Delhi High Court
National Highways Authority Of ... vs Orissa Steel Expressway Pvt.Ltd on 26 May, 2023
* IN THE HIGH COURT OF DELHI AT NEW DELHI
%
Pronounced on: 26th May, 2023
+ O.M.P. (COMM.) No. 278/ 2019 and I.A. Nos. 9870/2019,
17853/2019, 7921/2020, 10163/2020 and 150/2021
NATIONAL HIGHWAYS AUTHORITY OF INDIA
..... Petitioner
Through: Mr. Santosh Kumar, Mr. Daksh
Arora and Mr. Mohit Agarwal,
Advocates
versus
ORISSA STEEL EXPRESSWAY PVT.LTD ..... Respondent
Through: Mr. Darpan Wadhwa, Sr. Advocate
with Mr. Arjun Syal, Ms. Manjira
Dasgupta and Ms. Akshita
Sachdeva, Advocates
CORAM:
HON'BLE MR. JUSTICE CHANDRA DHARI SINGH
JUDGMENT
CHANDRA DHARI SINGH, J.
1. The instant petition under Section 34 of the Arbitration and
Conciliation Act, 1996 (hereinafter "Act,1996") has been filed on behalf
of the petitioner seeking the following reliefs:
"a. Call for the entire/complete records of the arbitration
case between the Respondent and the Petitioner, which was
decided by the Learned Arbitral Tribunal by an award
dated 31.03.2019;
b. Set aside the Impugned Award dated 31.03.2019.
Signature Not Verified
Digitally Signed By:SARIKA
BHAMOO VERMA
Signing Date:30.05.2023
16:31:22
c. Allow cost of this petition in favour of the Petitioner.
d. Pass any other order as this Hon'ble Court may deem fit
and proper in the facts and circumstances of the case."
FACTUAL MATRIX
2. The present petition has been filed by the petitioner against the
impugned award of total sum of Rs.322.78 Crores in favour of the
respondent/claimant, against the petitioner, along with the future interest
at the rate of 10% p.a. from the date of award till the date of its
realization. The present petition under section 34 of the Act arises out of
the said award dated 31st March, 2019 passed by the learned Arbitral
Tribunal.
3. The petitioner is an autonomous body constituted under the
National Highways Authority of India Act, 1988 and is working under the
supervision of the Ministry of Road Transport and Highways,
Government of India. The petitioner is responsible for the development,
maintenance, and management of the National Highways.
4. The respondent is a Company incorporated by a consortium
comprising MBL Infrastructure Ltd. and SREI Infrastructure Finance Ltd.
under the provisions of the Companies Act, 1956. The respondent is a
Special Purpose Vehicle.
5. The petitioner invited bids for the 4/2 laning of the Rimuli- Roxy -
Rajamunda section of NH-215 from km 163.00 to km 269.00 equivalent
to 106 kms.with an indicative project cost of Rs.449 Crores as Built,
Operate and Transfer (BOT) (Toll) on Design, Build, Finance, Operate,
and Transfer (DBFOT) pattern. The respondent participated in the said
bid and it was found lowest. Accordingly, the Letter of Award dated 29th
Signature Not Verified
Digitally Signed By:SARIKA
BHAMOO VERMA
Signing Date:30.05.2023
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April, 2010 was issued in favour of the respondent by the petitioner.
Consequently, the parties entered into a Concession Agreement on 06th
July, 2010. According to, Article 9 of the Concession Agreement, the
respondent furnished the Performance Bank Guarantee for Rs.14.65
Crores on 27th June, 2012.
6. The petitioner vide letter dated 30th December, 2011 agreed that
21st June, 2011 shall be the Appointed Date. A Meeting was conducted
between the parties since period of two months had elapsed since the
signing of the Concession Agreement and there were certain disputes
regarding the work hence, the petitioner waived off the Conditions
Precedent under Clause 24.1.1 and Clause 4.3 of the Concession
Agreement.
7. During the period of 2012-2017, there were continuous
correspondences between the parties wherein the petitioner had
constantly stated that the respondent could not complete the project
within the stipulated time frame due to numerous factors.
8. The petitioner in its letter dated 16th February 2016 informed the
Independent Engineer that the encumbrance-free land for the length of
100% of project highway was not handed over to the respondent till date.
In reply to the said letter, vide communication dated 17th February 2016,
the Independent Engineer issued a letter to the petitioner for the extension
of the concession period. The respondent however, did not agree to terms
of extension of the concession period. As a result of which meeting was
held on 05th April, 2016 amongst the petitioner‟s employees wherein a
decision was taken that the project would be foreclosed and settled as per
the Concession Agreement.
Signature Not Verified
Digitally Signed By:SARIKA
BHAMOO VERMA
Signing Date:30.05.2023
16:31:22
9. The respondent vide letter dated 20th April, 2016 based on its
calculations provided the actual cost incurred by it in the project till date
of foreclosure. A Pre-Conciliation meeting under the Chairmanship of
CGM, NHAI along with the respondent and the Independent Engineer
was held on 22nd August, 2016.
10. The Independent Engineer vide its letters dated 16th November,
2016, 25th November, 2016 and 26th November, 2016 stated that the
valuation of work executed on the project site had been scrutinized and
reviewed based on documents provided by the respondent. The Valuation
Report - I and Valuation Report - II were finalized and the Joint
Measurement Sheets were duly signed by the Independent Engineer and
the respondent.
11. The petitioner issued letter dated 13th January, 2017 to the
respondent to foreclose the project without the release of the Provisional
Bank Guarantee and informed them to free the project site for the purpose
of rebid and other appropriate measures in consultation with the
Independent Engineer. The petitioner vide letter dated 3rd March, 2017
acknowledged that the site had been taken over by the petitioner.
12. The petitioner vide letter dated 5th May, 2017 informed the
respondent about the constitution of the ISAC to resolve the issue through
a three-layer one-time amicable settlement, where cases are taken first by
3 CGM's Committee and then negotiated by ISAC (a higher-level
committee) followed by adjudication by Executive Committee/ NHAI
Board for speedy settlement of cases. However, the respondent vide letter
dated 13th June, 2017 denied the said proposal and insisted on the
constitution of ISAC only for the resolution of issues.
Signature Not Verified
Digitally Signed By:SARIKA
BHAMOO VERMA
Signing Date:30.05.2023
16:31:22
13. The respondent vide letter dated 16th October, 2017 invoked the
arbitration under Clause 44.3 of the Concession Agreement and appointed
their nominee arbitrator pursuant to which the petitioner vide its letter
dated 5th February, 2018 appointed its nominee arbitrator.
14. The two nominated arbitrators appointed the Presiding Arbitrator
vide letter dated 31st March, 2018. The Presiding Arbitrator vide order
dated 31st March, 2018 fixed 18th April, 2018 as the first date in the
proceeding.
15. On 18th August, 2018, the Arbitral Tribunal observed that the
pleadings are complete in the arbitral proceedings. The Tribunal framed
issues for consideration, on 17th September, 2018. The submissions of
both the parties were concluded on 15th December, 2018.
16. The learned Arbitral Tribunal published the impugned award dated
31st March 2019. Aggrieved by the impugned award, the petitioner
invoked Section 34 of the Act by way of filing the instant petition.
SUBMISSIONS
(On behalf of the petitioner)
17. Learned counsel appearing on behalf of the petitioner submitted
that the instant petition under Section 34 of the Act, 1996 is to raise
important issues relating to a limb of „public policy‟ on the grounds that
the impugned award is in contravention with the „fundamental policy‟ of
Indian law and that the impugned award is vitiated by „patent illegality‟
appearing on the face of the award on extraneous considerations de hors
and contrary to the terms of the contract executed between the parties and
in complete disregard of the evidence on record, in deciding the
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Digitally Signed By:SARIKA
BHAMOO VERMA
Signing Date:30.05.2023
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controversy between the parties. In this regard, learned counsel appearing
on behalf of the petitioner has relied upon the following judgments:
Ssangyong Engg. & Construction Co. Ltd. v. NHAI, (2019) 15
SCC 131
Patel Engineering Ltd. vs. North Eastern Electric Power
Corporation Ltd. (NEEPCO),2020 SCC Online SC 466
Associate Builders v. DDA, (2015) 3 SCC 49
18. Learned counsel appearing for the petitioner further submitted that
the learned Tribunal was incorrect in ignoring the letter dated 20 th April,
2016 given by the respondent to the petitioner wherein it was specified
that the respondent was willing to settle and foreclose the contract on
payment of Rs.194.50 crores plus price adjustment of Rs.16.46 crores. It
is submitted that the said letter makes it evident that the offer to pay the
sum of Rs.194.50 crores and foreclose the contract cannot be attributed to
the petitioner since the proposal was submitted by the respondent which
was never accepted by the petitioner. Therefore, the observation of the
learned Tribunal has wrongly held that it was acceptable to the petitioner
to settle and foreclose the contract by paying Rs.194.50 crores which is
contrary to the admitted facts and is, therefore, liable to be set aside.
19. It is further submitted that the learned Tribunal has incorrectly
inferred the statement made by the petitioner, by stating that since the
compensation was quantified the petitioner could not press for any
counter claim. It is further submitted that the petitioner was willing to pay
the amount for foreclosure compensation worked out by the Independent
Engineer after joint measurements duly signed by the Independent
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Digitally Signed By:SARIKA
BHAMOO VERMA
Signing Date:30.05.2023
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Engineer, i.e., Rs.35,21,90,670/- as against Rs.247.58 Crores which had
been claimed by the respondent without any basis.
20. It is contended that the learned Tribunal erred in awarding the
claim of Rs.158.69 crores to the respondent on the incorrect presumption
that the petitioner was willing to settle and foreclose the contract by
payment of Rs.194.50 crores. It is submitted the same is contrary to the
stand of the petitioner which was to settle and foreclose the contract in
terms of the amount worked out by the Independent Engineer after joint
measurements came out to the tune of Rs.35,21,90,670/-, therefore, the
said award claim must be set aside.
21. It is further contended that the learned Tribunal failed to consider
that the valuation of the work submitted by the respondent was
scrutinized and reviewed by the Independent Engineer. It is submitted
that the learned Arbitral Tribunal while allowing the claims of the
respondent did not consider the slow pace of construction work being
achieved by the respondent despite ample land and Right of Way being
available with it during the original contract period.
22. It is submitted that the learned Arbitral Tribunal erred in awarding
Claim no. 2 (Cost of Capital and Finance Cost) and Claim no. 3 (Head
Office Overhead Expenditure) in the Arbitral Award as they were already
covered under Claim No. 1 (Total Cost Expenditure), since Claim No.1
was supposed to be in lump-sum payment in respect of all the claims. It is
further submitted that Claim No.2 and Claim No. 3 are mere duplication
of the Claim No.1 and hence, not tenable in law.
