Calcutta High Court
Union Of India vs Senbo Engineering Limited on 5 August, 2024
Author: Sabyasachi Bhattacharyya
Bench: Sabyasachi Bhattacharyya
In the High Court at Calcutta
Original Civil Jurisdiction
Commercial Division
The Hon'ble Justice Sabyasachi Bhattacharyya
AP-COM No. 208 of 2024
[Old Case No. AP No. 245 of 2021]
Union of India
Vs
Senbo Engineering Limited
For the petitioner : Mr. Satyendra Agarwal, Adv.
Mr. Subhankar Chakraborty, Adv.
Ms.Ruchira Manna, Adv.
For the respondent : Mr. Dhruba Ghosh, Sr. Adv.
Mr. Nilay Sengupta, Adv.
Mr. Sujit Banerjee, Adv.
Mr. Altamash Alim, Adv.
Ms. Ananya Barik, Adv.
Hearing concluded on : 15.07.2024
Judgment on : 05.08.2024
Sabyasachi Bhattacharyya, J:-
1. The Union of India, through the General Manager of the Metro
Railway, has filed the present challenge under Section 34 of the
Arbitration and Conciliation Act, 1996 (hereinafter referred to as "the
1996 Act‟‟) against an award whereby several monetary claims of the
claimant/respondent were allowed.
2. Learned counsel for the petitioner argues that the three-member
Arbitral Tribunal decided on the validity of termination of the contract
of the claimant despite such relief having not been sought by the
claimant in its statement of claim. That apart, termination falls under
the „excepted clauses‟ of the contract and thus, could not have been
adjudicated upon by the Tribunal.
3. Claims 1, 2, 3, 7 and 8, which were all allowed, are excepted matters
as per Clause 63 of the General Conditions of Contract (GCC). While
determining claim no.1, the Tribunal went into the veracity of
measurements and based its award on the basis of such
measurements, which falls within the excepted clauses as well.
4. The contract between the parties specifically states that no interest is
payable, despite which, under claim no.11, the Tribunal granted
interest to the claimant. It is argued that, as per Section 31(7) of the
1996 Act, interest cannot be granted unless agreed upon, which
agreement is absent in the present case.
5. The matter of measurement with regard to the bills/termination owing
to default of contractor falls under Clause 62, which is also one of the
excepted matters under Clause 63 as per learned counsel for the
Railways.
6. Despite there being disputes regarding payment of bills, the claimant
could simultaneously have continued the work within the provisions
of the contract between the parties. Clauses 39(1) and 39(2)
contemplate rates for extra items of work and Clause 43(1) deals with
monthly statement of claims. However, without availing of the same
and despite being given repeated opportunities, the claimant
abandoned the work midway, for which the termination took effect in
accordance with law and the contract.
7. Although there were no monthly claims under Clause 43(i), the
Tribunal went on to allow the claims of the claimant.
8. Despite it being indicated in the award that there was some
duplication, the Tribunal went ahead to pass the award in favour of
the claimant. It was recorded by the Tribunal in paragraph no. 8.3.2
of the award that work was abandoned by the contractor.
9. It is next argued that new claims, which were not part of the original
claim, were allowed, which was contrary to the contract between the
parties. Whereas claims 1, 2, 3, 11 and 12 were not part of the
original claims, claim nos. 5, 6, 8, 10 were increased.
10. Clause 46(3) contemplates that on-account payments do not prejudice
the final settlement.
11. The Tribunal, while deciding the counterclaim of Railways, re-wrote
the contract between the parties contrary to the order passed on
November 17, 2017 in APO No. 507 of 2017 arising out of AP No.934
of 2017, an application under Section 9 of the 1996 Act. Vide order
dated January 15, 2020 passed in AP No. 491 of 2019, costs were
awarded, to be paid by the petitioner to the State Legal Services
Authority. However, the Tribunal adjusted the cost amount with the
counterclaim which, according to the petitioner, was illegal.
12. Learned senior counsel appearing for the claimant/respondent
submits that the Arbitral Tribunal interpreted the terms of the
contract which was within its domain and not susceptible to
challenge. Moreover, the views taken by the Tribunal were plausible
views and, merely because another view is possible, cannot be
substituted by such alternative view by this Court.
13. It is argued by the respondent that the claims allowed by the Arbitral
Tribunal do not fall within the „excepted‟ matters under Clause 63 of
the GCC.
