Delhi High Court
M/S National Highways Authority ... vs Progressive Constructions Ltd on 3 April, 2017
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Reserved on : March 17, 2017
Pronounced on: April 03, 2017
+ FAO(OS) 242/2015
M/S NATIONAL HIGHWAYS AUTHORITY
OF INDIA ..... Appellant
Through Mr. Rohan Yadav, Advocate
versus
PROGRESSIVE CONSTRUCTIONS LTD ..... Respondent
Through Dr. Amit George, Mr. Swaroop George and
Ms. Rajsree Ajay, Advocates.
CORAM:
HON'BLE MS. JUSTICE INDIRA BANERJEE
HON'BLE MR. JUSTICE ANIL KUMAR CHAWLA
JUDGEMENT
INDIRA BANERJEE, J
1. This appeal under Section 37 of the Arbitration and Conciliation
Act, 1996, hereinafter referred to as the 1996 Act, for setting
aside a unanimous award dated 12.03.2013 passed by the
Arbitral Tribunal partly allowing the claims of the respondent,
Progressive Constructions Ltd.
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2. The appellant entered into a contract dated 12.08.1999 with the
respondent whereby the appellant awarded to the respondent the
contract work of four laning a section of National Highway
No.31 at the Punia-Gaya-Kota section.
3. The contract in question was a unit rate contract and the bid
documents contained a detailed document referred to as ‗Bill of
Quantities' which enumerated each item of work with the
estimated quantities to be executed by the respondent. The
respondent filled in rates against each item.
4. The appellant has pleaded that the tender conditions specifically
provided that the bidder would have to satisfy itself regarding the
site condition and no claim was to be entertained on the plea that
the information supplied by the employer, National Highway
Authorities of India (NHAI) was erroneous or insufficient.
5. According to the appellant, the purpose of such a condition was
that a bidder would be able to incorporate all possible costs of
work itemwise in its financial bid, taking into account the
conditions prevailing at the site, so that the appellant was not
unduly saddled with any claim in the future on the ground that
such costs were not foreseeable by the contractor.
6. According to the appellant, the other purpose of requiring the
bidder to fully acquaint itself with the geographical / climatic /
soil and other conditions at the site of the construction was that it
would be incumbent for the bidder to make a reasonable
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assessment of the costs which would be incurred by him in
execution of the work, by considering all relevant factors and the
bidders would have to make honest and real assessment of the
expenses likely to be incurred by it while calculating its financial
bid.
7. According to the appellant, the object behind incorporating such
a clause was to eschew practice amongst bidder of quoting lower
bid to procure the contract and later raising its claims on account
of an additional works. By the guise and subterfuge of underbid,
the bidder manages to procure the work by deliberately under
quoting but eventually the purchaser ends up paying much more.
8. The appellant contends that the respondent raised claims which
were nothing but an afterthought and none of the claims were
justified at all since everything had been accounted for in the
itemwise rates quoted by the respondent itself.
9. Disputes arose between the parties with regard to execution of
the contract. The respondent preferred claims to the Dispute
Review Expert (DRE) for decision. The parties also agreed to
extend the time for the DRE to give its decision.
10. In the meanwhile, the respondent invoked the arbitration clause
Nos.25.2 and 25.3 of the Conditions of Contract vide its letter
dated 19.03.2007 and the appellant issued letter dated
07.05.2007. The parties also agreed to extend the time of the
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DRE to give its decision, since no decision had been given,
within the time stipulated in clause 25.1.
11. An Arbitral Tribunal consisting of three members was
constituted on 21.06.2007 to adjudicate the disputes between the
two parties. The Respondent made seven claims before the
arbitral tribunal, which are as follows:
Claim No.1- Cost compensation for increased cost borne for use
of Pakur stone in structural concrete and bituminous work in
place of crashed coarse aggregate obtained from the river Rakhti
near Paina Kumari as source chosen by the claimant for
Rs.7,38,09,806.54 which was subsequently modified to
Rs.4,98,34,949.32, including escalation of cost.
