Madras High Court

The Union Of India vs M/S.Oriental Veneer Products Ltd on 3 March, 2022

Arb O.P.(Com. Div.)No.62 of 2022

IN THE HIGH COURT OF JUDICATURE AT MADRAS

Dated : 03.03.2022

Coram

THE HONOURABLE MR. JUSTICE M.SUNDAR

Arb O.P.(Com. Div.)No.62 of 2022
and
A.No.746 of 2022

1. The Union of India
Represented by its General Manager
Integral Coach Factory
Chennai.

2. The Principal Chief Materials Manager
Integral Coach Factory
Chennai. ... Petitioners

vs.
M/s.Oriental Veneer Products Ltd.,
Having registered office at
No.25, Mohammedi Lakada Bazaar No.1
M.S.Road, Mumbai - 400 008. ... Respondent

Prayer:
Arbitration Original Petition filed under Section 34(1) of the
Arbitration and Conciliation Act, 1996, to set aside the Award dated
26.08.2019 passed by the Arbitrator.
For petitioners : Ms.A.Srijayanthy
Railway Advocate

1/18
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Arb O.P.(Com. Div.)No.62 of 2022

ORDER

Captioned 'Arbitration Original Petition' [hereinafter 'Arb OP' for the

sake of convenience and clarity] has been presented in this Court on

25.11.2019 assailing an 'arbitral award dated 26.08.2019' [hereinafter

'impugned award' for the sake of convenience and clarity] made by an

'Arbitral Tribunal' [hereinafter 'AT' for the sake of convenience and clarity]

constituted by a sole Arbitrator.

2. Impugned award pertains to arbitrable disputes between 'Integral

Coach Factory, Chennai-600 038' [hereinafter 'ICF' for the sake of brevity,

convenience and clarity] and respondent-Company in captioned Arb OP

which shall hereinafter be referred to as 'Contractor-Company' for the sake of

convenience and clarity. Arbitrable disputes between ICF and Contractor-

Company erupted qua a purchase order bearing reference PO

No.07/15/0420/1088/F dated 21.01.2016 relatable to a open tender bearing

reference No.07150420 dated 09.10.2015. To be noted, this purchase order

was followed by some correspondence between ICF and Contractor-

Company inter alia regarding re-fixing delivery schedule and certain other

modifications in purchase order. In addition to this, a set of conditions which

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go by the name 'IRS conditions' also is applicable to this purchase order.

From the case file placed before this Court, it comes to light that there is no

formal contract and therefore this 21.01.2016 purchase order, subsequent

correspondence between ICF and Contractor-Company regarding

modification of certain terms of purchase order and IRS conditions together

(collectively) serve as a contract {between ICF and Contractor-Company}

and shall hereinafter be collectively referred to as 'said contract' for the sake

of convenience and clarity. There is an arbitration clause qua said contract.

This arbitration clause serves as an Arbitration Agreement between ICF and

Contractor-Company i.e., Arbitration Agreement within the meaning of

Section 2(1)(b) read with Section 7 of A and C Act.

3. Before proceeding further, it is to be noted that said contract is for

'SUPPLY OF WOOD BASED IMPREGNATED COMPRESSED LAMINA'

[hereinafter 'said material' for the sake of convenience and clarity]. To be

noted, time frames for supply of said material by Contractor-Company to

ICF have been set out and agreed upon in said contract.

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4. The said contract was operated, ICF deducted certain sums of

money saying that the same are 'Liquidated Damages' ['LD'] owing to alleged

delay in supply of said material. Contractor-Company entered upon

contestations/ disputations qua such deduction of LD. ICF took the position

that owing to delay/failure on the part of Contractor-Company in supply of

said material, alternate material had to be used, this alternate material is

Wood Based Impregnated Compressed Lamination material of size

8x1220x2960 resulting in higher costs and loss to ICF.

5. The above is the crux and gravamen of the lis between the parties.

In other words, the above is the bone of contention.

6. Arbitration clause in said contract was invoked, AT was constituted,

AT entered upon reference, adjudicated upon arbitrable disputes between ICF

/ Contractor-Company and made the impugned award. Impugned award has

now been assailed in this Court vide captioned Arb OP by ICF.

7. Ms.A.Srijayanthy, learned Railway Advocate who is protagonist of

the captioned Arb OP is before this Court.

