Tripura High Court
Bhartia Infra Projects Limited. A ... vs The State Of Tripura on 10 January, 2024
Author: Arindam Lodh
Bench: Arindam Lodh
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HIGH COURT OF TRIPURA
_A_G_A_R_T_A_L_A_
ARB A No.02 of 2022
Bhartia Infra Projects Limited. A company incorporated under the Companies
Act, 1956 formerly known as Bhartia Associates Private Limited having its
registered office at 201 Roayal Arcade 2nd Floor, Dr. Baruah Road, Ulubari,
Guwahati, 781001.
...... Appellant(s)
VERSUS
1. The State of Tripura, represented by the Secretary to the Government of
Tripura, Public Works Department (R&B), Agartala.
2. The Chief Engineer, Public Works Department (R&B), New Secretary
Complex, Agartala.
3. The Executive Engineer, Public Works Department (R&B), Kumarghat
Division, North Tripura.
...... Respondent(s)
For Appellant(s) : Mr. Soumendu Roy, Advocate.
For Respondent(s) : Mr. K. De, Addl. G.A.
HON'BLE THE CHIEF JUSTICE MR. APARESH KUMAR SINGH
HON'BLE MR. JUSTICE ARINDAM LODH
Date of hearing and judgment : 10th January, 2024.
Whether fit for reporting : YES.
JUDGMENT & ORDER(ORAL)
Heard Mr. Soumendu Roy, learned counsel appearing for the
appellant and Mr. K. De, learned Additional Government Advocate
appearing for the respondent-State.
[2] By the impugned judgment dated 17.02.2022 passed in Civil
Misc.(Arbitration) No.12 of 2018, the learned Judge, District Commercial
Court, West Tripura, Agartala exercising power under Section 34(1) of the
Arbitration and Conciliation Act, 1996 (hereinafter referred to as „the Act of
1996') has set aside the entire award rendered by the learned Arbitrator who
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was appointed by this Court in ARB(P) No.01 of 2013 by order dated
28.03.2014.
[3] The relevant factual details of the case of the parties as culled
out from the pleadings on record are narrated hereunder:
In respect of the agreement dated 05.03.2004 for construction
of permanent bridge over river Manu at Kanchanbari, North Tripura for an
estimated value of Rs.4,49,62,905/- within the stipulated period of
completion of 24 months, the dispute arose between the parties which led to
appointment of an arbitrator. Petitioner-appellant claims to have started work
and completed major part of the work including some extra work involving
expenditure to the tune of Rs.1.25 crore except pillar No.1 which could not
be completed due to tilt requiring further decision of the respondent. He
contended that he had to maintain idle establishment at the work site waiting
for a decision of the respondent. The period of contract expired on
19.05.2006. The respondent did not make payment to the petitioner despite
demand. Later, he was asked to resume work by letter dated 18.10.2011 to
which he agreed as per work order dated 22.09.2011 subject to certain
conditions that he would seek enhancement of the rate over the agreed rate;
to finalize the decision regarding pillar-1 within ten days; to grant extension
period of 18 months without penalty and with PVC from the date of work
order; to finalize the rate and to make the payment of extra work done under
item No.2(a) of SH of sub-structure and to pay the running bills for the work
done in time in future along with interest for the delay period.
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[4] The conditions proposed by the petitioner were addressed by
the respondent by letter dated 14.11.2011 by stating that the completion of
work was delayed due to slow execution of work. Provisional time extension
up to March, 2012 was granted. However, penalty or price variation would
be dealt with as per the agreement. As regards the consideration of rate
beyond 20% above deviation limit against agreement No.2(a), the same was
under active consideration of the competent authority. Payment of running
bills would be made on the basis of availability of fund with due
consideration. There was no provision for payment of interest due to delay.
Department would not be liable for idleness of the petitioner‟s establishment
which happened due to wrongful suspension work from his part.
[5] The respondents rescinded the agreement on 10.01.2012.
Thereafter, the petitioner/appellant raised the dispute. Upon appointment of
the arbitrator, the following claim was raised by him:
"(1) Whether the claimant is entitled to get final bills from the
respondents amounting to Rs.12,24,270/?-
(2) Whether the claimant is entitled to get Rs.98,97,768/- from the
respondents for the extra works done by the claimant?
