.11249787.59/- after allowing 1% rebate on all items on the revised total quoted amount
of Rs.11363421.80/-. The dispute between the parties arose after the respondent had received
payment under the final bill.

The respondent alleged that a sum of Rs.640991.85/- was received under duress as the petitioner
was not willing to release the said payment unless the respondent signed four pre-receipted
documents showing acceptance of the said amounts in full and final settlement of its claim under
the work order.

It is alleged that the respondent was made to sign on dotted lines inasmuch as the petitioner being
in a position to dominate the Will of the respondent compelled the respondent to accept the said
amount, notwithstanding the fact that other legitimate claims of the petitioner, although pending
prior to the settlement of the final bill were not considered.

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 Coal India Ltd vs M/S. Paul Builders on 1 December, 2016

The arbitrator has considered the matter on merits and on consideration of the evidence and on
examination of oral and documentary evidence as well as pleadings has passed an award in favour of
the respondent under the following heads:

Sl. No. Item Award

1. Claim for compensation for price hike of Rs.667693.76
materials and increase in the labour wages -
Rs.667693.76 (Para 9.1.1)
2. Claim for losses suffered consequent upon the RS.16100.00
failures of the Respondent to supply cement at
material time. Rs.16100.00 (Para 9.1.2)
3. Claim for losses suffered for making inordinate Rs.29200.00
delay by the Respondent in allowing the
Claimant for casting RCC slabs. Rs.29200.00
(Para 9.1.3)
4. Claim for infructuous expenditures incurred on Rs.221133.33
off-site & on-site establishments for execution of
the works in the extended period of completion.
Rs.221133.33 (Para 9.1.4)
5. Claim for interest for blockage of working Rs.203670.87
capitals of the Claimant from time to time by the
Respondent. Rs.203670.87 (Para 9.1.5(1)(a))
6. Claim for interest on Rs.1137797.96 with effect At the rate of 8
from 03.10.1991 to the date of entering on the percent
reference by the Arbitrator on 06.10.1993 (Para
9.1.5(1)(b))
7. Claim for interest at the rate of 18% (eighteen As will accrue at
percent) per annum on the sum to be awarded the rate of 8
with effect from the date of making and percent
publishing of the award to the date of payment

or Decree of the Court, whichever is earlier.

(Para 9.1.5(1)(c))
8. Claim for cost of Arbitration Rs.200000.00

Mr. Abhrajit Mitra, learned senior counsel appearing on behalf of the petitioner submits that the
said award suffers from non-application of mind inasmuch as some of the claims are clearly barred
under the contract and the arbitrator being a creature of the agreement cannot travel beyond the
terms of the contract.

The main challenge to the said award is in respect of allowing a claim on account of escalation.

Mr. Mitra has referred to Clause 3.02 of the letter of intent which reads "no claim on account of
escalation on material and labour will be allowed" and submits that in view of such clear prohibition
the arbitrator could not have allowed a claim on account of escalation for a sum of Rs.667693.76/- .
Mr. Mitra has also argued that there is an accord and satisfaction between the parties which would

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 Coal India Ltd vs M/S. Paul Builders on 1 December, 2016

be evident from the conduct of the respondent in accepting the said sum of Rs. 640991.85/- in full
and final settlement and, accordingly, the arbitrator could not have allowed any of the claims of the
petitioners.

Mr. Mitra has also referred to the decision of the Hon'ble Supreme Court in 'M/s. Rashtriya
Chemicals & Fertilizers Ltd. vs. M/s. Chowgule Brothers & Ors.' reported at AIR 2010 Supreme
Court 3543, 'Videsh Sanchar Nigam Ltd. vs. Shapoorji Pallonji &Company Ltd.' reported at (2008)1
CHN 721 and Union of India vs. Raman Iron Foundry reported at AIR 1974 SC 1265 in support of
his submission that even if there is a breach of contract, the damage may not follow automatically
and the claimant would be required to lead some evidence of damage sustained by him by reason of
such breach. In short, it is submitted that the arbitrator would be required to quantify the damage,
which according to Mr. Mitra, the arbitrator has failed to do and thereby the awarding of damage in
favour of the petitioner is based on no evidence.

The learned counsel appearing on behalf of the respondent on the other hand has referred to the
various documents forming part of the materials which the arbitrator had considered including the
letter dated 20th November, 1991 which goes to show that even at the time when the final bill was
being processed certain issues had remain outstanding which, inter alia, included escalation.

