Union Of India & Anr vs M/S Samrat Press
2008 Latest Caselaw 1796 Del

     *IN THE HIGH COURT OF DELHI AT NEW DELHI

+                 OMP No. 367/2002

%                                   Date of decision : 03.10.2008

UNION OF INDIA & ANR                            ....... Petitioners
                         Through: Mr. A.K. Bhardwaj with Ms Jagrati
                                  Singh, Advocates

                               Versus

M/S SAMRAT PRESS                                ....... Respondent
                         Through:    Mr Shiv Khorana, Advocate.


CORAM :-
HON'BLE MR. JUSTICE RAJIV SAHAI ENDLAW

1.    Whether reporters of Local papers may
      be allowed to see the judgment?                 No

2.    To be referred to the reporter or not?          No

3.    Whether the judgment should be reported         No
      in the Digest?


RAJIV SAHAI ENDLAW, J.

1. Objections under Section 34 of the Arbitration and Conciliation

Act, 1996 have been preferred by the petitioner Union of India to the

award dated 27th June, 2002 as corrected on 10th October, 2002 of

Shri B.L. Nishad, Joint Secretary and Legal Advisor, Ministry of Law,

Justice and Company Affairs acting as the sole arbitrator.

2. The respondent was awarded the contract for one year from 9 th

May, 1993 for printing of Sainik Samachar Weekly Magazine. The

said contract was extended for one year on 23rd November, 1994 and

thereafter on 31st March, 1995 till 31st May, 1996. Disputes and

differences having arisen between the parties, the respondent

invoked the arbitration clause and Mr. B.L. Nishad aforesaid was

appointed as the sole arbitrator by the competent authority in the

Department of Legal Affairs vide order dated 21st September, 2001

and formal order for his appointment as sole arbitrator was issued by

the Secretary to the Government of India vide letter darted 3rd

October, 2001.

3. The respondent/claimant preferred claims under ten heads out

of which claim No.1 has been allowed, claim No.2 of interest has

been allowed at a rate lower than claimed by the respondent, claims

No.3 and 7 have been partly allowed. Claims No. 4 to 6 and 8 to 10

of the respondent were dismissed by the arbitrator. The respondent

has not preferred any objection against such dismissal and the

dismissal thereof has attained finality. The petitioner had also made

a counter claim for costs of proceedings which has also been

dismissed by the arbitrator and no objections have been preferred by

the petitioner with respect to the same and that has also attained

finality.

4. The petitioner has preferred objections against the claims

allowed and has also raised objections (i) that as per the agreement,

the arbitration was to be of the Director of Public Relations, Ministry

of Defence and the arbitration proceedings are thus vitiated; (ii) that

the award on the preliminary issues raised by the petitioner before

the arbitrator is without any reason whatsoever.

5. The objection that the arbitration proceedings are vitiated or

the award liable to be set aside for the reason of the arbitrator being

not as per the agreement between the parties is now no longer res

integra. The Division Bench of this Court in S.N. Malhotra & Sons

v Airport Authority of India (2008) IV AD (Delhi) 424 has held that

where the objection to the jurisdiction of the arbitrator as contained

in Section 16 is not raised before the arbitrator, a party is not

permitted to raise the same for the first time under Section 34. In

the present case no such objection was raised before the arbitrator

and it is now not permissible for the petitioner to raise the ground of

the arbitral tribunal being not in accordance with the agreement.

6. Even otherwise I find that the respondent applied to the

petitioner for the appointment of the arbitrator. It was open to the

petitioner to, at that time, appoint the Director, Public Relation as

the arbitrator. The petitioner did not do so and appointed its Joint

Secretary aforesaid as the arbitrator. The respondent made a claim

before the said arbitrator and the petitioner filed the reply and

participated in the arbitration proceedings without in any way

disputing the existence of the agreement for arbitration before that

forum. The respondent made the statement of claim before the

arbitrator and the petitioner by not controverting the jurisdiction of

arbitrator before whom claim was made, agreed to arbitration before

him, within the meaning of Section 7 of the Act. This objection of the

petitioner has no merit and is rejected.