23. It is further submitted that the Tribunal vide order dated 21 st
November, 2018 observed that it had made an error by not fixing a
Signature Not Verified
Digitally Signed By:SARIKA
BHAMOO VERMA
Signing Date:30.05.2023
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separate fee for the counter claim in terms of proviso of Section 38(1) of
the Act, 1996, however, it rejected the counter claim of the petitioner on
the ground that the petitioner did not pay any amount in support of the
counter claim and therefore, the said award is bad in law and is liable to
be set aside. It is further argued by the learned counsel for the petitioner
that under Section 31(3) of the Act, 1996 the arbitral award should have
given reasoning which is intelligible after considering the pleadings and
evidence of both the parties on the record. It is asserted that the Tribunal
in the present case has merely restated the contentions of both the parties
and the award has been rendered without reason.
24. It is contended by the petitioner that the Tribunal erred in rejecting
the counter claim on the ground of non- payment of Arbitral fees and the
same is contrary to the provisions of Section 38(2) of the Act, 1996 as the
Tribunal has been paid in full by the respondent and on behalf of the
petitioner and the same has been recorded in the order dated 2nd February,
2019 passed by the Tribunal.
25. It is contended that the Tribunal failed to consider the law laid
down by this Court in the case of Delhi State Industrial Infrastructure
Development Corporation Ltd. (DSIIDC) vs. Bawana Infra
Development (P) Ltd.2018 SCC OnLine Del 9241 wherein the High
Court while interpreting the fee schedule in the Fourth Schedule of the
amendment in Act in the year of 2015, held that the "sum in dispute" shall
include both claim and counter claim amounts. It is submitted that this
Court further held that if the legislature intended to have the Arbitral
Tribunal exceed the ceiling limit by charging separate fee for claim and
counter claim amounts, it would have provided so in the Fourth Schedule.
Signature Not Verified
Digitally Signed By:SARIKA
BHAMOO VERMA
Signing Date:30.05.2023
16:31:22
26. Learned counsel appearing on behalf of petitioner submitted that
the impugned award has been passed in complete non-application of mind
and violation of principles of natural justice, since the learned Arbitral
Tribunal has failed to consider and advert to any of the submissions made
on behalf of the petitioner. It is further submitted that the petitioner did
not adjudicate upon the counter claims and wrongly held it as counter
blast to claims of the respondent.
27. Hence, it is prayed by the learned counsel for the petitioner that the
instant petition may be allowed and the impugned award may be set
aside.
(On behalf of the respondent)
28. Per Contra, learned Counsel appearing on behalf of the respondent
submitted that the instant petition is nothing but an abuse of the process
of law. It is submitted that it is the settled position of law that a Court
shall not sit in appeal over the award of an Arbitral Tribunal by re-
assessing or re-appreciating evidence of the arbitral proceeding since an
arbitrator is the master of the quality and quantity of evidence. It is also
submitted that an award can be challenged only under the grounds
mentioned in Section 34 of the Act, 1996. It is therefore submitted, in the
absence of any such ground, it is not possible to re-examine the facts or
evidence on the record. In support of his arguments, learned counsel
appearing on behalf of the respondent has relied upon the following
judgments:
Associated Builders v. Delhi Development Authority, (2015) 3
SCC 49
Signature Not Verified
Digitally Signed By:SARIKA
BHAMOO VERMA
Signing Date:30.05.2023
16:31:22
P.R Shah, Shares and Stock broker (P) Ltd. Vs. B.H.H. Securities
(P) Ltd. and Ors., (2012) 1 SCC 594
Fiza Developers and Inter-Trade P. Ltd. v. AMCI (I) Pvt. Ltd.
and Ors., (2009) 3 SCC 49
29. Learned counsel for the respondent submitted that the learned
Arbitral Tribunal had adopted a judicial approach by considering all the
evidence placed on record by both parties. It is submitted that Arbitral
Tribunal has given a detailed award which runs into seventy pages and
the award provides detailed reasoning of the facts and the arguments of
both the parties. It is contended that the award has been rendered
unanimously based upon admissions of the parties and as stated in the
award "None of the parties adduced oral evidences but made arguments
on the basis a/the documents which according to them are common in
nature.". It is further contended that the Arbitral Tribunal has considered
the pleadings of the parties and oral arguments.
30. It is submitted that the learned Arbitral Tribunal has rightly
appreciated the conduct of the parties and the correspondences exchanged
between them to decide the issues and award the claim. It is further
submitted that the interpretation of the contract is within the domain of
the Arbitral Tribunal, and as such interpretation ought not be interfered
with in a challenge under Section 34 of the Act, 1996 especially since no
cogent grounds have been set out by the petitioner that warrant
interference.
31. Learned counsel for the respondent submitted the petitioner failed
to provide the required land (i.e., 75% of the Project land) at various
locations along the stretch which needed to be cleared and requisite
Signature Not Verified
Digitally Signed By:SARIKA
BHAMOO VERMA
Signing Date:30.05.2023
16:31:22
permissions were to be obtained in this regard. It is submitted that only
about 50% of the land was available to the respondent and that too was
not on continuous stretches.
32. It is submitted that the Concession Agreement was signed on 6 th
July, 2010 but even after six years in 2016, the petitioner was neither able
to obtain requisite approvals nor was it able to handover the right of way
for a substantial part of the land. It is contended that at this stage the
petitioner decided unilaterally to foreclose the contract.
33. It is submitted that the respondent was entitled to foreclosure
compensation. It is submitted that the petitioner‟s proposed foreclosure
was based on a meagre of compensation, however, the respondent did not
agree to the said proposal and instead gave a counter offer, agreeing to
foreclose the project, leaving the question of foreclosure compensation to
be adjudicated by the ISAC and failing which the arbitration can be
invoked. It is further submitted that the said proposal of the respondent
was accepted by the petitioner that the contract would be foreclosed and it
was agreed that the amount of compensation shall be determined either
by ISAC or by way of arbitration. It is contended that ISAC was not even
established even after a time period of seven months and the matter was
finally referred to arbitration upon notice being issued, thus, revealing the
insincerity of the petitioner in resolving the disputes.
34. It is contended that the Tribunal has awarded the actual amount of
cost towards the physical cost, overheads, financing and equity cost
incurred by the respondent and disallowed the loss of profits claimed by
the respondent.
Signature Not Verified
Digitally Signed By:SARIKA
BHAMOO VERMA
Signing Date:30.05.2023
16:31:22
35. It is submitted that the Tribunal held that the counter claims were
never referred to the Tribunal. It is further contended that the petitioner
themselves had stated that they would not press counter claim if the
respondent confined its claim to foreclosure compensation only.
36. It is submitted that after the compensation was quantified, the
petitioner wrongly claimed the counter claims. It is further contended that
as per the second proviso section 38(2) of the Act, 1996, in case a party
did not pay his share of the Arbitral fees the Tribunal has the power to
terminate or suspend such claims or counter claims. The Arbitral Award
has recorded has follows:-
"The Respondent did not pay a single sum on account of each
Arbitrator's fees and other expenses towards proportionate
establishment cost/administrative charges to the researcher-
cum-assistants/associates even expenses relating to
arbitration"
Therefore, in the present case under second proviso section 38(2) of the
Act, 1996 the petitioner is not entitled for adjudication of the Counter
Claims.
37. It is submitted that the counter claims were rejected as per second
proviso of Section 38(2) of the Act, 1996 wherein the Arbitral Tribunal
has the power that it may suspend or terminate the arbitral proceedings if
a party has not paid its own share of the Arbitral fees. Therefore, the
Arbitral Tribunal has acted within its jurisdiction to terminate its mandate
regarding the Counter Claim.
Signature Not Verified
Digitally Signed By:SARIKA
BHAMOO VERMA
Signing Date:30.05.2023
16:31:22
38. Accordingly, there are no grounds available to the petitioner herein
for challenging the instant award on the grounds under Section 34 of the
Act, 1996.
39. In view of the facts and circumstances, the instant petition is de
hors of any merit and deserves to be rejected outrightly.
FINDINGS AND ANALYSIS
40. I have heard learned counsel for the parties at length, who have
taken me through the award passed by the learned Arbitral Tribunal,
provisions of the contract executed between the parties and the
correspondences exchanged between them as well as the relevant
documents.
41. The respondent/claimant claimed an amount of Rs.247.58 crores
for the total cost incurred by the claimant. It has also claimed Rs.157.61
crores for the "costs of capital and finance costs", Rs.49.24 crores under
the head "office expenditures" and Rs.491.06 crores on account of the
loss of profit. The petitioner/respondent had filed a statement of defense
and counter claims before the learned Arbitral Tribunal claiming
Rs.67,96,809/- for the amount deposited by the petitioner towards
CA/NPV along with interest. The petitioner further claimed Maintenance
Cost of Rs. 31,48,60,586/- and for reimbursement of remuneration paid to
the Independent Engineer it claimed an amount of Rs 8,42,66,026/-.
Moreover, the petitioner claimed an amount of Rs.10.15 crores and for
the cost of fresh contract entrusted to the new contractor, an amount of
Rs.1383.43 crores respectively for the funds deposited with RWS & S,
PHED, NESCO, WESCO.
Signature Not Verified
Digitally Signed By:SARIKA
BHAMOO VERMA
Signing Date:30.05.2023
16:31:22
42. The learned Arbitral Tribunal framed the issues with mutual
consent of the parties which are as follows:
"(i) Whether or not the present arbitration proceeding is
premature in view of the failure of the claimant to adhere to
the settlement procedure provided in the letter
dated13.01.2017?
(ii) Whether, upon mutual foreclosure, the parties are barred
to rely upon the terms of the Concession Agreement for
determining compensation?
(iii) Whether the Concession Agreement was foreclosed
mutually" as is where is basis"?
(iv) If the contract is foreclosed, is the claimant required to be
reimbursed for all the costs incurred.
(v) In the alternative, is the claimant entitled to be
compensated under quantum merit?
(vi) Whether the claims of the claimant are beyond the
jurisdiction of the present arbitration proceedings since the
Concession Agreement contained no provision for
foreclosure?
(vii) Whether or not the claim petition is maintainable?
(viii) If the present contract was foreclosed, whether the
counterclaim filed by the respondent is maintainable?
(ix) Whether or not the counter claim set up by the respondent
is fit to be upheld?
(x) Whether the party or parties are entitled to any relief or
reliefs?"
43. The Arbitral Tribunal segregated the issues into three parts. First
part is procedural, i.e., issues no. (i), (vi) and (vii). The second part is
based on merit i.e., issues no. (ii), (iv) and (v) and the third part is reliefs
i.e., issues no. (ix) and (x) which do not require any analysis as per the
learned Tribunal.
44. The instant arbitral award was challenged by the petitioner mainly
on four grounds. Firstly, the conclusion on which the learned Tribunal
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Digitally Signed By:SARIKA
BHAMOO VERMA
Signing Date:30.05.2023
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reached is based only on assumptions and in absence of any pleading and
evidence lead by the petitioner. Secondly, the award made by the learned
Tribunal is contrary to the terms and conditions as per which foreclosure
of the Concession Agreement was agreed between the parties. Thirdly,
the impugned award has been passed in complete non-application of mind
and in violation of principles of natural justice. Fourthly, that the learned
Arbitral Tribunal has acted in a wrongful manner by not deciding the
counter claims of the petitioner.