The learned counsel has also referred to a letter dated 2nd January, 1987 in which the respondent
has deferred settling of the claim with regard to shuttering works which were required to be done as
the earlier contractor appears to have abandoned the work and there were certain defects which
were required to be removed. These apparently were not taken into consideration in the final bill.

The final bill should be final in all respect. There cannot be any dispute that the so-called final bill
does not take into consideration the claim on account of escalation and shuttering works as the
petitioner has postponed all such claims to be considered at a later time. The concept of accord and
satisfaction has been lucidly explained by the Supreme Court in National Insurance Co. Ltd. Vs.
Boghara Polyfab (P) Ltd. reported at (2009) 1 SCC 267 in Paragraph 10 of the said decision which
reads:-

"10. Where one of the parties to the contract issues a full and final discharge voucher
(or no due certificate as the case may be) confirming that he has received the
payment in full and final satisfaction of all claims, and he has no outstanding claim,
that amounts to discharge of the contract by acceptance of performance and the party
issuing the discharge voucher/certificate cannot thereafter make any fresh claim or
revive any settled claim. Nor can he seek reference to arbitration in respect of any
claim. When we refer to a discharge of contract by an agreement signed by both
parties or by execution of a full and final discharge voucher/receipt by one of the
parties, we refer to an agreement or discharge voucher which is validly and
voluntarily executed. If the party who has executed the discharge agreement or
discharge voucher, alleges that the execution of such discharge agreement or voucher
was on account of fraud/coercion/undue influence practiced by the other party and is
able to establish the same, then obviously the discharge of the contract by such

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 Coal India Ltd vs M/S. Paul Builders on 1 December, 2016

agreement/voucher is rendered void and cannot be acted upon. Consequently, any

dispute raised by such party would be arbitrable."

In Chairman and MD, NTPC Ltd. Vs. Reshmi Constructions, Builders & Contracotrs reported at
(2004) 2 SCC 663 this aspect of the matter was considered and the Hon'ble Supreme Court has dealt
with the matter in Paragraphs 27, 28 and 29 report wherein the Supreme Court held:-

"Necessitas non habet legem is an age-old maxim which means necessity knows no
law. A person may sometimes have to succumb to the pressure of the other party to
the bargain, who is in a stronger position. Although it may not be strictly in place but
the court cannot shut its eyes to the ground reality that in a case where a contractor
has made a huge investment, he cannot afford not to take from the employer the
amount due under the bills, for various reasons, which may include discharge of his
liability towards banks, financial institutions and other persons. In such a situation,
public sector undertakings would have an upper hand. They would not ordinarily
release the money unless a "No-Demand Certificate" is signed. Each case, therefore,
is required to be considered on its own facts. A case, where a party has had to
succumb to the pressure of the other party to the bargain who is in a stronger
position, has to be made out and proved before the arbitrator for obtaining an award.
Even correspondences marked as "without prejudice" may have to be interpreted
differently in different situations."

Moreover, it is not the case of the petitioner that while accepting the final bill, the respondent had
unequivocally stated that he would not raise any further claim. In absence of such a declaration
coupled with the fact that the final bill did not take into consideration the other claims which the
petitioner was obliged to consider and had agreed to consider in various correspondence. It cannot
be contended that the respondent is estopped or precluded from raising any claim. (See Bharat
Coking Coal Ltd. Vs. Annapurna Construction; (2003) 8 SCC

154) In Asian Techs Ltd. Vs. Union of India & Ors. reported at (2009) 10 SCC 354 the Hon'ble
Supreme Court held that even in the case of issuance of full and final discharge/settlement
voucher/no-dues certificate the arbitrator or Court can go into the question whether the liability has
been satisfied or not.

On the issue of accord and satisfaction the arbitrator has discussed the issue in detail and the factors
that were taken into consideration in my opinion does not call for any further investigation. The
arbitrator is the master of his own proceeding and the final authority on facts. This Court is not
exercising the appellate jurisdiction nor could re-appreciate the evidence unless it appears to the
Court that it is manifestly perverse and it shocks the conscience of the Court.

