Madras High Court
M/S.Edac Engineering Limited vs M/S.Star World International ... on 3 February, 2021
O.P.No.886 of 2016
and A.No.6299 of 2016
IN THE HIGH COURT OF JUDICATURE AT MADRAS
Dated : 03.02.2021
CORAM:
THE HONOURABLE Mr.JUSTICE M.SUNDAR
O.P.No.886 of 2016
and
A.No.6299 of 2016
M/s.EDAC Engineering Limited,
Represented by its Legal Officer Mr.V.Balaji Pathak,
Having its registered office at
SPIC House, 88 Mount Road,
Guindy, Chennai-600 032.
... Petitioner
Vs.
M/s.Star World International Service (India) Private Limited,
Having its registered office at
New No.10, Old No.11/2, Dhanammal Street,
Chetpet, Chennai-600 031.
... Respondent
Prayer: Petition filed under Section 34 of the Arbitration and
Conciliation Act, 1996, praying to set aside the Award dated 18.07.2016
passed by the Arbitral tribunal and pass such other order or orders as this
Hon'ble Court may deem fit and proper under the circumstances.
For Petitioner : Mr.Aravind Subramaniam
For Respondent : Mr.Sricharan Rangarajan
***
1/40
https://www.mhc.tn.gov.in/judis/
O.P.No.886 of 2016
and A.No.6299 of 2016
ORDER
Captioned 'Original Petition' ['OP' for the sake of brevity] has been
filed assailing an 'Arbitral Award dated 18.07.2016 bearing reference
Arbitration Case No.2 of 2014' [hereinafter 'impugned award' for the sake of
brevity], which has been made by an 'Arbitral Tribunal' ['AT' for the sake of
brevity], which was constituted by a sole Arbitrator.
2. Lone respondent before AT is the petitioner before me in the
captioned OP and the sole claimant before AT is lone respondent before me
in the captioned OP. Parties to captioned OP i.e., 'petitioner' and
'respondent', shall (hereinafter) in this order be referred to as 'EDAC' and
'Star World' respectively for the sake of convenience and clarity.
3. 'Siemens Limited' ['Siemens' for the sake of convenience] shall be
described as 'owner', as EDAC is the contractor qua Siemens and Star World
is the sub contractor qua EDAC. The sub contract given by EDAC to Star
World vide a Work Order dated 22.02.2013 and 'Revised/Additional Work
order dated 09.04.2013' [hereinafter collectively and compendiously referred
https://www.mhc.tn.gov.in/judis/
O.P.No.886 of 2016
and A.No.6299 of 2016
to as 'said contract' for the sake of convenience and clarity] is the fulcrum of
the lis (before AT) between EDAC and Star World. If said contract can be
described as the fulcrum when it was worked/operated, it can be described as
epicentre when disputes erupted in the course of working / operation.
4. Owing to the short statutory perimeter of Section 34 of 'The
Arbitration and Conciliation Act, 1996 (Act No.26 of 1996)', which shall
hereinafter be referred to as 'A and C Act' for the sake of brevity, which
delineates the legal landscape within which a judicial drill of testing an
arbitral award should perambulate, short facts shorn of elaboration or in
other words factual matrix in a nutshell, containing minimum facts which are
imperative for appreciating this order will suffice.
5. The work entrusted by EDAC to Star World has been described
under the caption 'Scope of Work' in the said contract and a perusal of the
same brings to light that it is erection of stainless steel small bore piping
work including loading, transportation of materials from EDAC/Client's
store to fabrication/erection site, unloading, handling, shifting, marking,
https://www.mhc.tn.gov.in/judis/
O.P.No.886 of 2016
and A.No.6299 of 2016
cutting, cleaning, leveling, grinding, safe erection arrangements, fit-up,
erection, alignment, welding, supporting, joining of all flanges including
insertion of gaskets/kits, orifice plates & bolts, joining by threading/welding,
connecting system to equipment/nozzles, final inspection, manpower
assistance for NDT works, etc., in all respects up to final clearance and
handing over to client.
6. To be noted, the reference to 'client' in the aforesaid scope of work
is a reference to Siemens. This is of significance qua lis (this will be
adverted to infra elsewhere in this order) and therefore this Court deems it
appropriate to mention this here.
7. As already alluded to supra, in said contract, disputes erupted
between EDAC and Star World and AT came to be constituted. It will
suffice to say that there is no disputation or disagreement that settlement of
disputes is by way of arbitration vide Clause 9 of said contract. In other
words, clause 9 of said contract serves as an arbitration agreement between
EDAC and Star World being arbitration agreement within the meaning of
Section 2(1) (b) read with Section 7 of A and C Act. To be noted, Clause 9
https://www.mhc.tn.gov.in/judis/
O.P.No.886 of 2016
and A.No.6299 of 2016
is adverbatim the same in work order as well as revised/additional Work
order, which collectively and compendiously constitute said contract. There
is no disputation or disagreement about the existence of this valid arbitration
agreement between the parties and therefore, it is not necessary to dilate any
further into this aspect of the matter. It will suffice to say that AT was
constituted in and by an order dated 24.11.2014 in OP No.470 of 2014 by
then Hon'ble Chief Justice of this Court and this OP No.470 of 2014 is
obviously an application under Section 11 of A and C Act.