45. Section 34 of the Act, 1996 has been reproduced herein below for
convenience:
"34. Application for setting aside arbitral award.
(1) Recourse to a Court against an arbitral award may be
made only by an application for setting aside such
award in accordance with sub-section (2) and sub-
section (3).
(2) An arbitral award may be set aside by the Court only
if-
(a) the party making the application [establishes on the
basis of the record of the arbitral tribunal that]-
(i) a party was under some incapacity; or
(ii) the arbitration agreement is not valid
under the law to which the parties have
subjected it or, failing any indication thereon,
under the law for the time being in force; or
(iii) the party making the application was not
given proper notice of the appointment of an
arbitrator or of the arbitral proceedings or was
otherwise unable to present his case; or
(iv) the arbitral award deals with a dispute not
contemplated by or not falling within the terms
of the submission to arbitration, or it contains
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Digitally Signed By:SARIKA
BHAMOO VERMA
Signing Date:30.05.2023
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decisions on matters beyond the scope of the
submission to arbitration:
Provided that, if the decisions on matters
submitted to arbitration can be separated from
those not so submitted, only that part of the
arbitral award which contains decisions on
matters not submitted to arbitration may be set
aside; or
(v) the composition of the arbitral tribunal or
the arbitral procedure was not in accordance
with the agreement of the parties, unless such
agreement was in conflict with a provision of
this Part from which the parties cannot
derogate, or, failing such agreement, was not
in accordance with this Part; or
(b) the Court finds that--
(i) the subject-matter of the dispute is not
capable of settlement by arbitration under the
law for the time being in force, or
(ii) the arbitral award is in conflict with the
public policy of India. [Explanation 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.]
Signature Not Verified
Digitally Signed By:SARIKA
BHAMOO VERMA
Signing Date:30.05.2023
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(2A) An arbitral award arising out of arbitrations other
than international commercial arbitrations, may also be
set aside by the court, if the court finds that the award is
vitiated by patent illegality appearing on the face of the
award:
Provided that an award shall not be set aside merely
on the ground of an erroneous application of the law or by
reappreciation of evidence.
(3) An application for setting aside may not be made after
three months have elapsed from the date on which the
party making that application had received the arbitral
award or, if a request had been made under Section 33,
from the date on which that request had been disposed of
by the arbitral tribunal:
Provided that if the Court is satisfied that the applicant
was prevented by sufficient cause from making the
application within the said period of three months it may
entertain the application within a further period of thirty
days, but not thereafter.
(4) On receipt of an application under sub-section (1), the
Court may, where it is appropriate and it is so requested
by a party, adjourn the proceedings for a period of time
determined by it in order to give the arbitral tribunal an
opportunity to resume the arbitral proceedings or to take
such other action as in the opinion of arbitral tribunal will
eliminate the grounds for setting aside the arbitral award.
(5) An application under this section shall be filed by a
party only after issuing a prior notice to the other party
and such application shall be accompanied by an affidavit
by the applicant endorsing compliance with the said
requirement.
(6) An application under this section shall be disposed of
expeditiously, and in any event, within a period of one year
from the date on which the notice referred to in sub-
Signature Not Verified
Digitally Signed By:SARIKA
BHAMOO VERMA
Signing Date:30.05.2023
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section (5) is served upon the other party."
46. Under Section 34(2) of the Act, 1996 provides several grounds on
account of which the Court can set aside the arbitral award. While under
Section 34 (3) of the Act, 1996 describes the various limitations under
which an arbitral award cannot be set aside by the Court.
47. The Hon'ble Supreme Court regarding the scope of Section 34 of
the Act, 1996 has held in the judgment of Reliance Infrastructure Ltd. v.
State of Goa 2023 SCC OnLine SC 604 as under:
47. Having regard to the contentions urged and the issues
raised, it shall also be apposite to take note of the principles
enunciated by this Court in some of the relevant decisions cited
by the parties on the scope of challenge to an arbitral award
under Section 34 and the scope of appeal under Section 37 of
the Act of 1996.
48. In MMTC Limited (supra), this Court took note of various
decisions including that in the case of Associate Builders
(supra) and exposited on the limited scope of interference under
Section 34 and further narrower scope of appeal under Section
37 of the Act of 1996, particularly when dealing with the
concurrent findings (of the Arbitrator and then of the Court).
This Court, inter alia, held as under:--
"11. As far as Section 34 is concerned, the position is
well-settled by now that the Court does not sit in
appeal over the arbitral award and may interfere on
merits on the limited ground provided under Section
34(2)(b)(ii) i.e. if the award is against the public policy
of India. As per the legal position clarified through
decisions of this Court prior to the amendments to the
1996 Act in 2015, a violation of Indian public policy,
in turn, includes a violation of the fundamental policy
of Indian law, a violation of the interest of India,
Signature Not Verified
Digitally Signed By:SARIKA
BHAMOO VERMA
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conflict with justice or morality, and the existence of
patent illegality in the arbitral award. Additionally, the
concept of the "fundamental policy of Indian law"
would cover compliance with statutes and judicial
precedents, adopting a judicial approach, compliance
with the principles of natural justice, and Wednesbury
[Associated Provincial Picture Houses v. Wednesbury
Corpn., [1948] 1 K.B. 223 (CA)] reasonableness.
Furthermore, "patent illegality" itself has been held to
mean contravention of the substantive law of India,
contravention of the 1996 Act, and contravention of the
terms of the contract.
12. It is only if one of these conditions is met that the
Court may interfere with an arbitral award in terms of
Section 34(2)(b)(ii), but such interference does not
entail a review of the merits of the dispute, and is
limited to situations where the findings of the
arbitrator are arbitrary, capricious or perverse, or
when the conscience of the Court is shocked, or when
the illegality is not trivial but goes to the root of the
matter. An arbitral award may not be interfered with if
the view taken by the arbitrator is a possible view
based on facts. (See Associate Builders v. DDA
[Associate Builders v. DDA, (2015) 3 SCC 49 : (2015)
2 SCC (Civ) 204]. Also see ONGC Ltd. v. Saw Pipes
Ltd. [ONGC Ltd. v. Saw Pipes Ltd., (2003) 5 SCC
705]; Hindustan Zinc Ltd. v. Friends Coal
Carbonisation [Hindustan Zinc Ltd. v. Friends Coal
Carbonisation, (2006) 4 SCC 445]; and McDermott
International Inc. v. Burn Standard Co. Ltd.
[McDermott International Inc. v. Burn Standard Co.
Ltd., (2006) 11 SCC 181])
13. It is relevant to note that after the 2015 Amendment
to Section 34, the above position stands somewhat
modified. Pursuant to the insertion of Explanation 1 to
Section 34(2), the scope of contravention of Indian
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public policy has been modified to the extent that it
now means fraud or corruption in the making of the
award, violation of Section 75 or Section 81 of the Act,
contravention of the fundamental policy of Indian law,
and conflict with the most basic notions of justice or
morality. Additionally, sub-section (2-A) has been
inserted in Section 34, which provides that in case of
domestic arbitrations, violation of Indian public policy
also includes patent illegality appearing on the face of
the award. The proviso to the same states that an
award shall not be set aside merely on the ground of
an erroneous application of the law or by
reappreciation of evidence.
14. As far as interference with an order made under
Section 34, as per Section 37, is concerned, it cannot
be disputed that such interference under Section 37
cannot travel beyond the restrictions laid down under
Section 34. In other words, the court cannot undertake
an independent assessment of the merits of the award,
and must only ascertain that the exercise of power by
the court under Section 34 has not exceeded the scope
of the provision. Thus, it is evident that in case an
arbitral award has been confirmed by the court under
Section 34 and by the court in an appeal under Section
37, this Court must be extremely cautious and slow to
disturb such concurrent findings."
49. In the case of Ssangyong Engineering (supra), this Court
has set out the scope of challenge under Section 34 of the Act of
1996 in further details in the following words:--
"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
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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
[Associate Builders v. DDA, (2015) 3 SCC 49 : (2015)
2 SCC (Civ) 204], 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 [Associate Builders v. DDA,
(2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204], 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 [Associate Builders v.
DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204],
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
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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 [Associate Builders v. DDA, (2015)
3 SCC 49 : (2015) 2 SCC (Civ) 204], 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."
50. The limited scope of challenge under Section 34 of the Act
was once again highlighted by this Court in the case of PSA
SICAL Terminals (supra) and this Court particularly explained
the relevant tests as under:--
"43. It will thus appear to be a more than settled legal
position, that in an application under Section 34, the
court is not expected to act as an appellate court and
reappreciate the evidence. The scope of interference
would be limited to grounds provided under Section 34
of the Arbitration Act. The interference would be so
warranted when the award is in violation of "public
policy of India", which has been held to mean "the
fundamental policy of Indian law". A judicial
intervention on account of interfering on the merits of
the award would not be permissible. However, the
principles of natural justice as contained in Section 18
and 34(2)(a)(iii) of the Arbitration Act would continue
to be the grounds of challenge of an award. The
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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". It is only such arbitral awards
that shock the conscience of the court, that can be set
aside on the said ground. An award would be set aside
on the ground of patent illegality appearing on the face
of the award and as such, which goes to the roots of
the matter. However, an illegality with regard to a
mere erroneous application of law would not be a
ground for interference. Equally, reappreciation of
evidence would not be permissible on the ground of
patent illegality appearing on the face of the award.
44. A decision which is perverse, though would not be
a ground for challenge under "public policy of India",
would certainly amount to a patent illegality appearing
on the face of the award. However, 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.
45. To understand the test of perversity, it will also be
appropriate to refer to paragraph 31 and 32 from the
judgment of this Court in Associate Builders (supra),
which read thus:
"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
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decision, such decision would necessarily be
perverse.
32. A good working test of perversity is
contained in two judgments. In Excise and
Taxation Officer-cum-Assessing Authority v.
Gopi Nath & Sons [1992 Supp (2) SCC 312], it
was held : (SCC p. 317, para 7)
"7. ... It is, no doubt, true that if a finding of fact
is arrived at by ignoring or excluding relevant
material or by taking into consideration
irrelevant material or if the finding so
outrageously defies logic as to suffer from the
vice of irrationality incurring the blame of being
perverse, then, the finding is rendered infirm in
law.""
51. In Delhi Airport Metro Express (supra), this Court again
surveyed the case-law and explained the contours of the Courts'
power to review the arbitral awards. Therein, this Court not
only re-affirmed the principles aforesaid but also highlighted an
area of serious concern while pointing out "a disturbing
tendency" of the Courts in setting aside arbitral awards after
dissecting and re-assessing factual aspects. This Court also
underscored the pertinent features and scope of the expression
"patent illegality" while reiterating that the Courts do not sit in
appeal over the arbitral award. The relevant and significant
passages of this judgment could be usefully extracted as under:-
"26. A cumulative reading of the UNCITRAL Model
Law and Rules, the legislative intent with which the
1996 Act is made, Section 5 and Section 34 of the 1996
Act would make it clear that judicial interference with
the arbitral awards is limited to the grounds in Section
34. While deciding applications filed under Section 34
of the Act, Courts are mandated to strictly act in
accordance with and within the confines of Section 34,
refraining from appreciation or reappreciation of
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matters of fact as well as law. (See Uttarakhand Purv
Sainik Kalyan Nigam Ltd. v. Northern Coal Field Ltd.
