Reserved On: 20.12.2022 vs M/S Gousia Road Construction ...
2023 Latest Caselaw 583 j&K/2

       HIGH COURT OF JAMMU & KASHMIR AND LADAKH
                       AT SRINAGAR
                            ...
                              AA no.22/2017

                                                    Reserved on: 20.12.2022
                                               Pronounced on: 16 .05.2023
J&K Economic Reconstruction Agency
                                                          .........Petitioner(s)

                               Through: Mr M.A.Chashoo, AAG

                                  Versus

M/s Gousia Road Construction Company
                                                       .........Respondent(s)

                               Through: Mr Hamza Prince, Advocate


CORAM:
          HON'BLE MR JUSTICE VINOD CHATTERJI KOUL, JUDGE


                             JUDGEMENT

1. This petition is preferred under Section 34 of the J&K Arbitration and

Conciliation Act, 1997 (for brevity "Act of 1997") for setting-aside the

Award dated 12th April 2017, passed by the Arbitrator in Arbitration

Application no.20/2013 titled M/s Gousia Road Construction Company

v. J&K Economic Reconstruction Company.

2. According to Mr M. A. Chashoo, learned counsel for petitioner, the

Arbitrator has committed serious error in holding that cost of

construction of additional piles was responsibility of employer.

Contents of award, as stated by learned counsel for petitioner, show that

arbitrator was predisposed to grant bounty and has ignored contents of

contract agreement. It is stated that award of amount of Rs.31,54,294/-

on account of construction of eight piles is contrary to the terms of the

Page 1 AA no.22/2017 contract and beyond the terms of reference and arbitration proceedings

also suffer from serious procedural defects. The award deals with

dispute not falling under the terms of agreement and subject matter of

dispute is not envisaged or covered by contract agreement.

According to learned counsel, contractor had himself constructed

the bridge as per the new design and award is in conflict with public

policy. Learned counsel would also contend that original agreement has

no clause in regard to price escalation and it seems in violation of terms

of the grant for execution of the work, price escalation has been agreed

by incompetent authority and huge payments have been received by the

contractor on account of price escalation before filing of application for

appointment of arbitrator. The amount of Rs.45.00 Lacs paid on

account of price of escalation though the same is not admissible under

the terms of contract.

Learned counsel also avers that payment of Rs.6.00 Lacs is

unjustified and without any evidence. It is also stated by Mr Chashoo

that Rs.12,15,414/- awarded on account of non-issuance of Exemption

Certificate is preposterous because in terms of the contract, the

contractor has himself to obtain Exemption Certificate so that he is able

to obtain exemption from various duties payable in regard to the

material he has used in construction of the bridge and the terms of the

contract show that employer has no role to play in obtaining

Exemptions except that they will provide necessary help to the

contractor and that the amount has been outpoured in favour of

contractor. It is also averred that claim of interest on retention of money

Page 2 AA no.22/2017 withheld to the tune of Rs.7,04,431/- along with interest is also a

windfall which is against all the canons of justice and law.

3. I have heard learned counsel for parties and considered the matter. I

have examined impugned Award, documents and pleadings of parties

and gone through written submissions as well.

4. J&K Economic Reconstruction Agency - petitioner herein, after

accepting the bid of respondent, allotted the execution of Construction

of Approach Road to Achan Landfill Site at Srinagar in favour of

respondent in April 2008. Respondent-contractor raised certain

disputed claims before petitioner-employer. Lastly, respondent

preferred an application under Section 8 read with Section 11 of the Act

of 1997. This Court vide order dated 17 th September 2013 appointed

Mr Abdul Rashid Lone, Retired District and Sessions Judge, as

Arbitrator for settlement of the disputes.

5. As record would tend to show, the Arbitrator initiated proceedings.

Petitioner filed Reply to claim petition. The Arbitrator has allowed

claim petition of respondent and awarded following claims:

(i) The claim on account of additional piles in the sum of Rs.31,54,294/- is allowed along with interest @ 10% per annum. Thus, while calculating the interest of Rs.6,30,858/- the total claim under this head is awarded in the sum of Rs.37,85,152/-.

(ii) The claim of price escalation bill No.4th of Rs.6.00 Lakhs is also allowed along with interest @ 10% per annum which amounts to Rs.60,000/-. Thus, total claim under this head of Rs.6.60 Lakhs is awarded.

(iii) The claim on account of non-issuance of Exemption Certificate in the sum of Rs.12,15,412/- is also awarded. However, this amount will not carry interest and in this behalf discussion has been made as above. However, in case of failure to pay this amount during stipulated time of the award, it shall also carry interest @ 10% per annum till its realization.