Claim No.2- Cost compensation for well point system of
dewatering required to be undertaken for laying foundation of 4
number bridges below the foundation of the existing ones
amounting to Rs.60,61,221.50.
Claim No.3 Cost compensation for excessive cost of
embankment and sub grade construction owing to adverse soil
condition in Borrow area and site for amounting to
Rs.61,94,440.72 subsequently modified to Rs.72,84,566.82 in the
rejoinder.
Claim No.4- Cost compensation for premature recovery of
mobilization and machinery advance for Rs.20.71 Lacs
subsequently modified to Rs.16,27,284.00 in the rejoinder.
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Claim No.5- Cost compensation for idling of resources for
Rs.880.50 lakhs finally modified to Rs.8,30,64,451.00 in CH-30
submitted on 2.9.2011.
Claim No.6 Past interest on the amount held up @ 12.12 % per
annum amounting to Rs.8,12,11,349.13 pendente lite interest on
the amount withheld @ 18% p.a. from the date of reference of
the dispute to the arbitration till date of award and future interest
from the date of award till payment of the total awarded
amounting @ 18% p.a.
Claim No.7- Cost of arbitration for Rs.10 lakhs.
12. The Appellant filed its Statement of Defence referring to Clauses
of the agreement to demonstrate that all the claims raised by the
Respondent were contrary to the contractual clauses which had
been voluntarily and consciously agreed upon by the
Respondent.
13. The Appellant had also filed an Application under Section 16 of
the 1996 Act before the Arbitral Tribunal contending that the
claims made by the Respondent were barred by limitation. The
Arbitral Tribunal rejected the said Application by an order dated
17.01.2009.
14. The Arbitral Tribunal pronounced its Award on 12.03.2013
dismissing Claim Nos.1,4 and 7 of the Respondent and partly
allowing Claim Nos.2,3,5 and 6.
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15. The appellant submitted that the findings of Arbitral Tribunal
which have been upheld by the Ld. Single Judge were contrary to
the specific clauses of the agreement entered into between the
parties and were therefore irrational and perverse and against the
fundamental public policy of the land.
16. The claim-wise findings of the Ld. Arbitral Tribunal are as
follows:
(a) As regards Claim No.2 towards cost compensation for
well point system for dewatering, the Arbitral Tribunal
awarded an amount of Rs.58,61,222/- against the claimed
amount of Rs.60,61,221.50. The Arbitral Tribunal found
that while executing the work from the bridges, as the
ground water table was high and the site of the work was
situated within irrigated area with the founding strata
consisting of silt and fine sand creating adverse subsoil
condition, it could not be possible for the contractor to
control seepage and ground water flow by conventional
dewatering method of excavating a pit or trench deeper
than the foundation level dug beyond the foundation pit
and engaging pumps or adopting similar measures. As
such conventional methods of dewatering could result in
collapse of the foundation trench endangering the safety
of the existing bridges, traffic, men, materials and
machinery working in the site and therefore, the
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contractor adopted the well point technique of dewatering
for the laying of foundation of these bridges.
(b) The Arbitral Tribunal found that the subsoil condition
could not remain same and static permanently and it was
quite likely that the changes might occur with variation in
rainfall, lowering of groundwater level, minor irrigation
and such other measures taken. A difficult situation with
regard to pumping and dewatering in excavation of
foundation might always arise and could not be foreseen
beforehand with precision and more so with visual
inspection of the site and the correct assessment could
only be made after excavation of the foundation trench
and the contractor could not ascertain the magnitude of
the problem before doing this exercise.
(c) The Arbitral Tribunal also held that in Clause 304.5, the
Contract unit Rate for item of excavation of structure did
not provide for particular and specific system of
dewatering by well point system, which is a specialized
kind of work requiring adequate compensation
accordingly. The Arbitral Tribunal found that in this
clause in contract unit rate, provision has been made
towards compensation of operation for ―dewatering
including pumping‖ which is of general nature requiring
no particular skill or expertise.