[Uttarakhand Purv Sainik Kalyan Nigam Ltd. v.
Northern Coal Field Ltd., (2020) 2 SCC 455 : (2020) 1
SCC (Civ) 570], Bhaven Construction v. Sardar
Sarovar Narmada Nigam Ltd. [Bhaven Construction v.
Sardar Sarovar Narmada Nigam Ltd., (2022) 1 SCC
75] and Rashtriya Ispat Nigam Ltd. v. Dewan Chand
Ram Saran [Rashtriya Ispat Nigam Ltd. v. Dewan
Chand Ram Saran, (2012) 5 SCC 306].)
X X X
28. This Court has in several other judgments
interpreted Section 34 of the 1996 Act to stress on the
restraint to be shown by Courts while examining the
validity of the arbitral awards. The limited grounds
available to Courts for annulment of arbitral awards
are well known to legally trained minds. However, the
difficulty arises in applying the well-established
principles for interference to the facts of each case that
come up before the Courts. There is a disturbing
tendency of Courts setting aside arbitral awards, after
dissecting and reassessing factual aspects of the cases
to come to a conclusion that the award needs
intervention and thereafter, dubbing the award to be
vitiated by either perversity or patent illegality, apart
from the other grounds available for annulment of the
award. This approach would lead to corrosion of the
object of the 1996 Act and the endeavours made to
preserve this object, which is minimal judicial
interference with arbitral awards. That apart, several
judicial pronouncements of this Court would become a
dead letter if arbitral awards are set aside by
categorising them as perverse or patently illegal
without appreciating the contours of the said
expressions.
29. Patent illegality should be illegality which goes to
the root of the matter. In other words, every error of
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law committed by the Arbitral Tribunal would not fall
within the expression "patent illegality". Likewise,
erroneous application of law cannot be categorised as
patent illegality. In addition, contravention of law not
linked to public policy or public interest is beyond the
scope of the expression "patent illegality". What is
prohibited is for Courts to reappreciate evidence to
conclude that the award suffers from patent illegality
appearing on the face of the award, as Courts do not
sit in appeal against the arbitral award. The
permissible grounds for interference with a domestic
award under Section 34(2-A) on the ground of patent
illegality is when the arbitrator takes a view which is
not even a possible one, or interprets a clause in the
contract in such a manner which no fair-minded or
reasonable person would, or if the arbitrator commits
an error of jurisdiction by wandering outside the
contract and dealing with matters not allotted to them.
An arbitral award stating no reasons for its findings
would make itself susceptible to challenge on this
account. The conclusions of the arbitrator which are
based on no evidence or have been arrived at by
ignoring vital evidence are perverse and can be set
aside on the ground of patent illegality. Also,
consideration of documents which are not supplied to
the other party is a facet of perversity falling within the
expression "patent illegality".
30. Section 34(2)(b) refers to the other grounds on
which a court can set aside an arbitral award. If a
dispute which is not capable of settlement by
arbitration is the subject-matter of the award or if the
award is in conflict with public policy of India, the
award is liable to be set aside. Explanation (1),
amended by the 2015 Amendment Act, clarified the
expression "public policy of India" and its
connotations for the purposes of reviewing arbitral
awards. It has been made clear that an award would
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be in conflict with public policy of India only when it is
induced or affected by fraud or corruption or is in
violation of Section 75 or Section 81 of the 1996 Act, if
it is in contravention with the fundamental policy of
Indian law or if it is in conflict with the most basic
notions of morality or justice.
X X X
42. The Division Bench referred to various factors
leading to the termination notice, to conclude that the
award shocks the conscience of the court. The
discussion in SCC OnLine Del para 103 of the
impugned judgment [DMRC v. Delhi Airport Metro
Express (P) Ltd., 2019 SCC OnLine Del 6562]
amounts to appreciation or reappreciation of the facts
which is not permissible under Section 34 of the 1996
Act. The Division Bench further held [DMRC v. Delhi
Airport Metro Express (P) Ltd., 2019 SCC OnLine Del
6562] that the fact of AMEL being operated without
any adverse event for a period of more than four years
since the date of issuance of the CMRS certificate, was
not given due importance by the Arbitral Tribunal. As
the arbitrator is the sole Judge of the quality as well as
the quantity of the evidence, the task of being a Judge
on the evidence before the Tribunal does not fall upon
the Court in exercise of its jurisdiction under Section
34. [State of Rajasthan v. Puri Construction Co. Ltd.,
(1994) 6 SCC 485] On the basis of the issues submitted
by the parties, the Arbitral Tribunal framed issues for
consideration and answered the said issues.
Subsequent events need not be taken into account."
(emphasis supplied)
52. In the case of Haryana Tourism Ltd. (supra), this Court yet
again pointed out the limited scope of interference under
Sections 34 and 37 of the Act; and disapproved interference by
the High Court under Section 37 of the Act while entering into
merits of the claim in the following words:
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"8. So far as the impugned judgment and order passed
by the High Court quashing and setting aside the
award and the order passed by the Additional District
Judge under Section 34 of the Arbitration Act are
concerned, it is required to be noted that in an appeal
under Section 37 of the Arbitration Act, the High Court
has entered into the merits of the claim, which is not
permissible in exercise of powers under Section 37 of
the Arbitration Act.
9. As per settled position of law laid down by this
Court in a catena of decisions, an award can be set
aside only if the award is against the public policy of
India. The award can be set aside under Sections
34/37 of the Arbitration Act, if the award is found to be
contrary to : (a) fundamental policy of Indian Law; or
(b) the interest of India; or (c) justice or morality; or
(d) if it is patently illegal. None of the aforesaid
exceptions shall be applicable to the facts of the case
on hand. The High Court has entered into the merits of
the claim and has decided the appeal under Section 37
of the Arbitration Act as if the High Court was
deciding the appeal against the judgment and decree
passed by the learned trial Court. Thus, the High
Court has exercised the jurisdiction not vested in it
under Section 37 of the Arbitration Act. The impugned
judgment and order passed by the High Court is hence
not sustainable."
53. As regards the limited scope of interference under Sections
34/37 of the Act, we may also usefully refer to the following
observations of a 3-Judge Bench of this Court in the case of
UHL Power Company Limited v. State of Himachal Pradesh,
(2022) 4 SCC 116:--
"15. This Court also accepts as correct, the view
expressed by the appellate court that the learned
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Single Judge committed a gross error in
reappreciating the findings returned by the Arbitral
Tribunal and taking an entirely different view in
respect of the interpretation of the relevant clauses of
the implementation agreement governing the parties
inasmuch as it was not open to the said court to do so
in proceedings under Section 34 of the Arbitration Act,
by virtually acting as a court of appeal.
16. As it is, the jurisdiction conferred on courts under
Section 34 of the Arbitration Act is fairly narrow, when
it comes to the scope of an appeal under Section 37 of
the Arbitration Act, the jurisdiction of an appellate
court in examining an order, setting aside or refusing
to set aside an award, is all the more circumscribed.""
Therefore, it held by the said judgment that the Court may set aside
an arbitral award on very limited grounds under Section 34 of the Act,
1996. Even if a contrary view is possible on the facts established before
the Arbitral Tribunal, the Court cannot, in the absence of any compelling
reason, interfere with the view taken by the arbitrators. The Court does
not seat in appeal over the award made by the Tribunal. Hence, the scope
of interference is very limited under Section 34 of the Act, 1996.
Keeping these principles in mind, I will now examine the present case.
48. The learned Arbitral Tribunal has dealt with issue No. (i),
regarding whether the arbitration proceedings are premature in view of
the failure of the respondent in following the settlement procedure dated
13th January 2017. The relevant portion of the reasons given by the
learned Arbitral Tribunal is reproduced herein below:
"According to us fast growing mechanism of
expeditious justice delivery i.e. Mediation,
Conciliation and Arbitration collectively called
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Alternative Dispute Resolution (ADR) is order of the
day. It is well accepted mechanism all over the world
for resolving disputes in just and convenient manner
ignoring procedural hazards. No hindrance can be
preferred. An Arbitration agreement though appears to
be part of the original agreement but independent in
nature. We have to adopt a pragmatic approach and
not a pedantic or technical approach while
interpreting or construing an arbitration agreement or
arbitration clause. A common sense approach has to
be adapted to give effect to the intention of the parties
to arbitrate. We have to adopt attitude of a reasonable
business person, having business common sense as
well as being equipped with the knowledge that may be
peculiar to the business venture. The arbitration clause
cannot be constructed with a purely legalistic mindset,
as if one is construing a provision in a statute, as per
the ratio of2014 (5) SCC 1 (Enercon (India) Ltd. &
Ors. Vs. Enercon GMBH & Anr.).
In many cases parties try to settle the matter by way of
mediation and/or conciliation before going to Court or
Arbitrator/s. Even sometimes Arbitrator/s refers back
the matter for settlement between the parties for
mediation/conciliation or other procedures under
Section 30 of the Arbitration& Conciliation Act, 1996.
But that can be done by agreement of the parties .In
this case, we find IE was the Mediator. Remedy before
the Mediator seems to be exhausted. Conciliation for
amicable settlement before Chairman of the Authority
and Chairman of the Board of Directors of the
concessionaire was available under Clause 44.2 of the
CA. As per letter dated January 13, 2017final
foreclosure notice was issued by the Respondent
permitting the Claimant to settle claims through
settlement-cum-ISAC procedure for amicable
settlement failing which Concessionaire i.e., Claimant
may go for Arbitration. Correspondences were
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exchanged between the parties. Claimant requested the
Respondent to constitute ISAC. Ultimately the
Respondent by its letter dated May 5, 2017 informed
the Claimant that a three layers one time amicable
settlement system has been introduced in NHAI i.e.
Respondent herein where such cases are taken out first
by 3 CGMs Committees and further vetted/negotiated
by ISAC (a higher level Committee) followed by
approval by Executive Committee/NHAI Board, for
settlement of cases. This proposal was not accepted by
the Claimant. It is well known that conciliation stands
on mutuality. The Claimant cannot be compelled to
proceed before the forum not of his choice nor the
Arbitrator can direct to do so contrary to Section 30 of
the Act. Conciliation per se depends upon acceptance
of proposal of one party by the other. Section 62(2) of
the Arbitration and Conciliation Act, 1996 prescribes
that Conciliation proceedings shall commence when
the other party accepts in writing the invitation to
conciliate. As per Sub-Section (3) therein if the other
party rejects the invitation, there will be no
conciliation proceedings. Sub-Section (4) prescribes
for time frame and rejection.
It appears that the proposal of the Respondent under
letter is an introduction of new scheme of conciliation
in the place and instead of the agreement. Moreover
the period as prescribed under the clause was over.
Having so, the Claimant went for Arbitration.