(3) Whether the claimant is entitled to get Rs.27,35,281/- in the
account of loss of profit?
(4) Whether the claimant is entitled to get Rs.1,01,46,600/- in the
account of price escalation bill?
(5) Whether the claimant is entitled to get Rs.1,35,35,750/- as
compensation for idle establishment?
(6) Whether the claimant is entitled to get the refund of security
money of Rs.1,00,000/- which was amended later on
Rs.31,82,181.00/-?
(7) Whether the claimant is entitled to get Rs.3,00,000/- in the
account of litigation/Arbitration cost?
(8) Whether the claimant is entitled to get interest @ 18% per
annum from the date of final claim (20.07.2012) till payment?"
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[6] The respondents submitted their written statement and counter
claim. The claimant also submitted a rejoinder to the counter claim. On
25.06.2017, after consideration of the case of the parties and going through
the pleadings and documents adduced by the parties, the learned Arbitrator
rendered the award in the following manner:
"(1) Whether the claimant is entitled to get final bill from the
respondents amounting to Rs.12,24,270/-?
= The claim is partly established. The claimant is entitled to get
Rs.7,92,528/- in the account of final bill from the respondents.
(2) Whether the claimant is entitled to get Rs.98,97,768/- from the
respondents for the extra works done by the claimants?
= I award NIL amount against this issue.
(3) Whether the claimant is entitled to get Rs.27,35,281/- in the
account of loss of profit ?
= I award NIL amount against this issue.
(4) Whether the claimant is entitled to get Rs.1,01,46,600/- in the
account of price escalation bill ?
= This claim is established the claimant is entitled to get price
escalation under clause-10CC of the agreement for the work
executed by it till the date of rescission of contract on 10.01.2012
minus any amount, if any, already paid, and the respondents are to
work out the amount in that account on the basis of, the records
available with them.
(5) Whether the claimant is entitled to get Rs.1,35,35,750/- as
compensation for idle establishment?
= This claim has not been established so I award NIL amount
against the same.
(6) Whether the claimant is entitled to get the refund of security
money of Rs.1,00,000/- which was amended later on
Rs.31,82,181.00/-?
= This claim is established, the claimant is entitled to get
Rs.31,82,340/- (as confirmed by the respondents) from the
respondents.
(7) Whether the claimant is entitled to get Rs.3,00,000/- in the
account of litigation/Arbitration cost?
= The claim is partly established, the claimant is entitled to get
Rs.50,000/- from the respondents.
(8) Whether the claimant is entitled to get interest @ 18% per
annum from the date of final claim (20.07.2012) till payment?
= This claim is partly established, the claimant is entitled to get
interest on the amount awarded against issue No.2, 4 & 6 @ 9% per
annum from the date of publication of the award till the date of
payment. No interest is payable on Rs.50,000/- awarded against
claim No.7."
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[7] The claimant/petitioner being aggrieved with the award in
respect of item Nos.2, 3 & 5 preferred an application under Section 34(1)
before the learned Judge, District Commercial Court, West Tripura, Agartala
in Civil Misc.(Arbitration) No.12 of 2018. The learned Court after hearing
the parties set aside the entire award by the impugned judgment dated
17.02.2022 and remanded the matter to the Arbitrator with a direction to
hear the argument afresh and to pass an award afresh.
[8] Mr. Soumendu Roy, learned counsel for the appellant submits
that the learned Commercial Court committed a jurisdictional error in setting
aside the entire award when the subject matter of challenge was confined to
item Nos.2, 3 & 5 only. Secondly, the matter could not have been remanded
to the Arbitrator to pass an award afresh on the entire claim petition. In the
instant appeal, the appellant has inter alia made the following prayer:
"(a) Admit this appeal;
(b) Call for record from the court below;
(c) Issue rule upon the respondents to show cause as to why the
impugned judgment and order dated 17.02.2022 passed in
Civil Misc(Arb) No.12/2018 by the learned Court of District
Commercial Court, West Tripura, Agartala shall not be set
aside (except to the extent it relates to issue No.2, 3 & 5) along
with impugned arbitral award dated 25.06.2017 to the extent it
relates to issue No.2, 3 & 5 pertaining to claims of the
appellant and be pleased to set aside the order and direction
made by the Ld. Arbitrator directing and passing order that
"the respondents are therefore, at liberty to pursue their
Counter Claims in accordance with Law, if so advice." Upon
cause/causes as may be shown and after hearing the parties be
pleased to make the rule absolute."
