HIGH COURT OF JUDICATURE AT ALLAHABAD AFR Judgment Reserved Case :- FIRST APPEAL FROM ORDER No. - 2799 of 2014 Appellant :- U.O.I Thru' Chief Engineer, Barilly Zone And Another Respondent :- M/S Mukul Builders Pvt. Ltd. And Another Counsel for Appellant :- Sanjay Kumar Yadav Counsel for Respondent :- Devashish Mishra,Raj Kumar Khanna Hon'ble Krishna Murari,J.
Hon'ble Pratyush Kumar,J.
(Delivered by Hon. Mr. Justice Pratyush Kumar) The present appeal has been filed under section 37 of the Arbitration and Conciliation Act, 1996 (hereinafter referred as the "1996 Act") by the appellants/applicants (hereinafter referred as the "appellants") against the judgment and order dated 23.12.2013 and order dated 17.4.2014 passed by the District Judge, Meerut in Arbitration Suit No.36 of 2009 and Review Petition No.130 of 2014, whereby application of the appellants moved under section 34 of the 1996 Act and application for review were rejected.
Heard Shri Gyan Prakash, learned Assistant Solicitor General of India for the appellants and Shri Devashish Mishra, Advocate for the respondents.
Before entering into merits of the appeal, we would like to mention relevant facts involved in the matter briefly. A contract was executed between the parties in the year 2004 titled as "Provn of 33/11 KV Sub-Station, Roorkee Road, Integration of HT Take Over Point (Top) of Meerut" for the following work:-
` (i) Schedule 'A' Part I -Building work
(ii) Schedule 'A' Part II -Internal Water Supply
(iii) Schedule 'A' Part III -Internal Electrification
(iv) Schedule 'A' Part IV -Sewage Disposal
(v) Schedule 'A' Part V -Road Path and culverts
(vi) Schedule 'A' Part VI -Compound Wall and steel Gate
(vii) Schedule 'A' Part VII -Area Drainage
(viii) Schedule 'A' Part VIII -Site Clearance
(ix) Schedule 'A' Part IX -External Water Supply
(x) Schedule 'A' Part x -External Electrification Amount payable under the contract was Rs.2,42,41,340.50/-. Period of completion was stipulated 18 months. Work was to commence on 10.6.2004. Actual date of completion of work was 30.8.2007. Final bill (disputed) was paid on 4.8.2008. After certain disputes arose between the parties, those were referred to the Arbitrator.
On behalf of respondents eight claims were submitted. Their details are as under:-
Claim No.1-Payment for additional work executed against item No.28 Sch "A" Part X and prohibition for making any recovery against the item.
Original amount-Rs 30,00,000/-
Revised amount-Rs 37,97,262/-
Claim No.2-Payment for earth obtained from outside MD land for earth filling against Sch 'A' Part VIII.
Original amount-Rs 1,10,000.00 Revised amount-Rs 1,22,220.00 Claim No.3-Freezing of price index during currency of the contract period and variation in escalation payment.
Original amount of claim-Rs 3,54,475/-
Claim No.4-Damages suffered on account of various breaches by the department Original amount-Rs 18,63,333.00/-
Claim No.5-Loss suffered due to delayed & under/restricted RAR Payments Original amount-Rs 7,33,361.00/-
Claim No.6-Escalation on the amount of above claims Amount of claim-Rs 14386.52 lakh value of work done Claim No.7-Payment of final bill Amount of claim-Rs 28,49,258.00 Additional Claim No.1-Unjustified recovery on TE's observation/alleged non rectification of defects.
Original amount of Claim-Rs 41,859.00 Additional Claim No.2-Excess Recovery of Surcharge on Income Tax & Education Cess.
Original amount of Claim-Rs 28,200.00 Additional Claim No.3-Development Tax Original amount -Rs 1,11,790.00 Additional Claim No.4-Non-contractual and unjustified recovery of contract rate for item 28 of Sch 'A' Part X Amount of Claim-Rs 1,60,839.00 Claim No.8-Interest on the claimed amount past, pendentalite and future Claim No.9-Cost of Arbitration Original amount -Rs 3,00,000.00 On behalf of appellants the following claim was made.
CLAIMS OF THE UNION OF INDIA AGAINST THE CONTRACTOR VIZ M/S MUKUL BUILDERS PVT LTD CLAIM NO.1 Cost of Reference to Arbitration Amount of Claim -Rs 1,00,000.00 After he conducted the arbitration proceeding vide award dated 27.04.2009 the Arbitrator partly allowed some of the claims of the respondents and rest were rejected. Claim of the appellants was also rejected.