Moreover scheme appears to be not for conciliation
but for consideration of the demand of the Claimant by
the Respondent de hors the agreement. In further such
process cannot be construed as a scheme of
expeditious disposal. From January, 2017 the
Claimant waited for amicable settlement by
conciliation when respondent came out with a counter
proposal of scheme of consideration de hors the
original agreement in May, 2017. Ultimately Claimant
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invoked the Arbitration clause 44.3 of the CA in
October, 2017. The entire process of conciliation was
frustrating. In the garb of nomenclature "conciliation",
the Respondent invited the Claimant to enter upon a
long-drawn procedure of their adjudication.
Secondly, after the nomination of the Arbitrator by the
Claimant vide letter, dated October 16, 2017 after
about four months that date i.e. on February 5,2018,
the Respondent itself nominated their nominee
Arbitrator to participate in the arbitration proceedings
when both of them nominated the third Arbitrator
which ultimately formed the present Tribunal.
Therefore, issue of prematurity was evaporated by
their own participation in the arbitration proceedings.
Thirdly, the Respondent not. only submitted to the
jurisdiction of the Arbitrators but also made their
counter claim for adjudication by the Arbitrators. In
2015 (13) SCC 477 (Govind Rubber Ltd. vs. Louis
Dreyfes Commodities Asia Pvt. Ltd.) it was held that
by making a counter claim, the party indeed submitted
to the Jurisdiction of the Arbitrator.
Finally, it is well settled principle that a party to the
breach cannot adjudicate the breach. Therefore,
adjudication by the respondent in the name of
Conciliation cannot be sustained. In 1987 (2) SCC 160
(State of Karnataka vs. Shree Rameshwaira Rice Mill
etc) it was held that even assuming that the stipulation
in the contract affords scope for being construed as
empowering the officer of the state to decide upon the
question of breach as well as assess the quantum of
damages, adjudication by the officer regarding the
breach of the contract cannot be sustained under law
because a party to the agreement cannot be an arbiter
in his own cause. Interest of justice and equity require
that where a party to a contract disputes the
committing of any breach of conditions, the
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adjudication should be made by an independent person
or body and not by the other party to the contract. This
principle was followed in AIR 2011 SC 2477 = 2011
(5) SCC 758 (M/s. J.G. Engineering Pvt. Ltd. vs. Union
of India and Anrs.) where under it was held that in
Therefore plea of prematurity on the part of the
Respondent is patent lie. act the question the other
party committed breach cannot be decided by the party
alleging breach. A contract cannot provide that one
party will be the arbiter to decide whether he
committed breach or other party committed breach.
That question can only be decided by an adjudicatory
forum, i.e. a Court or an Arbitral Tribunal.
Therefore, plea of prematurity on the part of the
Respondent is patent lie."
49. Under Section 62(2) of the Act, 1996, prescribes that Conciliation
proceedings shall commence when the other party accepts in writing the
invitation to conciliate. Further, under Section 62(3) of the Act, 1996
enunciates that if the other party rejects the invitation, there will be no
Conciliation proceedings. In the instant petition, the Arbitral Tribunal
held that since the respondent did not agree to the Conciliation
proceedings and the Tribunal could not compel the respondent to
participate in the said proceedings as per the provisions of Section 62 of
the Act, 1996. It is further held that the petitioner submitted to the
jurisdiction of the Arbitral Tribunal without any objection. After looking
into the reasons given above by the learned Arbitral Tribunal, it is crystal
clear that the learned Tribunal has considered the submissions made by
the parties as well as the documents which were referred by them, and
after considering them, has reached to the conclusion that the arbitral
proceedings are not pre-mature. In view of the above facts and
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circumstances, I do not find any reason to interfere in the findings given
by the learned Arbitral Tribunal qua the issue No. (i)
50. The learned Arbitral Tribunal has dealt with issue No. (vi) and
(vii), whether the claim of the respondent are beyond jurisdiction since
the Concession Agreement did not contain any provision for foreclosure
and if the respondent‟s petition for claiming various damages
maintainable. The relevant portion of the same is reproduced
hereinbelow:
"Issue Nos (VI) and (Vll) seem to be elementary in
nature. However let us give answers to the issues. It is
well settled that the Arbitrators proceed on the basis of
reference made to them. By a letter dated June 13,
2017 the Claimant intended about quick resolution of
the amount to be paid to them as foreclosure
compensation. Even subject matter of the letter
indicates 'basis: Foreclosure of the agreement'. In
response thereto the Respondent by its letter dated
February 5, 2018 nominated their Arbitrator for
subject project, 'to adjudicate the disputes, under
reference raised by the concessionaire (Copy of the
Contractor's letter dated 13.06.2017 is enclosed)'. This
is the cause of action. Hence no question can be raised
doubting jurisdiction of the Arbitrators. Alternatively
such submission can be construed as mere statement
from the Bar. The word,'reference' contemplates act of
parties to the arbitration agreement, referring their
disputes to an agreed Arbitrator/s to settle the
disputes. Further, the word 'reference' contemplates an
act of the appointing authority referring the disputes to
the Arbitrator/s appointed by him. The dispute relates
to determination of foreclosure compensation which
may or may not be reimbursement of the expenditure
incurred by the Claimant in limini. Meaning of
'compensation' is much wider which includes
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reimbursement, if any. Dictionarically compensation
has two parts, i.e. 'reimbursement' & 'damages'.
Compensation includes compensatory damages &
expectation damages amongst others. See pages 301,
416-417 of Black's Law Dictionary 8th Edition.
However let us confine ourselves to the meaning of
'foreclosure'.
The word 'foreclosure' was earlier unknown to the law
of contract. This principle borrowed from the laws
regarding, debt, mortgage etc. The word is not
available under the Indian Contract Act, 1872.
Principle of novation has been applied by the
Respondent. The term is loosely applied to various
methods statutory or otherwise, known in different
jurisdictions, of enforcing payment of the debt secured
by a mortgagee, by taking and selling the mortgaged
estate as per Page 1881 of Advanced Law Lexicon, 3 rd
Edition, 2005. The Contract Act under section 62 only
prescribes provision of novation, rescission and
alteration of contract. If the parties, to a contract
agreed to substitute a new contract for it, or to rescind
or alter it, the original contract need not be performed.
However, conceptually meaning of 'novation' is
substitution of new contract for it. Foreclosure meant
closure of original contract upon payment of dues to
the satisfaction of the parties.
As per the ratio of AIR 2000 SC 380 (Lata
Construction & Ors. Vs. Dr. Rameshchandra
Ramniklal Shah. 8b Anr.) one of the essential
requirements of 'Novation', as contemplated by Section
62, is that there should be complete substitution of a
new contract in place of the old. It is in that situation
the original contract need not be performed.
Substitution of a new contract in place of an old
contract which would have the effect of rescinding or
completely altering the terms of the original contract
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has to be by agreement between the parties. A
substituted contract should rescind or alter or
extinguish the previous contract. But if the terms of the
two contracts are inconsistent and they cannot stand
together, the subsequent contract cannot be said to be
in substitution of the earlier contract.
Similar view has been taken by the Court in another
judgment reported in 2004 (1) SCC 12 (City Bank N.A.
Vs. Standard chartered Bank & Ors.) which speaks
novation, rescission or alteration of a contract under
Section 62 can only be done with the agreement of
both the parties of a contract. Both the parties have to
agree to substitute the original contract with a new
contract or rescind or alter. It cannot be done
unilaterally. Section 62 would not be applicable as
there was no novation of the contract.
Non-fulfillment of the terms of the contract under the
letter of foreclosure itself disentitles the Respondent
from raising any point of novation. In further contract
does not cease to effect in such circumstances because
no accord or satisfaction can be available particularly
in view of the ratio of Lata Construction {supra).
However the term 'foreclosure' cannot have any
independent leg to stand. It is an incident of the
original contract. If the Respondent try to say that
foreclosure is not part of the CA, counter claim is also
not part of it. Arbitral Tribunal is formed at post
foreclosure period to ascertain respective demands of
the parties. Arbitration agreement though part of the
original agreement but independent of it to adjudicate
disputes and differences between the parties.
It is significant to note that in one hand the
Respondent raised issue of jurisdiction of the
Arbitrators in proceeding with foreclosure but on the
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other hand Ld. Counsel for the Respondent concluded
his submissions on November 21, 2018 emphatically
stating that in case the Claimant confine themselves
within the claim under foreclosure compensation, they
will not press for any counter claim. Both the stands of
the Respondent cannot simultaneously run. Moreover,
challenge of jurisdiction of the Arbitrators cannot be
optional. One must be very sure about his submission
with regard to jurisdiction.
Arbitration clause indicates 'Any dispute which is not
resolved amicably by consideration Therefore there is
no confinement of the Arbitrators' jurisdiction to any
particular dispute. Where the reference is to decide
specific dispute, the Arbitrators' jurisdiction might be
circumscribed by the specific reference and the
Arbitrator/s can decide only those specific disputes.
These principles are well settled re: 2012 (12) SCC
581 (State of Goa Vs. Praveen Enterprises).
In any event interpretation of the contract is also
matter of the Arbitrator/s domain who is/are a Judge
or Judges chosen by the parties to determine and
decide the disputes. The finding of facts recorded by
the Arbitrator/s cannot be interfered with on the
ground that the terms of the contract were not
correctly interpreted as per the ratio propounded in
2015 (5) SCC 739 (Swan Gold Mining Ltd. Vs.
Hindustan Copper Ltd.). Therefore, once again in
totality, we reject the plea of the Respondent."
51. The Learned Arbitral Tribunal held that non-fulfilment of the terms
of the contract under the letter of foreclosure itself disentitles the
petitioner from raising any point of Novation of Contract. The contract
does not cease to exist in such circumstances because no accord or
satisfaction is available. It is further held that challenge of jurisdiction of
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the Arbitral Tribunal cannot be optional since in one hand, the respondent
raised issue of jurisdiction of the Arbitral Tribunal but on the other hand,
counsel for the petitioner concluded his submissions emphatically stating
that in case the respondent confine themselves within the claim under
foreclosure compensation, they will not press for any counter claim. It is
correctly held by the Arbitral Tribunal that there is no novation of
contract in case there is a foreclosure of the Agreement. It is further
rightly held that since the petitioner has already submitted to the
jurisdiction of the petitioner it cannot contend at the same time that the
Tribunal does not have the jurisdiction to decide the claims. After looking
into the reasons given above by the learned Arbitral Tribunal, it is evident
that the learned Arbitral Tribunal has considered the submissions made
by the parties as well as the documents which were referred by them, and
after considering them, has reached to the conclusion that there was claim
of the respondent are not beyond jurisdiction and the various claims
claimed by them in the arbitral proceedings are maintainable. In view of
the above facts and circumstances, I do not find any reason to interfere in
the findings given by the learned Arbitral Tribunal qua the issue No. (vi)
and (vii).
52. The issue No.s (ii), (iii), (iv) and (v), deal with all the claims of the
the respondent during the Arbitral proceedings regarding the
interpretation of the terms of the Contract. These issues have been
combined and dealt claim-wise by the Tribunal.