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(d) The learned Single Judge has upheld these findings on
the ground that the same cannot be said to be perverse,
contrary to the provisions of the Act or contrary to the
evidence placed on record.
17. The appellant submitted that the following provisions of the
contract would show that the finding of the Arbitral Tribunal are
completely in contravention of the contractual clauses. The
appellant submitted:
(i) The Single Judge ignored the specific amended clauses
2104.1 in MOST specification for Road and Bridge work
which provide that ―Open foundation shall be constructed
in dry conditions and the contractor shall provide for
adequate dewatering arrangement to the satisfaction of the
Engineer‖.
It is further mentioned in Clause 2104.3 in MOST
specifications for Road and Bridge work that ―dewatering,
where necessary for laying concrete, shall be carried out
by adopting any one of the following procedures of any
other method approved by the Engineer‖ and in this para
as per point (iii) specify that ―Water table is depressed by
well point system or other methods‖. As per MOST
specifications para 2108, the unit rate for excavation
includes all the works as given in respective sections 2101
to 2107.
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(ii) The learned Single Judge further ignored Clause 304.3.3
of the MOST, G.T.S. of the contract agreement wherein is
clearly specified as follows:
―Dewatering and Protection - Normally open foundations
shall be laid dry. Where water is met within excavation
due to stream flow, seepage, springs, rain or other seasons,
the contractor shall take adequate measures such as
bailing, pumping, constructing diversion channels,
drainage channels, Bunds, depression of water level by
well point dewatering, coffer dams and other necessary
works to keep the foundation trenches dry when so
required and to protect the green concrete/masonry against
damage by erosion or sudden rising of water level. The
methods to be adopted in this regard and other details
thereof shall be left to the choice of the contractor but
subject to approval of the Engineer. Approval of the
engineer shall, however, not relieve the contractor of the
responsibility for the adequacy of dewatering the
protection arrangements, and for the quality and safety of
the works.‖
(iii) Another important clause, which was not considered by the
learned Single Judge was Clause 304.5.1 (iv) and (v) of General
Technical Specifications for Road and Bridges which provide
that the contract unit rate for the items of excavation of
structure shall be payment in full for carrying out the required
operations including full compensation for ... (iv) foundation
sealing, dewatering including pumping when no separate
provision for it is made in the contract .... (v) All Labour,
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materials, tools, equipment, safety measures, diversion of traffic
and incidental necessary to complete the work to specifications.
(iv) The learned Single Judge further overlooked provisions of
Technical Specifications, Section 5, Clause 1.2 regarding site
information which provided in clear terms that ―The
information given hereunder and provided elsewhere in these
document is given in good faith by the Employer but the
contractor shall satisfy himself regarding all aspects of site
conditions and no claim will be entertained on the plea that the
information supplied by the employer is erroneous or
insufficient.‖
(v) In addition to above clause, clause 7.1 in Volume I, Section 1 of
the Contract Agreement provided for site visit and states that
―The bidder, at the bidder's own responsi8bility and risk is
encouraged to visit and examine the site of works and its
surroundings and obtain all information that may be necessary
for preparing the bid and entering into a contract for
construction of the works. The cost of visiting the site shall be
at the bidder's own expense.‖
(vi) It is submitted that through contractual clauses quoted above,
the Appellant had made it absolutely clear that all expenses
including compensation for de-watering by employing well
point system were all inclusive in the unit rate for the items as
quoted by the bidder and therefore, no claim in this regard can
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be entertained later on. Not only this, the bid document
specifically instructed the perspective bidders to visit the site
and familiarize themselves with the site conditions, including
though not exhaustive, soil conditions, climate conditions
prevailing in the site area, extent of rainfall, and other geo-
climatic conditions which were necessary to be taken into
account for the purpose of preparation of financial bid.
(vii) The learned Single Judge failed to appreciate that the entire
purpose of having a unit rate system is that a bidder is allowed
to quote a particular rate for all items of work related to
construction and the bidder is fully made aware about various
construction activities which are needed to be undertaken by
mentioning it item-wise so as to obviate any claim in future.