Finding of the Arbitrator in reference to claim no.1 is in para 42 of the award where the Arbitrator has concluded the following:-
"Considering all pros and cons, including submissions of both parties, it would be appropriate to disallow DO No10 prepared by the respondents but signed by the claimants under protest and allow proportionate rate to the claimant which works out as under:-
(a) Original quoted rate for item 28, Rs. 80,419.50 Sch A Part X including 3.5% CP (b) Number of units -02 (c) Amount of OMIT portion worked Rs.54,52,115.98 out by the respondents (d) Amount of ADD portion worked Rs.39,58,101.32 out by the respondents (e) Proportionate rate of item 28 Rs. 58,382.57 (f) Hence Proportionate amount Rs. 1,16,765.14 due to the claimant (e) x (b) (g) Refund of recovery made Rs.14,94,014.65 against DO No.10 (h) Total amount due to the Rs.16,10,779.79 claimant (f) + (g) Say Rs.16,10,780.00
In view of the above, I hereby award Rs.16,10,780.00 to the claimant against this claim and direct that the Union of India shall pay to M/S Mukul Builders Pvt Ltd a sum of Rs.16,10,780.00 (Rupees Sixteen lax ten thousand seven hundred eighty only)"
In reference to claim no.2 in para 56 of the award the Arbitrator has concluded as under:-
"On going through the submissions made by both parties, I find that no documentary proof is submitted by the claimant to establish that the royalty has been actually paid to the landowner from where the loose soil is claimed to have been transported inside military land. Hence this claim is not sustainable.
In view of the above, I award NIL amount to the claimant against this claim."
In reference to claim no.3 in paras 66 & 67 of the award the Arbitrator has concluded as under:-
"In accordance with special conditions 21.2(a) of Contract Agreement, wholesale price index for all commodities published by the Economic advisor to Govt of India, as on dated of commencement of the period reckoning is to be considered. In case the original contract period is extended under condition 11 of IAFW 2249, the price index as applicable on the date of commencement of last period of reckoning before the original date of completion shall only be applicable during the extended period. In the instant case, the original date of completion is 0ter5 Dec 05 and extended date of completion is 31 Aug 06. Therefore the wholesale price index as applicable on 15 Oct 05 which is the date of commencement of last period of reckoning before the original date of completion is contractually valid for working out escalation cost on materials.
In view of the above, this claim is against the ms and conditions of the contract Agreement and hence not admissible. Accordingly, I award NIL amount to the claimant against the claim."
In reference to claim no.4 in para 83 of the award following conclusion has been recorded by the Arbitrator:-
"While examining the submissions made by both parties, it is observed that the claimant has signed DO No.2 dated 10 Jul 06 with NIL financial effect without any protest or reservation. In this deviation order, it is clearly recorded that the contractor shall not be entitled to any other claim/compensation as laid down in condition 11(c) of AFW-2249. Thus allowing any claim on account of extension of contract period tantamount to violation of contract Agreement.
In view of the above, I award NIL amount to the claimant contractor against this claim."
In reference to claim no.5 in para 95 of the award the Arbitrator has concluded the following:-
"From the submissions made by both parties, it is noticed that the claimant wants compensation for loss suffered due to delayed and restricted payments made by respondents during the currency of contract including extended period. On the other hand, the respondents have tried to justify the causes for delayed/restricted payment. The claimant has submitted break up details of delayed and restricted payment and claimed, interest @ 18% per annum. Now, the mute question is whether there is any provision in the contract Agreement to compensate the aggrieved party for delayed/restricted payments during currency of contract period. Condition 67 (b) of IAFW -2249 forming part of the Contract Agreement stated as under:-
"It is an agreed condition of this contract that the sum of money so withheld or retained as and by way of lien under this condition by the Government, will be kept withheld or retained as such by the Govt till the claims arising out of or under this contract are settled/adjudicated upon and that the contractor will have no claim for interest or damages whatsoever on any account in respect of such sum so withheld"
In view of the above, this claim is not admissible as per terms and conditions of the contract Agreement even if the claimant might have suffered financially to some extent on account of delayed/restricted payments. I award NIL amount to the claimant against this claim."