53. This Court has placed reliance on the judgment of Hon'ble
Supreme Court held in the case of SAIL vs. Gupta Brother Steel Tubes
Ltd., (2009) 10 SCC 63 regarding to the scope of interference under
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Section 34 of the Act, 1996 with respect to interpretation of contract as
follows:
"16. In ONGC Ltd. [(2003) 5 SCC 705], while dealing
with the aspects of liquidated damages, this Court
considered the aforesaid Constitution Bench decisions
in Chunilal V. Mehta & Sons [AIR 1962 SC 1314] and
Fateh Chand [AIR 1963 SC 1405] and after reference
to relevant parts of Sections 73 and 74 of the Contract
Act held thus: (ONGC Ltd. case [(2003) 5 SCC 705] ,
SCC p. 733, para 46)
"46. From the aforesaid sections, it can be held that
when a contract has been broken, the party who suffers
by such breach is entitled to receive compensation for
any loss which naturally arises in the usual course of
things from such breach. These sections further
contemplate that if parties knew when they made the
contract that a particular loss is likely to result from
such breach, they can agree for payment of such
compensation. In such a case, there may not be any
necessity of leading evidence for proving damages,
unless the court arrives at the conclusion that no loss
is likely to occur because of such breach. Further, in
case where the court arrives at the conclusion that the
term contemplating damages is by way of penalty, the
court may grant reasonable compensation not
exceeding the amount so named in the contract on
proof of damages. However, when the terms of the
contract are clear and unambiguous then its meaning
is to be gathered only from the words used therein. In
a case where agreement is executed by experts in the
field, it would be difficult to hold that the intention of
the parties was different from the language used
therein. In such a case, it is for the party who contends
that stipulated amount is not reasonable compensation,
to prove the same."
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17. In Tarapore & Co. [(1994) 3 SCC 521] , a two-
Judge Bench of this Court considered few decisions of
this Court including the decisions in Sudarsan Trading
Co. v. Govt. of Kerala [(1989) 2 SCC 38 : AIR 1989
SC 890] , Associated Engg. Co. v. Govt. of A.P.
[(1991) 4 SCC 93 : AIR 1992 SC 232] and J&K
Handicrafts v. Good Luck Carpets [(1990) 4 SCC 740]
and held that where an arbitrator travels beyond a
contract, the award would be without jurisdiction and
the same would amount to misconduct and such award
would become amenable for being set aside by a court.
In Sudarsan Trading Co. [(1989) 2 SCC 38 : AIR 1989
SC 890] this Court held that an error by the arbitrator
relatable to interpretation of the contract is not
amenable to correction by courts.
18. It is not necessary to multiply the references.
Suffice it to say that the legal position that emerges
from the decisions of this Court can be summarised
thus:
(i) In a case where an arbitrator travels
beyond the contract, the award would be
without jurisdiction and would amount to
legal misconduct and because of which
the award would become amenable for
being set aside by a court.
(ii) An error relatable to interpretation of the
contract by an arbitrator is an error
within his jurisdiction and such error is
not amenable to correction by courts as
such error is not an error on the face of
the award.
(iii) If a specific question of law is submitted
to the arbitrator and he answers it, the
fact that the answer involves an erroneous
decision in point of law does not make the
award bad on its face.
(iv) An award contrary to substantive
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provision of law or against the terms of
contract would be patently illegal.
(v) Where the parties have deliberately
specified the amount of compensation in
express terms, the party who has suffered
by such breach can only claim the sum
specified in the contract and not in excess
thereof. In other words, no award of
compensation in case of breach of
contract, if named or specified in the
contract, could be awarded in excess
thereof.
(vi) If the conclusion of the arbitrator is
based on a possible view of the matter, the
court should not interfere with the award.
(vii) It is not permissible to a court to examine
the correctness of the findings of the
arbitrator, as if it were sitting in appeal
over his findings."
54. It is a well-settled law that there is a limitation on the powers of
this Court while examining its jurisdiction under Section 34 of the Act,
1996, however, at the same time, if the interpretation put forward by the
Arbitral Tribunal, is a plausible view, such interpretation cannot be set
aside by the Court. The Court should intervene in only those exceptional
cases where it finds that Award on the face of it is patently illegal, passed
without considering the material on record, etc. Keeping these principles
in mind, I will now examine the present case.
55. This Court shall now delve into the claims decided by the learned
Arbitral Tribunal and which are challenged by the petitioner in the
Application under Section of 34 of Act, 1996 before this Court dealing
with the interpretation of the Contract.
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56. The claim No.1 pertains to Total Costs incurred by the respondent.
The relevant portion of the reasons given by the learned Arbitral Tribunal
is also reproduced hereinbelow:
Claim No. 1 - Total Costs incurred by the Claimant
"The Claimant arrived at a claim of Rs. 247.58 Crs
minus Rs. 85 Crs as above i.e. Rs. 162.58 Crs in the
particulars. From the letter dated April 20, 2016
Claimant arrived at Rs. 194.50 plus price adjustment
of Rs. 16.46 totaling to Rs. 210.96 Crs and if IE's fees
of Rs. 3.89 Crs is reimbursed it will arrive at a figure
of Rs. 207.07 Crs. The calculation was made up to
March 16, 2016. Out of three methods of calculation of
foreclosure compensation i.e. Rs. 235 Crs in terms of
clause 37.3 of CA and in the alternative Rs. 277 Crs
and Rs. 275 Crs given by the Claimant, as per the
Respondent, first method found to be the best method
of compensation as on March 31, 2016.
The Respondent contended that major chunk of the
work was executed during 2012-13 and the total
amount worked out by the IE after joint measurement
comes to the tune of Rs. 35,21,90,670/- against the
claim of Rs. 247.58 Crs. According to the Respondent,
total claim as on April 20, 2016 will be happily
acceptable to the tune of Rs. 190 Crs. However, the
Respondent specifically contended before us that the
total claim was ranging between Rs. 140 and Rs. 250
Crs.
According to us, if that was acceptable position up to
March 16, 2016 or immediately thereafter, why such
sum was not paid by the Respondent to the Claimant is
best known to them. Even a part payment of the
Respondent to the Claimant could have been a test of
bona fide. Respondent did not do so, therefore did not
succeed the test. On the other hand, by the letter dated
October 13, 2016 the Claimant revoked all their offers
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due to coercive approach by the Respondent. The
Claimant specifically contended that mutual
foreclosure can only be executed as per what is agreed
by the parties not as per dictated terms so to say or
suffer termination and invocation of the Bank
Guarantees. The 'stand of Respondent is entirely
unreasonable, arbitrary and untenable in law. By the
further letter dated January 18, 2017 of the Claimant
that the 'Parties have thus agreed to foreclose the
contract by mutual consent subject to the claims of
OSEPL including claim of foreclosure compensation.
Therefore the Claimant did not confine his claim only
to the foreclosure compensation but other claims.
Therefore no bilateral act of quantification of
foreclosure compensation was finalised. In other
words, had there been an agreement, there would have
been no dispute before us. Moreover why the process
of foreclosure was delayed up to 2017 and the claim
was not settled between the parties, is a big question
before us. Neither the Respondent paid any amount nor
arrived at a conclusion but tried to introduce a long
drawn procedure of conciliation to settle the payable
sum. In totality, agreement being bilateral act stands
vitiated. There was no agreement with regard to
quantification at all. There was no accord or
satisfaction which is/are basic element/s of novation or
foreclosure, if any.
Balance of convenience speaks that there should a
lump sum Award. When Respondent itself contended
that the claim is ranging between Rs. 140 to Rs. 250
Crs and Claimant claims Rs. 247.58 Crs minus Rs. 85
Crs i.e. Rs. 162.58 Crs again deducted Rs. 3.89 Crs
being half of IE's fees/remuneration comes to Rs.
158.69 Crs and we think such amount is reasonable
and an Award can be passed on such sum.
We Award accordingly."
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57. The Arbitral Tribunal has held that the respondent is entitled to the
foreclosure compensation since the petitioner unilaterally foreclosed the
Concessionaire Agreement and unilaterally fixed the terms and conditions
of such foreclosure including the foreclosure compensation. It further
held that the foreclosure compensation which was unilaterally decided by
the petitioner was not paid by the petitioner to the respondent even after
certain amount of delay. After looking into the reasons, given above by
the learned Arbitral Tribunal, the learned Arbitral Tribunal has
considered the submissions made by the parties and which were referred
by them, and after considering them, has reached the conclusion that the
respondent is entitled to the total cost incurred by the respondent. In view
of the above facts and circumstances, I do not find any reason to interfere
in the findings given by the learned Arbitral Tribunal qua the claim No.
58. The claim No. 2 pertains to the cost of the capital and the finance
cost which has been incurred by the respondent. The relevant portion of
the learned Arbitral Tribunal is reproduced hereinbelow:
Claim No. 2: Costs of Capital and Finance Costs
"So far the Cost of Capital and Finance Cost are
concerned the major sources are (a) borrowed funds
and (b) capital infusion from its own sources.
According to the Claimant financing cost is Rs. 73.65
Crs and cost of capital is Rs. 83.96 Crs. It is correct to
say that neither the Respondent allowed grant of Rs.
229.95 Crs equivalent to bid money nor allowed the
Claimant to collect the toll for the constructed road
area to meet the expenses. There was no equity support
of the Respondent. The Claimant borrowed money
from different sources to meet the expenses. The only
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defence of the Respondent is that the Claimant
managed this capital from various sources and made
payments to the Engineering Procurement
Construction (EPC) which is already covered under
Claim No.1. On the contrary Respondent's own case is
that foreclosure compensation was limited to actual
cost but does not include any claim for loss of profit,
overhead expenses, cost of idling, capital/finance cost
etc. Therefore, according to us, this denial is evasive,
contradictory in nature and without any foundation.
Hence the eligibility of claim of the Claimant under
this heading cannot be denied or disputed. Now we
have to ascertain the quantum.
So far borrowed funds are concerned, particulars of
financing charges are available under Annexure 'E' of
the application for amendment Statement of Claim
which was allowed. There we find total charges as per
summary of finance costs as on March 31, 2018 is Rs.
75,55,69,189/- less profit from Union KBC Liquid
Fund of different forms, interest on FDR, interest earn
on ICD for a sum of Rs. 1,90,51,946/- ultimately
arrived at a figure of Rs. 73,65,17,243/- as claim of the
Claimant from the Respondent. Any claim in
connection with Bank Guarantee charges cannot come
under this heading and covered under Claim 1.
Therefore, a sum of Rs. 20,71,594/- which claimed as
Bank Guarantee ex. Charges and processing fee will
be deducted from such amount. Hence, the total comes
to a figure of Rs. 73,44,45,649/-. Similarly we cannot
comprehend payment of Management and/or
Processing Fees for arranging loans of Rs.
12,83,75,156/- This figure is not tallying with the
figure of note of computation prepared by the Ld.