8. Short facts shorn of elaboration are that Star World claimed a sum
of a little over Rs.27.60 lakhs [Rs.27,60,760.85 to be precise]; that this claim
of a little of over 27.60 lakhs was constituted by what according to Star
World amounts to first work order, second work order and interest on the
same from the date on which these amounts fell due i.e., 01.08.2015 to the
date of claim being 20.01.2015; that EDAC filed a statement of defence
before AT; that EDAC did not make any counter claim, but it only resisted
the claim; that this statement of defence of EDAC was responded to by Star
World vide a rejoinder and the pleadings before AT, thus stood completed;
https://www.mhc.tn.gov.in/judis/
O.P.No.886 of 2016
and A.No.6299 of 2016
that EDAC took the stand that the work done or in other words said work of
Star World was not satisfactory as evident from the coating damages report
dated 26.07.2013; that EDAC took the plea that Star World has caused
damage to internal coating and Star World with the intention of getting away
from this liability, has raised these disputes; that AT entered upon reference
adjudicated the lis between the parties. Before AT, Star World let in oral
evidence, one witness CW-1 [Mohadum Niyaz] was examined, but no oral
evidence was let in by EDAC; that on behalf of Star World as claimant,
Exs.C1 to C27 were marked and on behalf of EDAC, Exs.R1 to R39 were
marked; that AT on sifting through the evidence before it and after
considering the rival submissions, made the impugned award, holding that
Star World is entitled to little over Rs.23.66 lakhs [Rs.23,66,562.98/- to be
precise], granted three months from the date of award as time for making
good this payment and interest at the rate of 12% per annum on this sum was
awarded from the date of award till the date of payment; that parties were left
to bear their respective costs; that EDAC has presented captioned OP
assailing the impugned award; that captioned OP has been presented in this
Court on 17.10.2016.
https://www.mhc.tn.gov.in/judis/
O.P.No.886 of 2016
and A.No.6299 of 2016
9. This Court, having set out the factual matrix in a nutshell i.e.,
essential facts that are imperative for appreciating this order, which also
captures the trajectory which this matter has taken in reaching this Court,
now proceeds to capture the rival submissions.
10. Mr.Aravind Subramaniam, learned counsel for EDAC made
submissions assailing the impugned award and a summation of his
submissions is as follows:
a) AT failed to see that said contract between EDAC and Star
World is back to back. This submission was made by relying on
clauses 5.6 and 5.7 besides clause 7.3 of said contract;
b) the norms regarding internal coating has not been
considered by AT, it travelled beyond the scope of said contract
and arrived at a conclusion without examining an expert.
11. In response to the aforementioned submissions, Mr.Sricharan
Rangarajan, learned counsel for Star World made submissions, a summation
of which is as follows:
https://www.mhc.tn.gov.in/judis/
O.P.No.886 of 2016
and A.No.6299 of 2016
a) the submissions made by the protagonist of captioned OP
is posited on section 28(3) of A and C Act and the ingredients
necessary to attract an infarct of Section 28 (3) are absent in the
case on hand.
b) without placing the contract between EDAC and Siemens,
the plea that said contract is back to back is clearly untenable as
there is no recital in this regard in said contract.
c) besides Star World, other sub contractors also worked qua
work in said contract and therefore, anything said in the damage
report cannot be attributed to Star World much less to Star World
alone. It was pointed out that this has been articulated in pleadings
i.e., paragraph 3(c) of rejoinder.
12. In reply submissions, learned counsel for petitioner drew the
attention of this Court to communications between EDAC and Star World
and submitted that the internal coating aspect has been completely misread in
the impugned award.
https://www.mhc.tn.gov.in/judis/
O.P.No.886 of 2016
and A.No.6299 of 2016
13. This Court, having set out the factual matrix in a nutshell as well
as rival submissions, has to now proceed with discussion and give
dispositive reasoning, but before doing that, this Court deems it appropriate
to set out a few extracts and also mention a few peripheral aspects, which are
of significance.
14. The claim of EDAC is captured in paragraph 23 of the claim
statement and the same reads as follows:
'Claim before this Hon'ble Tribunal:
23. The above clearly goes to show that the respondent has been
making baseless and illogical claims to deny the Claimant of its rightful
dues. In fact in respect of the 1st Work Order there have been no issues
raised by the Respondent and yet these amounts have not been paid which
only goes to show that the respondent does not want to make the payments
rightfully due to the Claimant. The claimant is entitled to recover these
amounts from the respondent. The amounts if paid on time to the
Claimant the amounts would have been utilized by the Claimant for its
business and therefore the Claimant is entitled to recover these amounts
together with interest. The normal rate of interest for transactions of this
nature is 12% p.a. and the Claimant is also entitled to the recovery of
these amounts together with interest at the same rate. The particulars of
the claim made by the claimant before this Hon'ble Tribunal are as
follows:
S.No. Particulars Amount
st
1. Amounts due from 1 Work Order 13,91,336.79
https://www.mhc.tn.gov.in/judis/
O.P.No.886 of 2016
and A.No.6299 of 2016
S.No. Particulars Amount
nd
2. Amounts due from 2 Work Order 9,75,226.19
3. Interest at 12% from 01.08.2015 (date on (1) 2,31,754.66
which these amounts fell due) till 20.01.2015 (2) 1,62,443.21
(Date of claim)
(1) For 1st Work Order
(2) For 2nd Work Order
Total 27,60,760.85
15. Three issues framed by AT have been set out in paragraph 6 of the
impugned award and the same reads as follows:
'6. Based on the above facts, the following Arbitrable issues were framed:-
1:- Whether the Claimant is entitled to the claims as mentioned in para
23 of the claim petition as due and payable?
2:- Whether the Claimant has caused any damages which allegedly
caused losses to the Respondent thereby disentitling the Claimant to make
their claims?
3:- If the Claimant are entitled for any dues from the Respondent,
whether they are entitled for interest at 12% per annum?'
16. To be noted, issue no.1 leads to paragraph 23 of claim petition and
this Court has already extracted paragraph 23 of the claim petition also.
