Delhi High Court
Gail Gas Ltd. vs Palak Construction Pvt Ltd. on 27 November, 2019
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ O.M.P. (COMM) 73/2018 & IA 7213/2018
Reserved on: 24.09.2019
Date of Decision : 27.11.2019
GAIL GAS LTD. ..... Petitioner
Through: Mr.Dhruv Mehta, Sr. Adv. with
Ms.Manmeet Arora, Ms.Chand
Chopra, Ms.Pavitra Kaur,
Ms.Anupama Dhruve, Advs.
versus
PALAK CONSTRUCTION PVT LTD. ..... Respondent
Through: Mr.Kirti Uppal, Sr. Adv. with
Mr.Ankit Gupta, Mr.Abhimanyu,
Advs.
CORAM:
HON'BLE MR. JUSTICE NAVIN CHAWLA
1. This petition under Section 34 of the Arbitration and Conciliation
Act, 1996 (hereinafter referred to as the „Act‟) has been filed by the
petitioner challenging the Arbitral Award dated 30.09.2017 passed by the
Sole Arbitrator adjudicating the disputes that have arisen between the
parties in relation to the Contract/Letter of Award dated 01.07.2010 by
which the petitioner had awarded the work for MDPE Pipeline Laying
and Associated Works in City Zone Distribution (CGD) project of the
petitioner in Meerut Region-2 to the respondent.
2. Before the Sole Arbitrator, the respondent had preferred 11 claims
totaling Rs.2,46,81,168/-, while the petitioner had preferred nine counter
claims totaling to Rs.70,07,547.61. The Impugned Award awards six out
of eleven claims of the respondent and disallowed six out of nine counter
O.M.P. (COMM) 73/2018 Page 1
claims of the petitioner, granting the following final relief to the
respondent:
"Relief : In view of my finding in above issues the Claimant
is held entitled to a sum of Rs. 76,61,916.00 (as per amended
claim) + Rs.5,85,000.00 + Rs.1,04,602/- + Rs. 1,22,400/- (to
be collected from authority) + Rs. 45,04,000.00 +Rs.
7,33,634.00 with interest @ of 12% per annum pendent lite
and future whereas the respondent is held entitled to a sum of
Rs. 1,85,956.32 + Rs.2,09,000/- + Rs. 1,01,036.40 with
[email protected] of 12% per annum pendent lite and future to be set
off against the amount awarded to the claimant with no order
as to costs in the facts and circumstances of the case."
3. The facts in brief that need notice of are that the petitioner had
issued the Fax of Intent dated 26.06.2010 to the respondent accepting the
tender submitted by the respondent for the above work. The estimated
contract value for the works was Rs. 4,50,31,750/- and the completion
period was prescribed as 16 months from the date of Fax of Intent.
4. The petitioner thereafter issued the abovementioned Letter of
Award (LOA) to the respondent. Clause 1 of the LOA described the
scope of work, while Clause 3 gave the Completion Schedule and is
reproduced hereinunder:-
"3. COMPLETION SCHEDULE
The contract shall be valid for 16 months from the date of
Fax of Intent (FOI).
Engineer-in-Charge will give "Letter of Intimation" for
executing pipeline as & when requirement arises during the
validity of contract.
The completion period (reckon from "Letter of Intimation"
by EIC) for various pipeline shall be as follows:-
O.M.P. (COMM) 73/2018 Page 2
SL. No. Pipeline Length Time
Schedule
1 Upto 2 Kms 10 Weeks
2 More than 2 Km 16 Weeks
but less than 5
Kms
3 More than 5 Kms 24 Weeks
but less than 20
Kms
5. Clause 6 of the LOA provided for the Price Reduction Schedule
applicable incase of delay in completion of the work beyond the
stipulated time. Clause 7 of the LOA required the respondent to submit
the Performance Bank Guarantee.
6. Clause 8 of the LOA prescribed the Defect Liability Period to be
12 months from the date of completion of work as certified by the
Engineer-in-Charge as per Clause 80 of the General Conditions of
Contract (GCC).
7. It is the case of the petitioner that there were roughly thirty areas in
Meerut where the pipeline had to be laid. Though the Contract was
executed area wise, it was part of one integrated contract. As the
respondent failed to comply with the completion period as specified in
the LOA, the date of completion was revised to 25.01.2013, 15.03.2013,
25.04.2013 and lastly to 20.08.2013. The letters of extension clearly
stated that they had been issued without prejudice to the petitioner‟s right
and respondent‟s liabilities under the Contract. The respondent applied
for a Completion Certificate only on 13.08.2013, however, in a fire
incident on 21.01.2012, defects in the works executed by the respondent
came to the attention of the petitioner. A surprise inspection of the
O.M.P. (COMM) 73/2018 Page 3
pipeline laying work was conducted on 12.04.2013 by a team of
executives of the Vigilance Department of the petitioner as also by GAIL
Gas Meerut executives. The same revealed various deficiencies in the
work carried out by the respondent. Thereafter, in the presence of the
respondent, detailed enquiry was conducted between 09.05.2013 to
17.05.2013 by digging forty test pits at an average of one pit in one
kilometer range. During the inspection it was found that the respondent
had executed the work without proper sand padding cover and low depth
cover. Based on the findings and observations from the joint inspection,
the Investigation and Analysis Report dated 31.07.2013 recommended a
recovery of Rs. 6,63,839/- from the respondent for not providing sand
padding and also called for rectification measures to be taken by the
respondent. Thereafter, in a meeting held on 26.06.2015, the respondent
agreed to undertake the rectification works as well as for deduction from
the final bill, however, failed to do so. A Show Cause Notice dated
31.07.2015 was issued to the respondent and after considering its reply,
vide letter dated 31.03.2016, the respondent was banned from
participating in the biding process for any tender for a period of three
years from 31.07.2015. The Performance Bank Guarantee submitted by
the respondent was also forfeited on 21.04.2016 and the Contract was
terminated vide notice dated 03.05.2016.
