Bombay High Court
Hindustan Petroleum Corporation ... vs Larson And Tourbo Limited on 16 September, 2016
Bench: Anoop V. Mohta
ssm 1 app14.06gp-16.9.16.sxw
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
APPEAL NO. 26 OF 2006
IN
ARBITRATION PETITION NO. 449 OF 2003
Larsen and Toubro Limited,
A Company registered under
the Companies Act and having
their ECC Division,
At Mount Poonamallee Road,
Manapakkam, P. O. Box. No. 979,
Chennai-600 089. ....Appellant
Vs.
1 Hindustan Petroleum Corporation Ltd.
A Govt. of India Undertaking
registered Under the Companies Act,
1956 and having office
At: 17, Jamshedji Tata Road, Churchgate,
Mumbai-400 020.
2 Shri S.K. Biswas (Sole Arbitrator),
in his office at Hindustan Bhavan,
Ballard Estate, 8 Shoorji Vallabhdas Marg,
Mumbai-400 001. ....Respondents.
WITH
APPEAL NO. 14 OF 2006
IN
ARBITRATION PETITION NO. 449 OF 2003
Hindustan Petroleum Corporation Ltd.
a Government of India Undertaking
1/56
::: Uploaded on - 21/09/2016 ::: Downloaded on - 22/09/2016 00:18:31 :::
ssm 2 app14.06gp-16.9.16.sxw
registered under the Companies Act,
1956 and having its registered office at
17, Jamshedji Tata Road, Churchgate,
Mumbai-400 020. ....Appellant.
Vs.
1 Larsen and Toubro Limited,
ECC Division, a company
registered under the Companies Act
and having their ECC division
at Mount Poonamalla Road,
Manepakham, Po. Box. No. 979,
Chennai-600 089.
2 Shri S.K. Biswas,
Sole Arbitrator in his office at
Ballard Estate,
Mumbai-400 001. ....Respondents.
Mr. Atul Rajadhyaksha, Senior Advocate i/by Kedar Wagle for the
Appellant in APP No. 26 of 2006 and for Respondent No.1 in APP No.
14 of 2006.
Mr. Minoo Siodia a/w Ms. Raksha Thakkar i/by Rustomji & Ginwala
for the Appellant in APP No. 14 of 2006 and for Respondent No.1 in
APP No. 26 of 2006.
None for Respondent No.2.
CORAM : ANOOP V. MOHTA AND
G.S. KULKARNI, JJ.
RESERVED ON : 23 JUNE 2016.
PRONOUNCED ON : 16 SEPTEMBER 2016.
JUDGMENT (PER-ANOOP V. MOHTA, J.):-
ssm 3 app14.06gp-16.9.16.sxw
Both these Appeals, under Section 37 of the Arbitration
and Conciliation Act, 1996 (for short, "the Arbitration Act") (Appeal
and Counter-Appeal), filed by both the contesting parties (Claimant
and Respondent No.1), against Judgment and order dated 16
November 2005, passed by the learned Single Judge on a Petition
under Section 34 of the Arbitration Act in Arbitration Petition No. 449
of 2003 whereby, the award passed by the learned Arbitrator ("the
Arbitrator") dated 4 July 2003, has been substantially set aside and
partly maintained.
2 The Appellant-(Original Claimant)-Larsen and Toubro
Limited ("L&T") in Appeal No. 26 of 2006, which is a company
registered under the provisions of the Companies Act, has preferred
the Appeal, as the learned Single Judge has set aside the award qua
Claim Nos. 1, 2, 4, 9, 15, 16, 21 (i), 21(iii) and 21(iv) awarded by the
Arbitrator.
In the other Appeal, the Appellant is Respondent No.1-
Hindustan Petroleum Corporation Ltd. ("HPCL"), which is a
Government undertaking has challenged the order passed by the
learned Single Judge only with regard to Claim No. 19 and supported
ssm 4 app14.06gp-16.9.16.sxw
the Judgment on other claims.
Both the parties are the Appellant and Respondent No.1 in their
respective Appeals.
3 Following are the basic events, which lead to the
Arbitration proceedings.
On 23 April 1996, L&T submitted its tender for work relating to
"the laying, testing, pre-commissioning and commissioning of 18"
diameter 350 Kms. pipeline from Vishakhapatnam to Vijaywada,
including temporary cathode protection and optical fiber cable work."
On 25 November 1996, HPCL issued its Letter of Intent ("LOI"), which
was followed by a Letter of Allotment ("LOA"). Engineers India
Limited ("EIL") was the Engineer-in-Charge ("the consultant"). The
total contract price was Rs.53,64,39,858/-. The rate for the laying of
the pipeline and other works was all inclusive of rate all across the
terrains. The contractual date of commencement of work was 10
December 1996 and the completion date was 25 November 1997. On
29 August 1997, L&T submitted Bill No. 1 for extra work in the
amount of Rs.27,71,146/-. On 23 September 1997, L&T applied for
an extension for completion of contract upto 31 March 1998. On 10
ssm 5 app14.06gp-16.9.16.sxw
December 1997, L&T sought further extension upto 30 April 1998.
On 11 March 1998, L&T submitted Bill No. 2(A) for extra work in the
amount of Rs.12,39,57,262/-. The EIL reviewed these claims and
concluded that Bill No. 2A was not tenable. On 13 April 1998, EIL
extended the period till 30 April 1998 with the consent of HPCL. On
18 April 1998, L&T could not complete the work , hence applied for
further extension till 30 June 1998. On 23 April 1998, the consultant
declined to grant extension beyond 30 April 1998 for reasons stated in
the letter. On 20 August 1998, L&T completed a major portion of the
work and HPCL issued a completion certificate, except a submission of
no balance documents and the liquidation of checklist points. L&T
raised their Final Bill for Rs.53,66,77,790/- reserving their rights to
claim extra amount for the additional work.
4 Disputes arose between HPCL and L&T. On 22 August
2000, L&T invoked Arbitration as per Clause 14 and called upon the
Marketing Director of HPCL to nominate an Arbitrator. On 21
September 2000, HPCL appointed the General Manager, who was a
technically expert qualified engineer, as the arbitrator.
ssm 6 app14.06gp-16.9.16.sxw
5 Strikingly, both the parties had agreed not to lead any oral
evidence, but to submit their written arguments only. Both the
parties further agreed that they would not be represented by the
advocates to argue the case and they would be represented by their
functional departmental officers and or law officers.
6 The Arbitrator prepared his Award. The total amount
claimed in 30 Claims was Rs.27,82,74,107/-. 16 Claims out of 30
Claims, were allowed, the aggregate amount was
Rs.7,43,66,44/-. On 30 September 2003, HPCL filed Arbitration
Petition No.449 of 2003 under Section 34 of the Arbitration Act.
HPCL challenged the Award in respect of 8 Claims allowed by the
Arbitrator. Insofar as Claim No. 21 is concerned, Claim Nos. 21(i), (iii)
and (iv), were amongst others allowed by the Arbitrator, there
challenged. On 16 November 2005, the impugned Judgment was
passed by the learned Single Judge, in Arbitration Petition .
7 Both the learned counsel appearing for the respective
parties, read and referred the reasons set by the learned Expert
Arbitrator and the learned Single Judge, including the terms and
ssm 7 app14.06gp-16.9.16.sxw
conditions of the contract, apart from the Judgments of the Supreme
Court and the High Courts in support of their particular claims and
counter-claims, including their written submissions.
8 In view of the specific Arbitration clause between the
parties, and as the significant power of appointment of Arbitrator was
exclusively with HPCL, the Arbitrator was preferred unilaterally.