Counsel on their behalf. However, we have to go by
the record i.e. Annexure 'E' not by the figure given by
the Ld. Counsel. Hence upon deducting the said sum
we arrive at a figure of Rs. 60,60,70,493/-as on March
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31, 2018 with proportionate enhancement from April
1, 2018 to March 31, 2019 @ 2% above the lending
rate of SBI on outstanding loan amount.
We Award accordingly.
Second part of the claim is Cost of Capital infused
from its own sources. Total investment of the Claimant
is Rs. 78.36 Crs. approximately as per Annexure 'B' to
SOC with a reasonable expectation of return. in the
form of dividends etc. but became impossible due to
closure of project. Therefore this idle sum yielded with
no return. Thus the Claimant claimed return each year
on the capital invested. Since capital is not secured
investment and has a down side also; a risk premium
20% is added to the expected rate of return. The claim
is compounded from the date of investment till March
31, 2018 for a sum of Rs. 83.96 Crs approximately.
A question arose before us as to whether expected rate
of returns on the higher side or not particularly when
equity capital was invested by the parent company
fully or partially. We have to give answer to the same
legally at first then factually.
As per the ratio of 2012 (6) SCC 613 (Vodafone
International Holding BV vs. Union of India and An.)
despite control of parent/holding company the
subsidiary retains its own legal existence and
ownership of its own assets because director of
subsidiary owe responsibility to their own company
rather than its parent/holding company. A company is
a separate legal persona. In law, the management of
the business of the subsidiary also vests in the board of
directors of the subsidiary alone. Therefore, a parent
company can claim interest like an independent
financer including Bank and subsidiary can protect its
interest against any financer including parent
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company.
So far as the factual position is concerned, we find
from the CA itself that post-tax return on equity of 16%
pa. has been indicated. Such situation will arise after
actual earning at the time of payment of tax. However,
pre-tax rate might go up to @ 22.85% p.a. by reverse
calculation. It is also available in the CA that in case
of termination payment on account of Authority's
default, the Authority shall pay to the Concessionaire
a) debt due and b) 150% of the adjusted equity.
Therefore, logically claim of Rs. 83.95 Crs
approximately @ 13.20% p.a. cannot be said to be
unreasonable.
According to the claimant the aforesaid claim is
supported by Auditor's report. We find such certificate
is annexed as Annexure D* to the application for
amendment of soC. Upon perusing such certificate
dated August 7, 2018 we find that the same was issued
at the request of the Claimant to support statement of
interest and borrowing cost incurred by the company
and should no be used for any other purpose or by any
other person without obtaining their consent.
Therefore, independency of the report is under
question. Such report cannot be used as an evidence to
substantiate the claim of the Claimant.
However, according to us there should be difference of
rate between borrowed sum and infusion of own
resources save the period from April 1, 2018 to March
31, 2019 when matter was under consideration by the
Arbitrators in which due date is fixed. Very seldom
aggregate amount of loss of interest exceeds loss of
capital. That apart, both loss of interest and loss of
profit cannot be simultaneously sustained, particularly
in this case. Since the claimant insisted for loss of
interest, let us consider the same.
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There is no agreed rate as such so that we can rigidly
hold 13.20% p.a. will be the only basis of calculation,
nothing else. Moreover, it is a matter of repudiation
which gives indication of rational inference. Such
rationality indicates that reasonable rate of Cost of
Equity Capital will be 8% till March 31, 2018 for a
sum of Rs. 50,15,46,240/- and for the further period up
to March 31, 2019 at the similar rate.
We Award accordingly."
59. It has been held by the Tribunal that it is the respondent‟s own case
that foreclosure compensation was limited to actual cost and did not
include any other cost like the cost of the capital and the finance cost. The
Tribunal has rightly held that respondent is entitled to finance cost. The
Tribunal has further rightly observed that the investment made by the
respondent towards the capital infused with its own sources, was with a
reasonable expectation of return on such investment, but due to closure of
project the investment did not yield any return. This Court after looking
into the reasons given, learned Tribunal regarding claim no.2, the learned
Arbitral Tribunal has considered the submissions made by the parties and
which were referred by them, and after considering them, has reached the
conclusion that the respondent is entitled to the cost of the capital and the
finance cost which has been incurred by the respondent.. In view of the
above facts and circumstances, I do not find any reason to interfere in the
findings given by the learned Arbitral Tribunal qua the claim No.2.
60. The claim No. 3 pertains to Head Office Overhead Expenditure
which has been incurred by the respondent. The relevant portion of the
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reasons given by the learned Arbitral Tribunal is also reproduced
hereinbelow:
Claim No. 3: Head Office Overhead Expenditure
The next claim is Head Office Overhead expenditure.
According to the Claimant, it had borne various office
overheads expenditure due to the period of the project
on notional basis at 12% of the total project cost
actually incurred. This amount is fair and reasonable.
The Claimant claimed Rs. 49.24 Crs towards overhead
expenses, though as per calculation it appears to be
Rs. 53.88 Crs. On the other hand, the Respondent
contended that while working out the rate, the
Respondent arrived at 7.5% as per the schedule of
rates of the Government of Odisha.
According to us, the project was a Central Government
project. If so, normally the overhead expenses will be
calculated on the basis of the rate of Central
Government.
As per 'Law Relating to Building and Engineering
Contracts in India', 3rd Edition, written by G.T.
Gajaria:
"The percentage used in pricing for head-office
overheads and profit obviously varies from
contractor to contractor, and is usually a closely
guarded secret, but evidence given in litigation
on many occasions may show as to what is the
percentage of the total prime cost.
In this connection it will be useful to mention that the
Government of India, the Ministry of Irrigation and
Power, (Central Water and Power Commission),
published in January 1956, after investigation and
survey of the various major Irrigation projects in this
country, has laid down and recommended the
following percentage, of 'overheads' in the estimates to
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be prepared by the various departments of the
Government:
"Para 2.36.1. Overheads - An allowance of 10
per cent would be adequate for the contractor's
actual expense on supervisory establishment,
field office and share of head office charges,
travelling expenses, publicity, interest and
insurance of damage to plant and injury to
labour"
Similarly regarding the contractors profit, it has
been stated in the above mentioned report of the
Government of India as under:
"Para 2.36.2 Profits - We believe that in normal
circumstances an allowance of 10 per cent of the
prime cost as contractor's profit is reasonable"
However, we have no material to ascertain the figure
as per the rate of Central Government. On the other
hand, since the Respondent itself suggested rate of
7.5%, we accept the same as admission of rate and
pass Award on such rate. On calculation we arrived at
a figure of Rs. 33.67 Crs approximately as Overhead
Expenditure.
We Award accordingly."
61. The learned Arbitral Tribunal has held that the respondent is
entitled to Head Office Overhead Expenditure as per the rate of 7.5 % as
suggested by the petitioner itself. It has rightly been held by the Arbitral
Tribunal that the respondent is entitled to Head Office Overhead
Expenditure since the foreclosure compensation was based on actual
expenses and did not include other expensed incurred by the respondent. I
do not find any reason to interfere in the findings given by the learned
Arbitral Tribunal qua the claim no. 3 of the respondent.
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Non - Adjudication of the Counter Claim
62. The objective of the Counter Claims is to save time of courts to
exclude inconvenience to the parties to litigation, decide all disputes
between the same parties avoiding unnecessary multiplication of judicial
proceedings and prolongation of trials as held in Ramesh Chand v. Anil
Panjwani, 2003 6 SCC 350.
63. The issue related to counter claim was not decided by the learned
Arbitral Tribunal by giving the following reasons:
"Last but not the least, as per Section 38(2) second
proviso of the Act, 1996, in case a party does not pay
his share of the deposit in respect of the claim or the
counter claim, the Arbitral Tribunal may suspend or
terminate the arbitral proceeding in respect of such
claim or counter claim, as the case may be. In this case
the Respondent did not pay any amount in support of
its counter claim. Therefore, the counter claim of the
Respondent cannot be entertained.
X X X
The counter claim appears to be counter blast as
against the claim of the Claimant. We have to proceed.
on the basis of the reference. There is no reference
available in the letter/S:of reference. Therefore, we
cannot proceed with the counter claim being not a
dispute under reference. Without prejudice to the
above even factually Claim no. 5 is for fresh
contractor's project Cost of Rs. 1383.43 Crs out of
total amount of Rs. 1434.15 Crs. The Claimant cannot
be held responsible for fixation of cost of project
and/or for construction by the Respondent.
Significantly the original project cost in favour of the
Claimant was Rs. 449 Crs. The other claims are
fictitious in nature. The Respondent itself had issued
alignment plan by which road, alignment was
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modified. As a result of which, there were trees
obstructing the ROW. In such case the Respondent was
to bear the cost of cutting/felling trees because the
Respondent deemed to be the owner of the same. The
Claimant is not liable to pay an amount of Rs.
67,96,809/-. Respondent failed to hand over almost
half of the project land even after six years of signing
of the CA. Lastly problems arose for lack of funding
directly due to the failure on the part of the
Respondent. Project road is used as a prime mineral
transport corridor since decades. Heavy equipments
and trucks are passing the road but unfortunately this
was never maintained. Respondent failed to consider
the Claimant's suggestion in this regard and now seeks
to claim the maintenance cost of Rs. 31,48,60,586/-
from the Claimant. Payment to the IE on account of fee
and expenses has already adjusted. Respondent is not
entitled to recover the cost amount incurred while
undertaking shifting of any utility and would be borne
by the Respondent. Respondent has filed the present
claim just to hide its own delays and defaults and the
same is without any basis. Moreover by the
Respondent's own saying before the Arbitrators that it
will not press counter claim in case the Claimant
confined the claim towards foreclosure compensation
and when compensation is now quantified the
Respondent cannot counter claim any amount."
64. In the present petition, the petitioner has raised an objection that
the Arbitral Tribunal has not adjudicated upon the counter claims filed by
the petitioner. The petitioner contended that the Arbitral Tribunal fixed
certain amount of Arbitral fees which included fees for both counter
claims and claims. The Arbitral Tribunal without appreciation of its own
order regarding payment of fees has wrongly terminated the adjudication
of the counter claims under Section 38 (2) of the Act, 1996 on the ground
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of non- payment of fees for the Counter Claims by the respondent. On the
other hand, it is contended by the respondent on the other side that the
counter claims were rejected by the Arbitral Tribunal as per second
proviso of Section 38(2) of the Act, 1996 under which the Arbitral
Tribunal has the power that it may suspend or terminate the arbitral
proceedings if the party has not paid its share of the Arbitral fees. The
petitioner has not paid any fees for counter claims or claims and hence, is
not entitled to adjudication of its counter claim. The Arbitral Award has
recorded has follows:-
"The Respondent did not pay a single sum on account of each
Arbitrator's fees and other expenses towards proportionate
establishment cost/administrative charges to the researcher-
cum-assistants/associates even expenses relating to
arbitration."
Therefore, it is contended by the respondent that the Arbitral
Tribunal has acted within its jurisdiction to terminate its mandate
regarding the Counter Claim.