8. The first dispute between the parties was with respect to the claim
of the respondent towards its final bill and for the refund of the amount
recovered by the petitioner through encashment of the Performance Bank
Guarantee. On the other side was the counter claim of the petitioner
towards the cost of rectification works and for recovery of amounts for
O.M.P. (COMM) 73/2018 Page 4
non provision of sand padding and losses due to the fire incident on
21.01.2012.
9. The Arbitrator held that the Completion Certificate is to be counted
from the date in between 03.07.2011 to 23.03.2012, when the work of
laying and testing and commissioning of pipeline in the area stood
complete. The Arbitrator further held that the Defect Liability Period,
therefore, expired on 26.03.2013. Consequently, the letter dated
06.05.2013 and the Investigation report dated 31.07.2013 fell outside the
Defect liability Period.
10. The learned senior counsel for the petitioner submits that the above
finding of the Arbitrator is completely perverse. Apart from the fact that
Completion Certificate had not been issued in favor of the respondent,
the respondent had itself admitted in its Statement of Claim that the
actual date of completion of the work was 25.04.2013. The petitioner had
duly informed the respondent about the shortcomings in the work vide its
letter dated 06.05.2013 as also its Investigation Report dated 31.07.2013,
which, therefore, fell well within the Defect Liability Period.
11. The learned senior counsel for the petitioner further submits that
though the respondent had applied for the Completion Certificate on
13.08.2013, the respondent was in the process of submitting final
documentation vide its letters dated 05.04.2013, 27.07.2013 and
24.01.2014 and therefore, the question of issuing Completion Certificate
did not arise. Equally, the respondent‟s alleged final bill dated
12.11.2013 cannot be relied upon as the respondent was contractually
bound to submit all closing documents as also undertake rectification
work before presenting such bill.
O.M.P. (COMM) 73/2018 Page 5
12. On the claim of rectification work, the learned senior counsel for
the petitioner places reliance on the Investigation and Analysis Report
dated 31.07.2013, recording the deficiencies in the work, as also the
Minutes of Meeting dated 26.06.2015 to contend that the respondent had
agreed to undertake the rectification work on normal surface as also
agreed to a deduction from the final bill of an amount equivalent to the
cost of rectification on built-up surface. The learned senior counsel for
the petitioner further places reliance on the cross examination of Mr
Ashwani Goyal/CW-1 to contend that the respondents were satisfied with
the Investigation Report dated 31.07.2013. He submits that even in the
Minutes of Meeting dated 26.06.2015, the respondent had agreed to
undertake the rectification work and also agreed to a deduction from the
final bill of an amount equivalent to the cost of rectification, however,
despite undertaking to carry out the rectification work, the respondent
failed to do so.
13. He submits that the rectification work was initially awarded to M/s
SJ Construction on 07.11.2014 at a cost of Rs. 22,15,531/-, however, the
work was not taken up. Thereafter, the work was awarded to two
contractors, M/s A.K Enterprises and M/S Eoan Associates at an amount
of Rs.24,17,536/- and therefore, the respondent was liable to pay the said
amount to the petitioner. The finding of the arbitrator rejecting the
counter claim of the petitioner, therefore, cannot be sustained.
14. The learned senior counsel for the petitioner submits that in view
of Clause 24.4 and 28.1 of GCC and Clause 10.03 and 10.04 of Special
Conditions of Contract (SCC), whenever any claim arises against the
O.M.P. (COMM) 73/2018 Page 6
contractor, the petitioner was entitled to recover such sum by
appropriating the PBG. Therefore, Claim no. 7 of the respondent could
not have been granted by the arbitrator.
15. The learned senior counsel for the petitioner further submits that
the contract was to be completed within 16 months from the date of the
Fax of Intent dated 26.06.2010. The respondent having delayed the
completion of the project, the contract price was subject to a reduction of
5% percent as per Clause 51 of SCC read with Clause 27 of the GCC.
The learned senior counsel for the petitioner submits that the extension of
time granted by the Engineer-in-Charge vide its letters dated 01.10.2012,
02.01.2013 and 10.02.2013, was conditional and subject to the rights of
the petitioner as stipulated for in the contract and therefore, the finding of
the arbitrator rejecting the claim of the petitioner cannot be sustained.
16. Learned senior counsel has drawn from my reference to Clause 8
of the LOA which reads as under:
"8. DEFECT LIABILITY PERIOD
The defect liability period shall be 12 months from the date
of completion of Works as Certified by the Engineer in
Charge as per Clause 80.0 of General Conditions of
contract (GCC)."