17. Peripheral issues of significance are, as already alluded to supra,
captioned OP has been presented in this Court on 17.10.2016 and therefore,
applying the Ssangyong principle being law laid down by Hon'ble Supreme
https://www.mhc.tn.gov.in/judis/
O.P.No.886 of 2016
and A.No.6299 of 2016
Court in Ssangyong Engineering and Construction Company Limited Vs.
National Highways Authority of India reported in (2019) SCC OnLine SC
677 equivalent to (2019) 15 SCC 131, captioned OP will be governed by
post 23.10.2015 regime of A and C Act or in other words, A and C Act as it
stood post amendment by Act 3 of 2016 which kicked in with retrospective
effect on and from 23.10.2015. To be noted, for the case on hand, Section
28(3) of A and C Act is of relevance and Section 28(3) post 23.10.2015 reads
as follows:
'28..........
(2) ..........
(3) While deciding and making an award, the arbitral tribunal
shall, in all cases, take into account the terms of contract and trade
usages applicable to transaction.'
18. Be that as it may, for the sake of convenience and ease of
reference, this Court also deems it appropriate to reproduce Section 28 (3) as
it stood prior to 23.10.2015 and the same reads as follows:
'28..........
(2) ..........
(3) In all cases, the arbitral tribunal shall decide in
accordance with the terms of the contract and shall take into account
the usages of the trade applicable to the transaction.'
19. Another peripheral aspect is, this Court reminds itself of Bhumi
https://www.mhc.tn.gov.in/judis/
O.P.No.886 of 2016
and A.No.6299 of 2016
Vikas case law being judgment rendered in State of Bihar Vs. Bihar Rajya
Bhumi Vikas Bank Samiti reported in (2018) 9 SCC 472. Though Bhumi
Vikas case law is an Authority for the broad proposition that pre application
notice under sub-section (5) of Section 34 is only directory and not
mandatory, the observation made in Paragraph 26 of Bhumi Vikas Bank
case law that Section 34 Courts should endeavour to adhere to the one year
time line is significant. Section 34 Courts should make every endeavour to
adhere to this time line is of relevance to the case on hand as captioned OP
has been presented in this Court on 17.10.2016, in about eight months from
now, it will be half a decade old in this Court. Therefore, in the light of time
frame ingrained and inbuilt in Section 34 and the observation made by
Hon'ble Supreme Court in Bhumi Vikas case law, this Court deems it
appropriate to mention that captioned OP is heading towards being classified
as a vintage matter.
20. This Court deems it appropriate to extract the 26 grounds raised in
the instant OP and the 26 grounds (scanned reproduction) read as follows:
https://www.mhc.tn.gov.in/judis/
O.P.No.886 of 2016
and A.No.6299 of 2016
https://www.mhc.tn.gov.in/judis/
O.P.No.886 of 2016
and A.No.6299 of 2016
https://www.mhc.tn.gov.in/judis/
O.P.No.886 of 2016
and A.No.6299 of 2016
21. This Court, having set out the factual aspects, essential extracts
and peripheral points of significance, now proceeds to discuss the rival
submissions and give its dispositive reasoning for arriving at a conclusion in
the captioned OP.
22. The first submission made by learned counsel for EDAC is that the
contract between EDAC and Star World is back to back and the AT has not
noticed this. This submission is not only the sheet anchor submission, but it
is also a submission which is forcefully reiterated repeatedly in the course of
the argument. Therefore, this Court deems it appropriate to describe this as
the burden of song qua petitioner. In other words, burden of song of the
petitioner's learned counsel in his campaign against the impugned award is
that the said contract between EDAC and Star World is back to back and AT
has overlooked this. In the considered opinion of this Court, this is no
argument for the simple reason that EDAC, which was respondent before
AT, did not file its agreement with Siemens as documentary evidence. As
already alluded to supra, EDAC did not let in oral evidence before AT. The
fact that this contract between Siemens and EDAC was not before AT is
captured in paragraph 33 of impugned award, which reads as follows:
https://www.mhc.tn.gov.in/judis/
O.P.No.886 of 2016
and A.No.6299 of 2016
'33. However the terms and conditions of the contract between the
parties would not envisage any such back charges to the sub-
contractor. Moreover under issue No.2 this Tribunal has already
found damages to the internal coating cannot be attributed to the
sub-contractor in the absence of the main agreement between the
client and the main contractor namely the Respondent herein. It is
also found by this Tribunal that the agreement between the parties
before this Tribunal is not a back to back contract. Therefore in the
absence of agreement for back charges this Tribunal is of the view
the Respondent had no valid reason to reject the invoices no.5 to 9
and the Claimant is entitled for the invoice amounts and Issue No.1
is decided in favour of the Claimant.'
(Underlining made by this Court to supply
emphasis, highlight and for ease of reference)
23. To be noted, there is no disputation or disagreement before me in
the captioned OP that the contract between Siemens and EDAC was not
placed before AT as an exhibit. In fact, it was not before AT at all.
Therefore, this back to back agreement argument clearly becomes a non-
starter. The argument that the AT erred in not coming to the conclusion that
the said contract is back to back contract by summoning the main contract is
specious and EDAC after not placing the contract with Siemens before AT
cannot now be heard to contend that AT should have summoned the said
https://www.mhc.tn.gov.in/judis/
O.P.No.886 of 2016
and A.No.6299 of 2016
contract. The burden of the song of the protagonist of OP on hand fades
away into the din of the onus of producing its agreement with Siemens not
being discharged by EDAC. The reference to clauses 5.6, 5.7 and 7.3 in said
contract to buttress this back to back plea is no argument and the three
clauses read as follows:
'5.6 The Sub-Contractor should ensure to obtain necessary job
work permit before starting of job wherever required.
