Rajasthan High Court

Shri Vijay Walia Proprietor vs U I T Ajmer And Ors on 12 May, 2022

Bench: Anoop Kumar Dhand

         HIGH COURT OF JUDICATURE FOR RAJASTHAN
                     BENCH AT JAIPUR

            S.B. Civil Miscellaneous Appeal No. 1735/2007

Shri Vijay Walia Proprietor of M/s Walia Construction Company,
3-Gha-7, Vaishali Nagar, Ajmer.
                                                                        ----Appellant
                                        Versus
1. Urban Improvement Trust, Ajmer through Chairman
2. Secretary, Urban Improvement Trust, Ajmer
3. Executive Engineer, Urban Improvement Trust, Ajmer.
                                                                     ----Respondents

For Appellant(s) : Mr. M.M. Ranjan, Sr. Adv., assisted by Mr. Rohan Agarwal For Respondent(s) : Mr. Amrit Surolia

HON'BLE MR. JUSTICE ANOOP KUMAR DHAND Judgment

12/05/2022

This appeal has been submitted by the appellant under

Section 37 of the Arbitration and Conciliation Act, 1996

(hereinafter referred to as 'the Act of 1996') against the order

dated 21.09.2006 passed by the Court of Additional District Judge

No.1, Ajmer in Civil Misc. Case No.69/2000 whereby the

objections filed by the appellant under Section 34 of the Act of

1996 against the award dated 15.07.2000 have been rejected.

The facts, in brief, of the case are that the respondents

invited tender for work i.e. construction of a Community Hall at

Udhyan, Hari Bhau Upadhyay Nagar, Ajmer and the tender offered

by the appellant was accepted for a consideration of Rs.976508/-

and the construction of Community Hall was to commence from

15.02.1995 and it was supposed to be completed within 6 months

i.e. till 18.10.1995. When the construction work was completed

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within the stipulated time, the respondents issued a notice

imposing penalty upon the appellant vide letter dated 29.02.1996

and ordered for forfeiting the earnest money and also passed an

order to debar the appellant in future tenders.

After receipt of the notice, an application was submitted for

appointment of Arbitrator for settlement of dispute arose between

the parties and on the basis of claim submitted by the appellant,

the Arbitrator framed the following issues:-

"1. Did the respondents fall in their part of the agreement by withholding the site from the plaintiff?

2. Is the plaintiff worthy of obtaining the claims recorded in Schedules A,B and C of the plaint?

3. Did the opposite party have to suffer a loss of Rs.395630.00 and do they merit recompense on that account?

4. Relief?"

After hearing both the sides, the Arbitrator vide award dated

15.07.2000 dismissed the claim of the appellant by observing

thus:-

"In the circumstances, all the issues are decided against the claimant and the case is decided accordingly.

An amount of Rs.1000.00 One Thousand is due from U.I.T. to the claimant on account of the payment they did to the arbitrator when the U.I.T. failed to pay for the preparation of the award. This was done under Section 38(2) of the Act. It may be paid by the U.I.T. to the claimant forthwith, falling which within a fortnight, the claimant shall be paid interest at 18%."

Feeling aggrieved by the impugned award dated 15.07.2000,

the appellant submitted objections under Section 37 of the Act of

1996 before the Court of Additional District Judge, No.1, Ajmer

(hereinafter referred to as 'the Court below'), who vide impugned

judgment dated 21.09.2006 dismissed the objections raised by

the appellant.

(3 of 8) [CMA-1735/2007]

Feeling aggrieved and dissatisfied by the impugned judgment

dated 21.09.2006, this appeal has been preferred inter alia on the

ground that the Arbitrator has not considered the case of the

appellant in view of the pleadings made in the statement of claim,

hence, the award passed by the Arbitrator is against public policy.

Counsel for the appellant submitted that due to change in

the site and designs the appellant was bound to carry out the

work, so, he was entitled to get a compensation or not, this

question was required to be decided.

Lastly, counsel for the appellant submitted that the

impugned award passed by the Sole Arbitrator and the impugned

judgment passed by the Court below are required to be interfered

and the claim of the appellant is liable to be allowed.

Per contra, learned counsel for the respondent opposed the

arguments raised by counsel for the appellant and submitted that

no illegality has been committed by the Arbitrator while passing

the award dated 15.07.2000. Counsel submitted that the scope of

Section 37 of the Act of 1996 is limited and the same cannot be

allowed to be enhanced. He further submitted that on the basis of

the material available on record, the impugned award was passed

and the claim filed by the appellant was rightly rejected and these

facts were appreciated by the learned Court below while deciding

the objections filed by the appellant under Section 34 of the Act of

1996. Lastly, learned counsel for the respondent submitted that

reappreciation of the order is not permissible within the ambit of

Section 37 of the Act of 1996, as this Court is not sitting as a

Court of appeal.

Heard. Considered the arguments of both sides.

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This Court finds that the Hon'ble Apex Court in the case of

MMTC Ltd. Vs. Vedanta Limited reported in (2019) 4 SCC

163 has discussed the scope of interference under Section 34 and

37 of the Act of 1996. The operation of the said judgment, which

is relevant in the present case, is reproduced as under:-

" 10. Before proceeding further, we find it necessary to briefly revisit the existing position of law with respect to the scope of interference with an arbitral award in India, though we do not wish to burden this judgment by discussing the principles regarding the same in detail. Such interference may be undertaken in terms of Section 34 or Section 37 of the Arbitration and Conciliation Act, 1996 (for short, "the 1996 Act"). While the former deals with challenges to an arbitral award itself, the latter, inter alia, deals with appeals against an order made under Section 34 setting aside or refusing to set aside an arbitral award.