7. The second objection is that the arbitrator did not record the

reasons for decision on the preliminary objections. A perusal of the

award shows that three preliminary objections were raised by the

petitioner before the arbitrator, i.e., of the claim being barred by

time; of the respondent being not registered under the partnership

Act and of the respondent having discussed and finalized its claims

in the meeting dated 6th November, 1997 and being not entitled to

make any other claim.

8. The arbitrator has, with respect to the preliminary objections

of limitation, held that the respondent/claimant demanded

arbitration on 21st February, 1997 and under Section 21 of the Act,

the arbitration commences on the date when the request as made by

the claimant is received by the respondent; that the petitioner herein

had released the security of the respondent only in May, 1998 and

thereafter the claim of the respondent having not been finalized the

claims are within limitation. Thus, it cannot be said that the

arbitrator has not given any reason for rejecting the preliminary

objection of the petitioner of limitation. It is significant that the

objection of the petitioner is not to the said reasoning being not in

accordance with law but only that no reason was given. The said

objection is not found to be correct. Even otherwise I have vis-à-vis

the claims of the respondent allowed by the arbitrator examined the

matter and do not find the reasoning given by the arbitrator on the

aspect of limitation to the contrary to law.

9. On the second preliminary objection of the petitioner of the

respondent being not entitled to the claim for the reason of being not

registered under the Partnership Act, the arbitrator has dismissed

the same holding that the respondent has produced the evidence by

filing the claims at serials No. 1 and 2 of its list of documents. Again,

the objection of the petitioner before this court of there being no

reasoning is found to be incorrect. The arbitral record was called for

before this court and I have perused the same and there is indeed on

record a list of documents having at serials No 1 and 2 thereof the

photocopies of the certificate of registration and of Form A under the

rules framed under the Partnership Act. Thus, the reasoning given

by the arbitrator for rejecting the second preliminary submission is

also not fallacious. The third preliminary objection of the petitioner

has also been dealt with by the arbitrator and dismissed with

reasoning. The arbitrator has found that the respondent in the

meeting held on 6th November, 1997 had not waived any of its

claims. The arbitrator has further reasoned that the respondent had

nowhere written down or recorded that besides the claims discussed

in the said meeting, it had no other claims. The arbitrator has

further reasoned that the respondent had in contemporaneous

correspondence, after the meeting dated 6th November, 1997,

requested for a decision on the balance pending issues also. Again

not only the third preliminary objection is disposed with reasons

which have not been challenged but the said reasons are plausible.

This court recently in Ircon International Limited

v Shri Krishna Trading Co. & Anr 2007(4) ARB LR 479 (Delhi) has

reviewed the legal position with respect to full and final settlement

and I do not find the award to be contrary thereto.

10. The next objection is to the claim No.1 of the respondent being

allowed by the arbitrator. The said claim was of Rs 8,01,299/- for

payment of the amounts illegally deducted by the petitioner from the

bills of the respondent. The same comprised of Rs 1,28,371/-

(wrongly recorded as 4,28,370/- in the award and subsequently

corrected as aforesaid) deducted during the year 1993-94 and the

sum of Rs 6,72,928/- deducted during the year 1995-96.

11. It was contended in the objection/petition that no such dispute

was referred to the arbitrator and subsequently that the said amount

having been deducted towards liquidated damages in terms of the

agreement between the parties, the award for the said amount is

contrary to the terms of the agreement. The objection of the

petitioner that no such dispute was referred to the arbitrator is not

correct. The arbitrator was appointed to adjudicate the claims and

counter claims. The respondent preferred a claim/petition before the

arbitrator, a perusal whereof shows the respondent to have in paras

4 to 7 thereof made the claim for refund of the amounts illegally and

unjustifiably deducted from the payments admittedly due from the

petitioner to the respondent.