There was no consent obtained from L&T for the same Both the
parties proceeded before the Arbitrator, keeping in mind the clauses,
where the technical terms and the facets of such construction contract
becomes relevant to resolve the disputes. Both the parties agreed to
proceed before the Expert Arbitrator, without leading any oral
evidence. Even the assistance of the advocates was not sought for.
The respective representatives of the parties appeared and
participated facing the Arbitrator. However, there is no serious issue
that the respective claims and counter-claims were submitted along
with supporting documents, with all the requisite, actual and technical
financial details. All representatives, officers, apart from the Expert
Arbitrator, were fully aware of the importance of such documents and
its technical details, and the nature of disputes which were required to
ssm 8 app14.06gp-16.9.16.sxw
be determined.
9 The learned Senior Counsel appearing for L&T made
submissions, in above background relying upon the law to reconsider
and decide rejected claims again by the Appellate Court, as the expert
Arbitrator had awarded the same, after hearing the parties, but the
Court has set aside. The learned Arbitrator was the General Manager-
ENG & Procurement in the HPCL organization. The appointment was
made by the Respondent-(HPCL). The parties raised specific issues.
Both the parties agreed and left the issues for the expert Arbitrator to
decide, based upon the documents, charts, statement and material
placed on record by the parties towards its claims and counter-claims,
apart from the knowledge and the experience in the filed of such
contract. The parties did not lead any oral evidence. The agreed
Arbitration procedure, as permissible in law, binds all the parties.
Legal proposition when the expert Arbitrator is appointed-
a) Mediterranean and Eastern Export Co. Ltd. Vs. Fortress Fabrics
(Manchester) Ltd.1
i) In appointing an expert arbitrator, it must be taken that the
1 1948 (2) AER 186 @ 187-189
ssm 9 app14.06gp-16.9.16.sxw
parties are content and intend to accept the judgment of a man in
their own trade on whose judgment they know they can rely (Page
188).
ii) An award of a technical arbitrator must be taken to mean that
he has acted on his own knowledge and experience (Page 189).
This judgment has been approved by the Supreme Court of
India and the Delhi High Court.
b)
Municipal Corporation of Delhi Vs. M/s Jagan Nath Ashok
Kumar & Anr.2
i) This is a case of construction contract and the arbitrator was the
Superintending Engineer.
ii) This judgment re-affirms the position in law held in
Mediterranean case (supra) and describes the approach in the earlier
case as an appropriate attitude.
10 The Award given by the Expert Arbitrator, need not be
lightly interfered with, was the another submission-
a) Jagdish Chander Vs. Hindustan Vegetable Oils Corpn.3
2 AIR 1987 SC 2316
3 AIR 1990 Del 204
ssm 10 app14.06gp-16.9.16.sxw
This case refers to the Mediterranean case with approval citing a
different part of that judgment.
11 It is thus made clear that, in the case of an Expert
Arbitrator, who is a technical person and in the case a nominee of
contractor in the Arbitration, it is not necessary to articulate views
and findings with precision, as expected from a judicially trained
person.
a) EM & EM Associate Vs. Delhi Development Authority & Anr.4
i) This is a case where the Division Bench described the approach
of the Single Judge as that of a Court of Appeal and disapproved the
same (Page 235).
ii) This is also a case where the Division Bench held that a court
should be hesitant to interfere with an award made by an arbitrator
appointed by the Respondent (Page 233).
12 It is also contended on behalf of L & T that in the case of
an expert Arbitrator, there must be some reason for the decision and it
is not deficient because every process is not set out. Subject matter
needs to be looked at. The agreed Arbitration procedure, not to lead
evidence, is fundamental basis for the Court to proceed with the
4 2002 (2) Arb. LR 222.
ssm 11 app14.06gp-16.9.16.sxw
contentions, to interfere with such experts Arbitral award.
a) Rajesh Khanna Vs. Govt. of NCT of Delhi & Ors.5
i) Every process is not set out : subject-matter needs to be looked
at and it cannot be overlooked that the arbitrator cannot function like
a judge in a court.
ii) Parties in choosing experts from the field display an implied
faith in the personal judgment of the expert arbitrator and in such
circumstances meticulous reasons are not to be looked into.
b) M.L. Mahajan Vs. DDA6
i. This judgment reiterates the same principles as set out the in the
previous case.
13 Having considered the above legal position, we now
examine the submissions as made on behalf of the parties in regard to
the claims which are the subject matter of these Appeals.
The Claims and the reasons-
Claim No.1- Claim for Additional work for canal at Chainage 205 km
(introduced by irrigation dept.)
5 2005 (1) Arb. LR 247 (Delhi)
6 2005 (1) Arb. LR 561 (Delhi)
ssm 12 app14.06gp-16.9.16.sxw
14 We have considered the above position of law and the
scope and purpose of the appointment of Expert Arbitrator in a
dispute of this nature, where technical details are relevant for proper
adjudication of the claims and the counter-claims. We have also noted
the chart submitted by the learned counsel appearing for the parties,
covering the nature of claims and submission of L&T and also of
HPCL, referring to respective claims. The convenience charts with the
respective contentions and references, apart from the reasons given by
the learned Arbitrator and the learned Single Judge, have been read
and distinguished. We are dealing separately each claim and
counter-claims. For all the claims and particularly for Claim No.1, we
have to note the agreement clauses.
15 The following are the relevant clauses of agreement with
regard to the Arbitration, alterations and additions to the
specifications, designs and works:-
14 ARBITRATION-
14.1. Disputes or differences arising out of or in
relation to agreement/contract shall be referred
to the Director Marketing of the owner who may
ssm 13 app14.06gp-16.9.16.sxw
either act himself as Sole Arbitrator or nominate
some Officer of the owner to act as an Arbitrator
to adjudicate the disputes and differences
between the parties (except those in respect of
which the decision of any person is by the
Contract expressed to be final and binding.
ALTERATIONS AND ADDITIONS TO SPECIFICATIONS,.
DESIGNS AND WORKS-
The Engineer-in-Charge/Site-in-Charge shall have powers
to make any alterations, additions and/or substitutions to
the schedule of quantities, the original specifications,
drawings, designs and instructions that may become
necessary or advisable during the progress of the work and
the Contractor shall be bound to carry out such altered/
extra/ new items of work in accordance with instructions
which may be given to him in writing signed by the
Engineer-in-Charge/Site-in-Charge".......
"5.j.4. If the rates for the altered, additional or
substituted work cannot be determined in the
manner specified above, then the Contractor shall,
within seven days of the date of receipt of order to
carry out the work, inform the Engineer-in-
Charge/ Site-in-Charge of the rate at which he
intends to charge for such class of work,
supported by analysis of the rate or rates claimed
and the Engineer-in-Charge/ Site-in-Charge shall
determine the rates on the basis of the prevailing
market rates for both material and labour plus
10% to cover overhead and profit of labour rates
and pay the Contractor accordingly. The opinion
of the Engineer-in-Charge/ Site-in-Charge as to
current market rates of materials and the
quantum of labour involved per unit of
measurement will be final and binding on the
contractor.
ssm 14 app14.06gp-16.9.16.sxw
16 The reliance was placed on the following contract clauses
by the learned counsel appearing for HPCL-
Arbitration clause "...... to adjudicate the disputes and differences
between the parties (except those in respect of which the decision of any
person is by contract expressed to be final and binding)".
Clause 5.j.4 - specifically states "The opinion of the Engineer-in-
charge/Site-in-Charge as to current market rates of materials and the
quantum of labour involved per unit of measurement will be final and
binding on the contractor".
It is submitted, as per the above clauses, the rates for altered,
additional and substituted work is to be determined by Engineer-in-
Charge. For determining the rate, current market rate of the materials
and quantum of labour for unit measurement has to be considered.
These are only two components for determining the correct rate.