11. As far as Section 34 is concerned, the position is well settled by now that the Court does not sit in appeal over the arbitral award and may interfere on merits on the limited ground provided under Section 34(2)(b)(ii), i.e. if the award is against the public policy of India. As per the legal position clarified through decisions of this Court prior to the amendments to the 1996 Act in 2015, a violation of Indian public policy, in turn, includes a violation of the fundamental policy of Indian law, a violation of the interest of India, 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 reasonableness. Furthermore, "patent illegality" itself has been held to mean contravention of the substantive law of India, contravention of the 1996 Act, and contravention of the terms of the contract.

12. It is only if one of these conditions is met that the Court may interfere with an arbitral award in terms of Section 34(2)(b) (ii), but such interference does not entail a review of the merits of the dispute, and is limited to situations where the findings of the arbitrator are arbitrary, capricious or perverse, or when the conscience of the Court is shocked, or when the illegality is not trivial but goes to the root of the matter. An arbitral award may not be interfered with if the view taken by the arbitrator is a possible view based on facts. (See Associate Builders v. DDA, (2015) 3 SCC 49). Also see ONGC Ltd. v. Saw Pipes Ltd., (2003) 5 SCC

(5 of 8) [CMA-1735/2007]

705; Hindustan Zinc Ltd. v. Friends Coal Carbonisation, (2006) 4 SCC 445; and McDermott International v. Burn Standard Co. Ltd., (2006) 11 SCC

181).

13. It is relevant to note that after the 2015 amendments 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.

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.

15. Having noted the above grounds for interference with an arbitral award, it must now be noted that the instant question pertains to determining whether the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or contains decisions on matters beyond the scope of the submission to arbitration. However, this question has been addressed by the Courts in terms of the construction of the contract between the parties, and as such it can be safely said that a review of such a construction cannot be made in terms of re-assessment of the material on record, but only in terms of the principles governing interference with an award as discussed above.

16. It is equally important to observe at this juncture that while interpreting the terms of a contract, the conduct of parties and correspondences exchanged would also be relevant factors and it is within the arbitrator's jurisdiction to consider the same. (See McDermott International Inc. v. Burn Standard Co. Ltd. (supra); Pure Helium

(6 of 8) [CMA-1735/2007]

India (P) Ltd. v. ONGC, (2003) 8 SCC 593, D.D. Sharma v. Union of India, (2004) 5 SCC 325)."

The Hon'ble Apex Court in the case of McDermott

International Inc. Vs. Burn Standard Co. Ltd. & Ors.

reported in (2006) 11 SCC 181 has dealt with the issue relating

to construction of contract agreement. The extract of judgment

which is relevant for adjudication of this case is reproduced as

under:-

"112. It is trite that the terms of the contract can be express or implied. The conduct of the parties would also be a relevant factor in the matter of construction of a contract. The construction of the contract agreement, is within the jurisdiction of the arbitrators having regard to the wide nature, scope and ambit of the arbitration agreement and they cannot, be said to have misdirected themselves in passing the award by taking into consideration the conduct of the parties. It is also trite that correspondences exchanged by the parties are required to be taken into consideration for the purpose of construction of a contract. Interpretation of a contract is a matter for the arbitrator to determine, even if it gives rise to determination of a question of law. [See Pure Helium India (P) Ltd. v. Oil & Natural Gas Commission, (2003) 8 SCC 593 and D.D. Sharma v. Union of India (2004) 5 SCC 325].

113. Once, thus, it is held that the arbitrator had the jurisdiction, no further question shall be raised and the court will not exercise its jurisdiction unless it is found that there exists any bar on the face of the award."

The objection raised by the counsel for the appellant that the

award was passed on no evidence. Suffice to say that bare perusal

of the award passed by the Sole Arbitrator shows that the

appellant and the respondent were afforded opportunities to lead

their evidence and after considering their evidence, the Sole

Arbitrator has recorded its findings on issue No.1 as under:-

"The issues examined reveal as under:- Issue 1. The issue that the defendants failed to show the site to the plaintiff does not find favour with the present arbitrator for reasons stated. He had

(7 of 8) [CMA-1735/2007]

been shown the site. His plea that the site has been changed as per his letter dated 19.06.1996 and that he would claim more on that account indicates that this was an invention to avoid doing the work. The arguments contained in the letter that he would demand more than the tender implies as the soil is different from what he was given to understand in the beginning does not help him. He should have pursued the matter personally rather than through missives, if he meant to get the estimate revised. This letter Ex.11 nowhere states that he had not been made aware of the site as such, he only states that the site chosen by the U.I.T. while inviting the tender led the plaintiff to make the offer that he did and that the changed site shall put him to immense difficulties and loss in terms of money which shall be the liability of the U.I.T. The coming rains may also lead to the collapse of the building. If the construction suffers any damage, it shall be the answerability of the U.I.T. and not of the plaintiff.

It only indicates that the likely loss shall be the answerability of the other party. That's all. He has not stated that he does not propose at all to go in for the construction. The implication of the letter is that the building may suffered due to the impending rains. (He may also claim something extra for the difficult torrain (subsequently chosen by the U.I.T. as extra item or otherwise.)"

These facts were reappreciated by the Court below while

rejecting the objections raised by counsel for the appellant vide

order dated 21.09.2006.

This Court does not again reappreciate the evidence which

has been recorded by the Sole Arbitrator and further cannot

substitute its findings as the view of the Sole Arbitrator is

absolutely logical based on sound reasoning.

This Court is of the view that the scope of interference in this

appeal under Section 37 of the Act of 1996 is very limited, as per

the law laid down by the Hon'ble Supreme Court in the cases of

MMTC (supra) and McDermott International Inc. (supra).

Hence, the case of the appellant does not call for any