17. He submits that in terms of Clause 80.0 of the GCC the Defect
Liability Period, therefore, shall be twelve months from the date of
completion of works as certified by the Engineer-in-Charge and
mentioned in the Completion Certificate. Clause 80.1 of the GCC further
provides as under:
O.M.P. (COMM) 73/2018 Page 7
"80.1 The CONTRACTOR shall guarantee the installation/
WORK for a period of 12 months from the date of
„completion of WORK‟ as certified by the ENGINEER-IN-
CHARGE which is Indicated in the Completion Certificate.
Any damage or defect that (May arise or lie undiscovered at
the time of issue of Completion Certificate connected in any
way with the equipment or materials supplied by him or in
the workmanship, shall be rectified or replaced by the
CONTRACTOR at his own expense as deemed necessary by
the ENGINEER-IN-CHARGE or In default, the ENGINEER-
IN-CHARGE may carry out such works by other work and
deduct actual cost incurred towards labour, supervision and
materials consumables or otherwise plus 100% towards
overheads (of which the certificate of ENGINEER-IN-
CHARGE shall be final) from any sums that may then be or
at any time thereafter, become due to the CONTRACTOR or
from his Contract Performance Security, or the proceeds of
sale thereof or a sufficient part on thereof."
18. He further placed reliance on the Clause 81.1 of the GCC to
contend that where the work is divided into various groups and is taken
over by the respondent in groups, if such group is related to the integrated
system of work, notwithstanding the date of grant of Completion
Certificate for a group, the period of defect liability shall extend to twelve
months from the date of completion of the entire work. Clause 81.1 of
the GCC is reproduced hereinbelow:
"81.1 DEFECTS PRIOR TO TAKING OVER:
If at any time, before the WORK is taken over, the
ENGINEER-IN-CHARGE shall:
a) Decide that any works done or materials used by the
CONTRACTOR or by any SUB-CONTRACTOR is
defective or not in accordance with the CONTRACT, or
that the works or any portion thereof are defective or do
not fulfill the requirements or CONTRACT (all such
O.M.P. (COMM) 73/2018 Page 8
matters being hereinafter, called „Defects' in this
clause), and
b) As soon as reasonably practicable, gives to the
CONTRACTOR notice in writing or the said decision,
specifying particulars of the defects alleged to exist or
to have occurred, then the CONTRACTOR shall at his
own expenses and with all speed make good the defects
so specified.
In case CONTRACTOR shall fail to do so, the EMPLOYER
may take, at the cost of the CONTRACTOR, such steps as
may in all circumstances, be reasonable to make good such
defects. The expenditure so incurred by the EMPLOYER will
be recovered from the amount due to the CONTRACTOR.
The decision of the ENGINEER-IN-CHARGE with regard to
the amount to be recovered from the CONTRACTOR will be
final and binding on the CONTRACTOR. As soon as the
WORK has been completed in accordance with the
CONTRACT (except in minor respects that do not affect their
use for the purpose for which they are intended and except
for maintenance thereof provided in clause 80.1 of General
Conditions of Contract) and have passed the tests on
completion, the ENGINEER-IN-CHARGE shall issue a
certificate (hereinafter called Completion Certificate) in
which he shall certify the date on which the WORK have been
so completed and have passed the said tests and the
EMPLOYER shall be deemed to have taken over the WORK
on the date so certified. If the WORK has been divided into
various groups in the CONTRACT, the EMPLOYER shall be
entitled to take over any group or groups before the other or
others and there upon the ENGINEER-IN-CHARGE shall
issue a Completion Certificate which will, however, be for
such group or groups so taken over only. In such an event if
the group /Section/ part so taken over is related, to the
integrated system of the work, not withstanding date of grant
of Completion certificate for group/section/ part. The period
of liability in respect of such group/section/ part shall extend
12 (twelve) months from the date of completion of WORK."
O.M.P. (COMM) 73/2018 Page 9
19. The learned senior counsel for the petitioner further placed reliance
on the Clause 94.12 of the GCC to contend that the contractor was
eligible to present the Final Bill only after obtaining the Completion
Certificate.
20. As far as the liquidated damages in form of Price Reduction
Schedule, the learned senior counsel for the petitioner has placed reliance
on Clause 27 of the GCC, which is reproduced hereinbelow:
"27.0 Price reduction schedule:
27.1 Time is the essence of the CONTRACT. In case the
CONTRACTOR fails to complete the WORK within the
stipulated period, then, unless such failure is due to Force
Majure as defined in Clause 26 here above or due to
EMPLOYER's defaults, the total Contract price shall be
reduced by 5 % or the total Contract Price per complete
week of delay or part thereof subject to a maximum of 5 %
of the Total Contract Price, by way of reduction in price for
delay and not as penalty. The said amount will be recovered
from amount due to the Contractor/ Contractor's Contract
Performance Security payable on demand.
The decision of the ENGINEER-IN-CHARGE in regard to
applicability of Price Reduction Schedule shall be final and
binding on the CONTRACTOR.
27.2 All sums payable under this clause is the reduction in
price due to delay in completion period at the above agreed
rate.
27.3 BONUS FOR EARLY COMPLETION
a.3 If the Contractor achieves completion of Works in all
respect prior to the time schedule stipulated in the SCC, the
Employer shall pay to the Contractor the relevant sum, if
mentioned specifically in SCC, as bonus for early
completion. The bonus for early completion, if provided
specifically in SCC, shall be payable to the maximum
ceiling of 21/2 % of the total contract price.
O.M.P. (COMM) 73/2018 Page 10
a.4(*) Partial earlier completion may not always produce
net benefits to the Employer, for example where utilization
of the completed Works requires (a) the fulfillment of all
parts of the Contract (e.g .the training of personnel): or (b)
the completion of all Sections (e.g. in pipeline laying, where
early completion of the laying of pipeline would not be
useful if the compressor is still under installation): or (c)
certain seasonal affects to take place (e.g. onset of the rainy
season, for impounding a reservoir): or (d) other
circumstances. Also a more rapid drawdown of budgeted
funds may be required. All such factors should be
considered prior to the inclusion of a bonus clause in the
Contract."
21. Based on the above Clauses of the GCC and the LOA, the learned
senior counsel for the petitioner reiterates that as the respondent had not
submitted the Final Closing Documentation till as late as 24.01.2014, the
Arbitrator has erred in holding that the Defect Liability Period was over.
22. I have considered the submissions made by the learned senior
counsel for the petitioner. At the outset, one must remind oneself of the
limited jurisdiction that is vested in the Court while exercising the power
under Section 34 of the Act. The same has been culled out by the
Supreme Court in its judgments in Associate Builders v. Delhi
Development Authority, (2015) 3 SCC 49 and in Ssangyong
Engineering & Construction Co. Ltd. v. National Highways Authority
of India (NHAI), 2019 SCC OnLine SC 677.
23. In Associate Builders (supra) the Supreme Court examined the
scope and ambit of power of the same under Section 34 of the Act and
held as under:
O.M.P. (COMM) 73/2018 Page 11
"33. It must clearly be understood that when a court is applying
the "public policy" test to an arbitration award, it does not act as
a court of appeal and consequently errors of fact cannot be
corrected. A possible view by 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 when he
delivers his arbitral award. Thus an award based on little evidence
or on evidence which does not measure up in quality to a trained
legal mind would not be held to be invalid on this score [ Very
often an arbitrator is a lay person not necessarily trained in law.
Lord Mansfield, a famous English Judge, once advised a high
military officer in Jamaica who needed to act as a Judge as
follows:
"General, you have a sound head, and a good heart; take courage
and you will do very well, in your occupation, in a court of equity.
My advice is, to make your decrees as your head and your heart
dictate, to hear both sides patiently, to decide with firmness in the
best manner you can; but be careful not to assign your reasons,
since your determination may be substantially right, although your
reasons may be very bad, or essentially wrong".
It is very important to bear this in mind when awards of lay
arbitrators are challenged.] . Once it is found that the arbitrators
approach is not arbitrary or capricious, then he is the last word on
facts. In P.R. Shah, Shares & Stock Brokers (P) Ltd. v. B.H.H.
Securities (P) Ltd. [(2012) 1 SCC 594 : (2012) 1 SCC (Civ) 342] ,
this Court held: (SCC pp. 601-02, para 21)
"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. The Arbitral
Tribunal has examined the facts and held that both the
second respondent and the appellant are liable. The case as
put forward by the first respondent has been accepted. Even
the minority view was that the second respondent was liable
as claimed by the first respondent, but the appellant was not
liable only on the ground that the arbitrators appointed by
the Stock Exchange under Bye-law 248, in a claim against a
non-member, had no jurisdiction to decide a claim against
O.M.P. (COMM) 73/2018 Page 12
another member. The finding of the majority is that the
appellant did the transaction in the name of the second
respondent and is therefore, liable along with the second
respondent. 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."
34. It is with this very important caveat that the two fundamental
principles which form part of the fundamental policy of Indian law
(that the arbitrator must have a judicial approach and that he must
not act perversely) are to be understood.
xxxxxx
42. In the 1996 Act, this principle is substituted by the "patent
illegality" principle which, in turn, contains three subheads:
xxxxxx
42.3. (c) Equally, the third subhead of patent illegality is really a
contravention of Section 28(3) of the Arbitration Act, which reads
as under:
"28. Rules applicable to substance of dispute. (1)-(2)
(3) In all cases, the Arbitral Tribunal shall decide in accordance
with the terms of the contract and shall take into account the
usages of the trade applicable to the transaction."
This last contravention must be understood with a caveat. An
Arbitral Tribunal must decide in accordance with the terms of the
contract, but if an arbitrator construes a term of the contract in a
reasonable manner, it will not mean that the award can be set
aside on this ground. Construction of the terms of a contract is
primarily for an arbitrator to decide unless the arbitrator
construes the contract in such a way that it could be said to be
something that no fair-minded or reasonable person could do.
43. In McDermott International Inc. v. Burn Standard Co.
Ltd.,(2006) 11 SCC 181 this Court held as under: (SCC pp. 225-
26, paras 112-13)
"112. It is trite that the terms of the contract can be
expressed 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
O.M.P. (COMM) 73/2018 Page 13
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 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. v. Oil and Natural Gas
Commission, (2003) 8 SCC 593:2003 Supp (4) SCR 561 and
D.D.Sharma v. Union of India.] (2004) 5 SCC 325.
113. Once, thus, it is held that the arbitrator had the
jurisdiction, no further question shall be raised and the court will
not exercise its jurisdiction unless it is found that there exists any
bar on the fact of the award."
44. In MSK Projects (I) (JV) Ltd. v. State of Rajasthan,
(2011)10 SCC 573: 2012 3 SCC (Civ) 818, the Court held : (SCC
pp. 581-82, para 17)
"17. 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. (See Gobardhan Das v. Lachhmi Ram, AIR 1954 SC 689,
Thawardas Pherumal v. Union of India, AIR 1955 SC 468, Union
of India v. Kishorilal Gupta & Bros.,AIR 1959 SC 1362, Alopi
Parshad & Sons Ltd. v. Union of India, AIR 1960 SC 588,
Jivarajbhai Ujamshi Sheth v. Chintamanrao Balaji, AIR 1965 SC
214 and Renusagar Power Co. Ltd. v. General Electric Co. (1984)
4 SCC 679: AIR 1985 SC 1156)"
O.M.P. (COMM) 73/2018 Page 14
45. In Rashtriya Ispat Nigam Ltd. v. Dewan Chand Ram Saran,
(2012) 5 SCC 306, the Court held: (SCC pp. 320-21, paras 43-45)
"43. In any case, assuming that Clause 9.3 was capable of
two interpretations, the view taken by the arbitrator was
clearly a possible if not a plausible one. It is not possible to
say that the arbitrator had travelled outside his jurisdiction,
or that the view taken by him was against the terms of
contract. That being the position, the High Court had no
reason to interfere with the award and substitute its view in
place of the interpretation accepted by the arbitrator.
44. The legal position in this behalf has been summarised in
para 18 of the judgment of this Court in SAIL v. Gupta
Brother Steel Tubes Ltd. [(2009) 10 SCC 63: (2009) 4 SCC
(Civ) 16] and which has been referred to above. Similar
view has been taken later in Sumitomo Heavy Industries Ltd.
v. ONGC Ltd. [(2010) 11 SCC 296: (2010) 4 SCC (Civ)
459] to which one of us (Gokhale, J.) was a party. The
observations in para 43 thereof are instructive in this behalf.
45. This para 43 reads as follows: (Sumitomo case [(2010)
11 SCC 296 : (2010) 4 SCC (Civ) 459] , SCC p. 313)
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 sitting in appeal. As
held by this Court in Kwality Mfg. Corpn. v. Central Warehousing
Corpn. [(2009) 5 SCC 142 : (2009) 2 SCC (Civ) 406] 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.
O.M.P. (COMM) 73/2018 Page 15
24. In Ssangyong Engineering & Construction Co. Ltd. (supra) the
Supreme Court has re-examined the scope of the power of the Court
especially in light of the Arbitration and Conciliation (Amendment) Act,
2015 and held as under:
"35. What is clear, therefore, is that the expression "public
policy of India", whether contained in Section 34 or in
Section 48, would now mean the "fundamental policy of
Indian law" as explained in paragraphs 18 and 27
of Associate Builders (supra), i.e., the fundamental policy of
Indian law would be relegated to the "Renusagar"
understanding of this expression. This would necessarily
mean that the Western Geco (supra) expansion has been done
away with. In short, Western Geco (supra), as explained in
paragraphs 28 and 29 of Associate Builders (supra), would
no longer obtain, as under the guise of interfering with an
award on the ground that the arbitrator has not adopted a
judicial approach, the Court's intervention would be on the
merits of the award, which cannot be permitted post
amendment. However, insofar as principles of natural justice
are concerned, as contained in Sections 18 and 34(2)(a)(iii)
of the 1996 Act, these continue to be grounds of challenge of
an award, as is contained in paragraph 30 of Associate
Builders (supra).
36. It is important to notice that the ground for interference
insofar as it concerns "interest of India" has since been
deleted, and therefore, no longer obtains. Equally, the
ground for interference on the basis that the award is in
conflict with justice or morality is now to be understood as a
conflict with the "most basic notions of morality or justice".
This again would be in line with paragraphs 36 to 39
of Associate Builders (supra), as it is only such arbitral
awards that shock the conscience of the court that can be set
aside on this ground.
37. Thus, it is clear that public policy of India is now
constricted to mean firstly, that a domestic award is contrary
O.M.P. (COMM) 73/2018 Page 16
to the fundamental policy of Indian law, as understood in
paragraphs 18 and 27 of Associate Builders (supra), or
secondly, that such award is against basic notions of justice
or morality as understood in paragraphs 36 to 39
of Associate Builders (supra). Explanation 2 to Section
34(2)(b)(ii) and Explanation 2 to Section 48(2)(b)(ii) was
added by the Amendment Act only so that Western
Geco (supra), as understood in Associate Builders (supra),
and paragraphs 28 and 29 in particular, is now done away
with.
38. Insofar as domestic awards made in India are concerned,
an additional ground is now available under sub-section
(2A), added by the Amendment Act, 2015, to Section 34.
Here, there must be patent illegality appearing on the face of
the award, which refers to such illegality as goes to the root
of the matter but which does not amount to mere erroneous
application of the law. In short, what is not subsumed within
"the fundamental policy of Indian law", namely, the
contravention of a statute not linked to public policy or
public interest, cannot be brought in by the backdoor when it
comes to setting aside an award on the ground of patent
illegality.
39. Secondly, it is also made clear that re-appreciation of
evidence, which is what an appellate court is permitted to do,
cannot be permitted under the ground of patent illegality
appearing on the face of the award.
40. To elucidate, paragraph 42.1 of Associate
Builders (supra), namely, a mere contravention of the
substantive law of India, by itself, is no longer a ground
available to set aside an arbitral award. Paragraph 42.2
of Associate Builders (supra), however, would remain, for if
an arbitrator gives no reasons for an award and contravenes
Section 31(3) of the 1996 Act, that would certainly amount to
a patent illegality on the face of the award.
41. The change made in Section 28(3) by the Amendment Act
really follows what is stated in paragraphs 42.3 to 45
in Associate Builders (supra), namely, that the construction
of the terms of a contract is primarily for an arbitrator to
O.M.P. (COMM) 73/2018 Page 17
decide, unless the arbitrator construes the contract in a
manner that no fair-minded or reasonable person would; in
short, that the arbitrator's view is not even a possible view to
take. Also, if the arbitrator wanders outside the contract and
deals with matters not allotted to him, he commits an error of
jurisdiction. This ground of challenge will now fall within the
new ground added under Section 34(2A)."
25. Applying the above test to the facts of the present case, it is seen
that the Arbitrator has based his finding on the "Status for Intimation"
that was exhibited as Ex.PW1/8 before the Arbitrator. Only for the
purpose of convenience and relevance, a portion of the same is
reproduced hereinbelow:
Sl. Intimati Intimati Gas Location Work Durati Schedul Pneum Actual __ Conside LD
N on on arrived qty. on of ed atic completion __ red %
o. Letter Date(a) to to be Sched completi testing point for
No. Meerut cover ule on date date calculati
date/an ed (c) on
y other
docum
ent
date
(b)
1 1 21.08.20 Parta pur 1235 10 30.10.20 08.11. 04.07.2011 9 a&c 0.5
2 2 07.09.20 Mohkam 3924 10 16.11.20 02.02. 19.08.2011 79 a&c 0.5
phase 1
&2
3 3 10.09.20 Devlok 1779. 10 19.11.20 17.11. 25.08.2011 In a&c
10 colony 5 weeks 10 2010 ti
(B&C) Mtr. m
e
26. A reading of the above document would clearly show that the
completion date was certified by the Engineer-in-Charge based on
various sectors/areas of work. Based thereon, the liquidated damages
were also assessed by the Engineer-in-Charge. The said document
O.M.P. (COMM) 73/2018 Page 18
clearly negates the assertion of the learned senior counsel for the
petitioner that the work in question had to be treated as an "integrated
system". The learned Arbitrator found that not only were different
completion dates prescribed for each area of work, but also gas was
supplied using the pipelines at different periods. It is also to be noted that
the petitioner in its reply and counter claim also did not assert its
defence/counter claim on the basis of this being a case of "integrated
system". The reliance of the learned senior counsel for the petitioner on
a stray sentence in the cross examination of the witness of the respondent
purportedly admitting the work to be an "integrated system", cannot be
accepted as an estoppel or an admission of fact by the respondent so as to
find fault in the Impugned Award.
27. As far as the contention of the learned senior counsel for the
petitioner that the respondent itself had not completed the documentation
for issuance of the Completion Certificate, the Arbitrator in his Impugned
Award has held as under:
"In view of evidence on record as discussed above it is
crystal clear that claimant submitted bill dated 12.11.2013
after submission of completion and last commissioning and
handover done on 17.04.2013 vide ex. Pw 1/8 which has
been dully signed by the engineer in charge, WGKI. They
have also placed on proved on record ex. Pw 1/26 invoice to
the Krishan Cap Box P. Ltd. situated at Meerut which shows
that gas was supplied to them by the respondent after
handover and commissioning of the same by the claimant. It
is also proved on record that when MOM dated 26.06.2015
Ex Rw-1/13 was not complied with by the respondent by
releasing payment RA bill no -14, the claimant submitted
another final bill Ex Pw-1/5 dated 30.04.2016 for sum of Rs.
83,55,834/- which included RA 14 bill amount of Rs.
O.M.P. (COMM) 73/2018 Page 19
28,19,085/-. As such I decide the issue no.1 and hold that
claimant submitted the bill for Rs. 52,53,092/- dated
12.11.2013 after successful testing and commissioning of
the complete pipeline work. In view of the authority cited
above, there is no substance in the submission by Ld
Counsel that under clause 94.1 of GCC and clause 94.2 the
contract is eligible to present to final bill only after a
completion certificate has been issued to the claimant which
can only be issued when the work is actually measured by
the respondent. In the given circumstances no value can be
given to letter dated 03.05.2016 Ex.Rw-1/17 inviting the
claimant to undertake joint measurement of work before
submission of final bill which the claimant failed to do.
Similar is my opinion about letter dated 12.07.2016 Ex-Cw-
1/X2 with regard the document submitted by the claimant
which were lacking in terms of contract."
28. The above findings being arrived at by the Arbitrator on
appreciation of evidence led before him, cannot be challenged before this
Court by calling upon this Court to re-appreciate such evidence.
29. Having said so, the "Status for Intimation" also shows that for
certain area the defect as pointed out in the letter dated 06.05.2013 would
have been within the Defect Liability Period. The learned senior counsel
for the petitioner submits that for these areas as well, the defects have
been pointed out not only in the letter dated 06.05.2013 but also in the
subsequent meetings between the petitioner and the respondent.
However, the learned senior counsel for the petitioner has not been able
to co-relate such area with the letters pointing out the defects. In any
case, it is not shown that this was pleaded as a defence before the
Arbitrator. Certainly the Arbitrator cannot be faulted if an argument
based on a document is not made before him.
O.M.P. (COMM) 73/2018 Page 20
30. As far as the claim of liquidated damages in form of Price
Reduction Schedule is concerned, it is noted that the said claim was
raised only with the counter claim filed by the respondent. The counter
claim was filed by the respondent only on 20.08.2016. Therefore, again
no fault can be found with the finding of the Arbitrator on this counter
claim.
31. As far as the submission that the work of rectification has been
awarded to a third party, the Arbitrator has noted that no such
rectification work had been carried out till the date of the Award. In fact,
on a query being raised, the learned senior counsel for the petitioner
admitted that no such work had been carried out till date. The counter
claim of the petitioner towards rectification of alleged defects, therefore,
was clearly unsustainable and was rightly rejected by the Arbitrator.
32. The learned senior counsel for the petitioner further submits that
the letter dated 06.09.2010 of the respondent seeking permission from the
Engineer-in-Charge for the use of locally available yellow sand for the
purpose of sand padding, cannot be relied upon inasmuch as in the cross
examination of CW-1 dated 03.06.2017, the CW-1 admitted that there
was no written approval for the same from the Engineer-in-Charge. He
submits that as per Clause 60, any deviation from the contract has to be
approved by the petitioner and in the absence of such approval, the
Arbitrator has erred in not granting Counter Claim no.3 in favour of the
petitioner.
33. The Arbitrator has noted that the petitioner failed to prove any loss
on account of use of locally available sand for the purpose of sand
padding and in any case the respondent had got the samples approved by
O.M.P. (COMM) 73/2018 Page 21
the Engineer-in-Charge vide its letter dated 06.09.2010. In view of the
above finding, the Counter Claim of the petitioner is unsustainable and
was rightly rejected by the Arbitrator.
34. The learned senior counsel for the petitioner further submits that in
the Final Bill dated 31.04.2016 an amount of Rs.9,97,102/- was liable to
be deducted as the actual value of the work on the basis of as-Built
drawings was Rs.67,75,291.80 excluding tax, and not Rs.77,72,393.80 as
claimed in the bill. The same was pleaded before the Arbitrator in the
Rejoinder to the Counter-Claims as also in the evidence affidavit of Mr.
Ram Babu, that is the representative of the petitioner. He further submits
that an amount of Rs.80,000/- which was deducted from RA bill no. 7 as
also of Rs.50,000/- which was deducted from the RA Bill no. 8, could not
have been claimed in the final bill as both the above bills stood paid on
13.12.2011 and 19.03.2012, respectively. The Arbitrator having
completely failed to give any finding in this regard, the Award is liable to
be set aside.
35. I am unable to accept the above arguments of the learned senior
counsel for the petitioner. Issues framed by the learned Arbitrator have
been culled out in the Impugned Award. There was no issue framed
before the learned Arbitrator with respect to the alleged discrepancy in
the final payment. In fact, even in the pleadings, I do not find any such
submissions having been made by the petitioner. The Award cannot be
challenged on a new plea being raised before this Court especially when
the plea involves disputed question of facts.
O.M.P. (COMM) 73/2018 Page 22
36. The next challenge of the petitioner is with respect to the claim of
the respondent towards procurement of Warning Mat of the specification
of 300*1 mm instead of 200*3 mm as stipulated for in the contract.
37. The learned counsel for the petitioner submits that the arbitrator
failed to consider that the claim of the respondent was expressly barred
by limitation. He submits that with its letter dated 28.07.2010, the issue
of Warning Mat was treated as closed and the respondent never raised
any demand towards the same till the filing of its Statement of Claim on
12.07.2016. He further submits that, in any case, the respondent had
claimed an amount of Rs.5,98,878/- for the said claim as per Appendix
H filed before the Arbitrator and the Arbitrator has erroneously awarded
an amount of Rs.7,33,634/- for the same. Therefore, the award in this
respect cannot be sustained.
38. The Arbitrator on the issue of Warning Mat has held as under:-
"After consideration of submission of the parties I am of
the opinion that neither the claim is for additional
payment for additional work for which notice is required.
The respondent has not denied that no such amount as
claimed by the claimant is an additional amount claimed
as the mat of superior quality was procure and used under
protest in term of email ex pw -1/22 (coly) and ex pw -
1/23. Further, more the claimant has claimed for the
entire length of open cut trench RM 40541.00 as per Gail
Gas report. EX. Pw-1/27. The argument that the claimant
itself admit warning mat of size 300 X 1mm was a PTS
(Particular Technical Specification) and that size 200x0.3
mm was a technical specification.
Therefore, as per order of precedence set out in clause 1.6
of SCC, the specification of size 300 X 1 mm would prevail
goes against the respondent as no contractor would use
O.M.P. (COMM) 73/2018 Page 23
the warning mat of bigger size of 300x1mm at his cost and
risk."
39. I do not see any reason to interfere with the finding of the learned
Arbitrator except to the fact that the learned Arbitrator has erred in
awarding a sum of Rs.7,33,634/- to the respondent when the claim of the
respondent was only for Rs.5,98,878/-. The Award would therefore stand
modified to the said limited extent.
40. The next challenge of the petitioner is to the award of
Rs.5,85,000/- to the respondent towards rent for storage and handling of
material at the stockyard of the respondent.
41. The learned senior counsel for the petitioner submits that the
contract does not permit the respondent to claim any amount towards rent
and even otherwise the respondent failed to prove the rent receipts which
were not even in the name of the petitioner but in the name of
Mr.Ashwani Goyal, Manager of the respondent company. He further
submits that the claim relates to the year 2010-2011 and is therefore,
barred by limitation.
42. The Arbitrator has held as under:-
"It has been argued by representative of claimant that vide Ex. Cw-
1/X10 the respondent inform total 88,460 RM of MDPE pipe was
issued to the claimant towards handling and storage for pipeline
works at Meerut. Out of the said quantity only 59736.50 RM were
required to be consumed in work. Ballance quantity of 26,051.51
RM of pipe has been either issued to other contractor by Respondent
or returned back to CWC Ghaziabad store yard. The email dated
21.09.10, 23.04.11, 19.09.12 and letter dated 22.07.13 Ex Pw-1/15
further proved the pipes were unloaded in the warehouse in 2010
and some more pipes latter on without any specific detail where as
O.M.P. (COMM) 73/2018 Page 24
clause 28.1 states location of dumpyard/ store yard location city
wise "for Meerut it is CWC Ghaziabad and there was no any store-
yard at Meerut by the respondent." The rent receipt paid by
representative of the claimant was no doubt for personal use but as
discuss about extra pipe were kept by the claimant in his rented
store yard which was belonging to respondent. It cannot be said by
the respondent that the claim is not maintainable as is based on
false and fabricated documents. In fact the email and rent receipt
coupled with deposition of the claimant has proved on record that
unloading and dumping outside the scope of work were done by the
respondent in the store yard of the claimant. Hence the issue is
decided and claimant is held entitled to sum of Rs. 5,85,000.00/-
towards extra expenditure"
43. I have considered the above submission of the learned senior
counsel for the petitioner, clearly the contract between the parties was not
one of lease of space. It had also not been pleaded before the learned
Arbitrator that such claim was raised by the respondent any time before
filing of the Statement of Claim. Even if the said claim was to be raised,
there had to be prior negotiation or at least acceptance of the petitioner to
such liability. As far as the Award of this Claim of the respondent is
concerned, the same was clearly beyond the scope of the Arbitrator,
being beyond the scope of the Agreement itself. The same cannot,
therefore, be sustained.
44. The petitioner further challenges the Award of Rs.1,04,602/-
towards extra expenditure incurred on installing the RCC Marker of
bigger size than specified in the contract. The learned senior counsel for
the petitioner submits that the only basis for awarding the said amount
was Appendix C filed by the respondent without any supporting
documents for the proof of the costs. He submits that the rates for RCC
O.M.P. (COMM) 73/2018 Page 25
Marker were changed from Rs.1600/- to Rs.444/- as admitted by RW-1 in
its cross examination and even the Final bill raised by the respondent was
in accordance with the revised rate of Rs.444/-. He submits that therefore,
the amount mentioned in Appendix C on which the claim of the
respondent was based, was not proved. The learned counsel for the
petitioner submits that the letter dated 22.10.2011, relied upon by the
respondent to show that it had the petitioner‟s consent, was false and
fabricated. He submits that the same bears the name of one Mr. Rajesh
Srivastava who is not the competent authority under the contract. He
further relies upon the cross examination of CW-1 on 29.04.2017 to
submit that no approval for changing the technical specifications for the
RCC markers was sought; in absence of the same the claim of the
respondent could not have been granted by the Arbitrator. In any case,
the respondent raised no such claim prior to filling of the Statement of
Claim and therefore, the said claim is a complete afterthought and barred
by limitation.
45. Learned senior counsel for the respondent could not deny the
above submissions of the learned senior counsel for the petitioner that the
Final Bill had been raised with the revised rate of Rs.444/- and that no
such claim was raised at the time of filing the Final Bill. The letter dated
22.10.2011 had been denied by the petitioner. There is no mention in the
Award as to how this document was considered as being proved by the
respondent. In view of the above, the finding of the learned Arbitrator on
this claim of the respondent cannot also be sustained and is set aside.
O.M.P. (COMM) 73/2018 Page 26
46. In view of the above findings, the petition is partially allowed. The
parties shall bear their own costs.
NAVIN CHAWLA, J
NOVEMBER 27, 2019/rv
O.M.P. (COMM) 73/2018 Page 27