65. Before proceeding further this Court finds it necessary to briefly
revisit the existing position of law with respect to the scope of Section 38
of the Act, 1996, which reads as under:
"38. Deposits.-- (1) The arbitral tribunal may fix the
amount of the deposit or supplementary deposit, as the
case may be, as an advance for the costs referred to in
sub-section (8) of section 31, which it expects will be
incurred in respect of the claim submitted to it:
Provided that where, apart from the claim, a counter-
claim has been submitted to the arbitral tribunal, it
may fix separate amount of deposit for the claim and
counter-claim.
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(2) The deposit referred to in sub-section (1) shall be
payable in equal shares by the parties:
Provided that where one party fails to pay his share of
the deposit, the other party may pay that share:
Provided further that where the other party also does
not pay the aforesaid share in respect of the claim or
the counter-claim, the arbitral tribunal may suspend or
terminate the arbitral proceedings in respect of such
claim or counter-claim, as the case may be.
(3) Upon termination of the arbitral proceedings, the
arbitral tribunal shall render an accounting to the
parties of the deposits received and shall return any
unexpended balance to the party or parties, as the case
may be."
66. This Court has placed reliance on the judgment of Division Bench
of the Bombay High Court in the case of Rehmat Ali Baig v. Minocher
M. Deboo, 2012 SCC OnLine Bom 914 regarding the termination of the
proceedings under Section 38 (2) of the Act, 1996 if the fees of the
Arbitral Tribunal have not been paid by the parties. The relevant paras of
the said judgment is as follows:
"5. The Appellant was not permitted to pursue his
counter claim on the ground that he failed to deposit
costs as directed by the Arbitrator for adjudicating
upon the counter claim. ... Despite this, the Appellant
continued to assert his request to take the counter
claim on record without deposit of the Arbitrator's
fees. The Appellant also informed the Arbitrator that
he did not wish to examine any witness.
X X X
8. While making a reference to arbitration in terms
agreed between the Appellant and the Respondent, the
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Learned Single Judge of this Court by his order dated
13 October 2006 directed that the costs of the
arbitration shall be borne, in the first instance, by the
Respondent, subject to suitable orders that the
Arbitrator may make. The arbitral Tribunal was within
its jurisdiction in terms of the order of this Court in
issuing a direction to the effect that the Appellant shall
deposit the costs towards the Arbitrator's fees in
connection with the counter claim. Even otherwise, an
arbitral Tribunal is entitled under Sub-section (1) of
Section 38 to fix the amount of the deposit or
supplementary deposit, as the case may be, as an
advance for the costs referred to in Subsection (8) of
Section 31. Under Section 31(8)(a) the costs of an
arbitration shall be fixed by the arbitral Tribunal
unless otherwise agreed by the parties. For the
purposes of clause (a), costs include reasonable costs
inter alia relating to the fees and expenses of the
Arbitrator. The proviso to Sub-section (1) of Section 38
enunciates that where, apart from the claim, a counter
claim has been submitted to the arbitral Tribunal, it
may fix a separate amount of deposit for the claim and
counter claim. Under sub-section (2) the deposit
referred to in subsection (1) shall be payable in equal
shares by the parties. The proviso stipulates that where
one party fails to deposit his share, the other party may
pay that share. Under the second proviso, where the
other party also does not pay the aforesaid share in
respect of the claim or the counter claim, the arbitral
Tribunal may suspend or terminate the arbitral
proceedings in respect of such claim or counter claim,
as the case may be. In the present case, in terms of the
order passed by this Court initially, the Respondent
was required to deposit costs subject to the orders of
the Arbitrator. The Arbitrator was, in our view, within
jurisdiction in requiring the Appellant to deposit an
advance towards costs for adjudicating upon the
counter claim. Sub-section (1) of Section 39 does make
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a provision under which the arbitral Tribunal, subject
to a provision to the contrary in the arbitration
agreement, is to have a lien on the arbitral award for
any unpaid costs of arbitration. That however, does
not override the power of the Arbitrator under the
second proviso to Sub-section (2) of Section 38 to
terminate the arbitral proceedings as regards the
claim or the counter claim, as the case may be, for
failure to pay the advance towards deposit of costs. An
Arbitrator cannot be expected to continue adjudicating
upon the claim or, as the case may be, a counter claim,
without parties making a deposit of costs representing
the reasonable fees and expenses of the Arbitrator.
Relegating the arbitrator only to a claim of lien under
Section 39 will result in an abuse of the process. A
party which does not comply with an order of deposit
will in cases make every effort to delay the proceedings
by raising frivolous objections. Absent an obligation to
comply with an order of deposit, a party may misuse
the arbitral process. Arbitral proceedings take place
before a private tribunal of the parties' choice. Parties
who opt for arbitration cannot avoid complying with
an order of deposit. The amount which was fixed by the
Learned Arbitrator in the present case was evidently
reasonable. Where a party which has been directed to
deposit an advance towards the costs fails to do so,
and the other party also does not deposit his share, the
Arbitrator would be justified in taking recourse to the
power conferred in Section 38(2) to terminate the
counter claim as was done in the present case. The
judgment of the Supreme Court in Union of India v.
Singh Builders Syndicate does not cover a situation
such as the present. The present case involves a
situation where a party has been recalcitrant in
depositing his share of the reasonable costs
determined by the Arbitrator towards the adjudication
of the counter claim. The Arbitrator has acted fairly.
Though the counter claim of the Appellant was
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excluded, the Appellant participated in the
adjudication of the claim and was allowed to cross-
examine the Respondent's witness, as stated in the
award. The Appellant did not step into thewitness
box.".
67. The Rehmat Ali Baig (Supra) has been referred in the case of
Gammon India Ltd. v. Trenchless Engineering Services (P) Ltd., 2013
SCC OnLine Bom 1720
"7. Upon raising a query, learned counsel appearing
for the respondent has reiterated the stand of the
respondent that insofar as counter-claim filed by the
petitioner is concerned, respondent is not willing to
pay the contribution of the petitioner of fees and
expenses of the arbitral tribunal.
8. Upon query of the Court whether petitioner is ready
and willing to pay its contribution of fees and expenses
when counter-claim would have been heard, learned
counsel for petitioner did not convey any response in
positive. The only submission made for consideration
of this Court is that since the respondent has been
paying the arbitration costs in respect of the entire
matter including the counter-claim, arbitral tribunal
was not justified in rejecting the counter-claim for non
payment of contribution of the petitioner's fees and
expenses.
9. In my view, neither the arbitral tribunal nor this
Court can compel a party to deposit the contribution of
fees and expenses of both parties. In my view, the
arbitral tribunal was thus justified in terminating the
arbitral proceedings in respect of counter-claim in
view of the petitioner and respondent refusing to
deposit any amount of fees and expenses for hearing
counter-claim of the petitioner. Arbitral tribunal is
entitled to fix a separate amount of deposit for claim
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and counter-claim. I am bound by the Judgment of
Division Bench of this Court in case of Rehmat Ali
Baig."
68. Furthemore the judgment of this Court deals with the same aspect,
in the case of M/s. Chandok Machineries v. M/s. S.N. Sunderson & Co.
2018 SCC OnLine Del 11000, the relevant paras of which are as follows:
"39. A reading of Section 38 would show that the
Arbitral Tribunal may fix separate amounts of deposit
for the claims and counter claims. Though the deposit
is payable in equal shares by the parties, on the failure
of a party to pay its share of the deposit, the other
party may pay that share and in case of failure of the
other party to pay the aforesaid share in respect of the
claims or the counter claims, the Arbitral Tribunal
may suspend or terminate the arbitration proceedings
in respect of such claims or counter claims.
40. In view of the above provision, no fault can be
found in the direction issued by the Arbitral Tribunal
with respect to its fee. A party cannot lay exorbitant
claims on the premise that the cost would be shared by
the opposite party, and when the opposite party refuses
to share such cost, claim bias as it has been made to
share the entire cost of such exorbitant claim. An
innocent party, whose claims are genuine, is in case
protected as such costs can be awarded in its favour by
the Arbitral Tribunal in exercise of its powers under
Section 31(8) read with Section 31A of the Act. I may
only note that in the order dated 19th October, 2016 it
had been "agreed/decided" that the claimant shall pay
Arbitral fee on his claims and the respondent shall pay
Arbitral fee on its counter claim. Therefore, even
otherwise, the petitioner cannot be now heard to
complain of this course adopted by the Arbitral
Tribunal."
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69. It is therefore a settled position of law that under second proviso of
Section 38 (2) of the Act, 1996 if the parties to the Arbitral Proceedings
have not paid the Arbitral Fees for its Claim or Counter Claim, the
Tribunal is entitled for termination of the proceedings of such Claim or
Counter Claim. It is further held by the aforesaid judgments that the
parties cannot be entitled to adjudication of their dispute despite not
paying the Arbitral fees.
70. Under the second proviso of Section 38 (2) of the Act, 1996 the
Arbitral Tribunal has the power that it may suspend or terminate the
arbitral proceedings if the party has not paid its own share of the Arbitral
fees in respect of Claim or Counter Claim. The Tribunal has given
various opportunities to the petitioner for the payment of the arbitral fees
but nothing has been paid by the petitioner. Hence, the Arbitral Tribunal
cannot adjudicate the petitioner‟s counter claim without paying the
requisite fees of the Arbitral Tribunal. This Court has relied on the
judgment of Bombay High Court in the case of Rehmat Ali Baig (Supra)
wherein the Court held that mandate of the Tribunal to adjudicate upon
the Counter Claims has been rightly terminated by the Arbitral Tribunal
under second proviso of Section 38 (2) of the Act, 1996 as the respondent
had not paid the Arbitral fees. Therefore, the Arbitral Tribunal has
correctly held that under second proviso of Section 38 (2) of the Act,
1996 due to non-payment of arbitral fees the petitioner is not entitled for
adjudications its counter claim. After looking into the reasons given
above by the learned Arbitral Tribunal and the judgment of Bombay High
Court in the case of Rehmat Ali Baig (Supra), this Court is thus of the
view, that the Arbitral Tribunal has acted as per the provisions of the
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second proviso of Section 38 (2) of the Act, 1996 wherein the Tribunal
had the power to terminate the proceedings for counter claim upon non-
payment of the fees .I do not find any reason to interfere in the award
passed by the learned Arbitral Tribunal qua Counter Claims of the
respondent.
CONCLUSION
71. In the instant case, the learned Arbitral Tribunal has gone into the
issues and facts thoroughly, applied his mind to the pleadings and
evidences before him, as well as the terms of the Contracts, and then
passed a duly considered award. In view of the foregoing analysis, this
Court is of the opinion that the petitioner has failed to make out any case
for interference under Section 34 of the Act. As noticed above, the
grounds which were urged before this Court by the learned counsel for
the petitioner in assailing the award have no force.
72. In line with the aforesaid discussion, the view of the learned
Arbitral Tribunal while awarding the impugned award is undoubtedly a
plausible view. Consequently, the instant petition has no merit and must
fail. Accordingly, the same is dismissed with no cost.
73. Pending applications, if any, also stand dismissed.
74. The judgment be uploaded on the website forthwith.
(CHANDRA DHARI SINGH)
JUDGE
MAY 26, 2023
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