(iv) The claim of interest on Retention Money withheld unduly is also awarded as following:

           Total Amount retained                          = Rs.10.70 Lakhs

                                  Page 3
                                                              AA no.22/2017

Interest w.e.f.08.09.2011 to 06/2013 = 10/12x10.70.21 Total = Rs.1,87,250.00 Total = Rs.12,57,250.00 Less amount released on 06/2013 = Rs.5.70 lakhs Amount w.e.f. 06/2013-09/2013 = 10/12x687250x3 Total = Rs.17,181.00 Total amount =Rs.7,04,431.00 Thus an amount of Rs.7,04,431/- is awarded under this head. Therefore, the claim of Rs.63,64,995/- under all heads is awarded in favour of the petitioner against respondent. The petitioner is also entitled for the costs of litigation throughout. The award be satisfied within three months of passing of the award, failing which, the petitioner will be entitled for the award of interest @ 10% per annum on the award amount till its realization.

6. The scope of enquiry in Section 34 proceedings is restricted to

consideration whether any one of the grounds mentioned in Section

34(2) of the Act exists for setting aside the award. Section 34 of the

Act of 1997, which is pari materia to Section 34 of the Arbitration and

Conciliation Act 1996, is reproduced hereunder:

"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 furnishes proof that--

(i) a party was under some incapacity, or

(ii) the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law for the time being in force; or

(iii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or

(iv) the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration:

Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, 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,

Page 4 AA no.22/2017 or, failing such agreement, was not in accordance with this Part; or

(b) the Court finds that--

(i) the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or

(ii) the arbitral award is in conflict with the public policy of India.

Explanation. --Without prejudice to the generality of sub- clause (ii) it is hereby declared, for the avoidance of any doubt, that an award is in conflict with the public policy of India if the making of the award was induced or affected by fraud or corruption or was in violation of section 75 or section

81. (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."

7. Normally, the general principles are that Arbitrator is a Judge of the

choice of the parties and his decision unless there is an error apparent

on the face of the award which makes it unsustainable, is not to be set

aside even if the court as a court of law would come to a different

conclusion on the same facts. The court cannot reappraise the evidence

and it is not open to the court to sit in appeal over the conclusion of the

arbitrator. It is not open to the court to set aside a finding of fact arrived

at by the arbitrator and only grounds on which the award can be

cancelled are those mentioned in the Arbitration Act. Where the

Page 5 AA no.22/2017 arbitrator assigns cogent grounds and sufficient reasons and no error of

law or misconduct is cited, the award will not call for interference by

the court in exercise of the power vested in it. Where the arbitrator is a

qualified technical person and expert, who is competent to make

assessment by taking into consideration the technical aspects of the

matter, the court would generally not interfere with the award passed

by the arbitrator.

8. The Supreme Court in Associate Builders Vs. Delhi Development

Authority, (2015) 3 SCC 49, has held that the interference with an

arbitral award is permissible only when the findings of the arbitrator are

arbitrary, capricious or perverse or when conscience of the Court is

shocked or when illegality is not trivial but goes to the root of the

matter. It has been held that once it is found that approach of arbitrator

is neither arbitrary nor capricious, no interference is called for on facts.

The arbitrator is ultimately a master of the quantity and quality of

evidence while drawing the arbitral award. Patent illegality must go to

the root of the matter and cannot be of trivial nature.

9. Again in Ssangyong Engineering & Construction Co. Ltd. v. National

Highways Authority of India, 2019 SCC OnLine 677 , the Supreme

Court has held that under Section 34 (2) (a) of the Act, a decision which

is perverse 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. A finding based on the documents taken

behind the back of the parties by the arbitrator would also qualify as a

decision based on no evidence inasmuch as such a decision is not based

on evidence led by the parties and, therefore, would also have to be

Page 6 AA no.22/2017 characterized as perverse. It has also been held that 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.

10.The Supreme Court in Delhi Airport Metro Express Pvt. Ltd. Vs. Delhi

Metro Rail Corporation Ltd., Civil Appeal No. 5628 of 2021 has held

that: -

"Patent illegality should be illegality which goes to the root of the matter. In other words, every error of law committed by the Arbitral Tribunal would not fall within the expression 'patent illegality'. Likewise, erroneous application of law cannot be categorized as patent illegality. In addition, contravention of law not linked to public policy or public interest is beyond the cop of the expression 'patent illegality'. What is prohibited is for courts to re-appreciate 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 not 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'."

11.In a judgment passed in a case titled as G. Ramchandra Reddy v. Union

of India (2009) 6 SCC 414, the Supreme Court asserted that courts

should not normally interfere with the award of an arbitrator, unless

there was a gross error apparent on the face of the record.

12.In Sudharshan Trading Co. v. Government of Kerala & anr., 1989 AIR

890, the observations of the Supreme Court have been that Court cannot

Page 7 AA no.22/2017 substitute its own evaluation of the conclusion of law or fact to come to

the conclusion that the arbitrator had acted contrary to the bargain

between the parties. Whether a particular amount was liable to be paid

or damages liable to be sustained, was a decision within the competency

of the arbitrator in this case. By purporting to construe the contract the

court could not take upon itself the burden of saying that this was

contrary to the contract and, as such, beyond jurisdiction.

