Madras High Court
Roman Tarmat Ltd. vs M/S.It Expressway Limited on 24 January, 2022
OSA.No.4 of 2022
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED: 24.1.2022
CORAM :
THE HON'BLE MR.MUNISHWAR NATH BHANDARI,
ACTING CHIEF JUSTICE
AND
THE HON'BLE MR.JUSTICE P.D.AUDIKESAVALU
O.S.A.(CAD) No.4 of 2022
& CMP.No.552 of 2022
Roman Tarmat Ltd., rep.by
its General Manager,
Chennai-42 .. Appellant
vs
M/s.IT Expressway Limited,
Chennai-28 .. Respondent
Prayer: APPEAL under Section 13(1) of the Commercial Courts Act
read with Section 37(1)(c) of the Arbitration and Conciliation Act
against the order dated 09.8.2021 made in O.P.No.306 of 2015.
For Appellant : Mrs.Nalini Chidambaram
Senior Counsel for
Mrs.C.Uma
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OSA.No.4 of 2022
JUDGMENT
(delivered by the Hon'ble Acting Chief Justice)
This appeal under Section 37 of the Arbitration and
Conciliation Act, 1996 (for short, the Act) is directed against the
order dated 09.8.2021 in O.P.No.306 of 2015 passed under Section
34 of the Act.
2. We have heard the learned Senior Counsel appearing on
behalf of the appellant.
3. The facts on record show that a contract was entered into
between the appellant and the respondent, for construction of
service road and foot path on LHS and RHS in Rajiv Gandhi Salai (IT
Corridor), Chennai, Tamil Nadu. The relevant dates, which include
the date of commencement of work and the period for its
completion, have been indicated in paragraph 3 of the impugned
order. It appears that after commencement of the work, since the
appellant failed to show progress as was required and committed
several breaches, the respondent terminated the contract. At the
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instance of the appellant, the matter was referred to a Three
Member Arbitral Tribunal (for brevity, the Arbitral Tribunal) wherein
the appellant sought to declare the termination notice dated
30.11.2010 to be arbitrary, illegal and premature and to direct the
respondent to pay a sum of Rs.7.68 Crores together with interest at
12% from the date of filing of claim statement till the date of
payment.
4. The appellant appeared to have completed only 17% of the
work and from the inception, the work was slow and therefore, the
contract was terminated by the respondent.
5. The parties led evidence before the Arbitral Tribunal and it
was thoroughly examined by the Arbitral Tribunal and accordingly,
an award came to be passed on 02.8.2014.
6. Aggrieved by the award passed by the Arbitral Tribunal, the
appellant filed a petition before this Court under Section 34 of the
Act. However, it came to be dismissed by the impugned order by a
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OSA.No.4 of 2022
learned Single Judge of this Court, which resulted in filing of this
appeal under Section 37 of the Act.
7. The first limb of argument of the learned Senior Counsel
appearing for the appellant is with regard to the difference of amount
of the remaining work, required to be paid to the respondent. It is her
further submission that the award passed by both the Arbitral Tribunal
as well as the order passed by the learned Single Judge were not in
terms of the contract. It is argued that there was no clause in the
contract, so as to recover the difference of amount of the remaining
work, if assigned to other party. According to her, the amount was
not determined by taking into consideration the value of the
remaining work in view of the fact that the total contract amount was
for Rs.31,75,30,560/-, out of which, the appellant completed work for
Rs.2.2 Crores and the remaining 83% of the work could not be given
on the value of Rs.45.33 crores. Rather, it could have been only on
the balance amount of Rs.29.55 Crores (Rs.31.75 Crores - Rs.2.20
Crores). Accordingly, a challenge to recovery of the difference of the
amount of the remaining work has been made.
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8. The learned Senior Counsel further submits that this is
mainly on the ground that without calling for bids with competitive
rates by evolving a transparent procedure of the bids, the contract
was given to a company namely M/s.SPL Infrastructure Private
Limited (for brevity, M/s.SPL) and without examining the fact that the
contract was on an inflated cost and not on realistic costs, the award
was passed. It is further submitted that the Arbitral Tribunal could not
have awarded the difference of amount by taking it on a sum of
Rs.45.33 Crores, for which, the remaining work was assigned to the
said M/s.SPL. The learned Senior Counsel appearing for the appellant
has sought to set side the impugned order.
9. To examine the first limb of the argument raised before us,
we have carefully gone through the records.
10. The facts not in dispute are regarding award of contract to
the appellant for construction of service road and foot path on LHS
and RHS in Rajiv Gandhi Salai (IT Corridor), Chennai.
