Calcutta High Court
Damodar Valley Corporation vs Bla Projects Pvt. Ltd on 13 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. 231 of 2024
Damodar Valley Corporation
Vs
BLA Projects Pvt. Ltd.
For the petitioner : Mr. K. Kejriwal, Adv.
Ms. Paramita Banerjee, Adv.
Mr. Tamoghna Chattopadhyay, Adv.
For the respondent : Mr. Jaydip Kar, Sr. Adv.
Mr. Suman Kr. Dutt, Adv.
Mr. S. Roy, Adv.
Mr. Debdeep Sinha, Adv.
Hearing concluded on : 08.08.2024
Judgment on : 13.08.2024
Sabyasachi Bhattacharyya, J:-
1. The present challenge under Section 34 of the Arbitration and
Conciliation 1996 (hereinafter refer to as "the 1996 Act) has been
preferred against the award dated August 14, 2021 passed in an
arbitral proceedings between the parties. BLA Projects Private Limited
(the respondent herein) was the claimant. Out of the seven heads of
claim, four were allowed by the learned arbitrator. Counter claims on
two counts made by the Damodar Valley Corporation (DVC), the
respondent before the learned arbitrator and the petitioner herein,
were turned down.
2. Learned counsel for the petitioner argues that the award is contrary to
the terms of the contract. As per the contract, DVC was entitled to
terminate the contract if the claimant/BLA indulged in corrupt and
fraudulent practices. The relevant clauses relating to termination were
Clause 15 of the General Terms and Conditions, Clause 17 of the
General Conditions of Contract (GCC), Clause 14 of the Annual Rates
Contract (ARC) and Clause 24.2.1 of the Additional/Special
Conditions of Contract.
3. It is argued that all the clauses are almost identical and permit
termination in the event of corrupt or fraudulent practices in
executing the contract. Some of the said clauses also contemplate
termination at the sole discretion of the DVC, albeit with a 60 days‟
prior notice. It is argued that the learned arbitrator erred in holding
that „corrupt‟ and „fraudulent‟ practice were intended to cover
malpractice indulged in by the contractor in the matter of
procurement of the contract only and not activity in performance of
the contract. Thus, the other conditions of contract were overlooked
by the learned arbitrator.
4. In the present case, the first notice of termination was issued, after
which the matter came up to this Court and upon a direction being
passed by this Court, a hearing was given to both sides and a
reasoned order was passed by the Executive Director of the DVC. The
said reasoned order granted liberty to the DVC to issue termination
notice. In pursuance thereof, the termination notice was issued,
contemplating forthwith termination.
5. It is argued that the learned arbitrator failed to take into consideration
all the provisions of termination under the agreement between the
parties and stuck to Clause 24.2.1 only, thus rendering the award
contrary to the terms of the contract and violative of Section 21(3) of
the 1996 Act.
6. Learned counsel for the petitioner next argues that the
claimants/respondent indulged in corrupt and fraudulent practice.
The relevant documents show that fraud was perpetuated by the BLA
(claimant). The unloaded coal was contaminated with mud. The
contaminated coal was loaded at the siding. The defence taken by the
claimant was heavy rain, due to which the coal allegedly got mixed
with the mud and soil at the loading point (kaccha point). Thus,
inferior quality of coal was mixed with extraneous materials, which
was admitted by the claimant, thus making the claimant liable for
termination of its contract. It is argued that contamination of coal is
an admitted fact in the reply dated June 5, 2018 by the claimant to
the show- se notice dated June 2, 2018 and even in the statement of
claims and the cross-examination of the Claimant‟s Witness (CW).
7. With regard to claim nos.1 and 2, pertaining to the Running Account
(RA) bills, the learned arbitrator erroneously directed payment of such
bills since the BLA had indulged in a corrupt and fraudulent practice.
Under Clause 13 of the Annual Rates Contract, the DVC is, in fact,
entitled to impose penalty for carrying stones, shortages and in
respect of quantity etc, which was required to be adjusted from the
running bills.
8. Further, the Engineer-in-Charge of the DVC was to pass the bills after
scrutiny and final bill was to be made payable only after the
reconciliation of the bills, outstanding penalties etc. at the end of the
contract period. The running bills in the present case were not
processed by the DVC in terms of the contract and have not been
proved by the BLA.