In reference to claim no.6 in para 99 of the award the Arbitrator has concluded as under:-
"On scrutiny of written and oral submissions made by both parties, it is observed that the claimant has claimed escalation on the amount of various claims @ Rs.14386.52 per lakh increase in the value of the work done with effect from 11 May 07 to date of final bill. The admissibility of any escalation after original date of completion is already deliberated in respect of claim No.3 wherein NIL amount is awarded to the claimant. However, this claim pertain to value of work done in terms of the escalation formula given in the contract but applicable to value of work done awarded with freezed price indices. The working details submitted by the claimant was examined and found to be convincing. Hence, I accept this working detail and award Rs.2,31,735.00 in favour of the claimant against this claim. UOI is directed to pay Rs.2,31,735.00 (Rupees two lakh thirty one thousand seven hundred thirty five only) to M/s Mukul Builders Pvt Ltd on account of this claim."
In reference to claim no.7 in paras 104 & 105 of the award the Arbitrator has observed the following:-
"During hearing held on 19 Nov 08, the respondents submitted documentary proof for having paid the final bill to the claimant on 16 Aug 08 through Cheque No.0949 dated 14 Aug 08. Consequently, UOI requested to reject this claim on toto and award NIL in favour of the claimant.
In view of the above, I award NIL amount to the claimant contractor."
In reference to additional claim no.1 in paras 114 & 115 of the award the Arbitrator has concluded as under:-
"On going through the arguments put forward by both the parties, I notice that UOI has got defects rectified through other agency as stated after issuing mandatory notices. The respondents stated that the rectification was carried out through two existing contracts. There is no joint measurement to quantify the scope of work involved in rectification of defects. Fresh quotations should have been invited by the respondents for this purpose instead of getting the defects rectified through existing contracts. Secondly, if the procurement of cement by the claimant was not directly from the manufacturing firm, the same should have not been used at all. Deduction of Rs 10,000/- from the claimant's bill after completion of work will be of no help as far as correctness of source of cement is concerned. Moreover, an interim direction given by the sole arbitrator is also ignored by the respondents.
In view of the above, I award Rs. 41,859/- (Rupees Forty one thousand eight hundred fifty nine) to the claimant and directs UOI to pay the sum so awarded to the claimant."
In reference to additional claim no.2 in paras 119 & 120 of the award the Arbitrator has concluded as under:-
"After examining the submissions made by both parties, I notice that the respondents have accepted excess recovery of income tax from claimant's bill due to late finalization of DO No.10. Since excess amount recovered is presently with Income Tax Department, the claimants may approach to Income Tax Department for refund.
In view of the above, I award NIL amount to the claimant against this claim."
In reference to additional claim no.3 in paras 127 & 128 of the award the Arbitrator has concluded as under:-
"On examining the submissions made by both parties, it is observed that the claimants have intimated vide letter No.666/OC-305 dated 26 Nov 08 that they do not intend to pursue this claim at this stage and would like to withdraw the same without prejudice to their right that in case the decision of the appeal is challenged by the Sales Tax Authority, or due to any other reason, the refund is not made to them by the respective Tax Authorities, they would revive this claim in appropriate forum.
Since this claim stands withdrawn by the claimants subject to their right to revive it subsequently, the request of the claimants is being accepted and placed on record."
In reference to additional claim no.4 in para 131 of the award the Arbitrator has recorded as under:-
"On examining the submissions made by both parties regarding this additional claim No. 4, it is observed that this claim is associated with claim No.1. Hence this aspect is already considered while adjudicating claim No.1 and no separate award is warranted as far as this award is concerned."
In reference to claim no.8 in para 135 of the award the Arbitrator has concluded as under:-
"On consideration of all relevant factors both on the rate of interest and commencement of past and pendentalite interest, I award that the Union of India should pay simple interest at the rate of TEN (10) percent per annum for the period of commencement with effect from 31 Aug 07 upto the date of publication of this award towards past and pendentalite interest.
With regard to future interest, I award that the Union of India should pay the same rate of interest viz TEN (10) percent simple interest per annum from the date of publication of this award upto the date of actual payment to the claimant contractor."
In reference to claim no.9 in para 138 of the award the Arbitrator has recorded his finding, which is quoted as below:-
"The respondents pleaded that it may be observed from these pleadings that the claimant has raised non contractual and baseless claims. This arbitration could have been avoided but it is the claimant who has raised the disputes and later requested the appointing authority for appointment of Arbitrator. It clearly shows that claimant has dragged the respondent into Arbitration. Therefore, the cost of reference is due to UOI which has been claimed by the Respondents in their statement of claims.
In the circumstances of the case as brought out above, I consider that the contractor is entitled to some cost. Therefore, I award a payment of Rs.1,00,000.00 (Rs one lakh only) as costs to be paid to the contractor by the Union of India."