(viii) As regards Claim No.3 for Cost compensation for excessive
cost of embankment and sub grade construction, the Arbitral
Tribunal awarded Rs.72,84,566/- to the Respondent. The
tribunal found that since the site conditions at the time of
execution of work had come out as more adverse than those
appeared before issuance of the letter of acceptance, therefore it
had become a compensation event. This finding has also been
erroneously upheld by the learned single judge by relying upon
in the earlier decision dated 28.2.2012 in OMP No.744 of 2010
in the case of N.H.A.I. versus M/s Somdutt Builders.
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(ix) The Single Judge as well as the Arbitral Tribunal completely
ignored the provisions of Clause 305.2.2.2 of MOST
specifications at GTS which reads as ―where specific borrow
areas are not designated by the Employer/Engineer,
arrangement for locating the source of supply of material for
embankment and sub grade as well as compliance to
environmental requirements in respect of excavation and
borrow areas as stipulated from time to time by Ministry of
Environment and Forests, GOI and the local bodies as
applicable, shall be the sole responsibility of the contractor.‖
(x) The Single Judge further did not take into account Clause
305.9.1 of GTS, contract agreement (MOST specifications)
which provided that the rates agreed upon and those mentioned
in the BOQ was inclusive of all the operations like :-
(i)Cost of arrangement of land as a source of supply of
material of required quantity for construction unless
otherwise provided in the contract.
(ii) Excavation in all soils from borrow pits/designated
borrow areas, including cleaning and grubbing and
transporting the material to embankment and sub grade site
with all lifts and leads unless otherwise provided for in the
contract;
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(iii) All labour, material, tools, equipment and
incidentals necessary to complete the work to the
specifications;
(iv) Dewatering and keeping the
embankment/completed formation free of water as per
Clause 311.
(xi) The reading of above clause coupled with Clause 1.2 which
provided for site information, clearly established that the work
of constructing the embankment and sub grade construction
was included in the unit rate method and no claim for excessive
or additional cost, ought to have been entertained later on.
(xii) As regards claim No.5 for compensation for idling of resources,
the AT held that the Appellant, N.H.A.I. failed to handover
possession of obstruction free construction site on time, thereby
causing delay and idling of resources. The Ld. Single Judge as
well as the Arbitral Tribunal failed to take notice that as per
clause 110 of Technical Specifications, the Respondent
contractor was responsible for removal of hindrances and this
was also a paid item. Therefore, the Respondent cannot be
allowed to raise a plea that the site had to be handed over
encumbrance free. The Respondent had to make a bid after
making due inspection of the site which makes it clear that the
Respondent was fully aware of the nature of impediment and
hindrances existing on the construction site.
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(xiii) The Single Judge as also the Arbitral Tribunal failed to
appreciate that the Respondent had to prove actual losses
suffered by it adducing necessary documentary and other
evidences which it completely failed to do. The Arbitral
Tribunal fell in error by awarding notional overhead Cost in a
big organization dealing with a number of projects by applying
internationally accepted formula for overhead costs which was
not the actual costs/losses suffered by the respondent. Single
Judge failed to appreciate that the said method was completely
erroneous.
(xiv) The award of pendent lite interest and future interest was also
unsustainable since the original amount was not in consonance
with the terms of the contract and suffered from legal infirmity.
Apart from this, the rate of interest awarded was very high and
ought to have been interfered with by the Ld. Single Judge.
18. There can be no dispute that an Arbitral Tribunal is required
to decide a dispute strictly in accordance with the contract
and in accordance with the substantive law for the time being
in force. An Arbitral Tribunal is required to proceed fairly,
and in accordance with law, giving equal opportunity of
representation to all the parties.
19. In Shin Satellite Public Co. Ltd. vs. M/s. Jain Studios Ltd.
reported in : AIR (2006) 2 SCC 628, the Supreme Court
held that a Court of law would have to read the agreement as
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it is. The Court cannot rewrite the agreement or create a new
agreement.