13.In Oil & Natural Gas Corporation Ltd v. Saw Pipes Ltd., (2003) 5 SCC

705, the Supreme Court considered the ambit and scope of Court's

jurisdiction under Section 34 of the Act. The Supreme Court discussed

the matter of arbitral procedure in terms of Section 24, 28, 31, and held:

"In our view, reading Section 34 conjointly with other provisions of the Act, it appears that the legislative intent could not be that if the award is in contravention of the provisions of the Act, still however, it couldn't be set aside by the Court. If it is held that such award could not be interfered, it would be contrary to basic concept of justice. If the arbitral tribunal has not followed the mandatory procedure prescribed under the Act, it would mean that it has acted beyond its jurisdiction and thereby the award would be patently illegal which could be set aside under Section 34".

14.The ground of public policy has also been discussed in detail in Oil &

Natural Gas Corporation Ltd v. Saw Pipes Ltd (supra) and the Supreme

Court has held as follows:

"Therefore, in our view, the phrase 'Public Policy of India' used in Section 34 in context is required to be given a wider meaning. It can be stated that the concept of public policy connotes some matter which concerns public good and the public interest. What is for public good or in public interest or what would be injurious or harmful to the public good or public interest has varied from time to time. However, the award which is, on the face of it, patently in violation of statutory provisions cannot be said to be in public interest. Such award/ judgment/ decision is likely to adversely affect the administration of justice. Hence, in our view in addition to narrower meaning given to the term 'public policy' in Renusagar's case (supra), it is required to be held that the

Page 8 AA no.22/2017 award could be set aside if it is patently illegal. Result would be award could be set aside if it is contrary to:

(a) fundamental policy of Indian law; or

(b) the interest of India; or

(c) justice or morality, or

(d) in addition, if it is patently illegal. Illegality must go to the root of the matter and if the illegality is of trivial nature it cannot be held that award is against the public policy. Award could also be set aside if it is so unfair and unreasonable that it shocks the conscience of the Court. Such award is opposed to public policy and is required to be adjudged void."

15.The Supreme Court finally in Oil & Natural Gas Corporation Ltd v.

Saw Pipes Ltd (supra) has drawn the conclusion in the following

manner:

"CONCLUSIONS:

In the result, it is held that:

A. (1) The Court can set aside the arbitral award under Section 34 (2) of the Act if the party making the application furnishes proof that: -

i) a party was under some incapacity, or

(ii) the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law for the time being in force; or

(iii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or

(iv) the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration;

2) The Court may set aside the award:

(i) (a) if the composition of the arbitral tribunal was not in accordance with the agreement of the parties,

(b) failing such agreement, the composition of the arbitral tribunal was not in accordance with Part I of the Act.

(ii) if the arbitral procedure was not in accordance with:

(a) the agreement of the parties, or

(b) failing such agreement, the arbitral procedure was not in accordance with Part I of the Act.

However, exception for setting aside the award on the ground of composition of arbitral tribunal or illegality of arbitral procedure is that the agreement should not be in conflict with the provisions of Part I of the Act from which parties cannot derogate.

(c) If the award passed by the arbitral tribunal is in contravention of provisions of the Act or any other

Page 9 AA no.22/2017 substantive law governing the parties or is against the terms of the contract (3) The award could be set aside if it is against the public policy of India, that is to say, if it is contrary to:

(a) fundamental policy of Indian law;

(b) the interest of India; or

(c) justice or morality, or

(d) if it is patently illegal.

(4) It could be challenged:

(a) as provided under Section 13(5); and

(b) Section 16 (6) of the Act."

16.Adverting to the case in hand, I have duly examined the grounds

pleaded in the objection petition in the light of the facts and

circumstances of the case, legal position and submissions of both the

sides.

17.After considering the claim petition and reply, the learned Arbitrator

found that seven controversies had been raised by the parties. Two

controversies were raised by respondent-contractor and five were raised

by petitioner-ERA. The parties were directed to adduce witnesses.

Respondent-contractor produced as many as five witnesses in support

of his claim, besides himself. Intriguingly, perusal of the file reveals

that after closing adducing of evidence by respondent-contractor, the

learned Arbitrator gave innumerable opportunities to petitioner-ERA

from 7th June 2014 to 29th December 2015, but of no avail. Thereafter,

learned counsel for parties submitted their written arguments. It also

comes to fore from the record that the works executed by respondent-

contractor had been undertaken only after in consultation with

petitioner-ERA. The learned Arbitrator has

18.In the opinion of this Court, the inferences are factual conclusions

arrived at by learned Arbitrator, which cannot be second-guessed by

this Court in exercise of its powers under Section 34 of the Act. Besides,

Page 10 AA no.22/2017 in the opinion of this Court, the factual conclusions are perfectly

rational, coherent and logical.

19.This court is accordingly not persuaded to hold that the conclusions

drawn by the learned Arbitrator are such that no reasonable person

would reach. Suffice it to say that the view taken by the learned

Arbitrator is most certainly a "possible view", which calls for no

interference.

20.As a sequitur to the above discussion, this Court finds no ground to

interfere with the Award impugned, which is accordingly upheld.

Resultantly the instant petition is dismissed. Interim direction, if any,

shall stand vacated.

(Vinod Chatterji Koul) Judge Srinagar 16.05.2023 Ajaz Ahmad, PS Whether approved for reporting? Yes/No.

Page 11 AA no.22/2017