Delhi High Court
National Highway Authority Of ... vs Continental Engineering ... on 6 October, 2022
$~24
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Date of Decision: 06th October, 2022
+ O.M.P. (COMM) 426/2018 & I.A. 13900/2018
NATIONAL HIGHWAY AUTHORITY OF INDIA
..... Petitioner
Through: Ms. Nivedita Nair and Ms.
Asha Gopalan Nair, Advocates.
versus
CONTINENTAL ENGINEERING
CORPORATION (CEC) ..... Respondent
Through: Dr. Amit George, Mr. Kunal
Kher, Mr. Amol Acharya and
Mr. Rayadurgam Bharat,
Advocates.
CORAM:
HON'BLE MR. JUSTICE PRATEEK JALAN
PRATEEK JALAN, J. (ORAL)
%
1. The present petition under Section 34 of the Arbitration and
Conciliation Act, 1996, [hereinafter, "the Act"] is directed against an
arbitral award dated 08.06.2018 by which a three member tribunal
adjudicated disputes arising out of a contract dated 20.02.2007 for
work of "Rehabilitation and upgrading of existing 2-lane road to 4-
lane divided carriageway configuration from km 293.400 to km
336.000 Hyderabad-Bangalore section of NH-7 in the State of Andhra
Signature Not Verified
Digitally signed By:SHITU
NAGPAL
Signing Date:10.10.2022
Pradesh on North-South Corridor, Contract Package No. /ADB-II/C-
12" [hereinafter, "the Contract"].
2. The challenge of the petitioner - National Highways Authority
of India [hereinafter, "NHAI"] is restricted to two claims which were
awarded by the Tribunal against it:
a. Claim No.1: Payment of 150 mm thick embankment
quantity under Bill of Quantities [hereinafter, "BOQ"] item
No. 2.04.
b. Claim No. 3: Non-payment of BOQ item No. 5.15 for
providing and laying M-15 grade concrete in pipe bedding.
3. Ms. Nivedita Nair, learned counsel for the NHAI, submits that
the award on both these claims is contrary to the terms of the Contract,
as the activities for which the award has been made were already
covered under other items of the BOQ.
4. As far as claim No. 1 is concerned, Ms. Nair contends that,
since the respondent has already been paid for "clearing and grubbing"
under BOQ item No. 1.01, the grant of the claim for embankment
under BOQ item No. 2.04 was not permissible. According to NHAI,
"clearing and grubbing" activity includes backfilling, and grant of
both items of the BOQ amounts to double recovery on the part of the
respondent.
5. As far as claim No. 3 is concerned, the principal submission of
Ms. Nair is that no amount was liable to be awarded under BOQ item
No. 5.15 as the work to be done was covered under BOQ item No.
5.14. She draws my attention to two items of the BOQ [at page 424 of
the petitioner's documents] which are listed as follows:-
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Digitally signed By:SHITU
NAGPAL
Signing Date:10.10.2022
Item Description Unit Estimated Unit Rate (Rs.) Amount Rs.
No.
Quantity in In words (in figures)
figures
5.14 Providing laying
and jointing RCC
NP-4 Pipe (as per
IS:458-2002) for
culverts including
testing complete
as per drawings
and Technical
Specifications
Section 2900
a) Dia 1000 m 1491 6100/- Six 9095100/-
mm thousand
one
hundred
only
b) Dia 1200 m 1389 8410/- Eight 11681490/-
mm thousand
four
hundred
ten only
5.15 Providing and cum 2054 2440/- Two 5011760/-
laying M 15 grade thousand
concrete in pipe four
bedding as per hundred
drawing and fourty
Technical
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Digitally signed By:SHITU
NAGPAL
Signing Date:10.10.2022
Specifications only
Section 2900
6. According to Ms. Nair, by an amendment to the technical
specifications, the following provision was incorporated in Clause
2911 of the amended technical specifications: -
"Clause 2911 Rate
The first paragraph under this
Sub Clause shall be read as :
The Contract unit rate for the
pipes shall include the cost of
pipes including loading,
unloading, hauling, storing,
laying in position, jointing
and cement concrete bedding
below the pipe complete and
all incidental costs to
complete the work as per
these specifications."
7. Ms. Nair submits that the award of the respondent's claim under
BOQ item No. 5.15 separately by the arbitral tribunal is directly in the
teeth of Clause 2911 of the amended technical specifications which
provides that the contract unit rate of the pipes shall inter alia, include
the cement concrete bedding below the pipe.