A possible view by the arbitrator on facts has necessarily to pass muster as the arbitrator is the
ultimate master of the quantity and quality of evidence to be lied upon when he delivers his arbitral
award. Thus, an award based on little evidence or on evidence which does not measure up in quality
to a trained legal mind would not be invalid on this score. Once it is found that the arbitrators

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 Coal India Ltd vs M/S. Paul Builders on 1 December, 2016

approach is not arbitrator or capricious, and then he is the last word on facts.

The arbitrator has given detail reason for not accepting the argument of the petitioner that the
acceptances of a sum of Rs.640991.85/- is not full and final settlement of claims and cannot
discharge the petitioner from its liability to make payment.

The argument of Mr. Mitra that the escalation clause would continue even for the extended period of
almost 10 months is not acceptable and, in my view, has correctly been rejected by the arbitrator.
The said clause only operates during the existence of the contract. The contract could not be
completed within a period of 18 months. The petitioner extended the said contract without imposing
any penalty. The contractor agreed to carry out the balance work during the extended period on a
clear representation that such extension of time would not be considered to be sufficient
consideration for execution of the work beyond the stipulated period of completion and reserved its
right to claim damages for the extended period which respondent appears to have accepted. There
cannot be any dispute that there was a delay and finally the work was completed on 30th June 1989
instead of 22nd September 1988. The materials disclosed before the arbitrator clearly show that the
petitioner was responsible for the delay. The contractor after 18 months had an option to quit and
claim compensation or complete the work on terms and conditions clearly spelt out for completing
the balance work. The contractor, on a clear representation made by the petitioner that they would
be compensated for the work during the period of extension, had completed the job and,
accordingly, in my view, is entitled to escalation and such claim on account of escalation could not
be denied by referring to the clause in the tender which can only operate during the period of the
contract and not for the extended period. There cannot be any dispute that there has been
prolongation of the work beyond original contractual stipulated period.

The question essentially is the quantification of compensation, if any, payable to the contractor by
reason of delay in performance of the contract. This aspect of the matter was considered in General
Manager, Northern Railway Vs. Sarvesh Chopra reported at (2002) 4 SCC 45 in paragraph 15 which
reads:-

"15. In our country question of delay in performance of the contract is governed by

Sections 55 and 56 of the Indian Contract Act, 1872. If there is an abnormal rise in
prices of material and labour, it may frustrate the contract and then the innocent
party need not perform the contract. So also, if time is of the essence of the contract,
failure of the employer to perform a mutual obligation would enable the contractor to
avoid the contract as the contract becomes voidable at his option, where time is "of
the essence" of an obligation. Chitty on Contracts (28th Edn., 1999 at p.1106, para
22-015) states:

"a failure to perform by the stipulated time will entitle the innocent party to (a)
terminate performance of the contract and thereby put an end to all the primary
obligations of both parties remaining unperformed; and (b) claim damages from the
contract-breaker on the basis that he has committed a fundamental breach of the
contract ('a breach going to the root of the contract') depriving the innocent party of

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the benefit of the contract ('damages for loss of the whole transaction')".

In this regard, it would also be fruitful to refer to the observation of Lord Ackner in Fercometal
SARL (supra) with regard to the innocent party's option in such a situation. The observation made
at page 747 of the said report which reads:-

"When one party wrongly refuses to perform obligations, this will not automatically
bring the contract to an end. The innocent party has an option. He may either accept
the wrongful repudiation as determining the contract and sue for damages or he may
ignore or reject the attempt to determine the contract and affirm its continued
existence. Cockburn CJ in Frost v Knight (1872) LR7 Ex Ch III at 112-113, [1861-73]
All ER Rep 22 I at 223-224 put the matter thus:

"The law with reference to a contract to be performed at a future time, where the
party bound to performance announces prior to the time his intention not to perform
it, as established by the cases of Hochster v. De la Tour (1853) 2 E & B 678, [1843-60]
All ER rep 12) and The Danube and Black Sea Co. v. Xenox (1863) 13 CBNS 825, 143
ER 325) on the one hand, and Avery v. Bowden (1855) 5 E & B 714, 119 ER 647), Reid
v. Hoskins (1856) 6 E & B 953, 119 ER 1119), and Barwick v. Buba (1857) 2 CBNS 563,
140 ER 536) on the other, may be thus stated. The promise, if he pleases, may treat
the notice of intention as inoperative, and await the time when the contract is to be
executed, and then hold the other party responsible for all the consequences of
non-performance; but in that case he keeps the contract alive for the benefit of the
other party as well as his own; he remains subject to all his own obligations and
liabilities under it, and enables the other party not only to complete the contract, if so
advised, notwithstanding his previous repudiation of it, but also to take advantage of
any supervening circumstance which would justify him in declining to complete it.
On the other hand, the promise may, if he thinks proper, treat the repudiation of the
other party as a wrongful putting an end to the contract, and may at once bring his
action as on a breach of it; and in such action he will be entitled to such damages as
would have arisen from the non-performance of the contract at the appointed time,
subject, however, to abatement in respect of any circumstances which may have
afforded him the means of mitigating his loss.' This passage was adopted by Cotton
LJ in Johnstone v Milling (1886) 16 QBD 460 at 470. In that case Lord Esher MR
described the situation thus (at