5.7 The Sub-Contractor should adhere to the Quality standard
stipulated by EDAC/Consultant/Owner. Any repair and
rework due to non acceptance by quality Engineers/Siemens
shall be done free of cost by the Sub-Contractor.
7.3 The Sub-Contractor's personnel should adhere to the safety
regulations as per EDAC/Client requirements. Any penalty
issued by SIEMENS for safety violation shall be back
charged to Sub-Contractor.'
24.The above covenants merely talk about reworking of sub contract
in the event of quality engineers of Siemens saying that some repair is
necessary. Even on a demurrer, this could have been gone into only if the
agreement between Siemens and EDAC qua said work had been placed
before AT. Absent this main contract between Siemens and EDAC, AT
https://www.mhc.tn.gov.in/judis/
O.P.No.886 of 2016
and A.No.6299 of 2016
would have ventured into the realm of surmises and conjectures. Therefore,
the view taken by AT captured in paragraph 33 of impugned award
[extracted and reproduced supra] is clearly tenable and not an implausible
view. To put it otherwise, AT would have embarked upon an exercise of
venturing into the realm of conjectures and surmises. AT has returned a
finding that the said contract is not a back to back contract by placing
reliance on aforementioned clauses 5.6, 5.7 in said contract, which is not an
implausible view as it cannot be gainsaid that no reasonable person would
have taken this view on the facts and circumstances of this case. Clause 7.3
is clearly a non-starter as it finds its slot under clause 7, which is captioned
'SAFETY'. Entire clause 7 deals with safety features and that is not an issue
before AT. Therefore, the burden of the song fails and pales into complete
silence. This Court chooses to describe this as fading into not just silence,
but pregnant silence as it is a clear indicator that the contention that AT
erred and committed infarct of Section 28 (3) of A and C Act by going
against the contract (in not holding that the said contract is a back to back
contract) falls flat on its face owing to being a non issue before AT.
https://www.mhc.tn.gov.in/judis/
O.P.No.886 of 2016
and A.No.6299 of 2016
25. For the sake of capturing the hearing as comprehensively as
possible, it is necessary to set out that the petitioner counsel placed plain
reliance on the following case laws:
'1. Food Corporation of India v. Chandu Construction,
(2007) 4 SCC 697;
2. Managing Director, Army Welfare Housing Organisation
V. Sumangal Services (P) Ltd.,
(2004) 9 SCC 619 : AIR 2004 SC 1344
3. State of Rajasthan v. Nav Bharat Construction Co.,
(2006) 1 SCC 86 : AIR 2005 SC 4430.
4. Rajasthan State Mines & Minerals Ltd. v. Eastern
Engineering Enterprises,
(1999) 9 SCC 283 : AIR 1999 SC 3627.
5. Sharma and Associates Contractors Private Limited v.
Progressive Constructions Limited
(2017) 5 SCC 743 : AIR 2017 SC 847.'
26. Suffice to say that the above case laws do not come to the aid of
the petitioner as the above turn on ignoring a categoric stipulation in a
contract. This is in Chandu Constructions. Like wise, Army Welfare is a
case of a clause being ignored and the matter becoming a nullity i.e., without
jurisdiction. With regard to Nav Bharat, it was a case of travelling beyond
the terms of contract. With regard to Rajasthan State Mines & Minerals
Ltd Case and Sharma and Associates case laws, the facts are completely
different (not on back to back being ignored plea) and therefore those are not
https://www.mhc.tn.gov.in/judis/
O.P.No.886 of 2016
and A.No.6299 of 2016
applicable to the case on hand. This is more so, as EDAC has admittedly not
chosen to place before AT its contract with Siemens.
27. While on case laws, this Court also deems it appropriate to record
that learned counsel for Star World placed reliance on a Division Bench
judgment of this Court in Chettinad International Coal Terminal Private
Limited Vs. Kamarajar Port Limited reported in 2018 SCC OnLine Mad
638. The most relevant paragraphs are 7(m) to 7(s) and 21 to 24, which read
as follows:
' 7(m) The above list of case laws together with relevant
paragraphs, clearly bring out the propositions / principles for which
each one of them were pressed into service.
7(n) As stated supra in the earlier part of this judgment, it is
not in dispute before us (as between the Appellant and the 1st
Respondent) that the entire controversy pertains to only one point
and that one point is interpretation of clauses 14 and 15.1.4 of the
said agreement by the Arbitral Tribunal. In our view, the entire
appeal turns on a very narrow compass and it may not be necessary
to go into each and every case law that was cited at the bar in the
hearing. However, we have extracted all the judgments cited at the
bar (though it is not imperative to do so) for the limited purpose of
making this judgment complete in terms of indicating the trajectory of
the hearing before us.
7(o) Turning to the interpretation returned by the Arbitral
https://www.mhc.tn.gov.in/judis/
O.P.No.886 of 2016
and A.No.6299 of 2016
Tribunal, it is the specific case of the appellant that clause 15.1.4 has
not been applied at all and clause 14 alone has been applied. This
according to the appellant is patent illegality.