8. Dr. Amit George, learned counsel for the respondent, at the very
outset, submits that the aforesaid grounds of challenge are not
available in the present case as the respondent is an entity incorporated
in Taiwan, and the award under challenge is thus rendered in an
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Digitally signed By:SHITU
NAGPAL
Signing Date:10.10.2022
"international commercial arbitration", within the meaning of Section
2(1)(f) of the Act. In such a case, Dr. George submits that the grounds
of challenge are limited to those specified in Section 34(2) of the Act,
and the ground of patent illegality provided in Section 34(2A)1 would
not be available to the NHAI. In support of this contention, Dr.
George cites a judgment of a Coordinate Bench of this Court between
the same parties in National Highways Authority of India vs.
Continental Engineering Corporation (CEC)2.
9. Without prejudice to the aforesaid contention, Dr. George
submits that the conclusion of the arbitral tribunal on claim No. 1 is
based entirely on the evidence and does not warrant interference under
any ground specified in Section 34 of the Act. He draws my attention
to paragraphs 1.21 and 1.22 of the award which read as follows: -
"1.21 During 7th hearing held on 12.12.2017, the
respondent clarified that as per records, the
measurements of the embankment carried out
under BOQ item No. 2.04 have been taken by the
Engineer from OGL obtained after the 'clearing
and grubbing' operation and that the deduction of
150mm thickness was made from the
measurements of 1st layer of embankment executed
above OGL and that no excavation was carried out
after 'clearing and grubbing' operation.
1.22 On the basis unassailable evidence in paras
above, it is held that the 1st layer is a part of the
embankment constructed under BOQ item No.
2.04, as neither excavation upto a maximum depth
of 150 mm after 'clearing and grubbing' was
Inserted by the Arbitration and Conciliation (Amendment) Act, 2015 [w.e.f. 23.10.2015].
Judgment dated 13.04.2022 in O.M.P.(COMM) 422/2019.
Signature Not Verified
Digitally signed By:SHITU
NAGPAL
Signing Date:10.10.2022
required to be done under item No. 1.01 (there
being no instruction of Engineer on record to do
so) nor was it done as admitted by the respondent
in 7th hearing) and as a consequence no back
filling was involved. Accordingly, it is held that
entire work done is the embankment above OGL
·for which· the claimant is entitled to be paid
under BOQ item No. 2.04 without making any
deduction. Thus the claim is held as tenable."3
Additionally, Dr. George cites the judgment of the Division Bench of
this Court in National Highways Authority of India vs. Hindustan
Construction Company Ltd.4 wherein a claim on a similar ground was
upheld by the Division Bench.
10. On claim No. 3, Dr. George submits that the arguments raised
by the NHAI before this Court have been duly considered in
paragraphs 3.30 and 3.31 of the award which read as follows: -
"3.30 The respondent while framing the
Contract/BOQ and inviting bids sought for
separate rates for items BOQ 5.14 & 5.15. The
unit and quantities for both these items are
different. The claimant submitted separate rates
for BOQ items 5.14 & 5.15 and the respondent
accepted the same and thus the Contract
Agreement was concluded. Thus, both BOQ item
5.14 & 5.15 are clear in terms of quantity as well
as rates.
3.31 Supplementary Technical Specifications
Clause 2910 & Clause 2911 at page 240 of
Contract Agreement are conflicting. In Clause
2910, it is laid down, that, cement concrete
bedding shall be measured separately, meaning
Emphasis supplied.
2012 SCC OnLine Del 5832 [paragraphs 13 and 14].
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Digitally signed By:SHITU
NAGPAL
Signing Date:10.10.2022
thereby that, if it is so, then it is meant for
payment purposes only & there cannot be any
other purpose for this measurement."
11. He submits that items 5.14 and 5.15 of BOQ are distinct and the
rates quoted by the bidders in each case is also distinct. He relies upon
the Division Bench judgment of this Court in National Highways
Authority of India vs. M/s Lanco Infractech Ltd.5 to submit that the
arbitral tribunal has correctly held that any ambiguity in the
contractual terms must be resolved against the draftsman.
12. In rejoinder, Ms. Nair distinguishes the Division Bench
judgment in Hindustan Construction Company Ltd.6, on the ground
that in the said judgment it was found that no backfilling was carried
out as a part of "clearing and grubbing" activity. She contends that, on
the contrary, backfilling was an important component of the activity to
be carried out in the present case. Although it has been submitted by
Ms. Nair that this issue is pending before the Supreme Court in a batch
of petitions, including a challenge to the judgment of the Division
Bench in Hindustan Construction Company Ltd., it is not suggested
that the judgment has been stayed by the Supreme Court.