11. The date of commencement of work was 12.4.2010 with the
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completion period of 12 months. Accordingly, the contractual date for
completion was 11.4.2011. The total cost of the project was
Rs.31,75,30,560/-. The respondent terminated the contract on slow
progress and on account of several breaches committed by the
appellant. The appellant raised a dispute and pursuant to that, the
matter was referred to the Arbitral Tribunal.
12. The only issue raised before us is with regard to recovery of
difference of amount of the remaining work without the clause of risk
and cost and without adequate assessment as to whether the amount,
for which, the remaining part of the work was given to the said
M/s.SPL was proper or not.
13. To examine the issue, we would like to refer to Clause
45.1 of the contract, which is quoted as hereunder :
"For Construction/Impovement Works
a. In case of non-completion of the entire
construction/improvement works within the Intended
Completion Date as indicated in the Contract Data, the
Contractor shall pay liquidated damages to the
Employer at the rate per day stated in the Contract
Data for each day that the actual Completion Date is
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later than the Intended Completion Date. The
liquidated damages amount shall be deducted from
payments due to the Contractor and shall not be
refundable. The total amount of liquidated damages
shall not exceed the amount defined in the Contract
Data.
b. Time is the essence of the Contract and
payment or deduction of penalty or liquidated damages
shall not relieve the Contractor from his obligation to
complete the works as per agreed Construction
Program and Milestones or from any other of the
Contractor's obligations and liabilities under the
Contract or the Employer's right to invoke the
Performance Security.
c. If the Intended Completion Date is extended
after liquidated damages have been paid, the Engineer
shall correct any overpayment of liquidated damages
have been paid, the Engineer shall corret any
overpayment of liquidated damages by the Contractor
by adjusting the next payment certificate. The
Contractor shall be paid interest on the over payment
calculated from the date of payment to the date of
repayment at the ate of 8% p.a."
14. Clause (b) of the above extracted portion states that time
was the essence of contract and payment or deduction of penalty or
liquidated damages should not relieve the contractor from his
obligation to complete the works as per agreed construction program
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and milestones or from any other of the contractor's obligations and
liabilities under the Contract or the employer's right to invoke the
performance security.
15. In that regard, Clause 45.2 of the conditions of contract,
which is also relevant, has been taken into consideration by the
learned Single Judge. Clause 45.2 of the conditions of contract is
quoted hereunder for ready reference :
"(a). In case the Contractor has not rectified or
addressed deficiencies as directed by the Engineer at
the time of Site Inspections during defects liability
period, the Employer retains the right to get works
done through a third party and debit the cost and
expenses incurred to the Contractor. Alternatively, the
Engineer may recommend invoking of Performance
Security in part of full, as the case may be. In case, the
Contractor still fails to rectify or address deficiencies
even after Invoking Performance Security, as described
earlier, then the Employer shall treat the event as
fundamental breach of Contract in terms of Clause 54
of Conditions of Contract."
16. The last paragraph of Clause 54.2 of the conditions of
contract has been specifically referred to by the learned Single Judge
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wherein it has been agreed by the parties that in case the contractor
has not rectified or addressed deficiencies as directed by the Engineer
at the time of site inspections during defects liability period, the
employer retains the right to get works done through a third party
and debit the cost and expenses incurred to the contractor. This
Clause has been referred to show that the appellant agreed that in
case of default on their part in carrying out the work as per the
programme, the employer would be entitled to employ and pay others
to carry out the work and, additional cost, if any, will be recovered
from the defaulting contractor.
17. The last paragraph of Clause 54.2 of the conditions of
contract reads as follows :
"In case of default on the part of the Contractor
in carrying out the work as per programme, the
employer is entitled to employ and pay others to carry
out the work. The additional cost if any will be
recovered from the defaulting contractor."
18. After making a reference to Clause 54.2 of the conditions of
contract, the learned Single Judge came to the conclusion that the
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employer would be entitled to employ and pay others to carry out the
work and accordingly, the additional sum incurred for completion of
the remaining 83% was sought to be recovered from the appellant on
difference of amount. In view of the above, we are unable to accept
the first limb of argument that there was no contract between the
parties for risk and cost.
19. The second limb of argument is that inflated cost was taken
by the respondent for the remaining work and that too, without
having a transparent bidding process.
20. We find that the learned Single Judge, after going through
the award, came to the conclusion that the contract was awarded to
the other party after calling for bids wherein eight bidders participated
and out of them, five were found to be eligible and the bid was
awarded to the successful bidder by way of a transparent bidding
process at competitive rates. The Arbitral Tribunal meticulously
considered all the issues, which included the method adopted by the
respondent employer in calling for the bids and awarding the contract.