20. In Polymat India P. Ltd. & Anr. vs. National Insurance Co.
Ltd. & Ors. reported in AIR 2005 SC 286 : (2005) 9 SCC
176, the Supreme Court held that the terms of the contract
have to be construed without altering the nature of the
contract.
21. In Delhi Development Authority vs. M/S. U.S. Sharma & Co.,
New Delhi reported in (2008) 13 SCC 80, the Supreme Court
held that an award which was contrary to substantive
provisions of law or the provisions of the 1996 Act or against
the terms of the respective contracts or patently illegal or
prejudicial to the rights of the parties was open to
interference by Court under section 34(2) of the 1996 Act.
22. An award could be set aside if it was contrary to the
fundamental policy of law or the interest of India or justice or
morality. An award could also be set aside if it were so unfair
or unreasonable that it shocked the conscience of the Court.
23. It is open to the Court to consider whether the award was
against the specific terms of the contract and if so interfere
with it on the ground that it is patently illegal and opposed to
the public policy of India.
24. Under the 1996 Act, the learned Arbitral Tribunal is
obliged to pass a reasoned award. There can also be no
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FAO(OS) No.242/2015
doubt that a mere statement of reasons does not satisfy the
requirement of section 31(3) of the 1996 Act. The reasons
must be based upon materials submitted before the Arbitral
Tribunal. The Tribunal has to give its reasons upon
consideration of the relevant materials, while irrelevant
materials may be ignored.
25. In Oil & Natural Gas Corporation Ltd. vs. Western Geco
international Ltd. reported in (2014) 6 SCC 321 : AIR 2015
SC 363, the Supreme Court reiterated that the phrase 'Public
Policy' used in Section 34 was required to be given a wider
meaning. It could be stated that the concept of public policy
connotes some matter which concerns public good and the
public interest. What is for public good or in public interest
or what would be injurious or harmful to public good or
public interest has varied from time to time. However,
the award which was, on its face, patently in violation of
statutory provisions, could not be said to be in public interest.
Such an award was likely to be adversely affected the
administration of justice. The award could thus be set aside,
if it was patently illegal.
26. There can be no doubt that an award which is patently illegal
can be set aside. It is too late in the day to contend to the
contrary. However, the award in this case does not appear to
be patently illegal.
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27. In Bannari Amman Sugars Ltd. vs. Commercial Tax Officer
reported in (2005)1 SCC 625, the Supreme Court held that
where a particular mode was prescribed for doing an act
and there was no impediment in adopting the mode, the
deviation to act in a different manner, without disclosing any
discernible principles which were reasonable, to be labelled
as arbitrary. The Supreme Court reiterated that every state
action had to be informed by reason.
28. In Union Territory of Pondicherry and Ors. vs. P.V. Suresh
reported in (1994) 2 SCC 70, the Supreme Court held that the
Court cannot alter the terms of the contract or rewrite the
contract. The Court cannot also evolve formula for
determining instalments payable under the contract in the
absence of materials before it. The judgment was rendered in
the context of proceedings under Article 226 of the
Constitution of India. The proposition that the Court cannot
alter the terms of the contract or rewrite the contract is well
established.
29. In Makram Barsoum Estafanous and London & Leeds
Business Centres Limited reported in 2011 EWCA Civ 1157,
the Court of Appeal held that the general approach to the
construction of documents was well settled. The Court could
not rewrite contracts in the context of establishing what
the parties had meant by the language
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they had used. To quote the Appeal Court "that case is not a
licence for the Courts to rewrite contracts." However, in this
case the appellants have not been able to demonstrate that the
learned Arbitral Tribunal has rewritten the contract.
30. Arbitrators are Judges appointed by the parties and, therefore,
an award passed by an Arbitrator/Arbitral
Tribunal is not to be interfered with lightly. It is well-
settled that in proceedings under section 34 of the 1996 Act,
the Court does not sit in appeal over the award.
31. It is well-settled that in proceedings under section 34 of the
1996 Act, the Court does not sit in appeal over an award by
reanalysing the evidence.