12. The arbitrator allowed the said claim for the reasons, that the

contract between the parties required performance of reciprocal

obligation and the respondent could not perform its obligations

without the petitioner first performing its part of the agreement; that

there was sufficient evidence that it was the petitioner which had

delayed in performance of its part leading to the delay in the

respondent in performing its obligations; that the petitioner had

failed to prove any loss owing to the alleged delays; that the wording

of the agreement shows that the deductions made were not a

genuine pre-estimate mutually arrived at between the parties; that

the petitioner without proving any loss was not entitled to any

damages or liquidated damages; that liquidated damages of 50% was

in the nature of penalty. The arbitrator thus allowed the claim of

deductions made from the payments due for the years 1993-94 and

1995-96.

13. Objection is raised to the aforesaid findings of arbitrator

relying upon the Judgment of ONGC v SAW Pipes Ltd (2003) 5 SCC

705. I, however find that, that case turned on the peculiar language

of the agreement in question in that case. This court also has in

Indian Oil Corporation v M/s Lloyds Steel Industries Ltd

2008(1) R.A.J. 170 (Del) after noticing ONGC (supra) held that

without damage/loss being proved, liquidated damages could not be

allowed and no fault could be found with the arbitral award for the

said reason.

14. Merely because the agreement provides for liquidated

damages and the award does not allow liquidated damages for the

reason of the interpretation of law by the arbitrator would not make

the award contrary to the agreement so as to have the same set

aside. The arbitrator is entitled to adjudicate legality or

interpretation of a term of the agreement and not bound to follow

the same literally. If the arbitrator by examining the legal effect of

the agreement holds the same to be not entitling the petitioner to

liquidated damages without proving loss or damage, the same does

not call for interference with the arbitral award. The purpose of the

1996 Act was to reduce / limit the challenge to the arbitral awards.

Of course, the Apex Court in ONGC (supra) has interpreted the new

Act also to mean that the court is empowered to set aside the award

if not in accordance with law. In my view, an arbitral award would

be in accordance with law, if the correct law is applied, even though

a wrong view or interpretation of the same has been taken.

15. In the facts and circumstances of the present case, the

principle of law required application of facts and even if in such

application of facts the arbitrator reaches a conclusion different from

the one which the court may reach, the same still does not call for

setting aside of the award. Only if, irrespective of the factual

application, the conclusion reached by the arbitrator under no

circumstance can be reached under the law, is in my respectful view

a ground under Section 34 of the Act for setting aside of the award

made out. In this regard, I may notice that ONGC (supra) had struck

a different note than the then prevalent law. It had been held by a

Constitution Bench of the Apex Court in Fateh Chand v Balkishan

Das AIR 1963 SC 1405 that a provision in an agreement for

liquidated damages did not ipso facto call for such damages to be

awarded and to be entitled to damages, loss and damages had to be

proved. The Apex Court in ONGC (supra), relying upon the peculiar

language in the agreement of the parties having arrived at a genuine

pre-estimate of the loss which shall be suffered for the reason of the

delay and further agreeing that assessment of such loss was difficult,

had held the parties to be bound by the same and upheld the award

of liquidated damages. Notwithstanding the said judgment, as in

Indian Oil Corporation (supra), the courts have, depending upon

the facts of the case continued to follow the Constitution Bench

judgment unless finding the language to be as in ONGC case. The

arbitrator in the present case also has noticed that the agreement

did not provide of the liquidated damages being a genuine pre-

estimate and held the petitioner to be not entitled to the same. Thus,

it cannot be said that the award on the said claim is contrary to the

law prevailing or for that reason contrary to public policy. As long as

a correct law is applied even if a wrong view of the same is taken,

the arbitrator being a judge chosen by the parties themselves is

empowered by the parties to finally decide the matter not only of fact

but also of law and this court does not sit in appeal over the award.