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21. For ready reference, paragraph 13.2 of the award is quoted
as hereunder :
"13.2 XI. Whether the balance works were
awarded to M/s.SPL Infrastructure Private Limited at
inflated cost without calling for competitive bids.
A. Claimant's submission :
(i) Claimant stated that the process of
retendering was not transparent and the respondent
had straightaway awarded the balance works to
M/s.SPL Infrastructure without calling for competitive
bids. The claimant also stated that balance works were
retendered at inflated cost.
(ii) The claimant further stated that out of the
total value of Rs.31.75 Crores work entrusted to them,
the claimant had executed works to the value of
Rs.2.20 Crores and so only the balance value of
Rs.29.55 Crores should have been retendered.
Whereas the value of works entrusted to the other
contractor is Rs.44.49 Crores. This entrustment is at an
inflated cost.
B. Respondent's submission :
(i) Respondent stated that the claimant has
completed 17% of LHS works and totally has executed
8.5% of only and so the balance works to be
retendered would be 91.5% of the indicative value of
works entrusted to the claimant i.e Rs.45.83 Crores
(C1).
(ii) After termination of contract awarded to the
claimant, after taking into consideration of the works
executed by the claimant, the respondent invited
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tenders for the balance works through competitive
bidding in a transparent manner, following the
procedure. Eight bidders have participated, out of
which, five were qualified. The bid was awarded to the
successful bidder. The relevant documents pertaining
to the bidding process and selection of the successful
bidder were placed before the Tribunal for perusal and
substantiated that the allegations are contrary to the
facts.
C. Evidence placed before the Tribunal reveals
the following :
During the proceedings as per the directions of
the Tribunal, the respondent presented the documents
pertaining to the retender for balance works. On
perusal, the Tribunal found that the submissions made
by the respondent were true and that the allegations
made by the claimant are false. The Tribunal observes
that on the face of it, it could be seen that the claimant
at one place has stated that the works were awarded to
the other contractor (M/s.SPL Infrastructure) without
calling for competitive bids and in other place
contradicting his own stand, stated that balance works
were retendered at inflated cost. The allegations made
by the claimant have no merits and hence, these are
rejected by the Tribunal."
22. The finding rendered by the Arbitral Tribunal shows the
transparent bidding process by the employer after taking into
consideration the competitive rates. Therefore, we are unable to
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accept the second limb of argument of the learned Senior Counsel
appearing for the appellant. No evidence was produced by the
appellant to show that the award of remaining work was on a higher
cost or inflated cost. In the absence of any evidence, the mere
submissions with reference to the total cost, on which the contract
was awarded and the subsequent award of contract to the said
M/s.SPL to complete the remaining work cannot be taken to be
without basis to hold that the subsequent award was on inflated cost.
We do not find any ground for interference in this appeal under
Section 37 of the Act.
23. The Apex Court in MMTC Ltd. v. Vedanta Ltd., (2019) 4
SCC 163 considered the limited scope of interference conferred under
Sections 34 and 37 of the Act and 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
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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, 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 KB 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
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based on facts. (See Associate Builders v. DDA, (2015)
3 SCC 49). Also see ONGC Ltd. v. Saw Pipes Ltd.,
(2003) 5 SCC 705; Hindustan Zinc Ltd. v. Friends Coal
Carbonisation, (2006) 4 SCC 445; and 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 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.
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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."
[emphasis supplied]
24. The Apex Court in the recent judgment in UHL Power
Company Limited v. State of Himachal Pradesh, 2022 SCC
OnLine SC 19 after referring to the judgment in MMTC Ltd. (supra)
and a series of earlier decisions on the scope of interference under
Section 37 of the Act, held as under:
"16. As it is, the jurisdiction conferred on Courts
under Section 34 of the Arbitration Act is fairly
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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. ....
17. A similar view, as stated above, has been taken by
this Court in K. Sugumar v. Hindustan Petroleum
Corporation Ltd., (2020) 12 SCC 539, where it has
been observed as follows:
'2. The contours of the power of the Court
under Section 34 of the Act are too well
established to require any reiteration. Even a
bare reading of Section 34 of the Act indicates
the highly constricted power of the civil court
to interfere with an arbitral award. The reason
for this is obvious. When parties have
chosen to avail an alternate mechanism
for dispute resolution, they must be left
to reconcile themselves to the wisdom of
the decision of the arbitrator and the role
of the court should be restricted to the
bare minimum. Interference will be
justified only in cases of commission of
misconduct by the arbitrator which can
find manifestation in different forms
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including exercise of legal perversity by
the arbitrator.'