In reference to claim no.1 of the appellant in para 140 of the award the Arbitrator has recorded the following finding:-
"The contractor has unnecessarily dragged the UOI into this avoidable arbitration for which UOI will have to spend a lot of valuable time and efforts of Govt. Officers and staff which can not be quantified in money terms. Govt also spent a lot of money in travelling expenses of officers and staff. Hence, it is requested to award cost of reference to the UOI as claimed.
In the circumstances of the case, I consider the respondent is not entitled to the costs. The claim, therefore, is rejected."
Feeling aggrieved with the award on behalf of the appellants application under section 34 of the 1996 Act was moved before the Court of District Judge, Meerut, registered as Arbitration Suit No.36/2009, on the following grounds:-
That by letter nos.8082/STE/9/E8 dated 30.9.2005, 8082/STE/19/E8 dated 9.5.2006, 8082/STE/61/E8 dated 20.8.2007 and 8082/STE/731/E8 dated 2.4.2008 defects in the civil works were brought the notice of the respondents, but when he failed to remove them, they were rectified through another Agency detailed as below:-
Defects in road from Sub-Station Building to key personnel quarters were rectified incurring expenditure of Rs.17,00,82/-. Only, defects observed in Sub-Station Building and ducts thereof were rectified costing to Rs.12,987.28/-. Cement was purchased through authorised distributors, though under the specification 3.1.2 it should have been purchased from the manufacturer. For this reason recovery of Rs.1,00,000/- was made, 10 V.C.B's were to be installed, but at the insistence of the Contractor item no.28 of Schedule "A" Part X was substituted on the terms contained in the undertaking of the respondents of minus price adjustment, as might be decided by CWC/Accepting Authority, whose decision was to be final between the parties. The Arbitrator in violation of stipulated conditions providing deductions within 'excepted matters' awarded amount to the respondents. The Arbitrator did not comply with the provisions contained in section 31(3) of the 1996 Act. The Arbitrator had illegally held undertaking minus price adjustment to be given under duress though it was given on commercial expediency. The Arbitrator had wrongly construed section 25 of the Contract Act.
On behalf of the appellants additional grounds by way of separate application were taken wherein it was stated that award of amount of Rs.16,10,780/- against claim no.1 i.e. payment for additional work executed against item no.28 of Schedule "A" Part X was illegal based on misinterpretation of item no.28, wrongly holding undertaking minus price adjustment to be in-operative.
On behalf of the respondents averments made in the application and supplementary application were denied and it was stated that the grounds raised therein were not raised before the Arbitrator, therefore, they could not be considered. The respondents in the bid did not include the price of VCB's due to ambiguous drafting of the tender document. The Arbitrator did not misinterpret the item no.28 Schedule "A" Part X. Undertaking of minus price adjustment was given under duress. Section 25 of the Contract Act was rightly interpreted by the Arbitrator. The Arbitrator had not ignored the terms of the contract. He had never exceeded his jurisdiction.
Learned District Judge after hearing the parties vide impugned judgment and order dated 23.12.2013 had dismissed the application under section 34 of the 1996 Act. In the judgment he has concluded that award can only be set aside under section 34 of the 1996 Act, but it cannot be interfered with on merits. Even if the conclusion of an Arbitrator on facts are erroneous, the Court should not interfere with them. The impugned award is not in conflict of the Public Policy of India. It is fair, legal and reasoned. It is in accordance with the terms of the contract.
Thereafter, on behalf of the appellants before the Court of District Judge, Meerut review application was moved, which was also rejected vide order dated 17.4.2014.
Feeling aggrieved with these, the present appeal has been filed on the grounds inter alia that Arbitrator had exceeded its jurisdiction, plea of undertaking minus price adjustment was rejected on erroneous conclusion. The Arbitrator wilfully misinterpreted item no.28 of Schedule "A" Part X of the contract, which was not arbitrable according to the condition 62(G) of the general conditions of the Contract, interpretation of word 'consideration' by the Arbitrator is misplaced. Claim no.6 has been allowed against the special condition nos.21 and 22 of the contract. The Arbitrator has failed to give reasons, therefor, award is against the provisions of the Contract Act, the 1996 Act and in conflict of the Public Policy of India.
On behalf of the appellants these grounds have been elaborated and we were taken through the relevant general and special conditions of the contract to show their violations. Learned counsel for the appellants has referred the case of Steel Authority of India Limited Vs. J.C. Budharaja, AIR 1999 SC 3275. According to learned counsel for the appellants though the referred judgment has been given under the provisions of old Arbitration Act, 1940, but the observations made by the Hon'ble Apex Court in reference to excess of jurisdiction, violations of the conditions of the contract are relevant for the purpose of adjudicating the present appeal.