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8. Notwithstanding very many averments and several grounds raised in

the captioned Arb OP (petition), learned counsel in her campaign against

impugned award made focussed submissions a summation of which is as

follows:

(a) IRS conditions which form part of said contract does

not provide for award of interest on Liquidated Damages (LD)

whereas the impugned award has awarded interest in favour of

Contractor-Company;

(b) Reasons in the impugned award have been set out

and adumbrated under the head 'Reasons for Award' at internal

page No.7 of the impugned award. The reasons are eight in

number and adumbration has been in alpha series (a) to (h).

Adverting to such adumbration in alpha series, learned counsel

submits that reasons are in favour of ICF but the award is in

favour of Contractor-Company;

9. Captioned Arb OP is listed in the Admission Board. Therefore, the

same is heard out in accordance with 'The Madras High Court (Arbitration)

Rules, 2020' [hereinafter 'MHC Arbitration Rules' for the sake of

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convenience and clarity] which have been made by Madras High Court

[MHC] in exercise of powers under Section 82 of A and C Act. It was

obviously heard out inter alia qua sub-sections of Section 34 of A and C Act

which are the substantive provisions of law.

10. Captioned Arb OP petition says that it has been presented in this

Court under Section 34 (1) of A and C Act. Sub-section (1) of Section 34 of

A and C Act is generic in nature and it only talks about taking recourse to

Court to set aside a arbitral award inter alia under sub-section (2) of Section

34 of A and C Act. In other words, the provision or what has been described

as pigeon holes by this Court under sub-section (2) of Section 34 of A and C

Act vide which the impugned award has been assailed has not been set out

with specificity.

11. Be that as it may, in accordance with Rule 8 of aforementioned

MHC Arbitration Rules, the matter was heard out for admission.

12. Before proceeding further, the litmus test or touchstone on which a

petition under Section 34 has to be tested has to be set out. Law is clear that

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Section 34 is a default provision. It is a default provision in the light of

Sections 35 and 5 of A and C Act which talk about finality of arbitral awards

and minimum judicial intervention respectively.

13. Sections 35 and 5 of A and C Act read as follows:

Section 35 of A and C Act reads as follows :

'35. Finality of arbitral awards:- Subject to this part an arbitral award shall be final and binding on the parties and persons claiming under them respectively.'

Section 5 of A and C Act reads as follows :

'5. Extent of judicial intervention:- Notwithstanding anything contained in any other law for the time being in force, in matters governed by this Part, no judicial authority shall intervene except where so provided in this part.'

14. Therefore, Section 34 of A and C Act is not an appeal. It is not a

revision. It is not even a full-fledged judicial review. It is a mere challenge

to an arbitral award within the limited legal landscape i.e., within the limited

legal perimeter of Section 34 of A and C Act. It is a delicate balance between

sanctity of 'finality of arbitral awards' and 'minimum judicial intervention'

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ingrained in A and C Act vide Sections 35 and 5 respectively on one side and

the bedrock judicial review philosophy forming part of due process of law on

the other side. Therefore, captioned Arb OP being a mere challenge to an

arbitral award and not being an appeal, revision or full-fledged judicial

review, what has to be tested is whether the challenge fits snugly into one or

the other of pigeon holes adumbrated in sub-section (2) of Section 34 or any

other specific provision of A and C Act. If the answer is in the affirmative,

the impugned award will be interfered with and dislodged. If the answer is

in the negative, protagonist of Section 34 petition will fail.

15. This Court now proceeds to examine the submissions made by

learned counsel for petitioners one after other.

16. First point turns on interest on LD being awarded. In this regard,

learned counsel drew the attention of this Court to IRS conditions referred to

supra and more particularly condition No.15.0 captioned 'SPECIAL

CONDITIONS'. Learned counsel also pointed out that in the impugned

award itself, vide sub-paragraph No.(h) in the main paragraph captioned

'Reasons for Award' AT has mentioned that no interest is payable to claimant

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on withheld amount as per IRS conditions of contract. This takes us to the

question as to the provision of A and C Act in which this argument will fit in

with specificity. This can at best fit in under Section 34(2)(b)(ii) read with

Clause (ii) of Explanation (1) and/or Section 28(3) of A and C Act. Section

28(3) of A and C Act inter alia makes it clear that AT shall take into account

the terms of contract. Therefore, though it has not been set out in the petition

or advanced as an argument, construing this argument as one under Section

34(2)(b)(ii) read with Clause (ii) of Explanation (1) and Section 28(3) of A

and C Act, a careful perusal of the impugned award makes it clear that AT

has not awarded interest on LD (liquidated damages) that has been directed

to be refunded. To be noted, the claim of LD is Rs.5,02,910/- i.e., a little

over 5.02 Lakhs. As far as refund of LD is concerned, though the claim is

for a little over 5.02 Lakhs, AT vide the impugned award has awarded

Rs.2,50,000/- i.e., Rs.2.50 Lakhs. No interest has been awarded on this

Rs.2.50 Lakhs. All that the AT has done is, it has directed ICF to pay this

Rs.2,50,000/- within 30 days of date of publication of the impugned award.