7(p) A closer reading of clause 15.1.4 would show that it has
been covenanted that revenue share shall not be claimed and levied
for any equipment / machinery brought in by the licensee for the
purpose of maintenance / augmentation of terminal after the
commissioning thereof till the expiry of the licence period through
terminal. CICTPL contended that the date of commissioning is also
crucial. Our reading of the Award of Arbitral Tribunal, challenge to
which was negatived by the learned Single Judge demonstrates the
view and interpretation of the Arbitral Tribunal that clause 15.1.4 is
not intended to serve as an exemption. In other words, the Arbitral
Tribunal has proceeded on the basis that clause 14 operates and
clause 15.1.4 is a mere reiteration of clause 14, particularly in the
light of what has been noticed of clause 15.1.4. No doubt, clause
15.1.4 is captioned 'Exemption of Revenue Share'. However, it
appears to be an assertion that equipment / machinery brought in for
maintenance / augmentation of the terminal, post commissioning
shall not be exempt from revenue share. Considering that this is an
appeal under Section 37 of A and C Act, we do not delve further into
this interpretation aspect of the matter. As held by the Supreme Court
of India in Swan Gold Mining Limited's case supra (incidentally, it
has been pressed into service by CICTPL also), wherein the Supreme
Court postulates that interference in a petition under Sections 34 and
37 of A and C Act would arise only when parties have arrived at a
https://www.mhc.tn.gov.in/judis/
O.P.No.886 of 2016
and A.No.6299 of 2016
concluded contract and acted on the basis of terms and conditions
therein and thereafter new terms are substituted by the Arbitral
Tribunal or the court. Nothing of that kind has happened in the
instant case.
7(q) Parties have acted in accordance with the covenants.
No new term has been read into by the Arbitral Tribunal as
confirmed by learned Single Judge. Further more, in this context, it is
necessary to reiterate the obtaining legal position that an Arbitral
Tribunal always has enough play at the joints qua interpretation of
covenants of a contract. With regard to public policy, it was fairly
submitted that the appellant CICTPL is not pitching itself on the
same and that the appellant CICTPL is only on the patent illegality.
7(r) On an extreme demurer, even if there is another
plausible interpretation to the covenant, that cannot become a
ground for interference either under Section 34 or under Section 37
of the A and C Act. As set out supra, only when what has not been
agreed upon by the parties or when the new covenant or new
principle which was not the intention of the parties is read into a
contract, can there by any scope for interference under Section 34 or
section 37 of the A and C Act. As we find no such aspects in this
appeal, we find no ground to interfere with the order of the learned
Single Judge.
7(s) Referring to paragraph 49 of the judgment of the
learned Single Judge, the appellant CICTPL contended that the
learned Single Judge has been overwhelmed by the eminence of the
members of the Arbitral Tribunal. Otherwise with regard to section
https://www.mhc.tn.gov.in/judis/
O.P.No.886 of 2016
and A.No.6299 of 2016
34 of A and C Act, there is nothing to show that there is any illegality
much less illegality warranting interference with the order of the
learned Single Judge. In our opinion, learned Single Judge has
applied Section 34 of A and C Act in its right perspective. With
regard to paragraph 49 of the order of the learned Single Judge, a
detailed and close reading of the judgment which has been called in
question before us demonstrates that the conclusions that have been
arrived at by the learned Single Judge have not in any manner been
impacted by the eminence of the Arbitral Tribunal as perceived by
the learned single Judge. To be noted, paragraph 49 is the
penultimate paragraph of the judgment called in question before us
and paragraph 49 begins with 'Before parting with this case, ..........'.
Therefore, paragraph 49 is merely in the nature of a postscript after
a detailed analysis and correct application of Section 34 of A and C
Act.
'21. There can be no question of interference with an
interpretation of the agreement made by an Arbitral Tribunal, unless
the interpretation is so perverse, unreasonable and fanciful that no
body of persons instructed in law and acting reasonably could have
interpreted the contractual provision in the manner that has been
done. The award rejecting the claim in relation to exemption of
augmentation charges is based on a reasonable interpretation of the
provisions of the contract. On a careful reading of the application
under Section 34 of the 1996 Act with the memorandum of appeal, it
is patently clear that it is the appellant company's own case that the
Arbitral Tribunal has given a possible interpretation of the language
https://www.mhc.tn.gov.in/judis/
O.P.No.886 of 2016
and A.No.6299 of 2016
of the statutory provisions without going into the intent and object
of the provision. A literal interpretation of words and expressions as
used cannot possibly be a perverse interpretation.
22. In our view, the claim of the appellant company in respect
of augmentation charges has rightly been rejected by the Arbitral
Tribunal on a reasonable interpretation of the provisions of the
contract, referred to herein above.
23. As held in Fuerst Day Lawson Ltd. V. Jindal Exports Ltd.,
(2011) 8 SCC 333, cited by M.Sundar, J. all proceedings relating to
arbitration are governed by the 1996 Act, including an appeal which
is governed by Section 37 of the 1996 Act, and in deciding an
appeal, the Division Bench is only to see if the judgment under
appeal is patently erroneous. The Division Bench cannot substitute
its view for the view taken by the Single Bench only because it
prefers another view and it hardly needs mention that the scope of
interference with an impugned award by the Appellate Court is
restricted to the same grounds on which an impugned award can be
interfered with in proceedings under Section 34 of the 1996 Act.
24. I am in absolute agreement with M.Sundar, J that the
appeal is liable to be dismissed. The appeal is dismissed.'
28. To be noted, this Division Bench judgement of this Court was
carried to Hon'ble Supreme Court by way of a Special Leave Petition (C)
Nos.6928-6930/2018 and Hon'ble Supreme Court vide order dated
19.03.2018 refused to interfere. Another order that was placed before this
https://www.mhc.tn.gov.in/judis/
O.P.No.886 of 2016
and A.No.6299 of 2016
court is Hindustan Petroleum Corporation Ltd vs.M/s.Banu Constructions
and anr. being order dated 03.08.2020. In Banu Constructions, paragraph
21 was referred to and the same reads as follows:
'21. A perusal of paragraph 32 of Associate Builders, leaves
this Court with the considered view that the working test laid down
by the Hon’ble Supreme Court in turn is based on Gopi Nath
principle and Kuldeep Singh principle. To be noted, both case laws
have been set out and the relevant paragraphs have been extracted
in paragraph 32 of Associate Builders itself. Therefore, for an award
to be dislodged on the ground of perversity, the finding should be so
outrageous that it defies logic or in other words the findings should
be such that no reasonable person, would take such a view. In this
regard, learned counsel for contractor, drew my attention to Project
Director, Tamil Nadu Road Sector Project II V. RNS
Infrastructure Ltd-GPL (JC) reported in 2018 (2) CTC 593 and
Chaudrhary Avadhesh Kumar V. Volleyball Federation of India
reported in (2019) 5 CTC 155 regarding the scope of Section 34.