13. Having heard learned counsel for the parties, I am of the view
that no ground for interference with the impugned award is made out.
At the outset, it is not disputed that the present award is rendered in an
international commercial arbitration, within the meaning of Section
2(1)(f) of the Act. The ground of patent illegality provided in Section
Judgment dated 07.03.2014 in FAO(OS) 34/2006.
Supra (note 4).
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Digitally signed By:SHITU
NAGPAL
Signing Date:10.10.2022
34(2A) is, therefore, not available to the NHAI, and interference can
only be justified if the case falls within the grounds specified in
Section 34(2). Of those grounds, Ms. Nair only contended that the
award is in conflict with the public policy of India, as provided in
Section 34(2)(b)(ii) of the Act.
14. The width of the public policy ground is clarified in the two
explanations to Section 34(2), which read as follows: -
"34. Application for setting aside arbitral award:
xxxx xxxx xxxx
(2) An arbitral award may be set aside by the Court only
if--
xxxx xxxx xxxx
[Explanation 1.--For the avoidance of any doubt, it is
clarified that an award is in conflict with the public
policy of India, only if,-- (i) the making of the award was
induced or affected by fraud or corruption or was in
violation of section 75 or section 81; or
(ii) it is in contravention with the fundamental policy of
Indian law; or
(iii) it is in conflict with the most basic notions of
morality or justice.
Explanation 2.--For the avoidance of doubt, the test as to
whether there is a contravention with the fundamental
policy of Indian law shall not entail a review on the
merits of the dispute.]7
Emphasis supplied.
Signature Not Verified
Digitally signed By:SHITU
NAGPAL
Signing Date:10.10.2022
15. The Supreme Court has considered the question in several
judgments, including its judgment in Ssangyong Engineering
Construction & Co Ltd. vs. National Highways Authority of India
(NHAI)8. Relying upon Associate Builders vs. DDA9, the Court has
explained that the expression "public policy of India", is now
restricted to the fundamental policy of Indian law, as understood in
paragraphs 18 and 27 of Associate Builders, or to basic notions of
justice or morality as understood in paragraphs 36 to 39 of Associate
Builders.
16. The Court concluded as follows: -
"76. However, when it comes to the public policy of
India, argument based upon "most basic notions of
justice", it is clear that this ground can be attracted only
in very exceptional circumstances when the conscience
of the Court is shocked by infraction of fundamental
notions or principles of justice.
***** ***** *****
However, we repeat that this ground is available only in
very exceptional circumstances, such as the fact situation
in the present case. Under no circumstance can any
court interfere with an arbitral award on the ground
that justice has not been done in the opinion of the
Court. That would be an entry into the merits of the
dispute which, as we have seen, is contrary to the ethos
of Section 34 of the 1996 Act, as has been noted earlier
in this judgment."10
17. The relevant extracts of Associate Builders11, referred to in
Ssangyong, are set out below:-
(2019) 15 SCC 131.
(2015) 3 SCC 49.
Emphasis supplied.
Supra (note 9).
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Digitally signed By:SHITU
NAGPAL
Signing Date:10.10.2022
"18. In Renusagar Power Co. Ltd. v. General Electric
Co.12, the Supreme Court construed Section 7(1)(b)(ii) of
the Foreign Awards (Recognition and Enforcement) Act,
1961:
"7. Conditions for enforcement of foreign awards.--
(1) A foreign award may not be enforced under this Act--
***
(b) if the Court dealing with the case is satisfied that--
***
(ii) the enforcement of the award will be contrary to
the public policy."
In construing the expression "public policy" in the
context of a foreign award, the Court held that an award
contrary to
(i) The fundamental policy of Indian law,
(ii) The interest of India,
(iii) Justice or morality,
would be set aside on the ground that it would be
contrary to the public policy of India. It went on further
to hold that a contravention of the provisions of the
Foreign Exchange Regulation Act would be contrary to
the public policy of India in that the statute is enacted for
the national economic interest to ensure that the nation
does not lose foreign exchange which is essential for the
economic survival of the nation (see SCC p. 685, para
75). Equally, disregarding orders passed by the superior
courts in India could also be a contravention of the
fundamental policy of Indian law, but the recovery of
compound interest on interest, being contrary to statute
only, would not contravene any fundamental policy of
Indian law (see SCC pp. 689 & 693, paras 85 & 95).