14. The amounts awarded by way of compensation for wrongful
encashment of the Bank Guarantees are not „interest‟ within the
meaning of Clause 64(1)(iii).
15. Thus, it is argued that the present challenge ought to be dismissed.
16. The respondent argues that the impugned award was passed upon
hearing both parties and taking into consideration all the evidence
and arguments made by the parties.
17. Para 3.4 of the award records that both the claimant and respondent
presented themselves for the meeting and had stated that they were
satisfied with the full opportunity given to them to present their cases.
Hence, they cannot have anything further to stay. It is pointed out
that no application under Section 18 of the 1996 Act has been filed by
the petitioner alleging lack of proper opportunity being given to
present its case. Thus, such ground taken in the application under
Section 34 is an afterthought.
18. The pleadings in the Section 34 application, it is argued, are bald
allegations without any particulars. The tests of Section 34 are not
met, it is argued.
19. Learned senior counsel for the claimant/respondent cites Food
Corporation of India vs. Forbesganj Jagdish Mills Ltd. reported at
(2000) SCC OnLine Cal 612. In support of the proposition that the
Court, under Section 34 of the 1996 Act, is not sitting in appeal until
and unless the award is bad on the face of it and that the Arbitrator is
the best judge.
20. Learned senior counsel also cites National Highway Authority of India
vs. Gammon India Ltd. reported at (2014) SCC OnLine Cal 17407 for
the proposition that the Court cannot have a re-look into the
conclusion arrived at by the Arbitrator. If the Arbitrator interprets a
clause in a particular manner, the Court would not interfere with the
same, since it is not sitting in appeal.
21. It is not permissible for the Court to interfere with the Arbitrator‟s
view merely because another view would be possible. The Arbitrator, it
is argued, is the best judge of quality as well as quantity of evidence,
particularly since each of the three members of the Tribunal were well
experienced in such matters and were chosen by the parties
consciously due to their special knowledge in resolving disputes.
22. Again, it is argued that interpretation of contract is for the arbitrator
to decide and under law, the arbitrator is made the final arbiter
of disputes between the parties.
23. Learned senior counsel for the claimant/respondent next relies on
Sutlej Construction Ltd. v. State (UT of Chandigarh) reported at(2018) 1
SCC 718 for the proposition that the Court ought not re-appreciate
evidence as long it is not a case that the award is completely without
reason. The Court, in the said case, referred to Associate Builders v.
Delhi Development Authority reported at (2015) 3 SCC 49 in holding
that an award can be set aside if it shocks the conscience of the Court
and not when the Court things it to be unjust on the facts of the case.
24. The arguments regarding the claims falling within excepted matters, it
is contended, is baseless and speculative.
25. Learned senior counsel for the respondent next cites H.L. Batra and
Company vs. State of Haryana and another reported at(1999) 9 SCC
188 in support of the contention that additional claims filed by the
claimant pertaining to the contract do not enlarge the award contrary
to law and are within the terms of reference.
26. The Arbitral Tribunal, in paragraph 8.3.1 of the award, has rightly
decided regarding the ground qua termination of contract raised by
the petitioner in the present application under Section 34. It was
correctly observed by the Tribunal in paragraph 8.3.3 to 8.3.4 that the
Railways themselves seemingly created the circumstances for making
the contractor unable to perform; hence, the termination of the
contract was held to be without merit.
27. The Security Deposit was submitted by the respondent as a security
for the completion of work and since the contract was rendered
impossible to perform due to laches of the petitioner, there is no
reason why the said amount should not be released in favour of the
claimant/respondent.
28. Since the work could not be done owing to the petitioner‟s failure in
not handing over the encumbrance free site, delay in the execution of
the project is attributable to the petitioner and, as such, interest on
mobilization advanced was rightly directed to be paid in favour of the
claimant. The claimant/respondent cannot be made to suffer due to
laches of the petitioner.
29. Owing to massive delays caused by the petitioner, the Bank
Guarantees were extended, for which huge amount was incurred every
time by the petitioner. Had the Arbitral Tribunal acted reasonably and
unjustifiably, it could have allowed the claim of the respondent in
respect of the Bank Guarantees in its entirety. However, the Tribunal,
on proper evaluation of proof placed before it, allowed only such sums
as it deemed fit and proper.