After determining the same rate, which is arrived at by Engineer-in-
Charge is final and binding on the contractor and hence, the same is
not arbitrable i.e. the Arbitrator has no jurisdiction to adjudicate on
the issue. On 15 April 1998, the Engineer-in-charge determined the
rate by giving detail analyses as per the clause of contract and the rate
arrived at by Engineer-in-charge was Rs.4,86,280/-, which was final
ssm 15 app14.06gp-16.9.16.sxw
and binding on the contractor and not arbitrable.
17 We have noted the Arbitrator's following reasons-
Original claim amount was Rs.27,71,146/- and revised claim
amount was Rs.16,26,160/-.
(a) "The valuation of the Consultants appears to be correct when
compared to the value claimed by the Claimants for similar
canal work ........."
(b) "Compared to similar work and cost thereof, the cost of
Rs.4,86,280/- as worked out by the Consultants is fair and
reasonable. It may be noted that the Bill of the Claimants was
not correct and not based on actual work performed by them as
can be seen from the conduct of the Claimants in reducing the
bill amount about Rs.16 lakhs.
(c) "I have carefully considered the respective cases of the parties,
their Written Submissions and authorities cited and hold that
while the evaluation of Claim No.1 at Rs.4,86,280/- is in
accordance with the Clause 5.j. of the GCC to the contract, that
the Claimants raised their bill on estimated basis and not on
actual work done by them. The Claimants declined to accept
ssm 16 app14.06gp-16.9.16.sxw
the valuation of the Consultants on vague and unsustainable
grounds vide Exhibits C-8 and C-9 of Volume -5."
(d) After holding as above, the Learned Arbitrator stated that
"Irrespective of the fact that the opinion of the Engineer-in-
Charge in this behalf is final and binding on the Claimants
under Clause 5-j of GCC of the Contract, being a technical
person myself, I have looked into the actual amount of work
involved in this extra claim. I find that the revised Claim of the
claimant is still exaggerated and high. The work is not equal to
Rs.16 lakhs or so which has been the revised claim, claimed by
the Claimant. The estimate of the Engineer in charge M/s.EIL is
a little to conservative and the work cannot be completed in
Rs.4.86 lakhs, which has been estimated by them. Accordingly,
I have gone through in detail and I find that a sum of
Rs.10,00,000/- will represent a true and proper valuation of
the work done by the Claimant and I award this amount of
money."
(e) After holding that Engineer-in-charge decision is final and
binding under clause 5-j of GCC of the Contract, the Learned
Arbitrator without any rate analysis or detail calculation, has
ssm 17 app14.06gp-16.9.16.sxw
awarded Rs.10 lakhs.
18 The Learned Judge stated that "It is, thus, clear that once
the Engineer-in-charge had made his decision, the Learned Arbitrator
had no jurisdiction to interfere and direct the Petitioner to pay higher
amount. It is clear from the award itself that the learned arbitrator has
directed the Petitioner to pay an amount of Rs.10 lakhs without
disclosing any reason and without disclosing the decision making
process, according to which the learned Arbitrator reached the
conclusion that the Respondent is entitled to receive Rs.10 lakh."
19 Under Section 31(3) of the Arbitration Act "The Arbitral
Award shall state the reasons upon which it is based". Under section
28(3) of the Arbitration Act, "In all cases, the Arbitral Tribunal shall
decide in accordance with the terms of the contract." We have already
distinguished the specific agreement between the parties, not to lead
any oral evidence and left the Arbitrator to draw the conclusion. The
Tribunal's decision so taken, therefore, binds all, unless there is any
perversity or misconduct.
ssm 18 app14.06gp-16.9.16.sxw
20 Both the learned counsel read and referred the various
clauses of the contract between the parties, including the clauses so
reproduced above. The Arbitration clauses and specifically, clause
5.j.4 needs to be read in totality. The power of Engineer-in-Charge/
Site-in-charge to make the alterations, additions and/or substitutions
to the specification, to the designs and the work, during the progress
of the work is required to be followed by the contractor. The rates, as
per clause 5.j.4, for any altered, additional or substituted work, if not
agreed, the contractor required to submit within seven days the rate at
which he intends to charge for such class of work, supported by the
analysis so rate or rates claimed. The concerned officer, should
determine the rates on the basis of the prevailing market rates for the
material, as well as, the labour plus 10% overhead and profit and pay
the contractor, accordingly. The rates so fixed, including the opinion
given by these officers would be final and binding on the contractor.
L&T, never agreed for the rates, so fixed for such works. The
correspondences were exchanged accordingly, with reference to the
additional canal at Chain age 205 km. By communication dated 15
April 1998, after analyzing the subject work, it is communicated to
L&T by HPCL that, "You may kindly negotiate with the contractor and
ssm 19 app14.06gp-16.9.16.sxw
settle the claim suitably". The same is supported by the chart of claim
also. HPCL, by communication, as noted, forwarded a cheque of
Rs.4,86,280/- with clear rider to treat it as "full and final settlement of
above claims." This was based upon the detailed workings and revised
statement of account dated 1 May 2006, submitted by HPCL to L&T.
This was admittedly, after the impugned award and the Judgment
passed by the learned Single Judge in the Arbitration Petition of
HPCL. This amount so arrived at by the Engineer-in-Charge/Site-in-
Charge on 15 April 1998,, was final and binding on the contractor and
so not arbitrable, is the case of HPCL. Merely because HPCL
forwarded the cheque of Rs.4,86,280/- after deriving the figure as
noted above on 1 March 2006, that itself shows that this amount was
due and payable to L&T by HPCL for the additional work done, so
recorded above. L&T never accepted this amount. The learned
Arbitrator, after considering the clauses of the agreement between the
parties, apart from the statement and the record so placed, directed
HPCL to pay a lump sum amount of Rs.10 lakhs.
ssm 20 app14.06gp-16.9.16.sxw
21 There is no issue that the Arbitral Award should state the
reasons above, which is based upon Section 31(3) of the Arbitration
Act, and further that the Arbitral Tribunal should decide in accordance
with the terms of contract under Section 28(3) of the Arbitration Act.
Having once adopted and specifically, agreed to proceed before the
expert Arbitrator without producing any oral evidence and even
without assistance of the advocates, and as the parties have
accordingly proceeded, are bound by the procedure. This, in our
view, is sufficient for the Arbitral Tribunal to decide the Arbitration
disputes, based upon the available documents on record. The decision
taken by the Arbitral Tribunal, was in accordance with the terms of
the contract and specifically agreed terms. The Arbitrator and/or
the Court has always power to decide the claim even in cases where
the decision of Executive Engineer, in such case is final. This was in
view of the Correspondences so referred above, as it was never
agreed or accepted by L&T.
22 Therefore, the assessment and analysis of the expert
Arbitrator, in the present facts and circumstances, ought to have been
accepted. The grant of Rs.10 Lakhs, ought not to have been interfered
ssm 21 app14.06gp-16.9.16.sxw
with by the learned Single Judge on the stated ground of no reason
and/or without disclosing the decision making process to arrive at the
conclusion. The final and binding decision of the officers, of which,
L&T sought inspection, had opposed the rate and the amount so fixed
for the additional work. The clauses so read and referred above,
basically for the running/agreed work, the agreed working situation,
the additional work so ordered and directed and proceeded by L&T
under their supervision, though after raising the contract, in no
way are sufficient to accept the submission of HPCL that the Arbitrator
has no jurisdiction to decide the claim so raised by L&T in this regard.
The dispute was arbitrable by the Arbitrator and rightly decided
accordingly.