9. The BLA, it is argued, did not raise the bills in terms of the contract.
Learned counsel appearing for the petitioner submits that it is
preposterous to contend that the claim can be allowed even without
proof merely because the provisions of the Evidence Act are not
applicable.
10. Regarding claim no.3 in respect of bank guarantee, since the claimant
indulged in corrupt and fraudulent practice, it is argued that the DVC
was entitled to retain the security deposit and bank guarantee.
11. Claim no.5 in respect of loss of profits was also erroneously awarded
by the arbitrator, it is contended. It is argued by the petitioner that
the contract was for a period of one year whereas it had to be
terminated after about two months‟ performance. However, BLA has
been awarded loss of profit for the entire balance period of the
contract which amounts to specific enforcement of the contract which
is determinable at the will of the DVC with 60 days‟ notice.
12. Learned counsel appearing for the petitioner argues that the learned
arbitrator has allowed the claim on the basis of the affidavit evidence
of CW which contains self-serving statements. A certificate by a
Chartered Accountant (CA) was relied upon, which was not proved
properly because the CA did not depose as witness. Mere production
of the certificate of a CA is not proved enough, it is argued.
13. Learned counsel submits that Question No. 500 was put to the CW in
cross-examination and the witness agreed that he cannot testify to the
contents of the CA certificate. As the BLA was under a legal obligation
to prove its claim with credible and adequate evidence, failure to do so
of its part made the claim of loss of profits liable to be rejected. The
statement of the CW simpliciter could not be sufficient basis to allow
the claim.
14. In respect of loss of reputation (claim no.6), it is argued that the BLA
itself had breached the contract, resulting in termination and
invocation of bank guarantee, and no evidence was led to prove that
the claimant suffered any loss of reputation. The said claim was
awarded as a matter of course.
15. The rejection of the counter claims of DVC, it is argued, was on the
sole basis that termination was held to be wrongful by the arbitrator.
However, the contamination of coal in at least 3 tippers was admitted.
The learned arbitrator also ignored that there was evidence of shortage
in the transported coal which was evinced from the cross-examination
of the CW. There was admitted shortage of about 1700 MT of coal
which equals to 1.14% of the coal delivered to the DVC.
16. Under Clause 13 of the ARC, the DVC is entitled to impose penalty for
slippage, carrying stone, shortage and for quantity etc.
17. Learned counsel for the DVC place reliance on Delhi Metro Rail
Corporation Ltd. v. Delhi Airport Metro Express (P) Ltd reported at
(2024) SCC Online SC 522, Ssangyong Engineering & Construction Co.
Ltd. v. National Highway Aruthority of India (NHAI) reported at (2019)
15 SCC 131 and Associate Builders v. Delhi Development Authority
reported at (2015) 3 SCC 49 for the proposition that an award that is
contrary to the terms of the contract is perverse and should be set
aside.
18. In order to substantiate the argument that if there is a contractual
clause allowing termination without reason, even if termination is held
to be wrongful/invalid on the basis of another clause, damages must
be limited to the notice period under the clause of termination at will,
learned counsel for the petitioner cites Indian Oil Corporation. Ltd. v.
Amritsar Gas Service and Others, reported at (1991) 1 SCC 533.
19. It is also argued that award for loss of profit should be based on
credible and adequate evidence and should not result in the
windfall/unjust enrichment of the claimant. In support of the said
contention, learned counsel cites Unibros v. All India Radio reported at
(2023) SCC OnLine SC 1366, Batliboi Environmental Engineers Ltd. v.
Hindustan Petroleum Corpn. Ltd. reported at (2024) 2 SCC 375 and
Executive Engineer v. Modi Project Ltd reported at (2024) SCC OnLine
Jhar 115.
20. Learned senior counsel for the claimant/respondent BLA, on the other
hand, argues that the scope of Section 34 of the 1996 Act after the
2015 amendment is extremely limited. It is argued that none of the
grounds of the said provision have been made out by the DVC.