[9] Mr. K. De, learned Additional Government Advocate submits
that the findings of the learned Arbitrator on item Nos.2, 3 & 5 are sound
and supported by reasoning and, therefore, they do not suffer from any such
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patent illegality which could have been set aside. It is further submitted that
the contention of the appellant that the matter could not be remanded to the
Arbitrator after setting aside the award is also not legally tenable since if the
challenge pertains to item Nos.2, 3 & 5 only separate adjudication
proceedings before another Arbitrator would not lie independent of the
findings recorded in respect of other five claims in respect of the same
dispute under the same agreement decided by the Arbitrator. He, therefore,
submits that the grounds taken by the appellant in this appeal are
misconceived.
[10] We have considered the submissions of learned counsel for the
parties and gone through the relevant materials placed from record. We have
also gone through the award rendered by the learned Arbitrator specifically
the findings rendered on item Nos.2, 3, & 5 and also the judgment of the
learned Commercial Court by which the entire award has been set aside. The
scope of interference in an appeal under Section 37 of the Act of 1996 has
been delineated in the decisions rendered by the Apex Court. We are
inclined to refer to the latest decision in this regard rendered in case of S.V.
Samudram versus State of Karnataka and another reported in 2024 SCC
Online SC 19 dated 04.01.2024 [Civil Appeal No.8067 of 2019]. Paragraphs
62 to 73 are apposite to be extracted hereunder:
62. Moving further, we now consider the judgment impugned
before us, i.e., the order of the High Court upholding such
modification, under the jurisdiction of Section 37 of the A&C Act.
63. It has been observed by this Court in MMTC Ltd. v. Vedanta
Ltd.13
"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
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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)
64. This view has been referred to with approval by a bench of
three learned Judges in UHL Power Company Ltd v. State of
Himachal Pradesh14. In respect of Section 37, this court observed:-
"16. As it is, the jurisdiction conferred on courts under Section 34
of the Arbitration Act is fairly 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."
65. This Court has not lost sight of the fact that, as a consequence
to our discussion as aforesaid, holding that the judgment and order
under Section 34 of the A&C Act does not stand judicial scrutiny,
an independent evaluation of the impugned judgment may not be
required in view of the holding referred to supra in MMTC Ltd.
However, we proceed to examine the same.
66. We may also notice that the circumscribed nature of the
exercise of power under Sections 34 and 37 i.e., interference with
an arbitral award, is clearly demonstrated by legislative intent. The
Arbitration Act of 1940 had a provision (Section 15) which allowed
for a court to interfere in awards, however, under the current
legislation, that provision has been omitted.
67. The learned Single Judge, similar to the learned Civil Judge
under Section 34, appears to have not concerned themselves with
the contours of Section 37 of the A&C Act. The impugned
judgment reads like a judgment rendered by an appellate court, for
whom reexamination of merits is open to be taken as the course of
action.
68. We find the Court to have held the award to be perverse and
contrary to public policy. The basis for such a finding being delay
on the part of the contractor in completion of the work which
"could have been avoided". Significantly, as we have observed
earlier such a finding is not backed by any material on record.
69. What appears to have weighed with the court is that the
factoring of the cost escalation between the years 1989-90 and
1992 by 100% was exaggerated. But then equally, there is no
justification in granting lump sum escalation by 25% of the
contract value. Well, this cannot be a reason to modify the award
for the parties are governed by the terms and conditions and the
price escalation stood justified by the petitioner based on cogent
and reliable material as was so counted by the Arbitrator in partly
accepting and/or rejecting the claims.
70. In our considered opinion, the court while confirming the
modification of the award committed the very same mistake which
the Court under Section 34 of the A&C Act, made.
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71. The Court under Section 37 had only three options:-
(a) Confirming the award of the Arbitrator;
(b) Setting aside the award as modified under Section 34; and
(c) Rejecting the application(s) under Section 34 and 37.