32. In P.R. Shah, Shares & Stock Brokers (P) Ltd. vs. B.H.H.
Securities (P) Ltd. reported in : (2012) 1 SCC 594 the
Supreme Court held:-
"21. A Court does not sit in appeal over the award of
an Arbitral Tribunal by reassessing or
reappreciating the evidence. An award can be
challenged only under the grounds mentioned in
section 34(2) of the Act.....Therefore, in the
absence of any ground under section 34(2) of the
Act, it is not possible to re-examine the
facts to find out whether a different decision can
be arrived at."
Sections 34(1) and (2) of the 1996 Act, provides as follows:-
"34. Application for setting aside arbitral award.--(1)
Recourse to a Court against an
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arbitral award may be made only by an
application for setting aside such award in
accordance with sub-section (2) and sub-section
(3).
(2) An arbitral award may be set aside by the Court only if-
(a) the party making the application furnishes
proof that--
(i) a party was under some incapacity;
or
(ii) The arbitration agreement is not
valid under the law to which
the parties have subjected it or, failing
any indication thereon, under the law for
the time being in force; or
(iii) the party making the application was not
given proper notice of the appointment
of an arbitrator or of the arbitral
proceedings or was otherwise
unable to present his case; or
(iv) the arbitral award deals with a dispute not
contemplated by or not falling within
the terms of the
submission to arbitration, or it contains
decisions on matters beyond the scope
of the submission to arbitration:
Provided that, if the decisions on
matters submitted to arbitration can be
separated from those not so submitted,
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only that part of the arbitral award
which contains decisions on matters
not submitted to arbitration may be set
aside; or
(v) the composition of the arbitral tribunal
or the arbitral procedure was not in
accordance with the agreement of
the parties, unless such agreement was
in conflict with a provision of this Part
from which the parties cannot derogate,
or, failing such agreement, was not in
accordance with this Part; or
(b) the Court finds that--
(i) the subject-matter of the
dispute is not
capable of settlement by arbitration under the
law for the time being in force, or
(ii) the arbitral award is in conflict with the
public policy of India. Explanation.-
Without prejudice to the generality of
sub-clause (ii), it is hereby declared, for
the avoidance of any
doubt, that an award is in conflict with
the public policy of India if the making
of the award was induced or affected by
fraud or corruption or was in violation
of section 75 or section 81."
33. As observed by the Supreme Court in Associate Builders vs.
Delhi Development Authority reported in (2015) 3 SCC 49,
the 1996 Act was enacted to provide for an arbitral procedure,
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which is fair, efficient and capable of meeting the needs of
arbitration, to provide that the Arbitral Tribunal gives reasons
for an arbitral award, to ensure that the Arbitral Tribunal
remains within the limits of its jurisdiction and to minimize
the supervisory role of Courts.
34. Section 5 of the 1996 Act provides that notwithstanding
anything contained in any other law for the time being
enforce, in matters governed by Part 1, no judicial authority is
to intervene, except where so provided in the said part.
35. Section 34, read in conjunction with section 5 makes it
clear that an arbitral award that is governed by Part 1 of the
1996 Act, can only be set aside on grounds mentioned in
section 34(2) and (3) and not otherwise,
36. None of the grounds contained in sub-section (2)(a) of
section 34 permit the Court to adjudicate the merits of the
decision rendered by an Arbitral Tribunal. The merits of
an award might only be looked into under certain specified
circumstances, when an award is found to be in conflict with
the public policy of India, as held by the Supreme Court in
Associate Builders (supra).
37. In Renusagar Power Co. Ltd. vs. General Electric Co. reported
in 1994 Supp (1) SCC 644 the Supreme Court held that the
expression 'Public Policy' in the context of a foreign award,
would have to be construed to mean an award contrary to (i)
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the fundamental policy of the Indian law; or (ii) the interest of
India; or (iii) justice or morality. Such an award would
have to be set aside as contrary to the public policy of India.