467):-

'...a renunciation of a contract or, in other words, a total refusal to perform it by one
party before the time for performance arrives, does not, by itself, amount to a breach
of contract but may be so acted upon and adopted by the other party as a rescission of
a contract as to give an immediate right of action. When one party assumes to
renounce the contract, that is, by anticipation refuses to perform it, he thereby, so far
as he is concerned, declares his intention then and there to rescind the contract... The

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other party may adopt such renunciation of the contract by so acting upon it as in
effect to declare that he too treats the contract as at an end, except for purpose of
bringing an action upon it for the damages sustained by him in consequences of such
renunciation'.

The petitioner was put to notice of the breach and thereafter on the request of the petitioner, the
respondent commenced work. The respondent reserved its right to claim compensation.

The damage is a compensation for the injury sustained that some of money to be given for
reparation of damages suffered should be, as nearly as possible be the sum which will put to injured
party in the same position as he would have been if he had not sustained the wrong for which he is
getting the damages. (B.R. Herman & Mohatta v. Asiatic Steam Navigation Co. Ltd., AIR 1941 Sind
146) Where the work was completed beyond the stipulated date of completion on account of delay
caused by the Department, consequential effects of delay have to be to the account of the
Department. The court has to assess damages as best as it could on the materials available and
would not decline to assume that merely because the claimant could not adduce the best evidence.
Even in a case where nominal damages are only to be awarded, the extent of the sum should be
assumed with reference to the facts and circumstances involved. The general principle to be borne in
mind that the injured may be put in the same position as the he would have been if he had not
sustained the wrong.

A Division Bench judgment of this Court in State of West Bengal & Anr. Vs. M/s. N. Bhakat & Co. &
Anr. being A.P.O. No.241 of 2012 with A.P. No.435 of 2008 reported at MANU/WB/0894/2012,
relying upon P.M. Paul (supra) considered escalation clauses which are:-

"(I) No claim for idle labour will be entertained under any circumstances.

42. No escalation of rate within the period of execution of the work is admissible".

Clause -7.

".....It should be clearly understood that no claim whatsoever shall be entertained by

the Government on account of delay in supplying materials".

The Division Bench relying upon P.M. Paul (supra) and General Manager, Northern Railways
(supra) held that those clauses would not absolve the State from their liability to pay damage due to
their fault in delaying the process of work. In the former case the Hon'ble Division Bench observed
that escalation is a normal incident arising out of gap of time in this inflationary age in performing
any contract. The Arbitrator has held that there was delay. The Arbitrator found that it was evident
that there was escalation and, therefore, he came to the conclusion that it was reasonable to allow
the claim on account of price escalation. This was a matter, which was within the jurisdiction of the
Arbitrator. Hence, the Arbitrator had not mis-conducted in awarding the said amount as he has
done.

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The arbitrator is a Judge chosen by the parties and his decision is final. It is well-settled that the
Court is precluded from reappraising the evidence. Even in a case where the award contains reasons,
the interference therewith would still be not available within the jurisdiction of the Court unless, of
course, the reasons are totally perverse or the judgment is based on a wrong proposition of law or
the arbitrator exceeds the terms of the agreement or passes an award in absence of any evidence. An
error apparent on the face of records would not imply closer scrutiny of the merits of documents and
materials on record. Once it is found that the view of the arbitrator is plausible one, the Court will
refrain itself from interfering. The said proposition can be found in Bharat Coking Coal Ltd. vs. L.K.
Ahuja reported at (2004) 5 SCC 109 and in State of U.P. Vs. Allied Constructions reported at (2003)
7 SCC 396 and followed in subsequent decisions.