72. The learned single Judge has examined the reasoning adopted
by the learned Arbitrator in respect of certain claims (claims 3 and
7, particularly) and held that allowing a claim for escalation of cost,
was without satisfactory material having been placed on record and
is "perverse and contrary to the public policy". However, it appears
that such a holding on part of the Judge is without giving reasons
therefor. It has not been discussed as to what the evidence was
before the learned single Judge to arrive at such conclusion. This is
of course, entirely without reference to the scope delineated by
various judgments of this Court as also, the statutory scheme of the
A & C Act.
73. Having referred to J.G Engineers (P) Ltd. v. UOI and more
particularly para 27 thereof, it has been held that the award passed
by the learned Arbitrator is "patently illegal, unreasonable, contrary
to public policy." There is no reason forthcoming as to how the
holding of the learned Arbitrator flies in the face of public policy.
[11] The question before us is whether the learned Commercial
Court was right in setting aside the entire award when the challenge was
confined to item Nos.2, 3 & 5 on the part of the contractor/appellant under
Section 34(1) of the Act of 1996. Whether the learned Commercial Court
was right in remanding the matter to the learned Arbitrator for adjudication
on the entire dispute? The arbitration proceedings were commenced before
the amendment to Section 34 of the Act of 1996. The relevant provision of
Section 34 as it stood prior to 2015 amendment and post 2015 amendment
are also extracted hereunder as has been referred to in the case of S.V.
Samudram (supra) at paragraph 39 of the judgment.
"39. We are dealing with an award passed on 18th February, 2003,
prior to the amendment brought in Section 34 by virtue of the
Arbitration and Conciliation (Amendment) Act, 2015. For the
purpose of ready reference the relevant portion of the amended and
the un-amended provisions are extracted as under :-
"Prior to 2015 Amendment
34. Application for setting aside arbitral award. -
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(1) Recourse to a court against an arbitral awärd may be made only
by an application for setting aside such award in accordance with
sub-section (2) and sub-section (3).
(2) An arbitral award may be set aside by the court only if-...
(v) the composition of the Arbitral Tribunal or the arbitral
procedure was not in accordance with the agreement of the
parties, unless such agreement was in conflict with a provision of
this Part from which the parties cannot derogate, or, failing such
agreement, was not in accordance with this Part; or
(b) the court finds that--
(i) the subject-matter of the dispute is not capable of settlement by
arbitration under the law for the time being in force, or
(ii) the arbitral award is in conflict with the public policy of India.
Explanation.- Without prejudice to the generality of sub-clause (ii),
it is hereby declared, for the avoidance of any doubt, that an award
is in conflict with the public policy of India if the making of the
award was induced or affected by fraud or corruption or was in
violation of Section 75 or Section 81.
(Emphasis supplied)
Post 2015 Amendment
34. Application for setting aside arbitral award.--
(1) Recourse to a Court against an arbitral award may be made only
by an application for setting aside such award in accordance with
sub-section (2) and sub-section (3).
(2) An arbitral award may be set aside by the Court only if-- ...
(b) the Court finds that--
(i) the subject-matter of the dispute is not capable of settlement by
arbitration under the law for the time being in force, or
(ii) the arbitral award is in conflict with the public policy of India.
[Explanation 1.--For the avoidance of any doubt, it is clarified that
an award is in conflict with the public policy of India, only if,--
(i) the making of the award was induced or affected by fraud or
corruption or was in violation of Section 75 or Section 81; or
(ii) it is in contravention with the fundamental policy of Indian law;
or
(iii) it is in conflict with the most basic notions of morality or
justice.
Explanation 2.--For the avoidance of doubt, the test as to whether
there is a contravention with the fundamental policy of Indian law
shall not entail a review on the merits of the dispute.]
[(2-A) An arbitral award arising out of arbitrations other than
international commercial arbitrations, may also be set aside by the
court, if the court finds that the award is vitiated by patent illegality
appearing on the face of the award:
Provided that an award shall not be set aside merely on the ground
of an erroneous application of the law or by re-appreciation of
evidence.]"