In reference to excess of jurisdiction in the said judgment, the Hon'ble Apex Court has made the following observations:-
"Further even if such reasons are not recorded, the claim itself for such prohibited items was not entertainable by the Arbitrator. In the agreement between the parties, there is specific bar to raising of such claims. Hence the decision of the arbitrator is without jurisdiction. This aspect is also dealt with by this Court in H.P. State Electricity Board v. R.J. Shah and Company [1999(4) SCC 214]. In paragraph 26, the Court held as under:
In order to determine whether the arbitrator has acted in excess of jurisdiction what has to be seen is whether the claimant could raise a particular dispute or claim before the arbitrator. If the answer is in affirmative, then it is clear that arbitrator would have the jurisdiction to deal with such a claim. On the other hand if the arbitration clause or a specific term in the contract or the law does not permit or give the arbitrator the power to decide or to adjudicate on a dispute raised by the claimant or there is a specific bar to the raising of a particular dispute or claim, then any decision given by the Arbitrator in respect thereof would clearly be in excess of jurisdiction.
The Court further held that in order to find out whether the Arbitrator has acted in excess of the jurisdiction, the Court may have to look into some documents including the contract as well as the reference of the dispute made to the Arbitrator limited for the purpose of seeing whether the Arbitrator has the jurisdiction to decide the claim made in the arbitration proceedings."
In reference to violation of the conditions of the contract the Hon'ble Apex Court concluded the following:-
"In view of the aforesaid settled law, the award passed by the arbitrator is against the conditions agreed by the contracting parties and is in conscious disregard of stipulations of the contract from which the arbitrator derives his authority. His appointment as a sole arbitrator itself was conditional one and he was informed that the same was "with reservation regarding the tenability, maintainability and validity of the Reference as also on further grounds that the claim was barred by the period of limitation and that it pertained to excepted matters of general conditions of the contract". Despite this he has ignored the stipulations and conditions between parties. Hence, the said award is, on the face of it, illegal."
Learned counsel for the appellants has also referred the case of ONGC Limited Vs. SAW PIPES Limited, (2003) 5 SCC 705. In this case the Hon'ble Apex Court in reference to effect of violation of conditions of the contract has reiterated the view quoted above. The Hon'ble Apex Court has also held in that case that unreasoned award is liable to be set aside being without jurisdiction. The Hon'ble Apex Court while elaborating the meaning of the phrase "Public Policy of India" and has held that if award patently is in violation of statutory provisions, it cannot be said to be in public interest. Such award is likely to adversely affect the administration of justice, therefore, it has to be treated to be in conflict with the Public Policy of India.
On behalf of the respondents it has been submitted that the appellants are abusing the process of the Court. In support of this argument, according to him, filing of review petition is ample proof. He submits further that appellants are required to challenge both the orders, which they have failed to do so. He submits further that Public Policy of India is to make the bona fide payment of the contractors and not to force them to run their business in losses. According to learned counsel for the respondents the award is legal. On behalf of the appellants no ground, as envisaged in section 34(2) of the 1996 Act, has been made out, therefore, it requires no interference.
Before we proceed further, we would like to place on record the limits on judicial review in the matter of arbitral awards. The Hon'ble Apex Court in the case of Numaligarh Refinery Ltd. Vs. Daelim Industrial Co. Ltd., (2007) 8 SCC 466 in para 17 of the judgment has observed the following:-
"We have considered the rival submissions of the parties. So far as the legal proposition as enunciated by this Court in various decisions mentioned above, it is correct that Courts shall not ordinarily substitute its interpretation for that of the arbitrator. It is also true that if the parties with their eyes wide open have consented to refer the matter to the arbitration, then normally the finding of the arbitrator should be accepted without demur. There is no quarrel with this legal proposition. But in a case where it is found that the Arbitrator has acted without jurisdiction and has put an interpretation of the clause of the agreement which is wholly contrary to law then in that case, there is no prohibition for the Courts to set things right. In the present case, the aforesaid clauses reproduced above, clearly lays down that all taxes, duties and levies have to be borne by the contracting party. Countervailing duty which came into force with effect from 1.1.1995 by way of ordinance (subsequently converted into an Act) is a duty enforced by the Statute and hence in face of Clause 2(b) and Clause 6 of the Consolidated Agreement read with Clause 2.1 (g) of the Instructions to Bidders and Clause 13 (f) of the Bid Document. There is leaves no manner of doubt that DIC has to pay the same. Therefore, this levy has to be borne by the DIC and they cannot escape from this situation."