21. An arbitral award cannot be challenged on its merits, it is argued, as
the court exercising power under Section 34 does not sit in appeal
over the order of the arbitral tribunal.
22. The 2015 amendment to the 1996 Act further narrowed the grounds
for setting aside the arbitral award. In Associate Builders (supra), it
was reiterated that merits of the decision rendered by an arbitral
award cannot be gone into in a challenge under Section 34. Only
when the award is in conflict with the public policy of India that the
merits can be looked into.
23. The Supreme Court, in its landmark judgments such as Renusagar
Power Co. Ltd. V. General Electric co. reported at (1994) Supp (1) SCC
644, etc. set out what would constitute a conflict with the
fundamental policy of Indian law, which is a sine qua non for an
award to be in conflict with the public policy of India.
24. It is argued that none of the said conditions are satisfied in the
present case. A possible view of the arbitrator on facts has necessarily
to pass muster as the arbitrator is the ultimate master of the quantity
and quality of evidence to be relied upon at the time of delivering the
arbitral award.
25. Learned senior counsel for the claimant next argues that in
Ssangyong Engineering (supra) it was recognised that the public policy
of India means the fundamental policy of Indian Law and the previous
tests of Associate builders (supra) will no longer apply.
26. Patent illegality has also been introduced as a ground by the 2015
amendment Act, under sub-section (2-A) of Section 34. However, such
patent illegality must go to the root of the matter and not amount to
mere erroneous application of the law.
27. The concept of patent illegality following the 2015 amendment has
been explained by the Supreme Court. Reappreciation of evidence is
specifically barred under the said ground.
28. Learned senior counsel next cites Patel Engineering Ltd. v. North
Eastern Electric Power Corporation. Ltd reported at (2020) 7 SCC 167
where a three-judge Bench of the Supreme Court dealt extensively
with the history of patent illegality as a ground for setting aside
domestic awards. The Supreme Court noted that the said ground is
available if the arbitrator‟s decision is found to be perverse or so
irrational that no reasonable person would have arrived at the said
decision.
29. In UHL Power Company Ltd. v. State of Himachal Pradesh reported at
(2022) 4 SCC 116, another three-judge Bench reiterated the settled
law that if there are two plausible interpretations of the terms and
conditions of the contract, the learned arbitrator can proceed to accept
one, which would not be interfered with under Section 34, unlike the
normal appellate jurisdiction.
30. Learned counsel next takes the court through the provisions of
termination of contract and argues that fraudulent or corrupt practice
as defined under the contract does not include contamination of coal,
which has been correctly explained by the learned arbitrator in his
award.
31. Learned senior counsel for the claimant/respondent submits that no
admission as to breach of contract has been made by the claimant in
any of its letters/documents, contrary to the arguments of the present
petitioner. In the two letters dated June 5, 2018 and June 29, 2018,
the respondent had only stated that the alleged incident of mixing of
mud with coal was due to circumstances beyond the control of the
respondent and that the contract contemplated such situation up to a
percentage. Mixing beyond the same might attract penalty if it is
found to be beyond the permissible level. The context of its admission
has been explained by the respondent in course of the arbitral
proceedings.
32. The view expressed by the learned arbitrator, being a plausible view
on appreciation of evidence, ought not to be interfered with under
Section 34.
33. With regard to the alleged corrupt/fraudulent practice, the
respondent argues that the DVC did not refer to any particular
phenomenon but to a sequence of isolated disjointed events. A single
test report of coal sample analysis has been produced by the
petitioner which indicates that coal was collected on June 2, 2018 but
was tested as late as on September 29, 2019, that is, after the first
sitting of the arbitrator, which palpably makes it clear that the same
was an afterthought.
34. Even the GCV (Gross Calorific Value) of coal was shown in the report
to be 3894. In a reply to a query made by the respondent under the
Right to Information Act, the DVC had admitted that the GCV of coal
received at the plant for the period April 2017 to December 2017 and
September 2018 was less than GCV 3894. Therefore, the quality of
coal received in the three tippers on June 2, 2018, by no stretch of
imagination, can be called "contaminated". If DVC could run the
Raghunathpur Thermal Power Plant with coal of GCV less than 3894
for the period from April to December 2017 without any complaint
and/or allegation of contamination, it is argued that it did not have
any case of contamination in respect of the test result of coal sample
with GCV 3894.