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[12] Learned Commercial Court has set aside the entire award on the
ground of patent illegality. The opinion of the Apex Court in the case of
Ssangyong Engineering and Construction Company Limited Vs National
Highways Authority of India (NHAI), (2019) 15 SCC 131 on the scope of
interference in an Arbitral Award under the ground of patent illegality under
Section 34 of the Amended Act of 2015 Act at para 37 to 41 and 69 are
quoted hereunder:
"37. Insofar as domestic awards made in India are concerned, an
additional ground is now available under sub-section (2-A), added by
the Amendment Act, 2015, to Section 34. Here, there must be patent
illegality appearing on the face of the award, which refers to such
illegality as goes to the root of the matter but which does not amount
to mere erroneous application of the law. In short, what is not
subsumed within "the fundamental policy of Indian law", namely, the
contravention of a statute not linked to public policy or public interest,
cannot be brought in by the backdoor when it comes to setting aside
an award on the ground of patent illegality.
38. Secondly, it is also made clear that reappreciation of evidence,
which is what an appellate court is permitted to do, cannot be
permitted under the ground of patent illegality appearing on the face
of the award.
39. To elucidate, para 42.1 of Associate Builders [Associate Builders
v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] , namely, a mere
contravention of the substantive law of India, by itself, is no longer a
ground available to set aside an arbitral award. Para 42.2 of Associate
Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2
SCC (Civ) 204] , however, would remain, for if an arbitrator gives no
reasons for an award and contravenes Section 31(3) of the 1996 Act,
that would certainly amount to a patent illegality on the face of the
award.
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 within the new ground added under
Section 34(2-A).
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
Page 11 of 22
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.
************************
69. We therefore hold, following the aforesaid authorities, that in the
guise of misinterpretation of the contract, and consequent "errors of
jurisdiction", it is not possible to state that the arbitral award would be
beyond the scope of submission to arbitration if otherwise the
aforesaid misinterpretation (which would include going beyond the
terms of the contract), could be said to have been fairly comprehended
as "disputes" within the arbitration agreement, or which were referred
to the decision of the arbitrators as understood by the authorities
above. If an arbitrator is alleged to have wandered outside the contract
and dealt with matters not allotted to him, this would be a
jurisdictional error which could be corrected on the ground of "patent
illegality", which, as we have seen, would not apply to international
commercial arbitrations that are decided under Part II of the 1996 Act.
To bring in by the backdoor grounds relatable to Section 28(3) of the
1996 Act to be matters beyond the scope of submission to arbitration
under Section 34(2)(a)(iv) would not be permissible as this ground
must be construed narrowly and so construed, must refer only to
matters which are beyond the arbitration agreement or beyond the
reference to the Arbitral Tribunal."
[13] The discussion, findings and decisions of the learned Arbitrator
on item Nos.2, 3 & 5 are being extracted hereunder in order to test the
correctness of the decision rendered by the learned Commercial Court under
question:
"Issue No.2
Whether the claimant is entitled to get Rs.98,97,768/- from the
respondents for the extra works done by the claimant ?
In support of this claim it has been submitted by the claimant that it
has executed extra work as in the schedule of item of quantity
provided for centering, shuttering item No.(2) of SH sub-structure
was 117.64 sqm. But actual requirement of each pier was 673.00
sqm and the claimant executed the said extra work and submitted
the rate analysis for extra work done and demanded payment. It is
further submitted by the claimant that the actual expenditure
incurred for said item was @ Rs.2,645.50 per sqm and the
respondents did not deny the claim. In this context the claimant
referred to its letter dated 20.06.2009 (Document No.6 statement of
claim). It is also submitted by the claimant that it executed the extra
work without finalization of rate but demanded the finalization of
rate as in view of clause-12A of PWD-8 the contractor cannot
suspend the work on the plea of non-settlement of rates of item. It
is submitted by the claimant that the rate in item No.2 of SH sub-
structure as provided in the contract is Rs.110 per sqm and the
respondents without considering the claim of the claimant
unilaterally enhanced the rate at Rs.260 per sqm. The claimant,
therefore, submitted that it is entitled to get Rs.95,04635/- in view
of the 14th R/A bill. In support of this statement the claimant
referred to a decision reported in (2007) 13 SCC 544 Food
Corporation of India and others versus Vikas Majdoor, Kandar
Sahkari Mandli Ltd. and 2002(4) RAJ(DEL) 303. In response to
that submission the respondents in the written argument has given
no specific submission separately.