Thereafter, in the event of non-compliance and in the event of ICF not

paying the amount of Rs.2,50,000/- within 30 days from the date of

publication of the impugned award, interest will start ticking. Therefore, the

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impugned award does not grant interest on LD, it only awards interest if

refund of 2.5 lakhs is not made within 30 days. In other words, interest will

start ticking only from 31st day. Therefore, it is a plausible view. It is not an

implausible view. This cannot be construed one against the terms of contract

within the meaning of Section 28(3) of A and C Act as interest has not been

awarded on LD. LD deducted per se (a part of it) has only been directed to

be refunded within 30 days without interest. Therefore, considering the

limited legal landscape of Section 34 of A and C Act, this Court is not

inclined to sustain this argument of learned counsel for petitioners. To be

noted, this Court will interfere only when it is an implausible view which

shocks the conscience of the Court. No review on the merits of the matter is

permissible in a Section 34 legal drill in the light of Ssangyong principle

[Ssangyong Engineering and Construction Company Limited Vs. National

Highways Authority of India reported in (2019) 15 SCC 131].

17. This takes us to the next point that has been argued by learned

counsel for petitioners. Next point turns on reasons i.e., reasons (a) to (h)

being in favour of ICF but the award ultimately going in favour of

Contractor-Company. A careful perusal of operative portion of the impugned

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award makes it clear that the impugned award has certainly sustained the

counter claim of ICF though not fully. The counter claim of ICF was to the

tune of about Rs.12,60,781.34 i.e., a little over Rs.12.60 Lakhs but what was

awarded is Rs.2,52,910/-. This means that the counter claim acceded to vide

the impugned award is slightly more than the award of refund in favour of

ICF. This further means that the Contractor-Company has to pay monies to

ICF under the impugned award and it has not been done so. As already

alluded to supra, this Court is informed that Contractor-Company has not

presented any separate petition under Section 34 of A and C Act. Therefore,

the view taken by AT cannot be construed as something that is implausible.

This view of this Court is being taken in the light of reason (e) which reads

as follows:

'e) The respondent has indicated in their counter claim that due to delay in supply of material by the claimant, although there was no hold-up in production, but they were forced to use alternate material which caused wastage of material. The alternate material used by them was of size 1220x2960x8mm in place of the ordered size which the claimant was supposed to supply is of 1220x2440x6mm. Hence, usage of alternate material has caused loss to them for which they have raised a counter claim of Rs.12,60,781. However, it is seen that while calculating the counter

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claim, the respondent has considered the total quantity of 2093 Nos.

which was un-supplied as per delivery schedule whereas 800 Nos were supplied on 05.10.2016 and therefore, the quantity of 2093 Nos should be reduced by 800 Nos. Hence considering this reduction and considering the wastage on the basis of area in sq.mtr. wasted, there will be reduction in loss.'

18. A careful perusal of reason (e) brings to light that AT, has come to

the conclusion that ICF while calculating counter claim has made an error in

considering the total quantity as 2093 numbers whereas the delivery schedule

speaks that 800 numbers was supplied on 05.10.2016. This means that 2093

numbers should have been reduced by 800 numbers is the logic. This turns

entirely on facts. There is nothing to demonstrate that this is implausible. To

be noted, this Court is not sitting in appeal qua impugned award. A review

on the merits of the matter is impermissible vide Ssangyong principle as

already alluded to supra. Most relevant paragraphs in Ssangyong principle

are Paragraphs 34 to 36 which read as follows:

'34. What is clear, therefore, is that the expression “public policy of India”, whether contained in Section 34 or in Section 48, would now mean the “fundamental policy of Indian law” as explained in paras 18 and 27 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] i.e.