23 The correspondence shows that the parties were directed
to negotiate and settle the claims. As the amount could not be settled,
therefore, the dispute for the additional work, as admittedly carried
out, supported by material and resolved by the learned Arbitrator, in
our view, was arbitrable.
ssm 22 app14.06gp-16.9.16.sxw
24 This is not the case, where the objections were raised that
there were no documents whatsoever in support of the claims filed by
the Appellant. The grounds for challenge so raised, are about the
non-availability of reasons and the decision making process. We have
to consider here, also the fact of not leading oral evidence by the
parties, as agreed and permitted by the Arbitrator, to decide the
disputes, based upon the material so referred above. The experts in
the field, therefore, had decided the issue and awarded the amount of
Rs.10 Lakhs. This, in our view, cannot be stated to be a case of
"award of amount without disclosing the decision making process". This
aspect has been fortified by conduct of HPCL, where the concerned
officers of HPCL, based upon the material and/or documents so placed
on record, without assigning or giving any reasons, fixed the amount
of Rs.4,86,280/-. There was no specific reason provided therein. L&T
refused to accept the said amount. Having once agreed for
payment, based upon the material so referred, the expert's opinion,
as the dispute was arbitrable, overruled the decision of the
officers and awarded Rs.10 Lakhs, therefore, ought not to have
been interfered with by the learned Single Judge. The fact of not
granting even Rs.4,86,280/- by the learned Arbitrator, this itself, is
ssm 23 app14.06gp-16.9.16.sxw
a reason to interfere with the order so passed by the learned Single
Judge, as at least, this amount could have been or should have been
awarded by modifying the award, which admittedly not done in the
present case. The impugned Judgment, therefore, itself required to be
interfered with, at least to this extent. Therefore, the submission so
raised by HPCL is unacceptable.
Claim No.2. Claim towards Additional Liability for repair of coal tar
enamel (CTE) coating by heat shrink sleeves-
25 This claim No.2 towards additional liability for repair of
Coal Tar Enamel (CTE) coating by Heat Shrink Sleeves. The learned
Arbitrator, while awarding the restricted amount of Rs.4,13,00,000/-
i.e. 1/3rd (33%) of the total amount so claimed of Rs.12,39,57,262/-
observed as under:-
a) Most importantly, I find and hold that the very design
criteria/decision to use Coal Tar Enamel for a cross
country pipeline of this size is questionable.
b) It is well known that CTE coated pipes have a tendency
to go "soggy" in open terrain heat conditions while
laying cross country pipelines.
c) By the time of this contract, the usage of PERP coated
ssm 24 app14.06gp-16.9.16.sxw
pipes was well recognized to be having superior
benefits. However PERP was not eh chosen material.
d) Yet the huge amount of damages leaves me with no
alternative but to hold that part of it is due to the
account of the Respondent due to poor design choice.
e) After careful consideration of the full facts, I am
inclined to award one third of the claim amount to the
Claimant....rounded off sum of Rs.4,13,00,000/- ....the
balance claim is rejected.
26 The learned Single Judge, however, referring to Section 28
of the Arbitration Act and further for the reasons that L&T failed to
lead evidence for the expenses incurred has set aside the award for
this claim. The important aspect in this matter is that there is no
specific challenge to the findings given by the learned Arbitrator
referred above, so also the fact that L&T has done the work under the
supervision, as per the agreement and HPCL has got the benefits of
the same. There is no contra material and/or averments, that no such
work was done by L&T. The submission so made by HPCL, referring
to clause 5.1 and other clauses that it was obligation on the contractor
ssm 25 app14.06gp-16.9.16.sxw
to complete the work without any extra compensation for repair
and/or rectification of defects recorded at the time of "taking over".
There is no specific challenge to the findings given by the learned
Arbitrator about the design criteria/decision to use the CTE for cross
country pipeline of the questionable size. The observation of the
learned Arbitrator that CTE coated pipes have tendency to go "soggy"
in open terrain heat conditions while laying the cross country pipeline.
Admittedly, L&T completed the additional work under the
supervision of HPCL, the rejection of total claim by the learned Judge,
in our view, would untenable. We are not inclined to accept the
submission of HPCL and the reasons so given by the learned Judge of
rejecting claim No.2, as awarded by the Arbitrator in Toto. The party,
one who has incurred the expenses for the additional work and as the
work was admittedly done, is entitled for the expenses so incurred
from the party one who got the benefit out of it. HPCL, having
obtained the benefit, in our view, ought not to have denied the claim.
The learned Judge, ought not to have therefore, rejected the claim , as
done in the present case.
ssm 26 app14.06gp-16.9.16.sxw
28 In view of above, there is no substance in the submission
of HPCL that the learned Arbitrator was not the General Manager Pipe
Line and the Arbitrator's assignment in the office had nothing to do
with laying and/or design with the Pipe Line. Having once appointed
the expert Arbitrator, who was General Manager (Engineer and
Projects), his expertise assessment ought not to have been discarded
in such fashion.
The observation referred and relied upon by HPCL,
made by the Arbitrator, that the damages occurred due to wrong
handling of the pipes by the claimants and the other companies like
BPCL and IOCL were also using such CTE pipes. The learned Judge
while setting aside the award has not dealt with the subject precisely
as sought to be submitted by the learned counsel appearing for HPCL.
The reasons cannot be added first time in the written submission
before the Appellate Court. The reasons, if not recorded by the
learned Single Judge while setting aside the award on this claim,
which itself, is a factor to interfere with the award. The non-
consideration and/or not providing the reasons to set aside the
expert's opinion/reasons of the Arbitrator and the submission so
ssm 27 app14.06gp-16.9.16.sxw
made, this itself is an additional factor to interfere with the award.
There should have been clear reasoning, as sought to be contended by
HPCL in Appeal, before setting aside the award for want of reasons.
The rejection of claim by the learned Single Judge, so awarded by the
Arbitrator, therefore, requires an interference. The amount awarded
by the Arbitrator, in the facts and circumstances, should have been
retained as HPCL has gained out from the said work done by L&T.
Claim No.4. Claim for additional work for tree cutting and sizing of
stem in Vizag port area-
30 So far as Claim No.4, the learned Arbitrator had awarded a
lump sum amount of Rs.2 Lacs for additional work for tree cutting and
sizing of stem in Vizag Port area, though the claim was of
Rs.2,40,724/-.
31 The learned Arbitrator, while awarding this claim by
keeping in mind Clause 5.2 whereby, it was obligatory on the part of
claimant (L&T) to comply with all the requirements of the authorities
at no extra costs to HPCL. It was held that -
ssm 28 app14.06gp-16.9.16.sxw
"it is to be understood that a contractor can only do work
which is reasonably expected out of him. Since the
requirement of grubbing the trees, sizing them in
accordance with a particular pattern and then having them
transported to a particular place resulted in some extra
work and efforts, I am inclined to award this amount".
32 The learned Single Judge, however, has rejected this claim
of amount of Rs.2 lacs for want of no evidence in support of such
claim by L&T. HPCL has also supported the order passed by the
learned Single Judge, even on this part. The L & T's submission is that
such work was part of the contract terms 4.4 (ROW clearing and
grading) for specification of pipe line construction. The extra work so
done was at the behest of the competent Authorities. The reasoning,
therefore, so given by the learned Arbitrator, by considering the nature
and requirements of the contract and as such by interpreting the
clauses, ought not to have been rejected. The findings, therefore,
given by the learned Judge of setting aside the claim, is required to be
reconsidered in the background of the litigation and the procedure,
which the parties have followed to proceed with the Arbitration.