DECISION
From the record it appears that the claimant executed extra work
and claimed extra rate for the said work but there was no
finalization of the rate in the light of the claim of the claimant but
the respondents made the payment for the extra work @ Rs.260/-
per sqm in place of the agreed rate of Rs.117.64 per sqm. Since
there was no finalization of rate in the light of the claim made by
the claimant and the respondents on the basis of their calculation
enhanced the said rate to Rs.260/- per sqm, the claimant without
finalization of their demanded rate is not entitled to get any extra
payment beyond the payment already made. The decision cited by
the claimant also is of no help in considering the claim of the
claimant, as the fact in issue of the present case is different from
the fact in issue of the decision cited by the claimant.
Issue No.3
Whether the claimant is entitled to get Rs.27,35,281/- in the
account of loss of profit ?
It is submitted by the claimant that the respondents committed
breach of contract by terminating the contract illegally and denying
the loss of expected profit to the claimant.
It is also submitted that if the claimant was allowed to execute the
balance work it would have earned profit at the rate of 20% and the
value of the balance work was Rs.1,19,18,348/- and 20% of the
said amount comes to Rs.23,83,669.60 and the claimant is entitled
to get the said amount from the respondents in the account of loss
of profit.
In response it is submitted by the respondents that the claimant has
not challenged the legality of the rescission of contract by making
any issue. The loss of profit as alleged to have been caused arises
out of the rescission of the contract.
It is also submitted that the work suffered inordinate delay due to
suspension of the work by the claimant from time to time and due
to fault and failure of the agency in completing the work it had to
be terminated and that the agency suspended the work putting new
condition in the contract for execution of work at a stage when 75%
of the work was completed.
It is also submitted that the claimant itself proposed to close the
contract after 15.07.2011 so the claimant is not entitled to get any
loss of profit against the rightful rescission of contract.
It was also submitted by the learned counsel that in the letter of the
claimant dated 22.09.2011 document No.17 enclosed with the
statement of claim the claimant indicated that the price of wages
and material has increased abnormally and went up to 250% and
requested the respondents to close the work by 15.07.2011 and by
its letter dated 07.11.2011 (document No.20 of the statement of
claim) the claimant gave 5 numbers of conditions for acceptance by
the respondents in toto for further execution of the work which the
respondents did not accept.
It is also submitted by the learned counsel for the respondents that
it was the statement of the claimant itself that price of wages and
materials have increased abnormally to the extent of 250% the
question of suffering of any loss of profit by the claimant of
termination of contract did not arise at all rather by termination of
the contract he could avoid further loss for executing the balance
quantity of work and since the claimant himself requested for
closure of the contract by 15.07.2011 no claim in the account of
loss of profit is entertainable for termination of the contract by the
respondents.
DECISION
It is on record that the claimant informed the respondents that the
cost of labour and materials have increased to the extent of 250%
on the contract rate and also requested the respondents to close the
contract from 15.07.2011 so I am of the view that due to rescission
of the aid contract in which, as per the claimant, the rate of contract
got increased by 250% and it would not be possible for the
claimant to execute the said work unless the enhancement of rate
by considering prevailing market rate over and above rate agreed
upon (Document No.20 of the statement of claim) the claimant
suffered no loss of profit for non-execution of the balance work at a
lower rate than the rate claimed by claimant so the said claim is not
established. It is made clear that while deciding this issue no
decision regarding the legality of the rescission of the contract is
given by me.
Issue No.5
Whether the claimant is entitled to get Rs.1,35,35,750/- as
compensation for idle establishment ?
It is submitted by the claimant that under the compelling
circumstances the claimant had to maintain the idle establishment
from 16.07.2011 as it was waiting for decision for pier-1 up to
10.08.2012 and only on 18.10.2011 the respondents gave decision
regarding pier-1. The claimant also submitted that the necessary
vouchers have been submitted in volume-1 in series and volume-2
in series and the same have not been disputed by the respondents.
The claimant submitted that the loss in the account was sustained
by it due to the fault of the respondents so they are liable to
compensate the said loss to the claimant.
That in response the respondents submitted that the extension of
time granted by the respondents was unconditionally accepted by
the claimant and no condition was given that it would claim
compensation on account of idle establishment at the material time
and thereby the agency waived its right to claim any kind of
compensation for any alleged loss suffered on account of such
idleness and that the agency did not produce any acceptable
document to establish the said claim.