In Mcdermott International Inc. Vs. Burn Standard Co. Ltd. and others, (2006) 11 SCC 181 the Hon'ble Apex Court in para 52 has made the following observations:-
"The 1996 Act makes provision for the supervisory role of courts, for the review of the arbitral award only to ensure fairness. Intervention of the court is envisaged in few circumstances only, like, in case of fraud or bias by the arbitrators, violation of natural justice, etc. The court cannot correct errors of the arbitrators. It can only quash the award leaving the parties free to begin the arbitration again if it is desired. So, scheme of the provision aims at keeping the supervisory role of the court at minimum level and this can be justified as parties to the agreement make a conscious decision to exclude the court's jurisdiction by opting for arbitration as they prefer the expediency and finality offered by it."
In view of the scope of judicial review as outlined by the Hon'ble Apex Court, we are required to adjudicate the matter in hand. The three grounds namely, (1) that the Arbitrator, has exceeded his jurisdiction; (2) has given an award in violation of the conditions of the contract and (3) has violated the legal provisions contained in the Contract Act and the 1996 Act are material here.
The first point for determination is excess of jurisdiction by the Arbitrator-this ground enfolds two aspects, (a) violation of the terms of contract; (b) violation of legal provisions regulating the rights and liabilities of the parties to the dispute. When it has been established that the party aggrieved with the award has successfully shown existence of any one of the area indicated above, that can be categorised as to exceeding the jurisdiction by the Arbitrator, therefore, all the three grounds we propose to examine together keeping in view the narrow field of judicial review and spirit behind the 1996 Act.
The first argument raised on behalf of appellants is that the Arbitrator had wrongly rejected the plea of the appellants in reference to the undertaking, given by the respondents for minus price adjustment. The Arbitrator has rejected this plea on the ground that the said undertaking was obtained under duress. In the impugned award after noticing facts and arguments of both the parties, the Arbitrator has come to the conclusion that the said undertaking was given by the respondent under duress. It was an outcome of the dilatory tactics adopted by the appellants and in the interest of completion of the project in hand, where the respondents had made substantial investment, the respondents due to commercial expediency was induced to sign the said undertaking. In para 39 of the award he has concluded that the tender document in reference to item 28 of schedule A part X was incomplete and ambiguous, which necessitated deviation for which the respondents signed the undertaking under duress, therefore, it is inequitable and without free will, therefore, it was inoperative. The reasons assigned by the Arbitrator for coming to this conclusion not only had some support from the record, but also from the technical and departmental knowledge of the Arbitrator. We do not think that there is enough material for us to hold the conclusion arrived at by the Arbitrator in this regard is illegal or erroneous. Therefore, first ground raised on behalf of appellants fails.
The second ground relates to item no.28 of Schedule A Part X. The Arbitrator before interpreting this item had quoted the relevant part of the tender document.
"Supply and fixing and testing and commissioning station Capacitor Bank automatic control for 3 phase 11 KV power supply closed in sheet metal enclosed with all banking arrangements etc ISI marked not less than 2500 KVAR in steps of 20% including all safely arrangements/devices necessary connection with required with required material for implement of power factor from 0.90 to 0.98 on 11 KV system at MRS for 2 nos 10 MVA transformer and connection with 11 KV VCB controlled panel with suitable size of cable complete all as specified and directed. Series reactor and residual voltage transformer are to be considered in the quoted prices. (5 Bank of 500 KVAR capacity each to be controlled with 11 KV VCB 630 Amp with electric operated mechanism to control each 500 KVAR Bank. The rate of necessary automatic power factor control panel along with VCB's cable and cable end boxes and deemed to be included in the unit rate-02 (two) units."
Thereafter with his technical knowledge and expertise he opined as under:-
"In comparison to the above, the appropriate description of the item 28, Sch A, Part X should have been as under to meet the technical requirement:
Supply, installation, testing and commissioning of 3 phase 11 KV indoor type 2500 KVR step rating (500 KVAR-5 nos) IP 42 protection class HT Indoor Automatic Power Factor APFC Panel fabricated out of 2.0 mm M.S sheet for powder quoted enclosure suitable for base frame floor mounting arrangement. ONE Incoming Module comprising of (a) Microprocessor based RVT-6 or equivalent APFC relay with MODBUS communication facility (b) 11KV, 16 KA/1 sec Triple Pole Manually operated off-load Single Break Isolator with Earth Switch (c) Surge Arrester (d) Electrical Interlocks between Upstream Vacuum Circuit Breaker and Penal Isolator (e) Mechanical Door Inter Lock (f) Visual Indications and other minor accessories plus Five Outgoing Modules each comprising of (a) 11KV 3 pole 400 Amps Vacuum Contactor with on/off visual indication (b) HRC fuses with Striker Pin Indication (c) Inrush current limiting Air Core dry type Aluminum wound Series Reactor (d) Capacitor Units APP type with CRCA container and provided with Internal Discharge Register, complete with fixing earthing material, supply/laying/termination of incoming 11KV 3 core 240 sq mm AL XLPE cable from vaccum circuit breaker to APFC panel inclusive of 11 KV LT control cable from load CT and Bus PT to APFC panel (e) Surge Arresters (f) Push Button Acturator, Electronic re-close delay timer, Panel Illumination lamp, Door Limit Switch, Exhaust Fan, Air Filter louvers, 3-Point Door Locking Assembly etc.-02 (Two) units."