30. Claim no.1(i) was allowed on admission of the Railways and claim
no.1(ii) is also based on statements of Railways regarding the
admitted Escalation Bill. Claim no.3 was for the principal amount of
Bank Guarantees which were illegally encashed after termination of
the contract and claim no.7 is in respect of interest wrongfully
charged by the petitioner on mobilization advance even after original
tenure of the contract, although the contract was not terminated due
to any fault of the respondent. It is thus, submitted that the present
challenge ought to be dismissed on merits.
31. Upon hearing learned counsel for the parties, the Court comes to its
conclusions as follows:
32. The Supreme Court, in Sutlej Constructionltd (supra), has amply laid
down the contours of interference under Section 34 of the 1996 Act. In
such a challenge, there cannot be any interference when the award is
reasonable and on the basis of a plausible view. Re-appreciation of
evidence cannot normally be done and when it comes to setting aside
of an award under the public policy ground, the award should shock
the conscience of the Court. Merely because the Court thinks it unjust
on the facts of the case, it cannot substitute its view for that of the
Arbitrator to do what it considers to be justice.
33. In H.L. Batra (supra), the Supreme Court also laid down the scope of
arbitration where an award is set aside and a new arbitrator is
appointed for settling of disputes. In such circumstances, it was held
that the second Arbitrator‟s scope was not confined only to those
claims which have been originally filed before the first Arbitrator.
34. Although the ratio of Sutlej Construction ltd (supra) is applicable, H.L.
Batra (supra) has no application since in the present case, the
question is not merely whether new claims can be made but whether
there was a bar in making such new claims under the contract.
35. Clause 64(1)(ii) of the agreement between the parties provides that the
demand for Arbitration has specified the matters which are in
question or subjected to the dispute or difference as also the amount
of claim item wise. Only such disputes or differences in respect of
which the demand has been made, together with counter claims or
set-off, shall be referred to arbitration and other matters shall not be
included in the reference.
36. Thus, it is not a general case, as was being considered in H.L. Batra
(supra), where additional claims can always be incorporated later on.
The very Arbitration Clause on the strength of which the disputes
between the parties was referred in the instant case to arbitration,
that is, Clause 64, in sub-clause(ii), restricts additional claims to be
made later on. If the Arbitral Tribunal derives powers from the self-
same contract, it was not for the Tribunal to go beyond the agreement
itself, as the parties themselves have chosen the procedure to be
followed. Under Section 19(2) of the 1996 Act, the parties are free to
agree on the procedure to be followed by the Arbitral Tribunal in
conducting its proceedings. Since the parties chose to exclude
subsequent additional claims, the tribunal was bound by the same.
37. In the present context, insofar as claim no.1(iv), claim no.4, claim
no.5, claim no.6 , claim no.9 and claim no.10 are concerned, since the
Arbitral Tribunal did not grant any award to the claimant/respondent,
the said claims are not being dealt with, being beyond the subject-
matter of the present challenge.
38. Claim no.1(i) was granted by the Tribunal. In paragraph 9.1.1.4 of the
award, the respondent/present petitioner was directed to release an
amount of Rs. 1,20,09,342-/ to the claimant under the head of
amount withheld on CC/30th/Account Bill. Although disputes as to
measurement are precluded from arbitration, falling within Clause
22(5), which is one of the excepted clauses, while granting claim 1(i),
the Tribunal based its award on the measurements of the petitioner-
Railway itself. As such, there could not be any fault found with such
adjudication, as the Tribunal did not enter into the merits of the
measurements but relied on the measurements of the Railway itself.
39. Insofar as the award on claim 1(ii), as incorporated in paragraph
9.1.2.3 of the award is concerned, the same was on the basis of the
admitted 7th(final) Escalation Bill. It being an admitted position and
no adjudication on merits being entered into, the premise of the said
component of the award cannot be faulted either on the same logic.
40. Under claim 1(iii) of the claimant relating to the CC/31stOn Account
Bill, the Tribunal observed that an amount of Rs 1,12,69,519/-was
recoverable from the claimant against the final bill. Apart from the
said verdict going against the claimant/respondent, the same was
based on detailed calculations, a summary of which was given in the
award. Hence, the said component of the award cannot be interfered
with at all at the instance of the respondent-Railway.
41. Coming to claim 2, the same pertained to recovery of Security Deposit,
as retention money from the claimant's On Account Bills, for
Rs. 10,48,723/-.The entire claim was granted by the Tribunal. The
logic behind the same was furnished in paragraphs 8.3.1-8.3.4 of the
award. In the said paragraphs, the tribunal categorically entered into
the question whether the termination of the contract was proper and
justified. While holding so, the Tribunal observed that the Railways
themselves "seemingly created the circumstances" for making the
contractor unable to perform. Solely on such premise, the Tribunal
proceeded to declare the termination of contract to be without merit.