38. In ONGC Ltd. vs. Saw Pipes Ltd. reported in (2003) 5 SCC
705 the Supreme Court held:
"The phrase "Public Policy of India" is not defined
under the Act. Hence, the said term is required to be
given meaning in context and also considering the
purpose of the section and scheme of the Act. It has
been repeatedly stated by various authorities that the
expression "public policy" does not admit of precise
definition and may vary from generation to generation
and from time to time. Hence, the concept "public
policy" is considered to be vague, susceptible
to narrow or wider meaning depending upon the
context in which it is used. Lacking precedent the
Court has to give its meaning in the light and
principles underlying the Arbitration Act, Contract
Act and Constitutional provisions."
39. An award would be set aside if it was contrary to (a) the
fundamental policy of Indian law; (b) the interest of India or
(c) justice or morality or (d) if it was patently illegal. In
ONGC Ltd. vs. Saw Pipes Ltd. (supra) the Supreme Court
made it clear that it was open to the Court to interfere with
an award on the ground that it was patently illegal and
therefore, opposed to the public policy of India.
40. An award might be set aside as patently illegal, provided the
illegality goes to the root of the award. If the illegality is of a
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trivial nature it cannot be said that the award is against public
policy. This proposition was reaffirmed by the Supreme Court
in Hindustan Zinc Ltd, vs. Friends Coal Carbonization
reported in : (2006) 4 SCC 445. In ONGC Vs. Saw Pipes Ltd.
(supra) the Supreme Court held that an award could also be
set aside, if it was so unfair and unreasonable, that it shocked
the conscience of the Court.
41. In view of the judgment in ONGC Ltd. vs. Saw Pipes Ltd.
(supra) it has to be held that the award could be set aside if it
was in contravention of the provisions of 1996 Act or any
other substantive law governing the parties or was against the
terms of the contract. Of course the award could be set aside
on the ground of patently illegality, subject to the
condition that the illegality went to the root of the award.
It is now also settled law that a decision which is perverse or
so irrational that no reasonable person would have arrived at
the same, would be liable to interference under section 34 of
the 1996 Act.
42. In Associate Builders vs. Delhi Development Authority
(supra) the Supreme Court held that it must be clearly
understood that when a Court is applying 'public policy'
test to an arbitral award, it does not act as a Court of appeal
and consequently the errors of fact cannot be corrected. A
possible view by the arbitrator on facts has necessarily to be
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accepted as the arbitrator is the ultimate master of the quantity
and quality of evidence to be relied upon, when he delivers his
arbitral award. Thus, an award based on little evidence
or no evidence, which does not measure up in quality to a
trained legal mind would not be held to be invalid on this
score. Once it is found that the arbitrators' approach is not
arbitrary or capricious then he is the last word on facts.
43. Patent illegality may render an award to be in conflict with the
public policy of India. Under the
explanation to section 34(2)(b) an award may be said to be in
conflict with the public policy of India if the making of
the award was induced or affected by fraud or corruption.
44. In McDermott International Inc. vs. Burn Standard. Co. Ltd.
reported in (2006) 11 SCC 181, the Supreme Court held:-
"112. It is trite that the terms of the contract can be
express or implied. The conduct of
the parties would also be a relevant factor in the
matter of construction of a contract. The
construction of the contract agreement is within
the jurisdiction of the arbitrators having
regard to the wide nature, scope and ambit of the
arbitration agreement and they cannot be
said to have misdirected themselves in passing
the award by taking into consideration the
conduct of the parties. It is also
trite that correspondences exchanged by
the parties are required to be taken into
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consideration for the purpose of construction of a
contract. Interpretation of a contract is a matter
for the arbitrator to determine, even if it gives
rise to determination of a question of law. [See
Pure Helium India (P) Ltd. vs. ONGC and D.D.
Sharma vs. Union of India]."