35. In the Statement of Claims, the claimant had also challenged the
order dated September 5, 2018 passed by the Executive Director
(Projects) of the DVC, in support of which various grounds and
pleadings were made. Upon considering the same, the learned
Arbitrator arrived at his findings and such appreciation of evidence
cannot be reopened under Section 34 of the 1996 Act.
36. Regarding the claim on account of unpaid RA Bills, that is, Claim No.
1, learned senior counsel for the claimant/respondent argues that the
works performed by the respondent had duly been certified by the
SDE (M) FM and SE (M) FM of the DVC. Despite the same, the DVC
released only a part of the claim, to the tune of Rs. 2,22,96,973/-,
withholding a sum of Rs. 3,38,31,962/- in violation of the contract.
DVC also failed to make out any case of short supply before the
learned Arbitrator. The learned Arbitrator, upon considering the
pleadings, RA Bills and the evidence on record, elaborately discussed
the same and rightly allowed the claim in favour of the claimant.
37. The respondent submits that the Claim No. 3 related to wrongful
invocation of bank guarantee. Since the termination of the contract
was held to be illegal and wrongful, the said claim was rightly allowed
by the Arbitrator.
38. The award on Claim No. 5 on account of the loss of profit, it is argued,
was justified. Oral evidence was adduced to substantiate the claim of
twenty per cent of the unexecuted work. Coupled with the oral
evidence, a chart showing the break-up of the price quoted and
approved by DVC was also produced, to which there was no cross-
examination of the witness. Learned senior counsel places reliance on
A.E.G. Carapiet Vs. A.Y. Derderian, reported at AIR 1961 Cal 359 for
the proposition that if the case of the defendant is not put in cross-
examination to the witness of the plaintiff, it has to be construed that
the case of the plaintiff has been admitted. That apart, the award on
the claim on account of loss of profit is also justified by several
judgments of the Supreme Court, it is argued, which are as follows:
i) A.T. Brij Paul Singh Vs. State of Gujarat, reported at (1984) 4
SCC 59;
ii) Mohd. Salamatullah Vs. Govt. Of A.P., reported at (1977) 3 SCC
590;
iii) Dwaraka Das Vs. State of M.P., reported at (1999) 3 SCC 500;
and
iv) MSK Projects (I) (JV) Ltd. Vs. State of Rajasthan, reported at
(2011) 10 SCC 573.
39. Thus, it is argued that the present challenge ought to be dismissed.
40. The first issue which falls for consideration here is whether the
learned Arbitrator acted with patent illegality in holding that the
termination by the DVC of the contract between the parties was
unlawful.
41. In this regard, the petitioner relies on four termination clauses from
different parts of the contract between the parties. Clause 15 of the
Special Conditions of the Contract, under the head "General Terms
and Conditions", Clause 17 of the GCC, Clause 14 of the ARC as well
as Clause 24.2.1 of the ASCC, all provide for termination. However,
none of the clauses apart from Clause 24.2.1 contemplate forthwith
termination of the contract. The rest of the abovementioned clauses
envisage either 30 or 60 days‟ notice.
42. In the present case, admittedly, the termination was forthwith,
simultaneously with the issuance of the notice. Hence, in any event,
the other clauses are not applicable and, as such, the learned
Arbitrator was perfectly justified in focusing on Clause 24.2.1 as the
relevant termination clause. The germane provision of the said clause
was that for such forthwith termination, the contractor, in the
judgment of the employer, had to be engaged in corrupt or fraudulent
practices. However, such expressions "corrupt" and "fraudulent"
practices have been clearly defined in sub-clause (c) of Clause 24.2.1.
The expression "in competing for or in executing the Contract"
qualifies such practices. Hence, per se, it is evident that the said
practice, to be corrupt or fraudulent, had to pertain to competing for
or executing the contract.
43. "Corrupt practice" according to the said sub-clause means the
offering, giving, receiving or soliciting of anything of value to influence
the action of a public official in the procurement process or in contract
execution. The said clause, on the face of it, is not applicable even as
per the allegations of DVC.