18. It has also been held time and again by this Court
that if there are two plausible interpretations of the
terms and conditions of the contract, then no fault can
be found, if the learned Arbitrator proceeds to accept
one interpretation as against the other. In Dyna
Technologies (P) Ltd. v. Crompton Greaves Ltd.,
(2019) 20 SCC 1, the limitations on the Court while
exercising powers under Section 34 of the Arbitration
Act has been highlighted thus:
“24. There is no dispute that Section 34 of the
Arbitration Act limits a challenge to an award
only on the grounds provided therein or as
interpreted by various Courts. We need to be
cognizant of the fact that arbitral awards
should not be interfered with in a casual
and cavalier manner, unless the Court
comes to a conclusion that the perversity
of the award goes to the root of the
matter without there being a possibility of
alternative interpretation which may
sustain the arbitral award. Section 34 is
different in its approach and cannot be
equated with a normal appellate
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jurisdiction. The mandate under Section
34 is to respect the finality of the arbitral
award and the party autonomy to get
their dispute adjudicated by an
alternative forum as provided under the
law. If the Courts were to interfere with
the arbitral award in the usual course on
factual aspects, then the commercial
wisdom behind opting for alternate
dispute resolution would stand
frustrated.”
19. In Parsa Kente Collieries Limited v. Rajasthan
Rajya Vidyut Utpadan Nigam Limited, (2019) 7 SCC
236,, adverting to the previous decisions of this Court
in McDermott International Inc. v. Burn Standard Co.
Ltd., (2006) 11 SCC 181, and Rashtriya Ispat Nigam
Ltd. v. Dewan Chand Ram Saran, (2012) 5 SCC 306,
wherein it has been observed that an Arbitral Tribunal
must decide in accordance with the terms of the
contract, but if a term of the contract has been
construed in a reasonable manner, then the award
ought not to be set aside on this ground, it has been
held thus:
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'9.1 ………..It is further observed and held that
construction of the terms of a contract is
primarily for an Arbitrator to decide unless the
Arbitrator construes the contract in such a way
that it could be said to be something that no
fair-minded or reasonable person could do. It
is further observed by this Court in the
aforesaid decision in paragraph 33 that when a
court is applying the “public policy” test to an
arbitration award, it does not act as a court of
appeal and consequently errors of fact cannot
be corrected. A possible view by the
Arbitrator on facts has necessarily to pass
muster as the Arbitrator is the ultimate
master of the quantity and quality of
evidence to be relied upon when he
delivers his arbitral award. It is further
observed that thus an award based on little
evidence or on evidence which does not
measure up in quality to a trained legal mind
would not be held to be invalid on this score.
9.2 Similar is the view taken by this Court in
NHAI v. ITD Cementation (India) Ltd., (2015)
14 SCC 21, para 25 and SAIL v. Gupta Brother
Steel Tubes Ltd., (2009) 10 SCC 63, para 29.'
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20. In Dyna Technologies (P) Ltd. (supra), the view
taken above has been reiterated in the following
words:
'25. Moreover, umpteen number of judgments
of this Court have categorically held that the
courts should not interfere with an award
merely because an alternative view on
facts and interpretation of contract exists.
The courts need to be cautious and should
defer to the view taken by the Arbitral
Tribunal even if the reasoning provided in
the award is implied unless such award
portrays perversity unpardonable under
Section 34 of the Arbitration Act.'"
[emphasis supplied]
25. In view of the judgments referred to above, we find very
limited jurisdiction with us to cause interference in the order passed
by the learned Single Judge under Section 37 of the Act. The
challenge to the order is not on any of the grounds on which
interference is permitted by the Apex Court, rather on facts and in
reference to the interpretation of the agreement taken by the Arbitral
Tribunal. We find no reason to interfere with the concurrent findings
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on fact. In view of the above, we find no case for exercise of power
under Section 37 of the Act to cause interference with the award
passed under Section 34 of the Act.
26. For the foregoing reasons, the appeal fails and the same is
dismissed. Consequently, the connected CMP is also dismissed.
(M.N.B., ACJ.) (P.D.A., J.)
24.1.2022
Index : Yes/No
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M.N.BHANDARI, ACJ
AND
P.D.AUDIKESAVALU,J
RS
O.S.A.(CAD) No.4 of 2022
& CMP.No.552 of 2022
24.1.2022
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