xxxx xxxx xxxx
1994 Supp (1) SCC 644.
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Digitally signed By:SHITU
NAGPAL
Signing Date:10.10.2022
Fundamental Policy of Indian Law
27. Coming to each of the heads contained in Saw Pipes
judgment13, we will first deal with the head "fundamental
policy of Indian law". It has already been seen
from Renusagar14 judgment that violation of the Foreign
Exchange Act and disregarding orders of superior courts
in India would be regarded as being contrary to the
fundamental policy of Indian law. To this it could be
added that the binding effect of the judgment of a
superior court being disregarded would be equally
violative of the fundamental policy of Indian law.
xxxx xxxx xxxx
Justice
36. The third ground of public policy is, if an award is
against justice or morality. These are two different
concepts in law. An award can be said to be against
justice only when it shocks the conscience of the court. An
illustration of this can be given. A claimant is content
with restricting his claim, let us say to Rs 30 lakhs in a
statement of claim before the arbitrator and at no point
does he seek to claim anything more. The arbitral award
ultimately awards him Rs 45 lakhs without any
acceptable reason or justification. Obviously, this would
shock the conscience of the court and the arbitral award
would be liable to be set aside on the ground that it is
contrary to "justice".
Morality
37. The other ground is of "morality". Just as the
expression "public policy" also occurs in Section 23 of
the Contract Act, 1872 so does the expression
"morality". Two illustrations to the said section are
interesting for they explain to us the scope of the
expression "morality":
xxxx xxxx xxxx "
Oil and Natural Gas Corporation Ltd. vs. Saw Pipes Ltd. (2003) 5 SCC 705.
Supra (note 12).
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Digitally signed By:SHITU
NAGPAL
Signing Date:10.10.2022
18. The challenge to the award does not, in my view, fall within the
narrow scope outlined above, either with respect to claim No.1 or with
respect to claim No.3.
19. As far as claim No. 1 is concerned, the Division Bench
judgment in Hindustan Construction Company Ltd.15 rejected the
challenge of NHAI, even on the ground of patent illegality in the
award. This case is on the same footing. The distinction sought to be
urged by Ms. Nair i.e., with regard to backfilling having been done
under BOQ item No. 1.01 is, in my view, unsustainable as the arbitral
tribunal, in paragraph 1.22 of the award (extracted above), has come to
a conclusion on evidence that no backfilling was involved. Even when
the ground of patent illegality is available, findings of the arbitral
tribunal on appreciation of evidence are not lightly interfered with,
unless shown to be completely perverse or arbitrary. No such ground
has been urged in this case.
20. I do not consider it necessary to defer the decision in this case
until the Supreme Court has disposed of the appeal from the judgment
in Hindustan Construction Company Ltd. The said judgment has not
been stayed by the Supreme Court. Further, the scope of interference
in the present case is even narrower than the grounds available therein.
If such a challenge does not fall within the scope of patent illegality, it
would a fortiori fall outside the scope of public policy. There is no
element of the award in this respect which shocks the conscience of
the Court, as required for the public policy ground to be invoked.
21. As far as claim No.3 is concerned, here also, in paragraphs 3.30
Supra (note 4) [Paragraphs 12 to 14].
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Digitally signed By:SHITU
NAGPAL
Signing Date:10.10.2022
and 3.31 cited above, the arbitral tribunal has interpreted the contract
to hold that the rates in BOQ item Nos. 5.14 and 5.15 were not
overlapping and were to be paid separately. In reaching this
conclusion, the tribunal has considered clause 2911 of the amended
technical specifications also. As noted by the arbitral tribunal, the
BOQ quoting separate public rates under item Nos. 5.14 and 5.15 was
duly accepted by the NHAI.
22. The interpretation of the contract by the arbitral tribunal is not
open to challenge under Section 34 of the Act even on the ground of
patent illegality unless it is found to be an interpretation which no
reasonable person could adopt. I do not find the award vitiated by any
such interpretation. Further, as noted above, even this ground is not
available to NHAI in the case of an international commercial
arbitration.
23. On both claims, therefore, I find that NHAI's challenge does
not fall within the scope of the public policy challenge under Section
34(2)(b)(ii) of the Act, and in effect requires the Court to undertake a
merits review, which is expressly barred by Explanation II to Section
34(2).
24. For the reasons aforesaid, the petition is dismissed.
PRATEEK JALAN, J
OCTOBER 6, 2022
'vp'/
Signature Not Verified
Digitally signed By:SHITU
NAGPAL
Signing Date:10.10.2022