The Court will not judge the reasonableness of a particular interpretation accorded by the arbitrator
to the terms of the contract. Even an error in interpretation, unless patently illegal, will only amount
to an error within the jurisdiction of the arbitrator.

In Bharat Coking Coal Ltd. (supra) the Hon'ble Supreme Court observed as follows:-

"11. There are limitations upon the scope of interference in awards passed by an
arbitrator. When the arbitrator has applied his mind to the pleadings, the evidence
adduced before him and the terms of the contract, there is no scope for the court to
reappraise the matter as if this were an appeal and even if two views are possible, the
view taken by the arbitrator would prevail. So long as an award made by an arbitrator
can be said to be one by a reasonable person no interference is called for. However, in
cases where an arbitrator exceeds the terms of agreement or passes an award in the
absence of any evidence, which is apparent on the face of the award, the same could
be set aside."

In KV Mohd. Zakir v. Regional Sports Centre reported at AIR 2009 SC (Supp) 2517 it held that the
courts should not interfere unless reasons given are outrageous in their defiance of logic or if the
arbitrator has acted beyond his/her jurisdiction.

In P.R. Shah Shares & Stock Brothers v. M/s. B.H.H. Securities (P) Ltd. reported at 2012 (1) SCC
594 it states that a court does not sit in appeal over the award of an arbitral tribunal by re-assessing
or re-approaching the evidence. An award can be challenged only on the grounds mentioned in
S.34(2) of the Act.

The claimant has produced evidence before the arbitrator with regard to escalation. Primary books
were produced. There has been no cross-examination on such documents. The petitioner is unable
to place any material to show that evidence of the respondnt in this regard was demolished as
questioned. The only defence was clause no.3.02 of the tender. In absence of any effective cross-
examination coupled with oral and documentary evidence the award for escalation for a sum of
Rs.6,67,693.76 cannot be questioned in this proceeding. Similarly, the claim for losses suffered due
to non-supply of cement for a sum of Rs.16,100/- cannot be disputed. The third claim was on
account of losses suffered due to inordinate delay by the petitioner in allowing casting of RCC slabs.

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The arbitrator considered the materials on record and found that the claimant made representation
for payment towards loss suffered for holes made in the shuttering planks and disturbing the
reinforcement works (as completed by the respondent contractor) by the electrical contractor of the
Department, for cleaning and disposal of the chased materials and for relaying the reinforcement
after completion of the connected electrical works. The petitioner had clarified that damage cost if
payable will be settled considering several factors after completion of the structural work. Even
though the petitioner had assured to consider, the same was overlooked when claimant had
established its claim. The contractors engaged to lay the conduits for concealed wiring and
concealed tele- cables delayed in their performance. In the process the slab casting was delayed and
claimant had to incur damage. The arbitrator considered the evidence produced regarding damage
to the shuttering materials, clearing the refugees generated by the electrical contractor, delay in
laying the slab and allowed the said claim for a sum of Rs.29,200/-. The petitioner agreed to have
the said issue addressed on completion of the work which appears to have not been considered at
the time of preparation of the final bill. In my view, the arbitrator was justified in allowing the said
claim. However, Claim No.4 which relates to expenditure incurred for off-site and on-site
establishment, in my view, it is covered in Claim Nos. 1 and 2 and the same is accordingly
disallowed.

Mr. Mitra has produced before this Court a detailed chart showing payments. Mr. Mitra cannot
dispute and does not dispute that Rs.6,40,991.85 was paid after 19 months when the said amount
was due and payable but would contend that payment was released after six months from the date of
submission of final bill. Taking into consideration the delays made earlier as well as the fact that the
petitioner was required to pay interest @ 17% on the borrowed capital, in my view, the respondent
would be entitled to interest @ 17% on Rs.6.40 lakh for a period of two years.

The cost of Rs.2 lacs being realistic is upheld. In fact this claim has not been seriously disputed.

The modified award shall carry interest @ 10% per annum from the date of reference till this date
and shall carry future interest @ 18% per annum. However, in the event the petitioner pays the
awarded sum as modified by this order within a period of thirty days along with Rs. 2 lacs as
consolidated amount towards interest to the respondent, the petitioner would not be required to pay
interest payable during reference and post award stage.

AP No. 1385 of 2013 accordingly stands disposed of.

(SOUMEN SEN, J.) B.Pal/sp/S.kumar

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