44. "Fraudulent practice" is defined in the clause as a misrepresentation
of facts "in order to influence a procurement process or the execution of
a contract" to the detriment of the Employer and also includes
collusive practice among Bidders (prior to or after bid submission)
"designed to establish bid prices at artificial non-competitive levels and
to deprive the Employer of the benefits of free and open competition".
45. Hence, the fraudulent practice contemplated in the said clause
pertains ex facie to the stage of the tender process, till the execution of
the contract. In the present case, the claimant succeeded in the
tender process and was awarded a contract, pursuant to which it
worked for approximately two months. Thus, the applicability of
Clause 24.2.1 is ruled out at the outset.
46. The argument of the petitioner to the effect that the expression
"executing the contract" also means the performance of the contract is
specious. A comprehensive but plain reading of the said clause clearly
indicates that the entire fraudulent practice envisaged therein revolves
around the bidding process, in order to obviate artificial non-
competitive pricing which would curtail free and open competition.
The said practice, as envisaged in the clause, has to be for the
purpose of influencing a procurement process or the execution of a
contract.
47. It is to be noted that the conscious expression used in the said clause
is "execution of a contract" and not "execution of the work". Hence, by
no stretch of imagination can it be construed that the fraudulent
practice overreaches the stage of execution of the contract and
transgresses into the domain of performance of the contract.
48. As such, the learned arbitrator was perfectly justified in holding that
the termination itself was unlawful.
49. With regard to the RA Bills, the claimant is justified in arguing that
the work done was approved from the end of the DVC itself. Moreover,
the learned arbitrator elaborately discussed the evidence on such
issue at length and came to the conclusion that only two elements
needed to be considered, being the quantity of coal covered by the four
RA Bills and any other factor which may have a bearing in the process
and quantification, such as moisture content or purity in the coal.
When the quantity had been ascertained, it was held, one only had to
apply the rates as per MT as provided in the agreement.
50. The arbitrator took into consideration the fact that the DVC had paid
a substantial amount out of the said total claim upon verifying and
being satisfied that the stipulated procedure or process of claim had
been adhered to by the claimant. The arbitrator also considered that
if bills had been raised in a regular fashion it was open to the
respondent (DVC) to question the correctness of it but here,
apparently no contemporaneous objection was raised by the DVC
showing why that amount claimed was not payable.
51. The learned arbitrator recorded that he raised a query with learned
counsel for the DVC to furnish the DVC‟s version as to the quantity of
coal supplied by the claimant, preferably with a breakup, to which
counsel submitted, unless in consultation with the claimant effort is
made for reconciliation, it might not be possible to give a precise
amount. The arbitrator thus rejected such contention since the DVC
in the natural course of things must be presumed to be in possession
of all bills and relevant document relating to such supply.
52. The Arbitrator further considered several other aspects of the matter
including the statements contained in the affidavit of evidence of the
DVC‟s witness, one Gupta Bhaya. The claimant‟s counsel put a
question to him in the course of cross-examination that he was the
responsible person entrusted to oversee the operations in connection
with the transportation of coal, regarding quantity or quality. In such
context, it was observed by the arbitrator that the DVC was
deliberately withholding relevant evidence and adverse inference was
drawn against the DVC.
53. The third RA Bill, it was recorded by the learned arbitrator, was
virtually admitted by the witness Gupta Bhaya in answer to Question
Nos. 358-359 and the quantity supplied under the fourth RA Bill was
also similarly admitted, which was clear from perusal of the relevant
documents appearing at page nos. 7, 8, 9, 11 and 16 of the claimant‟s
Compilation of Documents placed before the learned arbitrator. The
arbitrator thus came to the conclusion that there was no question of
short supply and no justification, accordingly, for the DVC to withhold
the claims on the RA Bills.
54. Insofar as the loss of profit is concerned, the learned arbitrator also
entered into elaborate details and relied on a Chart, being Annexure -
„A‟ to the Annual Rate Contract (ARC), showing how the agreed price of
Rs. 369.179 per MT was calculated by taking into consideration the
break-up of charges for transportation, unloading of rakes and loading
of vehicles and liaisoning.
