Rajasthan High Court

Public Works Deptt Raj. Jaipur vs M/S Bhawan Va Path Nirmanbohara ... on 24 May, 2022

Bench: Anoop Kumar V.J.)

       HIGH COURT OF JUDICATURE FOR RAJASTHAN
                   BENCH AT JAIPUR

           S.B. Civil Miscellaneous Appeal No. 4663/2011

Public Works Department Raj. Jaipur through Executive Engineer,
Rashtriya Raj Marg, Division-4, Public Works Department, Jaipur.
                                                   ----Appellant/non-applicant
                                      Versus
M/s Bhawan Va Path Nirman (Bohara) And Company, 1-3,
Hathroi Market Ajmer Road, Jaipur.
                                                       ----Respondent/claimant

For Appellant(s) : Mr. Pankaj Chaudhary for Mr. Rohit Chaudhary, Dy. GC For Respondent(s) : Mr. Vishnu Kumar

HON'BLE MR. JUSTICE ANOOP KUMAR DHAND

Judgment

24/05/2022

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 13.10.2009 passed by the Court of Additional District Judge

No.3, Jaipur City, Jaipur (for short 'the Court below') in Case

No.501/2009 whereby the objections filed by the appellant were

dismissed and award dated 26.02.1998 passed by the Sole

Arbitrator was upheld.

Earlier this appeal was dismissed in the absence of counsel

for the appellant vide order dated 11.01.2012 on the ground of

limitation as the appeal was barred by limitation and the

application filed by the appellant under Section 5 of the Limitation

Act was also dismissed.

(2 of 10) [CMA-4663/2011]

Against the order dated 11.01.2012, the appellant submitted

Civil Misc. Appeal No.2/2014 (SLP (civil) No.19790 of 2012) before

the Hon'ble Supreme Court and the same was allowed vide order

dated 02.01.2014 and the order dated 11.01.2012 passed by this

Court was quashed and set aside and the matter was restored

with a direction to decide the appeal expeditiously and preferably

within three months.

It is noted that after remand of the matter, this case was

listed before this Court on several occasions and on the request of

counsel for the appellant, the matter was deferred for one reason

or another.

Today, the arguments have been heard finally.

The facts, in brief, of the case are that the appellant issued

Notice for Inviting Tender (for short 'NIT') for the purpose of work

of (Renewal by type 'B') mix seal surfacing and providing hard

shoulder in kilometer 61 to 68, 116 to 118, 129, 142 to 153 and

197-199, Jaipur Agra Road NH 11 (Job No.SE.II/Renewal/31/90-

91) agreement No.26 of 1990-91.

According to terms and conditions of the agreement, the

scheduled date for commencement of the work was 01.09.1990

and the date of completion was 31.08.1991 and the total cost of

work was Rs.19,39,227.10.

Thereafter, the respondents started the work but the same

could not be completed within the stipulated time and the same

was finally completed on 25.07.1992.

Counsel for the appellant submitted that a sympathetic view

was taken by the Department, hence, the term of completion of

work was extended vide letter dated 18.02.1993. Counsel further

submitted that Clause 45 of the agreement was deleted, hence,

(3 of 10) [CMA-4663/2011]

the claimant-respondent is not entitled to get benefit of the same.

He submits that overlooking all these aspects, the Sole Arbitrator

has passed the award on 26.02.1998 directing the appellant to

pay a sum of Rs. 2,43,192/-, which was due and further direction

was issued for payment of Rs.98,492/- towards the past interest

w.e.f. 18.02.1993 to 18.05.1995 @ 18% per annum. Further, a

direction was issued to pay interest pendente lite on Rs.2,43,192/-

@ 18% per annum w.e.f. 19.05.1995 till the decree of payment,

whichever is earlier.

Feeling aggrieved and dissatisfied by the award dated

26.02.1998, the Department submitted objections under Section

34 of the Act of 1996 before the Court below, but the same were

rejected vide judgment dated 13.10.2009.

Counsel further submitted that the objections raised by the

Department were not considered by the Court below. Hence, the

impugned judgment dated 13.10.2009 passed by the Court below

and the award passed by the Sole Arbitrator dated 26.02.1998 are

liable to be quashed and set aside.

Per contra, learned counsel for the respondent opposed the

arguments raised by counsel for the appellant and submitted that

it is not in dispute that earlier Clause 45 was deleted with the

consent of the parties, but subsequently the term of completion of

work was extended by the Department and since the amount

involved was above Rs.5 lacs and the term of completion of work

was extended for more than one year, hence Clause 45 stood

revoked automatically.

In support of his contentions, counsel for respondent has

placed reliance on the judgment of this Court in the case of Heera

Singh Vs. State of Rajasthan & Ors. reported in 2008 (1)

(4 of 10) [CMA-4663/2011]

R.A.J. 457 (Raj.) and he further submitted that no illegality has

been committed by the Sole Arbitrator while passing the award

dated 26.02.1998 and no illegality has been committed by the

Court below while rejecting the objections filed by the appellant

vide judgment dated 13.10.2009.

Heard. Considered the arguments of both sides and perused

the relevant documents on record.

Before deciding the controversy involved in this matter, it

would be appropriate for this Court to see the issue of scope of

interference under Section 34 and 37 of the Act of 1996. 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

(5 of 10) [CMA-4663/2011]

"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 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.

(6 of 10) [CMA-4663/2011]

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 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

(7 of 10) [CMA-4663/2011]

and the court will not exercise its jurisdiction unless it is found that there exists any bar on the face of the award."

