STATE INDUSTRIES PROMOTION Vs. IRCON INTERNATIONAL LTD

JUDGEMENT

(1.) THE appellant-State Industries Promotion Corporation Of Tamil Nadu Ltd. (hereinafter referred to as 'sipcot') alleges misconduct on the part of the Sole arbitrator on the ground that the learned Arbitrator had relied completely and totally on an award passed by him in another proceedings between the respondent herein and another, to which the appellant was not a party, although the subject matter of the contract may be the same in both the proceedings. It is contended that the absence of independent application of mind, total reliance on the proceedings where the appellant herein was not a party and therefore, violation of the principles of natural justice would vitiate the award. There is no doubt nor any dispute that the award in this matter was passed in favour of the first respondent herein almost entirely because of the fact that in the other proceedings, the award was passed against the first respondent herein. Even the first respondent herein does not deny it, but according to the first respondent, this was justified, whereas according to the appellant, this amounts to gross misconduct.

(2.) THE matter relates to the construction of internal road to bituminous standards for SIPCOT Irungattukottai Complex, Sriperumbudur Taluk. The first respondent herein, M/s. IRCON International Ltd. (hereinafter referred to as 'ircon'), was the successful bidder. The agreement was entered into between the parties on 10. 7. 1997, which included the arbitration clause. The agreement barred sub-letting except with the permission of SIPCOT. By two separate agreements, IRCON sub-contracted the project to M/s. Vinay Heavy Equipment (hereinafter referred to as 'vhe'), which is not a party hereto. The contract was executed and the final bill was also submitted. On 12. 11. 200, VHE invoked the arbitration clause. VHE moved this Court for appointment of an arbitrator under Section 11 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the 'act' ). By order dated 27. 7. 2001, the second respondent herein (hereinafter referred to as the 'learned Arbitrator') was appointed as the Sole Arbitrator to resolve the dispute between IRCON and VHE. IRCON also invoked the arbitration clause and sought for arbitration and had moved another application under Section 11 of the Act. By order dated 1. 11. 2002, the second respondent herein was appointed as the sole arbitrator to resolve the dispute between the parties in this matter as well. The appellant raised the issue of the learned Arbitrator's jurisdiction to hear this matter since he was also the arbitrator in the other matter. This was rejected. On 6. 10. 2003, an award was passed in the VHE-IRCON dispute, allowing almost all the claims of VHE. On 9. 11. 2003, IRCON moved an application to amend its claims since an award had been passed against it in the other matter. A copy of the award was enclosed with the application. On 3. 9. 2004, an award was passed in this dispute. On 9. 9. 2005, O. P. Nos. 107 and 108 of 2004 along with Application Nos. 2651 and 2652 of 2004 filed under Section 34 of the Act as against the award passed in the vhe-IRCON dispute were dismissed by this Court. On 7. 12. 2006, O. S. A. Nos. 312 and 313 of 2005 filed by IRCON against the above orders were also dismissed by the division Bench. Against that judgment, IRCON has filed a Special Leave Petition which is pending. On 12. 8. 2008, O. P. No. 919 of 2006 was filed by the appellant under Section 34 of the Act was dismissed. This is the order under challenge. These are the relevant dates with regard to the proceedings in the two matters, both before the learned Arbitrator and before this Court.

(3.) IN the statement of claim filed by IRCON, it is admitted that even before bidding for this tender, IRCON had decided to obtain principal bid quotations from contractual agencies to sub-contract the work in case it is awarded to ircon, and among the terms stipulated were that, all the terms and conditions laid down by SIPCOT would be applicable to the tenderers on back-to-back basis and that the work would be completed in ten months. According to IRCON, the size of the contract was relatively small. Therefore, it did not consider it worthwhile to shift their own machinery and manpower for execution of the work and in consultation with the Head Office, they split up the work into four parts, viz. , Packages 'a', 'b', 'c1' and 'c2'. Packages 'c1' and 'c2' were awarded to VHE and the cost thereof worked out to Rs. 4,87,66,573. 08, whereas the contracted amount between SIPCOT and IRCON was Rs. 13,06,16,557/ -. As per the usual practice, the agreement between SIPCOT and IRCON contained Bill of quantities (BOQ) with regard to the scheduled items. Item-2 of the BOQ related to excavation of earth by cutting through the natural ground wherever such ground was higher than the proposed road. Items-3 and 4 related to forming embankments with the soil so obtained. Item-5 related to disposal of the excess cut earth. The BOQ under Item-2 referred to the Ministry of Surface Transport (MOST) Specifications. According to IRCON, though Clause-10 of the Sub-conditions of Contract specified that there shall be no sub-letting without the approval of the first respondent, both the respondent (referring to SIPCOT)SIPCOT and M/s. Rail India Technical and Economic Services (hereinafter referred to as 'rites'), which was employed as a consultant in the matter of execution, dealt officially with VHE, which could be seen in the entries in the Site Order book and the minutes of the meeting. After the work commenced, IRCON claimed that the excavation was actually a non-scheduled item and a fresh route must be worked out. But the claim made by IRCON was not agreed. There was a dispute between SIPCOT and IRCON as to whether Items-2, 3, 4 and 5 were part of the BOQ or were non-scheduled items. According to IRCON, after the soil was excavated, it was discovered that the quantity would not be adequate for construction of embankment. Therefore, IRCON "borrowed earth" from a plot which came to be known as MARCUBEAN Area. The payment for leveling this area was also not made by sipcot in spite of repeated requests. According to IRCON, the claim made with regard to the construction of embankment was not for separation of materials, but for the extra cost involved in handling different type of material and this extra cost must be borne by SIPCOT. The final bill was submitted for a gross value of Rs. 5,92,75,421/ -. RITES cut out from the bill all its claims for the non-scheduled items and drastically reduced it. After completion of the project, ircon continued pressing for payments for the non-scheduled items of work, and for increased quantities in respect of BOQ items. They were all rejected. In the meanwhile, VHE pressed for payment for the non-scheduled items of work. According to IRCON, the primary issue in the entire matter is the role of IRCON and that in the mater of making payments to VHE, IRCON depended entirely on the payments to be made by SIPCOT and after paying them, the balance would be retained by IRCON towards its profits and IRCON cannot make payments "out of their own funds". According to IRCON, even at the time of inviting tender in ircon's agreement with VHE, the concept of back-to-back was explained and that even payments would be made on back-to-back basis and this meant that IRCON would not make any payment to VHE unless such work is accepted by SIPCOT and corresponding payment is received by IRCON from SIPCOT. According to IRCON, the claim made by VHE was exorbitant and when IRCON made the claim, the claim of VHE was pending consideration and even before the learned Arbitrator, IRCON juxtaposed in a tabular statement the amount claimed by VHE and their corresponding claim against SIPCOT. Claim No. 1 related to cutting of soil, and while according to IRCON, the quantity of earth work was 324343. 293 cub. mts. at the rate of Rs. 51/50 per cub. mtr. , the claim of VHE was for 80952. 815 cub. mts. at the rate of Rs. 184 per cub. mtr. Claim No. 2 related to loading the excavated boulders and stacking them. There are 25 such claims and we will deal with the independent claims only if necessary, since we are not sitting in appeal.