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the fundamental policy of Indian law would be relegated to “Renusagar” understanding of this expression. This would necessarily mean that Western Geco [ONGC v. Western Geco International Ltd., (2014) 9 SCC 263 : (2014) 5 SCC (Civ) 12] expansion has been done away with. In short, Western Geco [ONGC v. Western Geco International Ltd., (2014) 9 SCC 263 : (2014) 5 SCC (Civ) 12] , as explained in paras 28 and 29 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] , would no longer obtain, as under the guise of interfering with an award on the ground that the arbitrator has not adopted a judicial approach, the Court's intervention would be on the merits of the award, which cannot be permitted post amendment. However, insofar as principles of natural justice are concerned, as contained in Sections 18 and 34(2)(a)(iii) of the 1996 Act, these continue to be grounds of challenge of an award, as is contained in para 30 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] .

35. It is important to notice that the ground for interference insofar as it concerns “interest of India” has since been deleted, and therefore, no longer obtains. Equally, the ground for interference on the basis that the award is in conflict with justice or morality is now to be understood as a conflict with the “most basic notions of morality or justice”. This again would be in line with paras 36 to 39 ofAssociate Builders [Associate Builders v.

DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] , as it is only

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such arbitral awards that shock the conscience of the court that can be set aside on this ground.

36.Thus, it is clear that public policy of India is now constricted to mean firstly, that a domestic award is contrary to the fundamental policy of Indian law, as understood in paras 18 and 27 of Associate Builders[Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] , or secondly, that such award is against basic notions of justice or morality as understood in paras 36 to 39 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] . Explanation 2 to Section 34(2)(b)(ii) and Explanation 2 to Section 48(2)(b)(ii) was added by the Amendment Act only so that Western Geco [ONGC v. Western Geco International Ltd., (2014) 9 SCC 263 : (2014) 5 SCC (Civ) 12] , as understood in Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] , and paras 28 and 29 in particular, is now done away with.'

19. Before concluding, it is made clear that the second ground of

attack as regards reason i.e., reason being in favour of ICF but outcome

giving some benefit to Contractor-Company, the discussion supra explains

that this argument cannot be sustained as AT has balanced the rights and

contentions of parties. However, as regards reasons, the provision of law is

Sub-Section(3) of Section 31 of A and C Act, which says that an arbitral

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award should state reasons upon which it is based. One of the lead cases in

this regard is Dyna Technologies case law i.e., Dyna Technologies Pvt. Ltd.

Vs. Crompton Greaves Ltd. reported in (2019) 20 SCC 1 = 2019 SCC

OnLine SC 1656. Relevant paragraphs in Dyna Technologies case law are

paragraph Nos.34 & 35 which read as follows:

'34. The mandate under Section 31(3) of the Arbitration Act is to have reasoning which is intelligible and adequate and, which can in appropriate cases be even implied by the Courts from a fair reading of the award and documents referred to thereunder, if the need be. The aforesaid provision does not require an elaborate judgment to be passed by the arbitrators having regards to the speedy resolution of dispute.

35. When we consider the requirement of a reasoned order three characteristics of a reasoned order can be fathomed. They are: proper, intelligible and adequate. If the reasoning in the order are improper, they reveal a flaw in the decision-making process. If the challenge to an award is based on impropriety or perversity in the reasoning, then it can be challenged strictly on the grounds provided under Section 34 of the Arbitration Act. If the challenge to an award is based on the ground that the same is unintelligible, the same would be equivalent of providing no reasons at all. Coming to the last aspect concerning the challenge on adequacy of reasons, the Court while exercising jurisdiction under Section 34 has to adjudicate the validity of such an award based on the degree of

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particularity of reasoning required having regard to the nature of issues falling for consideration. The degree of particularity cannot be stated in a precise manner as the same would depend on the complexity of the issue. Even if the Court comes to a conclusion that there were gaps in the reasoning for the conclusions reached by the Tribunal, the Court needs to have regard to the documents submitted by the parties and the contentions raised before the Tribunal so that awards with inadequate reasons are not set aside in casual and cavalier manner. On the other hand, ordinarily unintelligible awards are to be set aside, subject to party autonomy to do away with the reasoned award. Therefore, the courts are required to be careful while distinguishing between inadequacy of reasons in an award and unintelligible awards.'

20. Dyna Technologies principle supra is applied to the case on hand,

there is no reason to believe that reasons are absent. As long as there are

reasons and as long as they are not implausible, an arbitral award will pass

muster qua test under Section 34 the scope, legal landscape and limited legal

perimeter of which has been delineated supra in the opening paragraph.

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21. The sequitur is, grounds of attack do not find favour with this

Section 34 Court, the captioned Arb OP fails and the same is dismissed.

Consequently, captioned application for stay is also dismissed. There shall

be no order as to costs.

03.03.2022 Speaking/Non-speaking order Index : Yes / No Internet : Yes / No mk

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