Claim No.9.Claim for additional work involved due to issue of Optical
Fiber Cable of shorter length-
ssm 29 app14.06gp-16.9.16.sxw
33 So far as claim No.9 is concerned, the learned Arbitrator
had considered the claim of L&T whereby, the amount of
Rs.28,78,713/- was claimed for additional work involved due to issue
of Optical Fiber Cable of shorter length. It is clear from the record
that HPCL had given OFC of 2 kilometer length, but a small number of
1 kilometer length of OFC was given as the repeat station, are not
exactly at 2 kilometer distance. It is recorded even by HPCL that
actual cable required was found to be around 360 kilometers, hence,
about 180 number of joints should have been required. However, only
174 number of joints have been carried out by L&T. Having noted the
above facts and that resulted into additional costs, the learned
Arbitrator, being expert in field, keeping in mind the actual work,
additional work/expenses required to be incurred by L&T, had granted
Rs.15,10,000/-, though claimed more. Therefore, once the issue of
OFC shorter length is not in dispute, that resulted into increase in
joints and therefore awarded the amount, though not as per the
contract terms as observed, but for the fact of an additional costs, so
incurred and for the extra work done, this was also not the claim
which ought to have been rejected by the learned Single Judge on the
same foundation of no evidence and/or any evidence. The additional
ssm 30 app14.06gp-16.9.16.sxw
expenses incurred, so referred above, because of supply of shorter
length of OFC, which the Arbitrator, being an expert person in the
field, realizing the actual additional expenses incurred, had restricted
the amount that, also ought not to have been interfered with by the
learned Single Judge. Merely because, HPCL on 15 July 1998,
rejected the claim of additional work, that itself, should not have
been the reason to deny the claim so awarded by the learned
Arbitrator in the background so referred above, specifically in the
recorded fact of number of joints, required to be carried out by L&T.
34 The Supreme Court, reiterated the principle of Section 34
of the Arbitration Act and the scope of Court to interfere with the
findings given by the Arbitrator. In the present case, as recorded
above, the expert Arbitrator in the field appointed by HPCL
themselves. The parties, as recorded, proceeded with the Arbitration
without leading any oral evidence and proceeded through their
respective representatives. The scope of Section 34 of the Arbitration
Act, in the present case, in view of the interference ought not to have
been made. ( Associate Builders Vs. Delhi Development Authority 7). It
is also settled that, another view even if possible, that should not have
7 AIR 2015 SC 620
ssm 31 app14.06gp-16.9.16.sxw
been the reason to interfere with the award. ( Union of India Vs. Moti
Enterprises & Anr.8).
Claim No.15- Claim for additional work executed in connection with
civil works for isolation valve near the station outside the battery
limits-
35 In claim No. 15, the Arbitrator has granted Rs.10,17,361/-
for additional work executed in connection with civil works for
isolation valve near the station outside the battery limits, as claimed
by L&T, based upon the material placed on record by them and
supporting facts and circumstances, so recorded by the Arbitrator.
36 Clause 10 of schedule of rates was read and referred by
the learned counsel appearing for HPCL and also submitted that the
entire scope of work, as shown in the diagram, is within the scope of
contract of L&T. The learned counsel read and referred even the
ground showing the scope of pipe line laying contract and pointed out
from their respective points of view, the issue about battery limits as
defined. The drawing shows, as contended by the learned counsel for
HPCL that the scrapper launcher from Vishakhapattnam dispatch
station to scrapper receiver station at Vijaywada receiving terminal.
8 2003 Arb.LR 229 (Bom)
ssm 32 app14.06gp-16.9.16.sxw
The Arbitrator's findings, after rejected the contention of the HPCL
that the civil work pertaining to isolation valve near the station would
be within the scope of work of the claimant and also within the
battery limits, it is observed that since the drawing shows that it is
outside the battery limits, they had to pay for this extra work. The
observation, which is relevant here, that there is no argument made
regarding the amount to be paid as claimed by L&T and therefore,
awarded the total amount as claimed.
37 The amount was awarded by the learned Arbitrator again
for the extra work done by L&T. There is no denial to the fact that the
extra work was done. The submission of HPCL is that the work in
question, was well within the contract as awarded to L&T within the
scope of work and therefore, there is no question of claiming extra
amount, was not accepted. The observation relied upon by HPCL and
as recorded by the learned Judge that, "the work was outside the
battery limits according to the drawing", is correct statement, but in
which context the statement so made was not considered. The
learned Judge, ought not to have re-appreciated the findings,
including the scope of contract and the payment so awarded by the
ssm 33 app14.06gp-16.9.16.sxw
learned Arbitrator for the extra work. (Associated Builders (Supra)
and Venkatesh Construction Company Vs. Karnataka Vidyuth
Karkhane Limited (Kavika)9.
Claim No.16-Claim for additional work for laying of pipeline for
Pullivagu Canal and Claim No.1-Claim for Additional work for canal at
Chainage 205 km (introduced by irrigation dept.)-
38 In claim No.16, L&T has also claimed for additional work
for laying of pipe line for Pullivagu Canal for Rs.4,67,425/-. This
claim is in any way, connected with claim No.1.
39 There is no serious issue that the claimant had to de-
mobilize, as instruction for anti-buoyancy measure was not given,
though, asked by letter dated 6 April 1997. HPCL could not deny this
de-mobilization of these resources. The claim was, therefore, for
incurring additional expenses. L&T had received the payment for laying
anti-buoyancy measure. The issue, therefore, is of laying and anti-
buoyancy measure, which have been paid in relevant items of SOR
specifically, when L&T denied the same and claimed for extra work. The
learned Arbitrator, after considering the rival contentions and the work
actually done for laying of pipe line, had opined that the Pullivagu is
9 2016(1) SCALE 409
ssm 34 app14.06gp-16.9.16.sxw
a canal crossing. This was also on the foundation that the permission
was required to be obtained from the Competent Authority for the
same and was the part of record. The issue, therefore, is canal
crossing or not, so raised by HPCL, also untenable. It was also
observed by the learned Arbitrator, that HPCL, while dealing with
Claim No.1, admitted indirectly that the claim amount of
Rs.4,67,245/- was reasonable. The learned Single Judge, ought not
to have interfered with the award so passed in favour of L&T. The
submission of prompt reply, in view of the findings given by the
learned Arbitrator, is of no assistance to interfere with the award so
passed. Here also, the additional work actually done was not in
dispute and so also the amount so incurred.
Claim No. 19 and Counter-Claim- Claim for release of Liquidated
Damages-
40 This claim No.19 is revolving around the contract clauses
of penalty and liquidated damages (LD). The relevant clause 10 of
penalty and other relevant clauses 2.18, 5.1, 7.1 are as under:-
"Clause 10: Penalty-
In case of delay in completing the work beyond the period
of contract the contractor shall be liable to pay penalty at
the rate of 0.5% of the total contract value for every week
ssm 35 app14.06gp-16.9.16.sxw
or part thereof of the delay subject to a maximum of 5% of
the total contract value. The penalty shall be recovered by
the Owner out of the amounts payable to the Contractor or
from the Guarantees or Deposits furnished by the
Contractor or the Retention Money retained from the Bills
of the Contractor, should the amount of penalty is not
recoverable or recovered in any manner in part or in full,
the same shall be payable by the Contractor on demand by
the owner with 24% p.a. interest till the date of payment."
"Clause 2.18:
The "Work" shall mean the works to be executed in
accordance with the Contract or part thereof as the case
may be and shall include extra, additional, altered or
substituted works as may be required for the purposes
completion of the work contemplated under the Contract."
"Clause 5.1: COMPLETION OF WORK AND COMPLETION
CERTIFICATE.
"As soon as the work is completed in all respects, the
contractor shall give notice of such completion to the site-
in-charge or the Owner and within thirty days of receipt of
such notice the site in charge shall inspect the work and
shall furnish the contractor with a certificate of completion
indicating:
a) defects, if any, to be rectified by the contractor
b) items, if any, for which payment shall be made in
reduced rates.
c) the date of completion.........."
"7.1 General:-
Commissioning of pipeline shall be considered completed
when the line is charged with the product at operating
ssm 36 app14.06gp-16.9.16.sxw
pressure after precommissioning is completed and the total
system operated at normal operating parameters for a
minimum period of 72 hours.