We are also following the same practice and the relevant part of the tender document is taken into consideration, in the light of opinion of the Arbitrator recorded hereinabove.
The learned Arbitrator has assigned reasons for so interpreting the relevant portion of the tender document. Admittedly, learned Arbitrator is also an expert engineer of the rank of Chief Engineer, Jt. DG (D & V) E-in-c's at Branch Kashmir House, Rajaji Marg, New Delhi. Opinion of such highly placed Army Engineer having special knowledge of electrical installation, who came to the conclusion that the description of the relevant item in the (tender document) contract, suffered from ambiguity and inadequacy thereby misleading the bidders to quote rates ranging as low as Rs.77,700/- and as high as Rs.48,36,000/-, which was a clear evidence that the bidders could not comprehend the real purport of the relevant item as drafted this opinion cannot lightly brushed aside.
It is well settled that the Arbitrator is considered to be the best judge to interpret the terms of the contract. On behalf of the appellants it has been pleaded that it was made clear in the contract that supply and installation of 10 VCB's was included in the item and learned Arbitrator has wrongly accepted the plea of the respondents that vaccum switches subsequently installed by the respondents were in addition to the work specified in the contract. On behalf of the appellants general condition 62 (G) of the contract has been referred to show that the Arbitrator had no jurisdiction to interpret item 28 Schedule A Part X of the contract. The said clause referred by the learned counsel for the appellants is quoted hereinbelow:-
"62--
(G) For all Contracts-
If any Work, the rate for which cannot be obtained by any of the methods referred to in paras (A) to (E) above, has been ordered on the Contractor, the rate shall be decided by the G.E. on the basis of the cost to the Contractor at Site of Works plus [15%]1 to cover all overheads and profit. Provided that if the Contractor is not satisfied with the decision of the G.E., he shall be entitled to represent the decision of the G.E., he shall be entitled to represent the matter to the C.W.E. Within seven days of receipt of the G.E.'s decision and the decision of the C.W.E. Thereon shall be final and binding.
If any alterations or additions (other than those authorised to be executed by day work or for an agreed sum) have been covered up by the Contractor without his having given notice of his intention to do so, the Engineer-in-Charge shall be entitled to appraise the value thereof and in the event of any dispute the decision of the G.E. thereon shall be final and binding."
The main thrust of this argument is that in any such eventuality any dispute arises, the decision of the G-E-thereon shall be final and binding, thus according to the learned counsel for the appellants, the Arbitrator had no jurisdiction to make the interpretation recorded by him in his award. We are of the opinion that the afore-quoted clause would not be applicable in the present matter. Here item no.28, which has given rise to the present dispute, suffered from such ambiguity and inadequacy of the description that subsequently it was substituted with the mutual consent of both the parties and the substituted work was carried out by the respondents to the satisfaction of the appellants. The referred clause takes care of those contingencies where specification of the work was of adequate description and capable of being executed, but the materials requisite therefor could not be obtained by any of the methods referred in paras (A to E) of the clause 62.
In the present case state of affairs were not so, as observed by the Arbitrator that specification of work contained in item no.28 Schedule A Part X was inadequate, therefore, the bar imposed by clause 62(G) would not come into play. Hence, we are of the opinion that neither the Arbitrator has exceeded his jurisdiction nor he has arbitrated the dispute, which can be called on 'excepted matter', therefore, second ground also fails.
The Hon'ble Apex Court in the case of D.D. Sharma Vs. Union of India vide judgment dated 27.4.2004 in Appeal (Civil) 6678 of 1999 while quoting the observation made in the case of Rajasthan State Mines & Minerals Ltd. Vs. Eastern Engineering Enterprises and Another, (1999) 9 SCC 283 quoted hereinbelow:-
"44. (a) It is not open to the Court to speculate, where on reasons are given by the arbitrator, as to what impelled the arbitrator to arrive at his conclusion.