However, it is well-settled that the Arbitral Tribunal is a creature of
the contract between the parties. An arbitral tribunal is clothed with
its powers by virtue of the agreement between the parties and, thus,
cannot go beyond its charter as vested by the agreement, which is the
source of its powers.
42. The disputes and differences which can be referred to arbitration is
governed by Clause 63 of the agreement between the parties in the
present case, which specifically provides that the matters coming
within the ambit of exception clauses as mentioned therein would not
be arbitrable between the parties.
43. Such "excepted matters" include Clause 61(1) and Clause 61 (2), the
first of which pertains to the entitlement of the Railways to determine
and terminate the contract at any time should, in its opinion, the
cessation of work becomes necessary owing to the grounds mentioned
therein.
44. Sub-Clause (2) of Clause 61 provides for determination of contract
under sub-clause (1), in which case if the contractor claims payments
for expenditure incurred by him in the expectation of completing the
whole work, the Railways are to admit and consider the same.
45. However, the relevant clause here is Clause 62, which relates to
determination of contract owing to default of contractor. The said
clause also comes within the purview of "excepted matters". Under
sub-clause (vi) of Clause 62, abandonment of the contract is one of the
grounds of determination. Such determination falls within Clause 62,
which is an excepted matter in terms of Clause 63 which governs the
disputes arbitrable between the parties. More importantly, the
claimant never made any specific claim in the arbitral proceeding
challenging the termination itself.
46. The premise of the Railway retaining the security or retention money
was the termination of contract, upon which the Railway is entitled as
per the contract itself to retain the Security Deposit. Without
challenging the termination and despite the termination falling within
the cloak of protection of excepted matters under Clause 62 of the
agreement, the Arbitral Tribunal traversed palpably beyond its powers
in adjudicating on such issue.
47. Section 34 (2)(a)(iv) of the 1996 Act provides that an arbitral award
may be set aside by the Court if the award deals with a dispute not
contemplated by or not falling within the terms of the submission to
arbitration or if it contains decisions on matters beyond the scope of
the submission to arbitration. The proviso thereto stipulates that if the
decisions on matters submitted to arbitration can be separated from
those not so submitted, only that part of the arbitral award which
contains decisions on matters not submitted to arbitration may be set
aside.
48. Following such principle, the award on claim 2 is liable to be set aside.
49. The Railway has also challenged the award on claim 3, regarding
refund of Bank Guarantee, which has been dealt with by the Arbitral
Tribunal inparagraph9.3.7 of the award.
50. The Railway/petitioner argues that the same is a new claim, beyond
the purview of the original demand and, thus, falling beyond the scope
of arbitration under Clause 64(1)(iii). However, this Court fails to
satisfy itself on such count. The Bank Guarantees were by nature
performance guarantees and mobilization advance guarantees. The
furnishing of such Bank Guarantees was inextricably connected with
performance guarantee and mobilization advance, which directly
emanate from the dues of the claimant on the bills for work done.
They are not related to termination, since no clause in the agreement
links the retention of Bank Guarantee with termination. As such,
adjudication on such claim does not touch on the termination of
contract, which is an excepted matter.
51. Hence, the refund of the Bank Guarantees invoked by the
respondent/petitioner cannot be seen as a new claim but comes
squarely within the ambit of the original reference which touches
upon non-payment on bills raised by the claimant for work done.
Clause 61,sub-clauses (1) and (2) do not envisage forfeiture of Bank
Guarantee amounts in excess of Security Deposit on termination. The
Bank Guarantee amounts are not included within the Security
Deposit, forfeiture of which is linked with termination; thus, the
Arbitral Tribunal acted well within the confines of its jurisdiction in
awarding such amount. Since this Court is not sitting in a regular
appeal over the same, the factual adjudication of the Tribunal on
claim 3 cannot be interfered with even if a different view were to be
possible on the materials on record.
52. The next disputed question which arises is the award on claim 7,as
granted in paragraph 9.7.6 of the award.
53. The Railway/petitioner takes an objection on the ground that Clause
64(5) of the agreement between the parties provides that were the
arbitral award is for the payment of money, no interest shall be
payable on whole or any part of the money for any period till the date
on which the award is made. The Railway seeks to confuse the award
component on claim 7 with „interest‟.