Contractor shall submit a detailed commissioning
procedure for company's approval."
41 The relevant findings of the Arbitrator to Claim No.19 are
as under:-
a) A deeper look at the entire facts reveals that though the
work was completed as per the contract only on 20
August 1998 (and there is no dispute on this), the
pipeline had been laid and given for charging of
water/product on 10 May 1998 and so charged with
water and then product on 11 May 1998.
b) However the Respondent's main requirement of
petroleum transportation, through pipe line was
commenced/achieved on 11 May 1998 itself. The
Respondent could not suffered loss beyond that date.
c) I find that the delay committed by the Claimant is only
11 days.
42 Both the learned counsel read and referred their respective
ssm 37 app14.06gp-16.9.16.sxw
submissions from their perceptive. There is no issue that the time was
extended for various reasons, including the defaults of HPCL. There is
no issue that the penalty clause comes into the operation when there
is a delay in completing the work beyond the period of contract. The
learned Arbitrator while awarding the claim had given various
reasons. The basic reasons are -
a) I accept the case of the Respondent that the Claimant was
responsible for the delay in completion of the work even
by the extended date of completion.
b) Decision of the Consultant in regard to the extension is
final and binding and therefore, not arbitral.
c) The claimant accepted the completion certificate without
any demur or protest.
d) The actual work got completed on 20 August 1998 hence,
prima facie, the application of full liquidated damages by
the Respondent, at first glance looks correct.
e) The levy of penalty is as per Clause 10 of GTC and letters
dated 6 December 1997 and 23 April 1998, fully
supported the action of Respondent in levying penalty.
f) The Respondent also demonstrated the losses that are
ssm 38 app14.06gp-16.9.16.sxw
suffered by them on account of delay hence, there is
losses to the Respondent by various means including
ideal investment etc.
g) The contention of the claimant regarding waiver of
penalty, are not correct.
h) It may be technically correct that actual work was
completed in all respects as per the contract only on 20
August 1998, but the pipe line had been laid and given
for charging of water on 10 May 1998 and then product
on 11 May 1998. The Respondent could not have
suffered loss beyond that date.
i) The Respondent have shown that even if we assume the
delay of 10/11 days, they had suffered loss in excess of
the entire liquidated damages amount.
j) After holding at above, the learned Arbitrator states
"Thus I find and hold that delay committed by the
Claimant is only 11 days and I also find that the damages
are proved by the Respondent far in excess of the liquidated
damage amount and hence, I hold and award that the
Respondent is entitled to levy only 1% of the contract value
ssm 39 app14.06gp-16.9.16.sxw
as liquidated damages and balance 4% of the contract
value must be returned to the Claimant".
k) The Respondent is directed to pay back to the claimant a
sum of Rs.2,01,60,000/-.
43 The learned Single Judge, so far as this claim is concerned
as there was no proper ground raised by HPCL in the Petition and as it
unable to challenge the findings of facts, except by making allegations,
has maintained the award passed by the learned Arbitrator. The
learned counsel appearing for L&T, therefore, supported this part of
the award by relying on Hudson's on Building and Engineering
Contracts-Eleventh Edition and ONGC Vs. Saw Pipes.10 The learned
counsel appearing for HPCL however, challenged this part of the order.
44 HPCL submitted that LD clause is applicable only if there is
a delay in completing the work beyond the period of contract. The
work was completed on 20 August 1998, as pre-contract the pre-
commissioning was done on 11 May 1998, by charging water on 10
May 1998, and for product on 11 May 1998. HPCL has submitted
their evidence before the learned Arbitrator that there was only 10/11
10 2003(51)-ARBLR-5-SC
ssm 40 app14.06gp-16.9.16.sxw
days delay and they had incurred losses to the extent of Rs.2.52
crores. Therefore, the learned Single Judge, as well as, the Arbitrator
could not have awarded this claim for liquidated damages. This is in
the background that the Engineer-in-Charge has given a detail analysis
and assessed the quantum and hence his decision ought to have been
treated as final and binding. The Arbitrator had no jurisdiction to
decide and reassess the issue. We are not inclined to accept the
submission of HPCL, as the learned Single Judge has upheld the
reasons and the award so granted by the learned Arbitrator, by
accepting the findings given by the learned Arbitrator about the
pipe line so charged with the product on 11 May 1998, was
factually incorrect.
45 The learned counsel appearing for HPCL tried to
distinguish the Judgments cited by the learned counsel appearing for
L&T, mainly on the ground of clause 5.j.4 - the contract terms
whereby, the decision being final and binding and therefore, not
arbitrable. For the reasons already noted that such disputes are
arbitrable and therefore, rightly considered by the learned Arbitrator
and the learned Single Judge. We see there is no reason to interfere
ssm 41 app14.06gp-16.9.16.sxw
with the same, as this part of award is well within the framework of
law and the record.
Claim No.21- Claim for release of disputed rebates under the Contract.
(3 Items):-
46 Claim No.21 consists of 3 items for release of disputed
rebates under the contract. The Arbitrator's findings in this regard of
Item Nos. (i), (iii) and (iv) are as under:-
Claim No.21, item No.(i)-
a) What has been found missing by the
Respondent/consultant is that they have not taken into
account the special nature of the E-7010 electrodes,
which were substituted for E-8010 electrodes.
b) These Electrodes, namely the E-7010 were not the
normal E-7010 electrodes but, having 77,000 psi UTS.
Thus, this UTS was far above the normal base metal
UTS of 70,000 psi. Hence this aspect not having taken
into account, there really cannot be any price
differential between this E-7010 electrodes used in the
pipe line and E-8010 originally contemplated under the
ssm 42 app14.06gp-16.9.16.sxw
contract.
c) Hence the Respondent cannot maintain this rebate.
Claim Allowed Rs.6,48,013/-
Claim No.21, item No.(iii)-
a) I find that while it may be contractually correct to seek
a rebate, it can be seen that the deletion of this item
was by the Respondent to expedite the commissioning.
b)
The Claimant had mobilized and got ready.
c) They would certainly have incurred expenses in
mobilizing and readiness for swabbing.
d) Even though the work was deleted, the Claimant has
incurred some expenditure.
Claim Allowed Rs.3,60,280/-
Claim No.21, item No.(iv)-
Having considered the above documents and the stand
taken by the parties, I find that such a deduction is not
in the proper spirit of the contract.
Claim Allowed Rs.60,71,920/-
ssm 43 app14.06gp-16.9.16.sxw
47 The learned Single Judge accepted HPCL's submission that
the decision of the Engineer-in-Charge is final and therefore, the
Arbitrator has no jurisdiction to interfere with the calculation made by
the Engineer-in-Charge. The Arbitrator was duty bound to make the
award in accordance with the contract. There was no question of
making an equitable consideration. The learned Judge, therefore,
rejected the award granted in favour of L&T, solely on the ground that
it is not arbitrable.
48 The submission made by the learned counsel appearing for
L&T with regard to item No.(iii) is made in support of the award of
claim of all these items by the Arbitrator. The same arguments and
the Judgments so cited read and referred, with submission to retain
the order passed by the learned Arbitrator. This is again on the
foundation that L&T had incurred extra expenses in mobilization. The
deletion of item, at the instance of Respondent HPCL to accept the
commission was not in dispute, therefore, the claim so made cannot
be stated to be beyond the contract.
ssm 44 app14.06gp-16.9.16.sxw
49 We are inclined to observe that the Arbitrator had
not gone beyond the contract and he had to adjudicate this
claim as consultant. The Arbitrator had taken note of the
special nature of E-7010 electrodes, which was substituted for E-
8010 electrodes. The price difference, so recorded by the learned
Arbitrator, is required to be maintained. There was no reason
to interfere with the expert's decision on the same. The
decision of the learned Single Judge, therefore, in this claim is
unsustainable.
