Voltas drops Rs 1.01 crore retention claim; Madras HC upholds Rs 2.55 crore hotel-work award
Justice D. Bharatha Chakravarthy set aside the retention part of an arbitral award after Voltas Limited said it would not press it, holding that part severable, but refused to reopen the Rs 2,55,51,052 balance, calling the challenge a plea to re-appreciate evidence.
Voltas Limited won an arbitral award of about Rs 3.57 crore for air-conditioning and electrical work on a Coimbatore hotel. On 11 November the Madras High Court cut one piece out of it, the Rs 1,01,53,833 retention money, because Voltas itself said it would not defend that part.
The rest stood. Justice D. Bharatha Chakravarthy upheld Rs 2,55,51,052 as the balance due for the work, with 18 per cent interest from the date of the award, and said Appu Hotels was asking the court to weigh the evidence again.
A Rs 11.80 crore hotel contract
Appu Hotels Ltd invited bids for the heating, ventilation and air-conditioning system, and the electrical installation, of its proposed Le-Meridien Hotel at Coimbatore. Voltas, the successful bidder, received a work order dated 11 May 2009 for Rs 11.80 crore, with eight months to finish.
The scope grew as work went on. The work order was amended on 21 May 2010, 23 May 2020 (as the judgment records the date), 20 August 2010, 19 October 2010, 21 October 2010 and 3 April 2011.
As the project neared completion the parties fell out. They disputed whether Voltas had finished or abandoned the work, what was owed on its final bill, and whether its retention money should be released.
Appu Hotels also claimed compensation for pending works it gave to third parties. The final clearance from the Chief Electrical Inspector to Government (CEIG) was a further sore point.
Retired judges as arbitrators
Voltas invoked arbitration by letter of 18 September 2013. On its Section 11 application, O.P. No. 78 of 2014, the High Court appointed Justice A.S. Venkatachalamoorthy, a retired High Court judge, as sole arbitrator.
By an order of 8 January 2016 he was replaced because of illness by Justice G.M. Akbar Ali, also a retired High Court judge. Both orders placed the arbitration under the Madras High Court Arbitration Centre and its rules.
Voltas claimed Rs 4,53,76,310 under its invoice of 20 July 2011, plus Rs 5,02,74,645 as 24 per cent interest to 29 February 2016, a total of Rs 9,56,50,775. It separately claimed its 10 per cent retention of Rs 1,34,84,844, with interest of Rs 1,21,29,710.
Appu Hotels filed a counter-claim. It sought Rs 77,11,487 as excess payment, Rs 52,68,610 as liquidated damages and Rs 34.50 crore for loss, inconvenience and hardship, each with 24 per cent interest.
Twelve issues, 175 exhibits
The arbitrator framed twelve issues. They covered breach, delay and abandonment, completion of the project, the use of third parties, the final invoice, the retention money, liquidated damages, excess payment, damages, limitation and interest.
Voltas examined two witnesses and marked Exhibits C.1 to C.70. Appu Hotels examined one and marked Exhibits R.1 to R.105. All three witnesses were cross-examined at length.
What the award held
On limitation, the arbitrator treated the date of Voltas’s request for arbitration, 18 September 2013, as the relevant date. He rejected Appu Hotels’ case that the work was complete on 11 June 2010 and the claim therefore out of time.
Appu Hotels itself had said Voltas abandoned the site only in June 2011, he noted, so the claim fell within three years.
The counter-claim fared worse. The arbitrator found that the excess payment, liquidated damages and damages related to events between 2010 and 2012, and that no claim was made until 14 May 2016. He held it barred by limitation.
On issues 1 and 4 he found for Voltas, reasoning that the parties’ conduct showed the work order and its period had been varied as work progressed. On issues 2 and 3 he found for Appu Hotels: it had in fact engaged third parties to finish the pending work and had spent money doing so.
He then set the numbers. The total value of the work was Rs 11,28,20,374. Of this, Rs 1,12,82,037 was work Appu Hotels had to give to others, leaving Voltas with work worth Rs 10,15,38,337.
Against that, Appu Hotels had paid Rs 7,59,87,285 on running bills. The arbitrator found Rs 2,55,51,052 payable, plus Rs 1,01,53,833 as the 10 per cent retention.
He rejected Voltas’s invoice-based figures and Appu Hotels’ own, and held that neither side was entitled to damages or a refund from the other. Interest at 18 per cent per annum ran from the award to payment.
The case for setting it aside
Appu Hotels came to the High Court under Section 34(2)(b)(i) and (ii) of the Arbitration and Conciliation Act, 1996. Mr Om Prakash, Senior Counsel, instructed by Mr T. Ravichandran, appeared for it.
His main point was that the award contradicts itself. The arbitrator could not rule for Voltas on issues 1 and 4, he said, after ruling against it on issues 2 and 3.
If Voltas did not finish on time, he argued, it was in breach and had no right to the balance on a final bill that claimed full completion.