DECISION
I have examined the papers and documents available on record and
find that the claimant could not establish the said claim by
furnishing convincing evidence so the said claimant cannot be
allowed."
[14] The reasoning recorded by the learned Commercial Court to
hold the entire award as patently illegal is also extracted hereunder for
proper appreciation:
"5. The petitioner that case at hand has only challenged the
decision arrived at by the Arbitrator in regards to the issue Nos.(2),
(3) and (5). While arguing the case, learned advocate for the
petitioner has contended that while deciding the issue No.2, the
arbitrator arrived at the decision without considering the materials
on record and that the citation of Hon‟ble Supreme Court so relied
on by the petitioner was totally ignored and as such the decision so
given by the Arbitrator stands patently illegal. That apart, the
decision rendered while decision issue No.3 has left the main
issued as to legality of rescission of contract undecided and as such
the decision suffers from patent illegality. It is further added that
the decision rendered in issue No.3 is not supported by any reason
and as such the decision so arrived at by the Arbitrator stands liable
to be set aside.
8. In the light of the principles as referred to above, we may
proceed to consider the question that has been raised for and on
behalf of the petitioner. As stated earlier, learned advocate for the
petitioner has raised the issue that while deciding the issue No.2,
the Arbitrator has ignored the law reported in (2007) 13 SCC 544
(Food Corporation of India and others versus Bikash Majdoor,
Kandar Sahkari Mandali Ltd.) and the law reported in 2002 (4)
RAJ(DEL) 303 and as such the decisions so arrived at by the
Arbitrator stands patently illegal. In this connection learned
advocate for the petitioner has referred the judgment reported in
(1955) 2 SCR 48 : AIR 1955 SC 468 (Seth Thawardas Pherumal
VS Union of India) wherein it has been held that ".............. An
arbitrator is not a conciliator and cannot ignored the law or
misapply it in order to do what he thinks is just and reasonable. He
is a tribunal selected by the parties to decide their dispute according
to law and so is bound to follow and apply the law, and if he does
not, he can be set right by the courts provided his error appears on
the face of the record. The single expression to this is when the
parties choose specifically to refer a question of law as a separate
and distinct matter."
9. Learned advocate further pointed out that the arbitrator while
deciding the issue No. 3 has categorically mentioned that- "it is
made clear that when deciding the issue no decision regarding the
legality of the rescission of contract is given by me." But while
deciding the issue No.6 the arbitrator has held that the recession
order is illegal and arbitrary. According to learned advocate such a
inconsistent decision renders the findings patently illegal. In this
connection, learned advocate has relied on the judgment of Hon‟ble
Supreme Court reported in (2003) 8 SCC 168 (Union of India VS
V. Pundarikakshudu and Sons & Another) wherein it has been held
at para 31 has held that- "31. In this case the District Judge as also
the High Court of Madras clearly held that the award cannot be
sustained having regard to the inherent inconsistency contained
therein. The Arbitrator, as has been correctly held by the District
Judge and the High Court, committed a legal misconduct in
arriving at an inconsistent findings as regards breach of the contract
on the part of one party or the other. Once the arbitrator has granted
damages to the first respondent which could be granted only on a
finding that the appellant had committed breach of the terms of the
contract and thus was responsible there for, any findings contrary
thereto and inconsistent there with while awarding any sum in
favour of appellant would be wholly unsustainable being self
contradictory."
Learned Advocate further contended that the decision rendered in
issue No.5 is not a reasoned one and as such patently illegal.
10. Hon‟ble Supreme Court in the case of Delhi Airport Metro
Express Pvt. Ltd. (supra) had the occasioned to deal with the matter
pertaining to patent illegality. It was held at para 25 as under:
"Patent illegality should be illegality which goes to the root of the
matter. In other words, every error of law committed by the
Arbitral Tribunal would not fall within the expression „patent
illegality‟. Likewise, erroneous application of law cannot be
categorized as patent illegality. In addition, contravention of law
not linked to public policy or public interest is beyond the scope of
the expression „patent illegality‟. What is prohibited is for courts to
re-appreciate evidence to conclude that the award suffers from
patent illegality appearing on the face of the award, as courts do not
sit in appeal against the arbitral award. The permissible grounds for
interference with a domestic award under Section 34(2-A) on the
ground of patent illegality is when the arbitrator takes a view which
is not even a possible one, or interprets a clause in the contract in
such a manner which no fair-minded or reasonable person would,
or if the arbitrator commits an error of jurisdiction by wandering
outside the contract and dealing with matters not allotted to them.