Scope and Power of Court under Section 34 of the Arbitration Act-
50 The Judgments cited by the learned counsel appearing for
L&T in support of their submissions revolving around Section 34 of
the Arbitration Act and some of them are recent Supreme Court
Judgments, reiterating the law on the subjects are also distinguished.
51 As the issue is settled and re-iterated by the Apex Court
and, therefore, being principle of law, we are inclined to reproduce the
ssm 45 app14.06gp-16.9.16.sxw
same for deciding the present Appeals.
52 In Navodaya Mass Entertainment Ltd vs. I. M. Combines 11,
it is observed as under:-
"8 In our opinion, the scope of interference of the
court is very limited. Court would not be justified in
reappraising the material on record and substituting its
own view in place of the arbitrator's view. Where there is
an error apparent on the face of the record or the
arbitrator has not followed the statutory legal position,
then and then only it would be justified in interfering
with the award published by the arbitrator. Once the
arbitrator has applied his mind to the matter before him,
the court cannot reappraise the matter as if it were an
appeal and even if two views are possible, the view taken
by the arbitrator would prevail - see Bharat Coking Coal
Ltd. v. L.K. Ahuja, [2004] 5 SCC 109; Ravindra &
Associates v. Union of India, [2010] 1 SCC 80; Madnani
Construction Corporation (P.) Ltd. v. Union of India ,
[2010] 1 SCC 549; Associated Construction v.
Pavanhans Helicopters Ltd., [2008] 16 SCC 128 and
Satna Stone & Lime Company Ltd. v. Union of India,
[2008] 14 SCC 785."
53 Recently, in Associate Builders (Supra), the Apex Court has
elaborated those principles in following words:-
"15. This Section in conjunction with Section 5 makes it
clear that an arbitration award that is governed by part I
of the Arbitration and Conciliation Act, 1996 can be set
aside only on grounds mentioned Under Section 34(2) and
(3), and not otherwise. Section 5 reads as follows:-
11 (2015) 5 SCC 698
ssm 46 app14.06gp-16.9.16.sxw
"5. Extent of judicial intervention.-
Notwithstanding anything contained in any other
law for the time being in force, in matters governed
by this Part, no judicial authority shall intervene
except where so provided in this Part."
16 It is important to note that the 1996 Act was
enacted to replace the 1940 Arbitration Act in order to
provide for an arbitral procedure which is fair, efficient and
capable of meeting the needs of arbitration; also to provide
that the tribunal gives reasons for an arbitral award; to
ensure that the tribunal remains within the limits of its
jurisdiction; and to minimise the supervisory roles of courts
in the arbitral process.
17 It will be seen that none of the grounds
contained in Sub-clause 2(a) of Section 34 deal with the
merits of the decision rendered by an arbitral award. It is
only when we come to the award being in conflict with the
public policy of India that the merits of an arbitral award
are to be looked into under certain specified
circumstances."
"24 In DDA v. R.S. Sharma and Co., (2008) 13 SCC 80,
the Court summarised the law thus:
21. From the above decisions, the following
principles emerge:
(a) An award, which is
(i) contrary to substantive provisions of
law; or
(ii) the provisions of the Arbitration and
Conciliation Act, 1996; or
(iii) against the terms of the respective
ssm 47 app14.06gp-16.9.16.sxw
contract; or
(iv) patently illegal; or
(v) prejudicial to the rights of the parties;
is open to interference by the court under
Section 34(2) of the Act.
(b) The award could be set aside if it is contrary
to:
(a) fundamental policy of Indian law; or
(b) the interest of India; or
(c) justice or morality.
(c) The award could also be set aside if it is so
unfair and unreasonable that it shocks the
conscience of the court.
(d) It is open to the court to consider whether
the award is against the specific terms of
contract and if so, interfere with it on the
ground that it is patently illegal and opposed
to the public policy of India."
"29. It is clear that the juristic principle of a "judicial
approach" demands that a decision be fair, reasonable and
objective. On the obverse side, anything arbitrary and
whimsical would obviously not be a determination which
would either be fair, reasonable or objective."
"30. The audi alteram partem principle which
undoubtedly is a fundamental juristic principle in Indian
law is also contained in Sections 18 and 34 (2)(a)(iii) of the
Arbitration and Conciliation Act. ......"
"31. The third juristic principle is that a decision
ssm 48 app14.06gp-16.9.16.sxw
which is perverse or so irrational that no reasonable person
would have arrived at the same is important and requires
some degree of explanation. It is settled law that where:
(i) a finding is based on no evidence, or
(ii) an Arbitral Tribunal takes into account
something irrelevant to the decision which it arrives
at; or
(iii) ignores vital evidence in arriving at its decision,
such decision would necessarily be perverse."
"32. A good working test of perversity is contained in two
judgments. In Excise and Taxation Officer-cum-Assessing
Authority v. Gopi Nath & Sons (1992 Supp. (2) 312, it
was held (SCC p.317, para 7):
7. ...It is, no doubt, true that if a finding of fact is
arrived at by ignoring or excluding relevant
material or by taking into consideration irrelevant
material or if the finding so outrageously defies
logic as to suffer from the vice of irrationality
incurring the blame of being perverse, then, the
finding is rendered infirm in law."
In Kuldeep Singh v. Commr. of Police (1999) 2 SCC 10 :
1999 SCC ( L & S) 429, it was held: (SCC p.14 para 10)
"10. A broad distinction has, therefore, to be
maintained between the decisions which are
perverse and those which are not. If a decision is
arrived at on no evidence or evidence which is
thoroughly unreliable and no reasonable person
would act upon it, the order would be perverse.
But if there is some evidence on record which is
acceptable and which could be relied upon,
howsoever compendious it may be, the conclusions
ssm 49 app14.06gp-16.9.16.sxw
would not be treated as perverse and the findings
would not be interfered with."
"34 It is with this very important caveat that the two
fundamental principles which form part of the fundamental
policy of Indian law (that the arbitrator must have a
judicial approach and that he must not act perversely) are
to be understood.
Interest of India
35. The next ground on which an award may be set aside
is that it is contrary to the interest of India. Obviously, this
concerns itself with India as a member of the world
community in its relations with foreign powers. As at
present advised, we need not dilate on this aspect as this
ground may need to evolve on a case-by-case basis.
Justice
36. The third ground of public policy is, if an award is
against justice or morality. These are two different concepts
in law. An award can be said to be against justice only
when it shocks the conscience of the court. An illustration
of this can be given. A claimant is content with restricting
his claim, let us say to Rs. 30 lakhs in a statement of claim
before the arbitrator and at no point does he seek to claim
anything more. The arbitral award ultimately awards him
Rs. 45 lakhs without any acceptable reason or justification.
Obviously, this would shock the conscience of the court and
the arbitral award would be liable to be set aside on the
ground that it is contrary to "justice".
"42.3 (c) Equally, the third subhead of patent illegality is
really a contravention of Section 28(3) of the Arbitration
Act, which reads as under:
"28. Rules applicable to substance of dispute.-(1)-
ssm 50 app14.06gp-16.9.16.sxw
(3) In all cases, the Arbitral Tribunal shall decide
in accordance with the terms of the contract and shall
take into account the usages of the trade applicable to
the transaction."
This last contravention must be understood with a caveat.
An Arbitral Tribunal must decide in accordance with the
terms of the contract, but if an arbitrator construes a term
of the contract in a reasonable manner, it will not mean
that the award can be set aside on this ground.
Construction of the terms of a contract is primarily for an
arbitrator to decide unless the arbitrator construes the
contract in such a way that it could be said to be something
that no fair minded or reasonable person could do."