For intervention under Section 34, merely because another possible
or plausible view is preferred by the Court, an award cannot be set
aside. In other words, the test is not which of the views is better, but
the test is whether the view taken by the AT is implausible and so
implausible that no reasonable person would have taken such a
view. In the instant case, though this Court would have articulated
differently if called upon to adjudicate on this lis impugned award
being a possible view proceeding on admission, perversity plea
https://www.mhc.tn.gov.in/judis/
O.P.No.886 of 2016
and A.No.6299 of 2016
fails.'
29. In paragraph 21, there is a reference to paragraph 32 of Associate
Builders case being Associate Builders Vs. Delhi Development Authority
reported in (2015) 3 SCC 49. Paragraph 32 of Associate Builders has to
now be read in the context of paragraph 41 of Ssangyong supra and these
two paragraphs read as follows:
Paragraph 32 of Associate Builders
'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.”
In Kuldeep Singh v. Commr. of Police [(1999) 2 SCC 10 : 1999
SCC (L&S) 429] , it was held: (SCC p. 14, para 10)
“10. A broad distinction has, therefore, to be maintained between
the decisions which are perverse and those which are not. If a
decision is arrived at on no evidence or evidence which is
thoroughly unreliable and no reasonable person would act upon
https://www.mhc.tn.gov.in/judis/
O.P.No.886 of 2016
and A.No.6299 of 2016
it, the order would be perverse. But if there is some evidence on
record which is acceptable and which could be relied upon,
howsoever compendious it may be, the conclusions would not be
treated as perverse and the findings would not be interfered
with.”
Paragraph 41 of Ssangyong reads as follows:
'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.'
30. A combined reading of Associate Builders and Ssangyong makes
it clear that perversity as set out in paragraphs 31 & 32 of Associate
https://www.mhc.tn.gov.in/judis/
O.P.No.886 of 2016
and A.No.6299 of 2016
Builders is no longer a ground for challenge qua 'conflict with public
policy', but it is available as patent illegality ground. Therefore, statutorily
speaking, what was under Section 34(2)(b)(ii) of A and C Act has now been
moved to Section 34(2A) of A and C Act, but section 34(2A) is
circumscribed by a two limbed proviso, wherein one limb says that mere
erroneous application of law cannot be a ground to interfere under Section
34(2A) and the second limb forbids re-appreciation of evidence.
31. In the OP on hand, as challenge to impugned award turns on
Section 28(3) of A and C Act, paragraph 40 of Ssangyong is instructive and
the same reads as follows:
'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
https://www.mhc.tn.gov.in/judis/
O.P.No.886 of 2016
and A.No.6299 of 2016
within the new ground added under Section 34(2-A). '
32. Judgment of Hon'ble Supreme Court in Zonal General Manager,
Ircon International Ltd. Vs. Vinay Heavy Equipments reported in (2015)
13 SCC 680 was placed before this Court by learned counsel for Star World
to buttress his submission regarding back to back agreement.
33. Attention of this Court was drawn to paragraphs 4, 5 and 9 of
Vinay Heavy Equipments which read as follows:
'4. Detailing the arrears claim, it is seen that the respondent
incurred expenditure in the execution of the subcontracts on two
categories of items: scheduled and non-scheduled. The respondent
claimed Rs 61 lakhs as its due under both these heads. The
appellant's principal rebuttal in resistance to the respondent's claim
is that the main contract (between the appellant and SIPCOT) and the
subcontracts are wholly of a “back-to-back” nature and therefore
the liability of the appellant would be restricted to and coextensive
of that which SIPCOT acknowledges. In other words, the acceptability
and tenability of any claim made by the respondent against the
appellant will depend first upon that claim's acceptability and
tenability before SIPCOT in its capacity as the employer in the main
contract. The appellant declined to pay the respondent for scheduled
expenditures, claiming that the respondent had unauthorisedly
performed additional and increased quantities of works, also
challenging the rate claimed by the respondent for the same; that the
https://www.mhc.tn.gov.in/judis/
O.P.No.886 of 2016
and A.No.6299 of 2016
respondent could not claim any amount in excess of what was
agreed to be paid by SIPCOT in respect of each item of work covered
under C1 and C2 subcontracts. The appellant also rejected the
respondent's claimed dues under the non-scheduled head (which
work the appellant itself had requested to be performed by the
respondent), stating that SIPCOT had refuted its liability towards non-
scheduled expenditures. Indeed, the arbitrator in his award detected
two “general pleas” as resonating from the appellant: firstly, that
the contracts C1 and C2 were on a “back-to-back” basis
with IRCON's main contract with SIPCOT and unless SIPCOT paid for the
amounts claimed by the respondent, the appellant was not legally
liable for the same; and secondly, that back-to-back basis applied
even to non-scheduled items.