He added that the CEIG gave its clearance only in 2017, which showed that Voltas never met its testing and approvals duty under Clause 11 of the work order. That, he said, was patent illegality.
He also argued that the award runs against the fundamental policy of Indian law. Voltas had led no real evidence for its claim, he said, and the cross-examination of its two witnesses showed the work was unfinished.
On the retention money, he said the award rested on the valuer’s report while disregarding Voltas’s own claim. If the tribunal relied on Appu Hotels’ valuation, he said, it should have allowed the counter-claim and dismissed Voltas’s.
On limitation, he pointed to Exhibit C.43, which recorded a claim of Rs 24,08,393 as excess payment and Rs 56,41,019 as liquidated damages. Even if the rest were late, the work ran to June 2011, so the Rs 24,08,393 should have been held within time.
Voltas drops the retention claim
Mr Vinod Kumar appeared for Voltas. On instructions, he told the court that Voltas was not supporting the award on the retention money and was not pressing that claim.
On the balance, he said, the arbitrator had adopted the final value found by the surveyor, whose assessment neither party could dispute. The arbitrator had also considered the CEIG permissions of 11 June 2010 and 2 March 2011, whose issue Appu Hotels did not deny.
Appu Hotels had marked Exhibits R.45 and R.46 as surveyor’s reports, he said. Cross-examination of its witness showed that Appu Hotels had not filed those reports, and that the survey values were correctly reflected in Exhibit C.43, a reply notice the tribunal considered.
Appu Hotels’ stand on abandonment was inconsistent, he said. The contract was never terminated and Voltas was allowed to work until June 2011.
On the counter-claim, he said there was no excess payment, because the award rested on the valuer’s assessment. As for liquidated damages, the amendment orders themselves were issued after the original eight months had run.
He cited Kailash Nath Associates v. Delhi Development Authority, S. Brahmanand v. K.R. Muthugopal, Associates Builders v. Delhi Development Authority, Dyna Technologies v. Crompton Greaves and OPG Power Generation v. Enexio Power Cooling Solutions.
The retention award is severable
The court took the retention money first. It was satisfied that this part of the award can be identified and removed on its own, and that the rest of the award remains coherent without it.
The validity of the remaining award, Justice Chakravarthy said, is not inextricably intertwined with the retention claim. He relied on the Constitution Bench of the Supreme Court in Gayatri Balasamy v. ISG Novasoft Technologies Limited, and recorded Voltas’s concession.
That portion of the award, Rs 1,01,53,833 with further interest, was set aside. This was the only part of the award the court disturbed.
No contradiction between the issues
On the Rs 2,55,51,052 balance, the court held that the arbitrator had acted on a clear appreciation of the evidence. The arbitrator found no breach or abandonment that would disentitle Voltas to the amount due on its bill.
The court accepted that some parts of the project stayed unfinished and that Appu Hotels had them completed through third parties and spent money on it. The arbitrator had weighed the parties’ conduct, the variations in the work order and the reasons the work was not entirely done.
On that footing, the court said the arbitrator’s conclusion was not self-contradictory. It put the test this way:
“cannot be perverse or mutually contradictory, patently illegal” (para 26)
The findings on issues 1 to 4, Justice Chakravarthy said, are cogent and consistent with each other. What remained, he said, was re-appreciation of evidence and “substitution of another possible view” (para 27), which cannot be done as if in an appellate forum under Section 34.
The surveyor’s figures stand
On quantum, the court noted that the agreement itself contemplates periodic assessment or survey. The arbitrator had therefore relied on the assessor’s report, and neither side could dispute the value it recorded.
The parties had commissioned the assessment in the ordinary course of the contract and the evidence was on record. The points Mr Om Prakash raised from the oral and documentary evidence, the court said, belong to re-appreciation of the whole record.
It did not accept that the findings were reached by ignoring the contract terms or the material evidence. The arbitrator had arrived at the total value of Rs 11,28,20,374, deducted the Rs 1,12,82,037 that Appu Hotels spent on third parties, and then deducted payments actually made.
The court found no error, and no ground to interfere under Section 34(2)(b)(i) and (ii). It did not separately discuss the limitation finding on the counter-claim or the figures from Exhibit C.43.
Eighteen per cent from the award
On interest, the court noted that the arbitrator had considered Voltas’s claim for 24 per cent from the date the amount fell due until the claim was filed, and had rejected it. He had, however, awarded 18 per cent from the date of the award until realisation.
Reading the award as a whole, and the background of both sides’ claims, the court found nothing in the balance sum or its interest that called for interference.
Order
The Original Petition was partly allowed. The award of 1 March 2019 was set aside only for the retention claim of Rs 1,01,53,833, included in its operative portion, together with further interest.
The award of Rs 2,55,51,052 to Voltas, with interest at 18 per cent per annum from the date of the award until realisation, was not interfered with. The parties will bear their own costs, and the pending applications, if any, stand closed.