"59. The Arbitrator has dealt with this clause in detail
and has construed and applied the same correctly while
dealing with Claims 2, 3 and 4 and has obviously not
applied the said clause to Claims 9, 10, 11 and 15 as no
occasion for applying the same arose. The award cannot be
faulted on this ground."
"63. The appeal is, therefore, allowed and the judgment of
the Division Bench (DDA V. Associate Builders, 2012 SCC
OnLine Del 769) is set aside. The judgment of the Single
Judge [DDA V. Associate Builders, OMP No. 304 of 2005,
Order dated 3-4-2006 (Del)] is upheld and consequently,
the arbitral award dated 23-5-2005 is as a whole upheld.
There will be no order as to costs."
The Award can be modified by applying even doctrine of severability:-
The issue about the Power of Court to modify the award by
applying the doctrine of severability is settled. The learned Judge in
this case itself maintained the Award, in reference to claim No.19 but
ssm 51 app14.06gp-16.9.16.sxw
rejected the other claims and accordingly modified the award.
54 A Full Bench of this Court in R. S. Jiwani (M/s.) v. Ircon
International Ltd, Mumbai12 after considering the judgments of the
Supreme Court settled the issue that the award can be modified in
para 38 which reads thus:
"38 For the reasons afore recorded, we are of the
considered view that the dictum of law stated by the
Division Bench in the case of Ms. Pushpa Mulchandani
(supra) is not the correct exposition of law. We would
predicate the contrary view expressed by different
Benches of this Court for the reasons stated in those
judgments in addition to what we have held herein-
above. It is difficult to prescribe legal panacea which,
with regard to the applicability of the principle of
severability can be applied uniformally to all cases. We
find that the principle of law enunciated by us herein-
above is more in comity to object of the Act, legislative
intent, UNCITRAL Model Law and will serve the ends of
justice better. Thus, we proceed to record our answers to
the questions framed as follows:-
1. The judicial discretion vested in the court in terms of
the provisions of Section 34 of the Arbitration and
Conciliation Act, 1996 takes within its ambit power to
set aside an award partly or wholly depending on the
facts and circumstances of the given case. In our view, the
provisions of Section 34 read as a whole and in
particular Section 34(2) do not admit of interpretation
which will divest the court of competent jurisdiction to
apply the principle of severability to the award of the
Arbitral Tribunal, legality of which is questioned before
12 2010 (1) Mh. L. J. 547
ssm 52 app14.06gp-16.9.16.sxw
the court. The Legislature has vested wide discretion in
the court to set aside an award wholly or partly, of
course, within the strict limitations stated in the said
provisions. The scheme of the Act, the language of the
provisions and the legislative intent does not support the
view that judicial discretion of the court is intended to be
whittled down by these provisions.
2. The proviso to Section 34(2)(a)(iv) has to be read
ejusdem generis to the main section, as in cases falling
in that category, there would be an absolute duty on
the court to invoke the principle of severability where
the matter submitted to arbitration can clearly be
separated from the matters not referred to arbitration
and decision thereupon by the Arbitral Tribunal."
Admittedly, additional work done- entitlement for extra amount:-
55 Most of the claims of L&T, in the present case in hand, are
for the extra/additional work, than the work awarded. The amount so
claimed by L&T is for the costs of additional work so completed, under
the supervision of HPCL. The additional work as done is not in
dispute. The Arbitrator, therefore, based upon his experience and
knowledge of the nature of the work, awarded the lump sum amount
for such extra work. The main contention of HPCL throughout was, as
recorded by the learned Arbitral Tribunal and the learned Judge, and
even as per the submission made before this Division Bench, that
though extra/additional works was done, but same was within the
ssm 53 app14.06gp-16.9.16.sxw
scope and conditions of the main contract and therefore, there was no
question of extra payment, L&T was under obligation to perform these
additional part even if any, to complete the project in time. The
finding given by the learned Arbitrator with regard to the
additional/extra work based upon the material and the documents
placed on record, though no oral evidence was lead by the parties, as
agreed, the same ought not to have been interfered with by the
learned Judge, HPCL was aware of the fact of additional/extra work,
but to deny the payment for the same, in our view, was wrong.
56 It is held by the Supreme Court in Venkatesh construction
Company (Supra) that:-
"14 ..................When the evidence and material clearly
depict the change of nature of work involved and when
the extra work to be done was also admitted by DW-1,
parties cannot be expected to go for a revised
agreement/contract. Moreover, having regard to the
fact that the work was to be completed within a
specified time-frame, the parties cannot be expected to
go for a second round of negotiation and re-frame the
terms and conditions of the work. While so, the High
Court was not right in placing reliance upon Clause 11
of the contract to reverse the findings of fact recorded
by the trial court."
"16 The Appellate Court may not interfere with the finding
of the trial court unless the finding recorded by the
trial court is erroneous or the trial court ignored the
ssm 54 app14.06gp-16.9.16.sxw
evidence on record. The High Court reversed the
decree passed by the trial court without discussing oral
and documentary evidence and several grounds raised
before the trial court. The High Court veered away
from the main issue and went on to elaborate on the
law of arbitration and the mode of setting aside the
arbitral award under Section 34 of the Arbitration
Act, which in our view, was not warranted. Without
considering the oral and documentary evidence, the
High Court erred in interfering with the factual
findings recorded by the trial court and the impugned
judgment is liable to be set aside."
Conclusion:-
57 We are of the view that, therefore, in the present case, the
learned Judge ought not to have interfered with arbitration decision
on the findings of facts by interpreting the provisions of the contract
in the background of his special knowledge/expertise in the field. The
learned Judge's total rejection of the claim of additional work done, as
awarded by the learned Arbitrator is unjust and contrary to the
record. This is in the background, when HPCL is not in position to
content that no extra work was done by L&T. There is an error in the
impugned judgment to this extent of reversing the award for all the
extra works by stating it to be within the scope of the contract.
Considering the scope and purpose of Section 34 of the Arbitration Act
read with the power of learned Judge to interfere with the finding of
ssm 55 app14.06gp-16.9.16.sxw
facts, arrived at by the learned Arbitrator based upon the possible
agreed method to deal with the claims and by taking the reasonable view
by keeping in mind the nature of the work, based upon the contract,
ought not to have been quash and set aside. The learned Judge has
maintained the award of liquidated damages in the background itself.
Remand and Power of Appellate Court under Section 37 of the
Arbitration Act-
We have to keep in mind the scope and object of the
Arbitration while deciding the Appeal arising out of Judgment on
Section 34 Petition of the learned Single Judge, where the award
passed by the Arbitral Tribunal may be confirmed or reversed or
modified. The scope of Section 34has been elaborated. The Court, if
not to interfere with the decision given by the Arbitrator, unless there
is perversity and illegality, then the Appellate Court needs to test the
decision of the learned Judge if it is against the law (supra). We find
no perversity and illegality in the Award. There was no case to
interfere with the Award. We, therefore, inclined to remand the
matter to the learned Single Judge, as this will give an opportunity to
all to deal with the claims again, except the LD claim. There will be
fresh reasons on these remaining claims/decisions, so that the
ssm 56 app14.06gp-16.9.16.sxw
Appellate Court may re-consider it in accordance with law, if
necessary.
59 Resultantly, the following order:-
ORDER
a) Judgment and order dated 16 November 2005,
passed by the learned Single Judge is quashed and
set aside, except claim No.19. The order on Claim
No.19 is maintained.
b) The Arbitration Petition No. 449 of 2003 is restored
and remanded back to the learned Single Judge for
reconsideration. The learned Single to reconsider
the same within three months from today, in view
of above order/observation.
c) There shall be no order as to costs.
(G.S. KULKARNI, J.) (ANOOP V. MOHTA, J.)