5. The arbitrator found that the mention of “back-to-back” had been
made only in the contract rider agreement for Package C2, and in
subsequent epistles exchanged between IRCON and the respondent
from whose analysis two significant factors emerge. Firstly, that
“back-to-back” only meant that the terms and conditions relating to
technical specifications, and quality, quantum, manner and method
of work to be done by the appellant in the main contract, stood
transposed on the subcontracts, C1 and C2; the primary liability of
the appellant to the respondent, however, stood untouched, there
having been no transference or transposition of this liability
onto SIPCOT, either explicitly or implicitly. Secondly, the appellant
had in its written statement before the arbitrator, reiterated the
“back-to-back” nature and thereby agreed that the respondent
https://www.mhc.tn.gov.in/judis/
O.P.No.886 of 2016
and A.No.6299 of 2016
would be entitled to payment of dues as and when the appellant
received the payment for these from SIPCOT, the respondent's claims
having been “transmitted” by the appellant to SIPCOT for the latter's
consideration. The appellant has taken the stance that it had no
objection to the arbitrator awarding a reasonable amount to the
respondent, subject to the appellant being awarded the same amount
by the arbitrator in its arbitration with SIPCOT. The appellant was
agreeable to a direction passed against it to make payment upon
realisation of the sum from SIPCOT, after a 10% deduction on the sum
as the appellant's marginal profit. The arbitrator, unstirred by the
appellant's gambit at foisting the primary liability onto SIPCOT,
located primary liability as resting with the appellant, being the
“employer” in the subcontracts. The arbitrator also instanced the
appellant's reprobative and approbative conduct, observing first the
appellant's conditional willingness (supra) for the passage of a
favourable award in the respondent's favour, and thereafter finding
a retraction of the appellant's position viz. that—
“Since SIPCOT refused to pay for these claims, IRCON has taken up a
new stand that works were not done fully and payment has been
made for whatever work was done by the claimant.” Having so
observed, the arbitrator awarded as aforementioned.
9. Insofar as the question of primary liability therein is concerned,
the law on subcontracts and employer liability is amply clear. In the
absence of covenant in the main contract to the contrary, the rules in
relation to privity of contract will mean that the jural relationship
between the employer and the main contractor on the one hand and
https://www.mhc.tn.gov.in/judis/
O.P.No.886 of 2016
and A.No.6299 of 2016
between the subcontractor and the main contractor on the other will
be quite distinct and separate. No such clause to the contrary,
existent in the main contract between the appellants and SIPCOT, has
been highlighted before us by the appellants, which would persuade
us towards a deviation from the presumption of distinct and sole
liability of the appellant contractor as employer vis-à-vis the
respondent subcontractor. On the contrary, much of the exercise in
determining the existence of a “back-to-back clause” in the
contracts C1 and C2 appears to be misplaced. Such an
accommodation or transference of liability needs to be pinpointed in
the main contract, for it is SIPCOT's acceptance of liability of
subcontractor claims which is of the essence; even a clause
indicating “back-to-back” liability in agreements C1 and C2 would
not serve to novate the main contract and fasten payment liability
on SIPCOT, prevented as it would be by privity, for it would be a
matter of SIPCOT's acceptance of subcontractor's liability in the main
contract, and not a matter of novation by imposition upon SIPCOT by
two parties in a separate bilateral contract. Nothing presented
before us suggests that SIPCOT's contract with the appellant provided
for “back-to-back” subcontracts whereby SIPCOT would be directly
answerable for the payment claims raised by the contractors. That
sub-letting was provided for by the main contract, and indeed
occurred, has been found by the arbitrator (in both arbitrations) and
affirmed by the courts below. This however, is quite distinct from
concluding that SIPCOT contractually (in the main agreement)
assumed primary liability for the subcontractor respondent's
https://www.mhc.tn.gov.in/judis/
O.P.No.886 of 2016
and A.No.6299 of 2016
payment claims in respect of agreements made with the appellant.
The fact that the respondent was represented and present in parleys
and meetings between SIPCOT and the appellant or that it was
referred to in the correspondence exchanged between them does not
lead to the conclusion that a tripartite contract had come into effect
by evolution. '
34.To be noted, paragraph 9 in Vinay Equipments in SCC journal is
paragraph 10 in MLJ journal. The equivalent MLJ citation is (2015) 4 MLJ
110. This Court has deemed it necessary to mention this correlation and
cross reference as AT in paragraph 24 of impugned award has noticed MLJ
citation and the relevant portion of paragraph 24 of impugned award reads as
follows:
'24. ...............................
The Learned Counsel for the Claimant relied on 2015 (4)
MLJ 110 (SCC) wherein the Supreme Court has held, “10.In so far
as the question of primary liability therein is concerned the law on
sub-contracts and employer liability is amply clear. In the absence
of covenant in the main contract to the contrary the rules in relation
to privity of contract will mean that the jural relationship between
the employer and the main contractor on one hand and between the
sub-contractor and the main contractor on the other will be quiet
distinct and separate”.
https://www.mhc.tn.gov.in/judis/
O.P.No.886 of 2016
and A.No.6299 of 2016
35. This takes us to the issue of dimensions.
36. With regard to dimensions, EDAC had not let in oral evidence and
as rightly pointed out by learned counsel for Star World, said contract is not
a tripartite agreement. It is also rightly pointed out (as already alluded to
supra) that in paragraph 3(c) of rejoinder, the question of other sub
contractors working in the same project has been raised. At the end of the
day, all these are clearly covered by Hodgkingson principle. To be noted,
Hodgkinson principle is a principle, which was laid by an English Court
way back in 1857 in Hodgkinson Vs. Fernie reported in 140 ER 712.