54. However, the interest on mobilization advances which were sought to
be refunded under claim 7 were payments which had already been
made by the claimant to the Railways. The Arbitral Tribunal held that
the 12% interest already charged by the Railways beyond the original
completion date was without Authority and reduced the same to 5%
interest. The effect thereof was that the Railways had to refund the
balance amount after deduction of interest already paid to the
Railways at the rate of 12% from interest calculated at 5%.The net
effect of the said award-component is that an amount already
deducted in excess by the Railways was directed to be partially
refunded to the claimant.
55. As opposed to the interest envisaged in Clause 64(5) which is an
additional component of interest payable on an awarded amount,
claim 7 comprised itself of an award for payment of money, being
refund of excess interest already deducted from the claimant. Thus,
there is a clear distinction between claim 7, which comprises of a
direction to refund an amount already withheld by the Railway, from
an additional component of interest imposed on an awarded amount
by the Tribunal. In the present case, claim 7 did not comprise of any
additional interest component of an award granted by the Tribunal
but was itself a part of the principal arbitral award. Hence, such
objection of the Railway is specious and hereby turned down.
56. However, as far as claim 8 is concerned, as awarded in
paragraph9.8.4 of the award, the same is directly contrary to Clause
17A, sub-clauses (ii) and (iii) of the GCC. The said sub-clauses clearly
provide that no other compensation, apart from necessary extension of
time, shall be payable for works carried forward to the extended period
and that even if there was a failure or delay on the part of the Railway
to handover to the contractor possession of the lands necessary for
execution of the works, such failure/delay shall in no way affect or
vitiate the contract or entitle the contractor to damages or
compensation therefor, but in any such case, the Railway was to grant
such extension of the completion date as may be considered
reasonable.
57. Even in the teeth of such specific bar to extra compensation, the
Tribunal, under claim 8, precisely granted such compensation. Claim
8 was refund of commission paid to its bank by the claimant for
extension of Bank Guarantees from time to time beyond the original
contractual period.
58. It is to be considered that the extension beyond the original
contractual period was sought by the claimant itself and accordingly
granted by the Railway Authorities. After having asked for such
extensions and being granted the same, the claimant is squarely
covered by the bar under Clause 17A, sub-clauses (ii) and (iii) and
cannot be held to be entitled to further damages or compensation
therefor. The commission paid to the bank for extension of Bank
Guarantee was willingly paid by the claimant for seeking the
extensions and if such commission is also directed to be borne by the
Railway, the same would tantamount to additional damage or
compensation for such extension, which is palpably barred under
Clause 17A as discussed above.
59. In such view of the matter, the said component of the award is also hit
by Section 34(2)(a)(iv) of the 1996 Act, and thus ought to be set aside.
60. Lastly, claim 11 pertained to interest on the awarded amounts which
was granted by the Tribunal in paragraph 9.11.4 of the award.
However, Clause 64(5) of the GCC is a clear bar to grant of interest,
since it stipulates that where the arbitral award is for the payment of
money, no interest shall be payable on whole or any part of the money
for any period till the date on which the award is made. Hence, the
said component of the award is also vitiated by Section 34(2)(a)(iv) of
the 1996 Act. The claim of interest being barred by the same
agreement which clothes the Arbitral Tribunal with the power to
adjudicate, the said bar had to be adhered to by the Tribunal. The
interest component granted in the teeth of the bar was clearly violative
of the contract between the parties and, being covered by the „excepted
matters‟, was beyond the scope of arbitrable disputes as envisaged by
the agreement between the parties.
61. In view of the above, insofar as the awards pertaining to claim nos.2,8
and11 are concerned, those being beyond the scope of submission to
arbitration and containing decisions on matters beyond such scope,
are palpably violative of Section 34(2)(a)(iv) of the 1996 Act. Since
those parts can be clearly segregable from the rest of the award in
terms of the proviso to Section 34(2)(a)(iv), those components of the
award are liable to be set aside.
62. Accordingly, AP-COM No. 208 of 2024 [Old Case No. AP No. 245 of
2021] is allowed in part on contest, thereby setting aside the
impugned award of the Arbitral Tribunal insofar as is it relates to
claim nos. 2, 8, 11.
63. There will be no order as to costs.
64. Urgent certified server copies, if applied for, be issued to the parties
upon compliance of due formalities.
( Sabyasachi Bhattacharyya, J. )