So far as, the objection raised by counsel for the appellant

with regard to deletion of Clause 45 of the agreement is

concerned, that is not applicable in the present case, though the

objection Clause 45 was deleted but the term of completion of

work was less than one year, but owing to some circumstances,

the work could not be completed, hence, the Department has

extended the term for completion of work vide letter dated

18.02.1993. Since the amount involved was above Rs.5 lacs and

the period of completion of work was extended for more than one

year, so, Clause 45 stood revoked.

The identical issue came before this Court in the case of

Heera Singh (supra) and this Court has dealt with and decided

this issue in Para No.13, 17 and 23. For ready reference, the

extract of these paras are reproduced as under:-

"13. The scope of judicial review of the arbitral award is a narrow one. In order to escape the agony of a protracted trial, in order to save time and expenses, arbitration was developed as an alternate dispute resolution forum. In the commercial world, where time is of essence and large amount of money is involved, the parties prefer to go for arbitration rather than for civil suit.

The long gestation period of a civil suit, which meanders through a labyrinth of procedures and, at times, climbs the judicial pyramid, has persuaded the parties to place an arbitration clause in the contract. The scope and ambit of judicial review over an award passed by an arbitrator are now well settled. The arbitrator is a Judge appointed by both the parties after reaching a consensus, or a Court appoints him under the provisions of the Act. Since the Arbitrator is a Judge appointed by the parties, the parties are bound by his decision even if the award is wrong either on law or on facts. Even an error of law on the face of the award cannot nullify the award. Thus, his decision is final unless the reasons given by him are totally perverse or the award is based on wrong proposition of law. But once it is found that the view of the Arbitrator is a plausible one, the Court cannot reverse it by

(8 of 10) [CMA-4663/2011]

interfering with the award. Moreover, the interpretation of a contract is a matter solely within the domain of the arbitrator. Therefore, the court should be very weary of interpreting the contract. Similarly, the Courts are precluded from reappraising the evidence produced before the arbitrator. The Court does not sit in an appeal over the verdict of an arbitrator by re-examining and re- appraising the materials placed before him. In case two views are possible, the Court is not Justified in interfering with the award by adopting its own interpretation. Even if it could be proved that the arbitrator has committed some mistake while arriving at his conclusion, such a proof would not invalidate the award. Moreover, it is not "misconduct" on the part of the arbitrator to give a reasoned decision, where his error is one of the fact or of law. Furthermore, even if there is an error of construction of the agreement by the arbitrator, the same is not amendable to correction. Lastly the reasonableness of an award is not a matter for the Court to consider unless the award is preposterous or absurd. (Ref. to M/s. Engineers Syndicate v. State of Bihar 2007 AIR SCW 985: 2007 (1) R.A.J. 609 Maharashtra State Electricity Board v. Sterlite Industries (India) ; 2001 (8) SCC 482: 2001 (3) RAJ 487; Bharat Coking Coal Ltd. v. L.K. Ahuja, 2004 (5) SCC 109; 200492) RAJ 1; Rajasthan State Electricity Board v. Gammon India Ltd. 1998 DNJ (Raj) 680, Indu Engineering & Textiles Ltd. v. Delhi Development Authority, AIR 2001 SC 2668; 2001 (2) RAJ 469 State of U.P. v. Allied Constructions ; 2003(7)SCC 396: 2003(3) RAJ 106; Rajasthan State Mines & Minerals Ltd. v. Eastern Engineering Enterprises, 1999(9) SCC 283: 1999(3) RAJ 326 and D.D. Sharma v. Union of India, 2004(5), SCC 325: 2004(2) RAJ 193.

17. It is, indeed, a settled principle of law that a contract has to be read holistically and not in piecemeal fashion. While the learned Judge has noticed Clause 11 of the agreement, he has ignored the existence of Clause 7 of the agreement. In case the two clauses are inconsistent, the learned Judge should have harmonized them. However, he has failed to do so. A contract should be so interpreted as to keep the requirements of the statutory and Constitutional law in mind. An interpretation that would lead to absurdity or violation of the constitutional mandate should be avoided at all costs. For, according to Section 23 of the Contract Act, an agreement, which is against the law, is void.

23. The learned Judge has held that since 'the stipulated period' was only for six months, the Clause 45 for enhance payment was not applicable. Since the learned Sole Arbitrator had given the benefit of the said clause to the appellant, the learned Judge held that the learned Sole Arbitrator had committed misconduct. Both the parties admit that the agreement can be extended and was

(9 of 10) [CMA-4663/2011]

extended by the Department. Considering the fact that the period for completion of the project can be extended, considering the fact that during the extended period the cost of material and cost of labor can increase, in order to compensate the contractor, the Clause 45 was placed in the agreement. Therefore, there is no cogent reason to limit the scope of the term 'the stipulated period' to mean 'the original period' for which the agreement was entered into. The term 'the stipulated period' would have to include 'the subsequently extended period', as well. For even the subsequently extended period is a period "stipulated" by the department. Therefore the interpretation given by the learned Judge Is unacceptable. Admittedly, the working period was extended by the Department, the period extended was beyond twelve months; the contract was for more than Rs. 5 lacs. Hence, the case squarely falls under Clause 45 of the agreement. Hence, the learned Sole Arbitrator was Justified in granting the benefit of Clause 45 of the agreement to the appellant."

These facts were appreciated by the Sole Arbitrator while

passing the award and by the Court below while rejecting the

objections filed by the appellant.

Admittedly, the working period was extended by the

Department beyond 4 months and the contract was for more than

Rs.5 lacs, hence, the learned Sole Arbitrator was Justified in

granting the benefit of Clause 45 of the agreement to the

appellant.

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.