Hodgkinson principle has been recognized by Indian Courts i.e., Hon'ble
Supreme Court in Associate Builders case [Associate Builders Vs. Delhi
Development Authority reported in (2015) 3 SCC 49]. Relevant paragraph
in Associate Builders case is Paragraph 41, which reads as follows:
' 41. This, in turn, led to the famous principle laid down in Champsey
Bhara Co. v. Jivraj Balloo Spg. and Wvg. Co. Ltd. [AIR 1923 PC 66 :
(1922-23) 50 IA 324 : 1923 AC 480 : 1923 All ER Rep 235 (PC)] ,
https://www.mhc.tn.gov.in/judis/
O.P.No.886 of 2016
and A.No.6299 of 2016
where the Privy Council referred to Hodgkinson [(1857) 3 CB (NS)
189 : 140 ER 712] and then laid down: (IA pp. 330-32)
“The law on the subject has never been more clearly stated than by
Williams, J. in Hodgkinson v. Fernie [(1857) 3 CB (NS) 189 : 140 ER
712] : [CB(NS) p. 202 : ER p. 717]
‘The law has for many years been settled, and remains so at this day,
that, where a cause or matters in difference are referred to an
arbitrator, whether a lawyer or a layman, he is constituted the sole and
final Judge of all questions both of law and of fact. … The only
exceptions to that rule are cases where the award is the result of
corruption or fraud, and one other, which, though it is to be regretted,
is now, I think firmly established viz. where the question of law
necessarily arises on the face of the award or upon some paper
accompanying and forming part of the award. Though the propriety of
this latter may very well be doubted, I think it may be considered as
established.’
***
Now the regret expressed by Williams, J.
in Hodgkinson v. Fernie [(1857) 3 CB (NS) 189 : 140 ER 712] has
been repeated by more than one learned Judge, and it is certainly not
to be desired that the exception should be in any way extended. An
error in law on the face of the award means, in Their Lordships' view,
that you can find in the award or a document actually incorporated
thereto, as for instance, a note appended by the arbitrator stating the
reasons for his judgment, some legal proposition which is the basis of
the award and which you can then say is erroneous. It does not mean
https://www.mhc.tn.gov.in/judis/
O.P.No.886 of 2016
and A.No.6299 of 2016
that if in a narrative a reference is made to a contention of one party
that opens the door to seeing first what that contention is, and then
going to the contract on which the parties' rights depend to see if that
contention is sound. Here it is impossible to say, from what is shown
on the face of the award, what mistake the arbitrators made. The only
way that the learned Judges have arrived at finding what the mistake
was is by saying: ‘Inasmuch as the arbitrators awarded so and so, and
inasmuch as the letter shows that the buyer rejected the cotton, the
arbitrators can only have arrived at that result by totally
misinterpreting Rule 52.’ But they were entitled to give their own
interpretation to Rule 52 or any other article, and the award will stand
unless, on the face of it they have tied themselves down to some special
legal proposition which then, when examined, appears to be unsound.
Upon this point, therefore, Their Lordships think that the judgment of
Pratt, J. was right and the conclusion of the learned Judges of the
Court of Appeal [Jivraj Baloo Spg. and Wvg. Co. Ltd. v. Champsey
Bhara and Co., ILR (1920) 44 Bom 780. The judgment of Pratt, J. may
be referred to at ILR p. 787.] erroneous.”
This judgment has been consistently followed in India to test awards
under Section 30 of the Arbitration Act, 1940.'
37. Adopting a reductionist approach, without running the risk of over
simplification put in simplistic terms, Hodgkinson principle is to the effect
https://www.mhc.tn.gov.in/judis/
O.P.No.886 of 2016
and A.No.6299 of 2016
that AT is the best judge of the quality and quantity of evidence before it.
As the case on hand turns on evidence, this is a classical case where
Hodgkinson principle is attracted as exceptions to Hodgkinson principle
such as, as vital evidence being ignored, evidence received behind the back
of a party being relied on etc., do not exist in the case on hand.
38. Before concluding, this Court deems it appropriate to refer to the
26 grounds raised in the captioned OP, which have been scanned and
reproduced elsewhere supra in this order. All the 26 grounds, with the
exception of grounds (i) to (vi) and (xi), none have the trappings of Section
34 of A and C Act. In any event, the matter turns only on Section 28(3) of A
and C Act and Section 34(2A) both of which have been dealt with leaving
grounds (i) to (vi) and (xi) flattened. In other words, the other 19 grounds
are in the nature of wide grounds in a regular first appeal under Section 96
of 'The Code of Civil Procedure, 1906' ('CPC' for brevity) as some are laced
and others are loaded with fact scenarios. This Court is not sitting in appeal
qua impugned award and it is well settled that an application under Section
34 of A and C Act is a legal drill of testing an arbitral award within the
https://www.mhc.tn.gov.in/judis/
O.P.No.886 of 2016
and A.No.6299 of 2016
contours and confines of Section 34. It is neither an appeal nor a revision, it
is not even a full fledged legal review. It is a limited challenge to an arbitral
award within the contours and confines delineated by the short statutory
perimeter of Section 34 of A and C Act. This Court has repeatedly held that
Section 34 is a delicate balance between sanctity of finality of arbitral award
ingrained in Section 35 of A and C Act read with minimum judicial
intervention principle ingrained in Section 5 of A and C Act on one side and
the sacrosanct character of time honoured judicial review, forming part of
substantive due process of law on the other side.
39. In this view of the matter, in the light of the narrative, discussion
and dispositive reasoning set out supra, this Court has no hesitation in
coming to the conclusion that there is no ground for judicial intervention qua
impugned award in the captioned OP.
40. In the result, captioned OP fails and the same is dismissed. There
shall be no order as to costs. Consequently, connected application is closed.
https://www.mhc.tn.gov.in/judis/
O.P.No.886 of 2016
and A.No.6299 of 2016
03.02.2021
Speaking order: Yes/No
Index: Yes/No
kmi
https://www.mhc.tn.gov.in/judis/
O.P.No.886 of 2016
and A.No.6299 of 2016
M.SUNDAR.J.,
kmi
O.P.No.886 of 2016
and A.No.6299 of 2016
03.02.2021
https://www.mhc.tn.gov.in/judis/
