UNION OF INDIA Vs. HARBHAGWAN HARBHAJANLAL

JUDGEMENT

(1.) This petition under Section 34 of the Arbitration and Conciliation Act, 1996 challenges the Award dated 9.4.2009 passed by the Sole Arbitrator deciding the disputes between the parties which arose with respect to a contract awarded to the respondent-contractor for construction of a Road Over Bridge on Panthal-Teerthi Road in Udhampur-Katra section in the State of Jammu & Kashmir. The counsel for the petitioner pressed two issues under Claim No. 1 and the third issue with regard to interest.

(2.) So far as the first issue under Claim No. 1 is concerned, the issue was whether recovery of the unaccounted steel should be at double the contractual rate or only at the contractual rate. The facts of the case are that certain amount of steel which was issued by the petitioner to the respondent was not consumed in the work and hence not accounted for. The respondent was, therefore, liable to pay for the value of this unaccounted quantity of steel to the petitioner. The Arbitrator has held that a clause in the nature of recovery of double the contractual amount is in the nature of penalty and violative of Section 74 of the Contract Act, 1872. It was held that double the rate could not have been claimed unless loss is shown to have been caused on account of the value of steel having doubled. I do not find any illegality or perversity with this finding, which is in fact perfectly in accordance with law, because if there is deficiency in the steel quantity which has not been returned to the petitioner, the petitioner is entitled to the value of such quantity of the steel but such quantity is to be taken at the normal value of the deficient quantity of steel and not at double the rate because such latter action would amount to penalty and, therefore, violative of Section 74 of the Contract Act. Objection qua this issue of Claim No. 1 is rejected.

(3.) The second issue of Claim No. 1 pertains to the reimbursement of Sales Tax. The Arbitrator has held that the respondent was entitled to such reimbursement because as per the decision of the petitioner itself, for contracts post 01.04.1999, the extra burden of 2.1% sales tax was to be reimbursed. Admittedly, the contract in question was awarded on 11.11.1999 i.e. after 01.04.1999. The relevant portion of the Award, which deals with the issue as raised before the Arbitrator, reads as under: