Delhi High Court
Union Of India vs M/S Satish Builders on 14 May, 2020
$~
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Reserved on: 21st November, 2019
Pronounced on: 14th May, 2020
+ O.M.P.(COMM) 156/2017
UNION OF INDIA ..... Petitioner
Through: Mr.Ripu Daman Bhardwaj,
CGSC with Mr.T.P.Singh,
Advocate with Mr.Ashok
Kumar Suneja & Mr.Charanjeet
Lal, Officials.
versus
M/S SATISH BUILDERS ..... Respondent
Through: Mr.Sunil K.Mittal, Mr.Anshul
Mittal & Mr.Harshit Vashisht,
Advocates.
%
CORAM:
HON'BLE MR. JUSTICE PRATEEK JALAN
JUDGMENT
1. This petition under Section 34 of the Arbitration & Conciliation
Act, 1996 [hereinafter, "the Act"], has been filed by the Central Public
Works Department, Union of India [hereinafter, "CPWD"] against an
award dated 22.02.2011 rendered by a sole arbitrator.
Facts
2. The arbitral proceedings arose out of an agreement between the
parties dated 24.05.2003, pursuant to a tender floated by CPWD in
February, 2003. The contract was for civil and electrification work for
62 family quarters for CRPF Academy at Kadirpur, District Gurgaon.
It was awarded to the respondent by a letter dated 24.05.2003 and was
to be completed within fifteen months from the starting date of
03.06.2003, i.e. by 02.09.2004. The negotiated amount payable to the
respondent under the tender was ₹2,04,14,910/-. The contract was not
completed within the stipulated time, for which each of the parties
placed responsibility upon the other. This led to the rescission of the
contract by CPWD on 24.09.2005 and to the invocation of arbitration
by the respondent under clause 25 of the agreement. Mr. Chandra Pal,
a former Additional Director General of CPWD was appointed as the
arbitrator.
3. In the statement of claims filed before the arbitrator, the
respondent detailed the allegations against the CPWD and raised
eighteen claims against it. The heads of the claims are summarised
below:
Claim Particulars Amount
No.
1. Work executed but not paid.
a) Civil ₹8,77,140.84
b) Electric ₹1,79,280.00
Total: ₹10,56,420.84
2. Amount withheld due to non- ₹6,18,000/-
achievement of milestones.
3. Damages on account of deployment ₹2,40,000/-
of personnel during extended period
[September, 2004-February, 2005]
4. Damages for idling/under utilization ₹13,84,902/-
of tools and machinery.
5. Release of performance bank ₹10,20,250/-
guarantee.
6. Refund of security deposit. ₹15,33,092/-
7. Loss of profits. ₹16,44,550/-
8. Escalation in the value of work ₹3,80,219/-
during the extended period of the
contract.
9. Excess interest on mobilization ₹64,607/-
advance.
10. Interest on performance guarantee. ₹10,20,750/-
11. Interest on delayed payment of bills. ₹37,145/-
12. Interest on payment for extra work ₹7,188.18
done.
13. Due under clause 10 CC during the ₹10,67,102/-
stipulated period of completion.
14. Refund of interest paid on ₹10,00,000/-
mobilization advance.
15. Refund of bank charges towards ₹91,881/-
bank guarantee.
16. Refund of bank charges for release ₹24,158/-
of bank guarantees.
17. Interest on all due amounts. 18% interest on
all the due
amounts
18. Costs. ₹2,00,000/-
4. In the counter statement of facts filed before the arbitrator, the
CPWD denied each of the claims on merits contending that the delay
was in fact attributable to the respondent. In addition, CPWD made
five counter claims, as summarized below:
Counter Particulars Amount
Claim No.
CC-1. Completion of balance work at risk ₹31,55,439/-
and cost of respondent.
CC-2. Compensation under clause 2 of the ₹20,41,491/-
agreement.
CC-3. Claim under bank guarantee. ₹10,20,750/-
CC-4. Interest. @18%
per annum
CC-5. Costs. ₹50,000/-
5. Upon a consideration of the claims and counter claims, the
arbitrator has rendered a finding that the delay was attributable to both
the parties and the repudiation of the contract was not the most
appropriate alternative available to the CPWD. The arbitrator has
regarded it as just and reasonable to treat the contract as closed and
settle the accounts in a fair and equitable manner. Applying this
yardstick, he has awarded a sum of ₹22,22,990/- [plus interest] in
favour of the respondent as follows:
Claim No.1 (civil) ₹85,032/-
(electrical) ₹22,750/-
Claim No.2. ₹6,00,000/- + interest
@ 9% per annum
Claim No.3. ₹1,02,000/-
Claim No.4. ₹3,40,000/-
Claim No.5. Not adjudicated as the matter was
sub judice
Claim No.6. ₹9,95,208/- + interest
@ 9% per annum
Claim No.7. Nil
Claim No.8. ₹78,000/-
Claim No.9. Nil
Claim No.10. Nil
Claim No.11. Nil
Claim No.12. Nil
Claim No.13. Nil
Claim No.14. Nil
Claim No.15. Nil
Claim No.16. Nil
Claim No.17. Interest @ 9% per annum
Claim No.18. Nil
Counter Claim No.1. Nil
Counter Claim No.2. Nil
Counter Claim No.3. Not adjudicated as the matter was
sub judice.
Counter Claim No.4. Nil
Counter Claim No.5. Nil.
6. In the present petition, the CPWD has challenged the award in
respect of all the claims awarded [Claims No.1, 2, 3, 4, 6, 8 & 17] and
also in respect of counter claim Nos. 1, 2, 4 & 5.
Submissions
7. The principal grievance of CPWD, advanced by Mr. Ripu
Daman Bhardwaj, learned counsel, is that the arbitrator has erred in
holding that (a) the parties were both responsible for the delay in
completing the contract, and (b) that the rescission of the contract by
the CPWD was inappropriate. He submitted in the alternative that,
even on the arbitrator's reasoning that both parties were responsible
for the delay, the arbitrator was unjustified in allowing the
respondent's claims partially while rejecting all the counter claims
altogether. On facts, Mr. Bhardwaj submitted that 75% of the site was
handed over to the respondent on 03.06.2003 alongwith the final
drawings for execution of the work on that portion of the site. The
remainder of the site was handed over on 25.08.2003, by which time
the respondent had not even commenced work on the part of the site
handed over earlier. He referred to the materials on record to submit
that the required advances were released to the respondent well in time
and that the delay was occasioned by inadequate deployment of labour
and resources by the respondent. Mr. Bhardwaj contended that the
arbitrator had ignored clause 5 of the agreement which was with
regard to the milestones required to be achieved and the consequences
of failure to achieve those milestones. With regard to claim no. 8
awarded by the arbitrator, Mr. Bhardwaj contended that the formula in
Clause 10CC of the General Conditions of Contract for CPWD is
inapplicable to the agreement in question and had been erroneously
applied by the arbitrator. Reliance has been placed by him on State of
Orissa vs. Sudhakar Das (dead) by LRs (2000) 3 SCC 27 in this
regard.
8. Mr. Sunil Mittal, learned counsel for the respondent submitted
that the impugned award is based on a consideration of the evidence
before the arbitrator and these findings are not liable to be set aside on
the grounds permitted under Section 34 of the Act. He emphasised that
the arbitrator was an engineer and an expert in the field. Mr. Mittal
submitted that the counter claims were different in nature from the
claims raised by the respondent herein, inasmuch as the respondent's
claims were for compensation for work actually done whereas the
petitioner's counter claims were in fact by way of damages arising out
of the termination of the contract, which the arbitrator had held
invalid. He also pointed out that the petitioner had conceded before the
arbitrator that counter claim no.2 was beyond the scope of arbitration.
Mr. Mittal submitted that the award on claim no. 8 [with regard to
escalation] was justified, relying inter alia upon the decision of the
Supreme Court in K.N. Sathyapalan (Dead) by LRs. vs. State of
Kerala & Anr. (2007) 13 SCC 43.
Analysis
Scope of Interference under Section 34 of the Act:
9. It must be noted at the outset that the scope of interference by
the Court under Section 34 of the Act is extremely limited.
The principles upon which an arbitral award must be tested have been
laid down by the Supreme Court inter alia in Associate Builders vs.
Delhi Development Authority (2015) 3 SCC 49 and Ssangyong
Engineering & Construction Co. Ltd. vs. National Highways Authority
of India (2019) 15 SCC 131.
10. In Associate Builders (supra) the Court held inter alia as
follows:-
"17. It will be seen that none of the grounds contained
in sub-section (2)(a) of Section 34 deal with the merits of
the decision rendered by an arbitral award. It is only
when we come to the award being in conflict with the
public policy in India that the merits of an arbitral award
are to be looked into under certain specified
circumstances.
xxxx xxxx xxxx
29. It is clear that the juristic principle of a "judicial
approach" demands that a decision be fair, reasonable
and objective. On the obverse side, anything arbitrary
and whimsical would obviously not be a determination
which would either be fair, reasonable or objective.
30. The audi alteram partem principle which
undoubtedly is a fundamental juristic principle in Indian
law is also contained in Sections 18 and 34(2)(a)(iii) of
the Arbitration and Conciliation Act.
xxxx xxxx xxxx
31. The third juristic principle is that a decision which
is perverse or so irrational that no reasonable person
would have arrived at the same is important and requires
some degree of explanation. It is settled law that where:
(i) a finding is based on no evidence, or
(ii) an Arbitral Tribunal takes into account
something irrelevant to the decision which it
arrives at; or
(iii) ignores vital evidence in arriving at its
decision, such decision would necessarily be
perverse.
xxxx xxxx xxxx
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. Once it is found that the arbitrators approach is
not arbitrary or capricious, then he is the last word on
facts....
xxxx xxxx xxxx
42. In the 1996 Act, this principle is substituted by the
"patent illegality" principle which, in turn, contains
three subheads:
42.1 (a) A contravention of the substantive law of India
would result in the death knell of an arbitral award. This
must be understood in the sense that such illegality must
go to the root of the matter and cannot be of a trivial
nature. This again is really a contravention of Section
28(1)(a) of the Act, which reads as under:
xxxx xxxx xxxx
42.2 (b) A contravention of the Arbitration Act itself
would be regarded as a patent illegality - for example if
an arbitrator gives no reasons for an award in
contravention of Section 31(3) of the Act, such award will
be liable to be set aside.
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:
xxxx xxxx xxxx
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."
11. In Ssangyong Engineering (supra), these principles have been
reiterated in the following terms:-
"37. Insofar as domestic awards made in India are
concerned, an additional ground is now available under
sub-section (2-A), 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.
38. Secondly, it is also made clear that reappreciation
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.
39. To elucidate, para 42.1 of Associate Builders,
namely, a mere contravention of the substantive law of
India, by itself, is no longer a ground available to set
aside an arbitral award. Para 42.2 of Associate Builders,
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.
40. The change made in Section 28(3) by the
Amendment Act really follows what is stated in paras
42.3 to 45 in Associate Builders, namely, that the
construction of the terms of a contract is primarily for an
arbitrator to 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(2-A).
41. What is important to note is that a decision which
is perverse, as understood in paras 31 and 32
of Associate Builders, while no longer being a ground for
challenge under "public policy of India", would certainly
amount to a patent illegality appearing on the face of the
award. Thus, a finding based on no evidence at all or an
award which ignores vital evidence in arriving at its
decision would be perverse and liable to be set aside on
the ground of patent illegality. Additionally, a finding
based on documents taken behind the back of the parties
by the arbitrator would also qualify as a decision based
on no evidence inasmuch as such decision is not based on
evidence led by the parties, and therefore, would also
have to be characterised as perverse.
42. Given the fact that the amended Act will now
apply, and that the "patent illegality" ground for setting
aside arbitral awards in international commercial
arbitrations will not apply, it is necessary to advert to the
grounds contained in Sections 34(2)(a)(iii) and (iv) as
applicable to the facts of the present case."
Background Issues determined by the Arbitrator:
12. Applying these principles to the present case, I find that, before
dealing with the particular claims and counter claims, the arbitrator
has examined three background issues - (i) responsibility for delay in
execution of the work, (ii) justification for withholding of amounts on
account of not achieving milestones and, (iii) justification for
rescission of the contract. On each of these issues, the finding of the
arbitrator turns on an appreciation of the evidence placed before him.
He has examined the drawing register and site order book to come to
the conclusion that there was partial delay in the respondent furnishing
the lay out plans. He has also found some delay in respect of handing
over of the site for Type-III quarters and that subsequent change in the
plinth level of Type-III quarters, and other changes in decisions by the
CPWD, could also contribute to partial delay. The arbitrator has
similarly found some delays attributable to the respondent and
therefore returned the finding that both parties are responsible for
delay. The aforesaid findings of the arbitrator make express reference
to the materials which he has considered. As held by the Supreme
Court (inter alia in Ssangyong Engineering, cited above) the re-
appreciation of the evidence laid before the arbitrator is beyond the
scope of proceedings for setting aside an award. The award can be set
aside only if it is found to be entirely unsupported by evidence or in
disregard of material evidence or otherwise perverse in the sense that
no reasonable person could have returned the finding given by the
arbitrator. In the present case, the finding of the arbitrator with regard
to the responsibility for the delay does not suffer from any of these
defects. In addition, the arbitrator was an expert in the field and
awards of experts, at least on the technical aspect of the matter, are
entitled to particular deference. Reference in this connection may be
made to Delhi Development Authority vs. Madan Construction
Company (2008) 1 Arb.LR 499 (paragraph 9) and IRCON
International Limited vs. Arvind Construction Company Ltd. & Anr.
(1999) 81 DLT 268 (paragraph 10). To apportion the delay to both
parties found responsible is also within the province of the arbitrator,
as held by this Court, inter alia, in M/s Deconar Services Pvt. Ltd. vs.
National Thermal Power Corporation [O.M.P 254/2000, decided on
16.12.2009].
13. Similarly, on the question of achievement of milestones, the
arbitrator has come to the conclusion that the progress recorded by the
respondent with regard to the first milestone was reasonable in view of
the site conditions, and that the achievement of the second and the
third milestones were impeded by hindrances for which the CPWD
was at least partially responsible. These conclusions follow from the
arbitrator's findings on delay and do not call for any interference.
14. It is for the same reason that the rescission of the contract has
been found unjustified. Having come to the conclusion that both
parties were responsible for the delay, the arbitrator has reasoned that
the contract could not have been unilaterally rescinded. The approach
of the arbitrator, treating the contract as closed and working out the
rights and liabilities of parties on that basis was not an unreasonable
or fanciful approach and is therefore not vulnerable to scrutiny under
34 of the Act.
15. The arbitrator's award on each of the specific claims and
counter claims is a corollary to the background findings dealt with
above. The arbitrator has proceeded to consider the claims and
counter claims on the basis that the respondent is required to be
compensated for the work actually carried out by it, and neither party
is entitled to damages against the other. As far as the additional claims
of the respondent are concerned [on account of escalation etc.], those
have been awarded to the extent of 50%, i.e. each of the parties bears
50% of the additional burden caused by the delay.
16. I am not impressed by Mr. Bhardwaj's submission that the
claims and counter claims have been treated unequally. The award of
50% of the claims to the respondent is on the basis that the respondent
was compelled to incur extra expenditure during the extended period
of the contract, for which the parties ought to share the burden. The
counter claims, particularly with regard to the balance work having
been completed at the risk and cost of the respondent, on the other
hand, are predicated upon the lawful termination of the contract. The
arbitrator clearly found the rescission to be unjustified and the counter
claims of CPWD, which had arisen only as a consequence of the
rescission, were therefore rightly disallowed.
Award on Impugned Claims:
17. Returning now to the specific claims and counter claims, I find
that the respondent's claim of approximately ₹10.56 lakhs towards
civil and electrical work executed but not paid [claim no. 1] for has
been allowed by the arbitrator to the extent of ₹1.07 lakhs. The
arbitrator has considered the claim with regard to the civil work in
Part A of the award and with regard to electrical award in Part B of
the award. In both cases, the arbitrator has examined the
correspondence and the bills submitted by the respondent. For the
civil work, he has relied upon the measurement taken by the CPWD
itself which showed that the value of work done since the previous bill
was ₹1,21,765/- out of which recoveries of ₹36,733 have been found
permissible. As far as electric work is concerned also, the arbitrator
has accepted the gross amount worked out in the final bill prepared by
the CPWD. He has permitted statutory recovery and recovery for
material received from CPWD. The arbitrator's discussion on both
aspects of this claim is entirely factual and his findings turn on an
appreciation of the evidence. No interference under Section 34 is
called for.
18. With regard to claim no.2 [refund of the amounts withheld for
failure to achieve the milestones], a sum of ₹6,00,000/- was withheld
from the respondent's invoices in three installments of ₹2,00,000/-
each for failure to achieve three milestones. In the written submissions
filed by Mr. Bhardwaj, it is contended that the award on this account
is beyond the terms of the contract. These withholdings were based on
the contractual provision appearing in clause 5, flyleaf no. 5 of the
agreement which contains the following table:-
"(i) Fly Leaf no.5 for clause 5 on page 43 of
Agreement, amount to be withheld if stage is not achieved
is as follows:
Milestone Stage Amount to be
with held if
stage is not
achieved
Milestone 1 1/8th of work in 1/4th time Rs.2.00.000/-
Milestone 2 3/8th of work in ½ time Rs.2.00.00/-
Milestone 3 3/4th work in 3/4th time Rs.2.00.000/-
"
19. While awarding refund of these amounts with interest, the
arbitrator has noticed that the site conditions and hindrances justified
the imposition of a lower milestone [with respect to the first
milestone] and could not support withholding of amounts on this
account for any of the milestones. The logic of the award is that the
contractor cannot be penalized for failure to achieve milestones which
are either unreasonably set or unachievable due to hindrances for
which the CPWD itself was wholly or partially responsible. This
reasoning cannot be said to be absurd or perverse justifying
interference under Section 34 of the Act. The arbitrator's finding is
based on an interpretation of the contract and appreciation of the
evidence. Both these considerations were well within his jurisdiction.
20. Claim nos. 3 and 4 were respectively for ₹2,40,000/- and
₹13,84,902/- on account of deployment of personnel during the
extended period of the contract and for idling/under utilisation of tools
and machinery. The arbitrator has examined the justification offered
by the respondent for the said claims and, to the extent the claims
were found justified, half of the amount has been attributed to the
respondent itself and the award has been made for the balance. Such
apportionment has been held by this Court in M/s Deconar Services
(supra) [paragraph 8] to be permissible. There is no reason to interfere
with the award on this count.
21. Claim no. 6 [refund of security deposit] has been partially
allowed on the reasoning that the contract is required to be treated as
closed and the accounts had been settled between the parties. Having
upheld the above finding, I do not find any ground to interfere with
the award on this claim.
22. Claim No.8 is predicated upon the respondent's contention that
it is liable to be compensated for the escalation after the stipulated
date of completion. The contention of the CPWD is that under the
contract in question Clause 10CC of the General Conditions of
Contract for CPWD was inapplicable and the respondent was not
entitled to escalation. The Division Bench judgment of this Court in
Anurodh Constructions vs. Delhi Development Authority & Anr.
(2005) 84 DRJ 314 [paragraphs 9 to 11] makes it clear that Clause
10CC of the General Conditions of Contract for CPWD can be
applied for computation of the amount payable even when the clause
is itself not applicable and the damages have been awarded under
Section 73 of the Indian Contract Act, 1872. As the arbitrator has
rendered a specific finding in the present case that both the parties are
responsible for the delay thus, the judgment in Sudhakar Das (dead)
(supra) cited by Mr. Bhardwaj is not applicable.
23. Mr. Mittal, learned counsel for the respondent, relied in this
connection upon the decision of the Supreme Court in
K.N.Sathyapalan (supra). In the said judgment [paragraphs 31 and
32], the Supreme Court has upheld the grant of escalation for the
period beyond the stipulated date of completion of the contract when
the blame for the delay was not attributable to the contractor alone.
The objection of the CPWD in the present case is therefore rejected.
24. Claim no. 17 for interest was awarded at the rate of interest of
9% p.a. on the allowed claim, no specific challenge has been pressed
in this regard.
Award on Impugned Counter Claims:
25. Counter claim no. 1 [both in respect of civil work and electrical
work] is based on the contract given by the CPWD to a third party for
executing the balance work after the rescission of the contract with the
respondent. As stated hereinabove, the rescission having been held to
be invalid, the rejection of the counter claim on this account was
justified.
26. As far as counter claim No.2 is concerned, although the prayers
in the petition include a challenge to the rejection of the said counter
claim, the same was neither urged in oral arguments nor pressed in the
written submissions. It is also recorded in the impugned award that, at
the hearing on 17.04.2010, both parties had agreed that levy of
compensation under clause 2 of the agreement is non-arbitrable. The
grounds in the petition, insofar as they relate to counter claim No.2,
do not challenge this recording in the impugned award. The impugned
award on this ground, therefore, does not call for interference.
27. Counter claims no. 4 and 5 are for interest and costs
respectively. As the CPWD has not succeeded in any of its substantive
counter claims, the challenge to the award on these counter claims
does not survive.
Conclusion
28. In view of the aforesaid, the petitioner has failed to make out
any ground for any ground for interference with the award under
Section 34 of the Act. The petition is therefore dismissed.
PRATEEK JALAN, J.
MAY 14, 2020
'hkaur'