45. In MSK Projects (I) (JV) Ltd. vs. State of Rajasthan reported
in (2011) 10 SCC 573 the Supreme Court held that if the
arbitrator commits an error in the construction of the
contract, that is an error within his jurisdiction. But if he
wanders outside the contract and deals with matters not
allotted to him, he commits a jurisdictional error. Extrinsic
evidence is admissible in such cases, because the
dispute is not something which arises under or in
relation to the contract or dependent on the construction of the
contract or to be determined within the award. The ambiguity
of the award can, in such cases, be resolved by admitting
extrinsic evidence. The rationale of this rule is that the nature
of the dispute is something which has to be determined
outside and independent of what appears in the award. Such a
jurisdictional error needs to be proved by evidence
extrinsic to the award. Reference may in this context, also be
made to the judgment of the Supreme Court in Gobardhan
Das vs. Lachhmi Ram : AIR 1954 SC 689, Thawardas
Pherumal vs. Union of India : AIR 1955 SC 468], Union of
India vs. Kishorilal Gupta & Bros.: AIR 1959 SC 1362, Alopi
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Parshad & Sons Ltd. vs. Union of India : AIR 1960 SC 5881,
Jivarajbhai Ujamshi Sheth vs. Chintamanrao Balaji: AIR 1965
SC 214 and Renusagar Power Co. Ltd. vs. General Electric
Co.: (1984) 4 SCC 679 : [AIR 1985 SC 1156].
46. In Indu Engineering & Textiles Ltd. vs. Delhi Development
Authority reported in (2001) 5 SCC 691, the Supreme Court
held that the Arbitrator being a Judge appointed by the parties,
the award passed by him is not to be interfered with lightly.
When the view taken by the arbitrator was a possible or a
plausible one, on his analysis of evidence and interpretation of
contractual and/or statutory provisions and did not suffer from
any manifest error, it was not open to the Court to interfere
with the award.
47. Even though the judgment in Indu Engineering & Textiles
Ltd. (supra) was rendered in the context of an application
under section 30 of the Arbitration Act 1940, for setting aside
of an award, the same principle would apply to an application
for setting aside an award, under section 34 of the 1996 Act.
48. In Rashtriya Ispat Nigam Ltd. vs. Dewan Chand Ram Saran,
reported in (2012) 5 SCC 306, the Supreme Court
held that when a clause in a contract was capable of two
interpretations and the view taken by the arbitrator was clearly
a possible if not a plausible one, it was not
possible to say that the arbitrator had travelled outside his
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jurisdiction, or that the view taken by him was against the
terms of contract. That being the position, Court could not
interfere with the award and substitute its view in place of the
interpretation accepted by the arbitrator.
49. In Sumitomo Heavy Industries Ltd. vs. ONGC Ltd. reported
in (2010) 11 SCC 296 the Supreme Court held:
"43. ... The umpire has considered the fact situation and
placed a construction on the clauses of the
agreement which according to him was the
correct one. One may at the highest say that one
would have preferred another construction of
Clause 17.3 but that cannot make the award in
any way perverse. Nor can one substitute one's
own view in such a situation, in place of the one
taken by the umpire, which would
amount to silting in appeal. As held by this Court
in Kwality Mfg. Corpn. vs. Central Warehousing
Corpn. the Court while considering
challenge to arbitral award does not sit in appeal
over the findings and decision of the arbitrator,
which is what the High Court has practically done
in this matter. The umpire is legitimately
entitled to take the view which he holds to be the
correct one after considering the material before
him and after interpreting the provisions of the
agreement. If he does so, the decision of the
umpire has to be accepted as final and binding."
50. As observed above, an award can only be interfered with
grounds stipulated in Section 34(2) of the 1996 Act. In this
case no grounds have been made out for interference with the
impugned award.
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51. It is well settled that the arbitral
tribunal is competent to interpret the terms and conditions of a
contract and the interpretation cannot be interfered with by
Court in an application for setting aside only because some
other interpretation might have been possible.
52. The learned Single Judge rightly rejected the application for
setting aside of the award. We find no grounds to interfere
with the judgment and order under appeal. The
appeal is dismissed.
53. The amount deposited by the appellant in the Executing Court
may be released to the respondent.
INDIRA BANERJEE, J
ANIL KUMAR CHAWLA, J
April 03, 2017
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