55. The break-up of price calculation read with the calculation shown in
Paragraph 8 of the affidavit of evidence of one Indrajit Roy Sarkar, who
adduced evidence for the claimant, were considered to hold that the
rate of profit of 20 per cent was established.
56. The explanation as to the calculation, it was observed by the learned
arbitrator, was further elaborated in Paragraph nos. 9, 41 to 44, 46 to
52 in his affidavit of evidence, which testimony was not cross-
examined with any meaningful purpose and remained unchallenged.
Upon such elaborate consideration of the evidence, the learned
arbitrator came to its conclusions regarding loss of profit.
57. With regard to Claim no. 6, that is, loss of reputation and goodwill, the
arbitrator looked into several aspects of the matter. Also, fact remains
that the continuing commercial relation between the parties since long
was uncontroverted. The work was awarded to the claimant, also
after checking the claimant‟s credentials during the tender process.
Moreover, since the termination was held to be unlawful, it would
obviously affect the future business and goodwill of the claimant,
since it is common business practice that prior termination in earlier
contracts is to be disclosed in every commercial tender. The qualitative
aspect and the principle on which loss of reputation was awarded in
favour of the claimant, thus, cannot be disputed. Insofar as the
quantitative aspect is concerned, a mere token Re. 1/- was awarded
under the said head and, as such, the said aspect cannot be gone into
at all.
58. Insofar as the counter claims of the DVC are concerned, the learned
arbitrator based his findings on the fact that the termination itself was
bad, for which the claimant was not entitled to such counter claims.
The arbitrator also considered that an amount of Rs. 284.97 Crore
was claimed for loss of earning revenue on account of loss of
generation of electricity due to alleged failure on the part of the
claimant to transport for the target quantity contemplated in the
contract. As the basis of such assessment, as recorded by the learned
arbitrator, the respondent/petitioner-DVC relied on an order of the
Central Electricity Regulatory Commission (CERC) dated September
28, 2017 which was passed in a matter to which the claimant was not
a party.
59. Also, since the termination itself was wrongful, it was held that no
fault could be attributed to the claimant for not performing the
contract for its full tenure.
60. Also, the learned arbitrator held that the loss alleged to be suffered
was too remote in the sense that likelihood of such loss was not within
the reasonable contemplation of parties when the agreement was
made.
61. On such elaborate discussion only, the learned arbitrator turned down
the counter claims.
62. Thus, it is amply clear that the learned arbitrator gave elaborate
reasons and delved into a detailed factual appreciation of the entire
evidence on record and came to his findings as befits a reasonable and
prudent man.
63. This Court, as is well-settled by the Supreme Court in the several
judgments cited by the parties including Associate Builders (supra),
Ssangyong Engineering (supra), Patel Engineering Limited (supra) and
UHL Power Company Limited (supra), cannot enter into a
reappreciation of evidence like a regular first appellate court, sitting in
a challenge under Section 34 of the 1996 Act. The limited window
which could have been invoked by the DVC is found in sub-section
(2-A) of Section 34, which makes patent illegality a ground for
challenge. However, such patent illegality has to appear on the face of
the award. Also, the proviso to the sub-section stipulates that an
award shall not be set aside on the said score merely on the ground of
an erroneous application of law or by reappreciation of evidence.
64. In the present case, I do not even find any erroneous application of
law, let alone any occasion to reappreciate the evidence. The
judgment of the Arbitrator is perfectly well-reasoned and supported by
cogent evidence and, as such, none of the grounds of challenge under
Section 34 of the 1996 Act are established.
65. There is nothing in the award to attract the grounds of contravention
of the fundamental policy of Indian law or to hold that it is in conflict
with the basic notions of morality or justice.
66. Hence, the present challenge under Section 34 of the 1996 Act is
entirely misconceived and accordingly must fail.
67. Accordingly, AP-COM No. 231 of 2024 is dismissed on contest without
any order as to costs, thereby affirming the award dated August 14,
2021 passed by the learned arbitrator in the arbitral proceedings
between the present parties.
68. There will be no order as to costs.
69. Urgent certified server copies, if applied for, be issued to the parties
upon compliance of due formalities.
( Sabyasachi Bhattacharyya, J. )