(b) It is not open to the Court to admit to probe the mental process by which the arbitrator has reached his conclusion where it is not disclosed by the terms of the award.
(c) If the arbitrator has committed a mere error of fact or law in reaching his conclusion on the disputed question submitted for his adjudication then the Court cannot interfere.
(e) In a case of non-speaking award, the jurisdiction of the Court is limited. The award can be set aside if the arbitrator acts beyond his jurisdiction.
(f) To find out whether the arbitrator has travelled beyond his jurisdiction, it would be necessary to consider the agreement between the parties containing the arbitration clause. Arbitrator acting beyond his jurisdiction is a different ground from the error apparent on the face of the award.
(g) In order to determine whether arbitrator has acted in excess of his jurisdiction what has to be seen is whether the claimant could raise a particular claim before the arbitrator. If there is a specific term in the contract or the law which does not permit or give the arbitrator the power to decide the dispute raised by the claimant or there is a specific bar in the contract to the raising of the particular claim then the award passed by the arbitrator in respect thereof would be in excess of jurisdiction."
Thereafter the Hon'ble Apex Court has observed as under:-
"It has not been shown before us on behalf of the Union of India that there exists any provision in the contract which precluded the arbitrator from deciding the dispute or there existed any specific bar in the contract precluding the contractor to raise such a claim. Once it is held that the Arbitrator had the jurisdiction, no further question shall be raised and the court will not exercise its jurisdiction unless it is found that there exists any bar on the face of the award.[See Pure Helium India (P) Ltd. vs. Oil & Natural Gas Commission (2003) 8 SCC 593]."
The second fold of the challenge by the appellants is that the learned Arbitrator had misinterpreted sections 25 and 29 of the Indian Contract Act. The Hon'ble Apex Court has observed that wrong interpretation of the legal provisions cannot be a valid ground to set aside an award under section 34 of the 1996 Act till it has not vitiated the ultimate decision. According to the Hon'ble Apex Court, the legal error made by the Arbitrator must be of such magnitude that it is patent and be basis of wrong decision. To elaborate further it must be on the face of the award, such legal error that had not taken place, the result of the award would have been otherwise. In nut-shell legal error must culminate into miscarriage of justice.
In the present matter, when we would examine the application of the provisions contained in the aforesaid sections by the Arbitrator, we find that it was only a bona fide mistake committed by a lay man, for whom niceties of legal provisions are not material, but he is aware about the substance of the law and its equitable justification. Therefore, the award is also not vulnerable on account of any error of law, as indicated by the learned counsel for the appellants during the arguments.
The opinion formed by us receives full support from the view taken by the Hon'ble Apex Court in the case of Food Corporation of India Vs. Joginderpal Mohinderpal, (1989) 2 SCC 347. On this point the Hon'ble Apex Court in para 10 has observed the following:-
"10...It has to be borne in mind, however, that wrong statement or conclusion of law, assuming even that it was a wrong statement of law, was not wrong statement of the proposition of law which was the basis for decision in this award. Error of law as such is not to be presumed; if there is legal proposition which it the basis of the award and which is erroneous as observed in Champsey Bhara & Co. V.2, then only the award can be set aside."
One ground of attack is that award is non-speaking and unreasoned. From the point of view of technical man the award is a speaking one and it contains detailed reasons assigned by the Arbitrator for forming his opinion. Suffice is to say that award runs into 83 pages. Of course there is repetitions either of facts or of technical specifications or sometimes of both. But the award is a speaking one, well reasoned and comprehensive. This ground also remains unsubstantiated.
Last ground though not addressed during the arguments but taken in memo of appeal is with regard to amount awarded due to cost escalation, in reference to claim no.6 of the respondents, in violation of special condition nos.21 & 22 of the contract. Bare reading of the conclusion recorded by the Arbitrator convinces us that the ground taken in the memo of appeal has been abandoned for want of merit. In our opinion, the Arbitrator did not award amount of cost escalation in violation of special condition nos.21 and 22 but within the permissible limits provided therein.
In the end we would like to place our conclusion that in the present case, the appellants have miserably failed to make out any ground enumerated in section 34 (2) of the 1996 Act. The impugned award is not in conflict with law. The Arbitrator has not exceeded his jurisdiction nor committed any patent error, which might have contributed in resulting injustice to the appellants.
No other argument has been raised in support of the present appeal. The arguments noticed hereinabove are without substance, they are unsubstantiated from the record and deserves to be rejected.
Therefore, appeal lacks merit and consequently, dismissed.
Order Date :- 17/7/2015 T. Sinha