See Tribal Co-operative Marketing Development Federation of

India Ltd v Auro Industries Limited and Anr. 98 (2002) DLT 654

and Flex Engineering Ltd v Antartica Construction Co. and Anr

2007 (2) ARB LR 387 (Delhi). The award cannot be set aside even if

the decision appears erroneous. Even under the 1940 Act where the

scope of interference with award was much more, the Apex Court in

Tarapore and Company v. Cochin Shipyard Ltd., Cochin and

Anr AIR 1984 SC 1072 and U.P. Hotels and Ors. v. U.P. State

Electricity Board AIR 1989 SC 268 held that arbitrator decision on

a question of law is also binding even if erroneous and in P. V.

Subba Naidu and Ors. v. Government of A.P. & Ors (1998) 9

SCC 407 the Apex Court further held that courts are not right in

examining and interpreting the contract to see whether the claim

was sustainable under the contract. I, therefore, do not find any

merit in this objection also of the petitioner.

16. The claim No.2 of the respondent was for award of interest on

the amounts subject matter of claim but @ 23% per annum under the

provisions of Small Scale and Ancillary Industrial Undertakings Act,

1993. The arbitrator has, however, allowed interest at 18% per

annum only and that too from 1st June, 1996 to September, 2001. The

arbitrator having found the monies of the respondent to have been

illegally withheld by the petitioner, was fully justified in awarding

interest and no fault can be found with the award under the said

head. The counsel for the respondent has before this court also

sought interest @ 23% per annum relying upon Assam Small Scale

Ind. Dev. Corp. Ltd. and Ors. v. J.D. Pharmaceuticals and Anr

AIR 2006 SC 131 and M/s Kanhai Engineering (Towers) Pvt Ltd v

M/s Telecommunications Consultants India Ltd 2007(3) R.A.J.

60 (Del) and argued that this court should modify the award to

award interest @ 23% per annum. However, the respondent having

not preferred any objection in this regard, I am not inclined to

enhance the rate of interest. Even otherwise, in my view, in the last

few years, except recently, the interest rates have been falling and

the award of interest at 18% per annum is in consonance with the

prevailing laws.

17. The arbitrator has allowed the claim of the respondent of Rs

5,37,856/- for payment of bills for unprinted issues. The arbitrator

has reasoned that the petitioner had in the meeting on 6th November,

1997 agreed that these bills for incomplete work will be processed

subsequently but had not processed the same. The arbitrator did not

find any merit in the objection of the petitioner in opposition to the

said claim. Thus, being factual dispute, and nothing having been

shown of the same being contrary to the agreement, no case for

interference under Section 34 of the Act is made out. The Apex

Court in Arosan Enterprises Ltd. v. Union of India AIR 1999 SC

3804 held findings of arbitrator purely based on appreciation of

material on record cannot be interfered with. The last claim of the

respondent which has been allowed by the arbitrator is of interest

for the delay in the refund of security deposit. The agreement

between the parties does not provide for anything required to be

done prior to the refund of the security deposit. The arbitrator has

on facts found that the security deposit ought to have been refunded

in January, 1996 and further found the petitioner to have failed to

refund the same without any reason, inspite of repeated reminders of

the respondent and thus awarded interest at 18% per annum from

July, 1996 till February, 1998 when the security deposit was

refunded. The same also being a factual matter and nothing having

been shown of the same being contrary to any part of the agreement,

no ground for interference with the said part of the award is also

made out.

18. The arbitrator has further awarded interest @ 18% per annum

on the awarded amounts from the date of award till actual

realization. Following Krishna Bhagya Jala Nigam Ltd.

v G. Harischandra Reddy and Anr AIR 2007 SC 817 and Flex

Engineering Ltd (supra) I however modify this part of the award.

The respondent shall be entitled to interest from date of award till

realization @ 9% per annum

19. Thus, the petitioner having failed to make out a case under

Section 34 of the Act, the petition is dismissed, save for the

modification of rate of post award interest.

RAJIV SAHAI ENDLAW (JUDGE) October 03, 2008 M