An arbitral award stating no reasons for its findings would make
itself susceptible to challenge on this account. The conclusions of
the arbitrator which are based on no evidence or have been arrived
at by ignoring vital evidence are perverse and can be set aside on
the ground of patent illegality. Also, consideration of documents
which are not supplied to the other party is a facet of perversity
falling within the expression „patent illegality‟."
11. At this juncture, when we dwell upon the findings and
decisions in regards to issue No.1, it appears that the petitioner has
relied on two judgments but the arbitrator did not take the
judgments into consideration while rendering its decision. We,
therefore, find no hesitation to hold that the arbitrator has ignored
the law cited by the petitioner. That apart the arbitrator has given
inconsistent findings in regards to recession of contract and
thereby, rendered the decision patently illegal. The issue No.5 was
decided in following terms:
"I have examined the papers and documents available on record
and find that the claimant could not establish the said claim by
furnishing convincing evidence so the said claimant (sic) cannot be
allowed."
The decision arrived at clearly suggest that the petitioner has led
evidence but the arbitrator did not assign any reason as to why the
evidence so led is not convincing.
Regard being had to the discussion as we had hereinabove, I am of
the opinion that the decision so arrived at by the arbitrator under
challenge are patently illegal and that the inconsistent decision as to
rescission of contract leads us to set aside the entire award.
12. The scheme and scope of the provisions of Section 34 of
Arbitration Act aims at keeping the supervisory roles of the court at
minimum level, therefore, we cannot correct the errors so done by
the arbitrator by sitting as a Appellate Court, it can only be quashed
leaving the parties to begin the arbitration again if it is desired.
Since in the case at hand, certain illegalities making the award
patently illegal while deciding the matter in dispute was done by
the arbitrator, we find it appropriate to remand the matter to the
arbitrator with a direction to hear the argument afresh and to pass
the award afresh."
[15] Perusal of the findings and reasons of the learned Arbitrator on
claims No.2 and 3 show that do not call for interference as they do not suffer
from any patent illegality in the manner laid down by the Apex Court in the
case of Ssangyong (Supra). The learned Arbitrator has upon a detailed
consideration of the claim No.2 rendered a finding based on reasons that
though the claimant executed extra work but there was no finalization of the
rate in the light of the claim of the claimant. The respondents made the
payment for extra work @ Rs.260/- per sqm in place of the agreed rate of
Rs.117.64 per sqm. Since there was no finalization of rate in the light of the
claim made by the claimant, the claimant without finalization of their
demanded rate is not entitled to get any extra payment beyond the payment
already made. The learned Commercial Court however without proper
application of mind to the reasoning recorded by the learned Arbitrator on
this claim summarily held that the decision rendered on all these three claims
suffered from patent illegality. The decision of the learned Arbitrator on
issue No.3 when put under scrutiny also discloses that they were sound and
after due consideration of the pleadings and the materials placed before the
learned Arbitrator. The learned Arbitrator went on to hold that as regards to
claim No.3 that the claim had increased to the extent of 250% on the
contract rate and that he suffered no loss of profit for non-execution of the
balance work at a lower rate which was not established. It is trite law that the
Court exercising power under Section 34 has to confine itself to the grounds
laid down therein and not to substitute its opinion in place of the arbitrator‟s
findings. The court cannot correct the errors of the Arbitrator unless they
suffer from perversity or are in contravention with the fundamental policy of
the Indian law or suffer from patent illegality or the grounds enumerated
under Section 34(2) of the Amended Act of 2015.
[16] We are, therefore, of the view that the learned Commercial
Court committed a serious error in setting aside the entire award when the
challenge was confined to issue Nos.2, 3 & 5 only and the reasons and
findings of the learned Arbitrator on claim Nos.2 & 3 do not appear to suffer
from such errors as to bring it within the mischief of patent illegality or
being contrary to the fundamental policy of India.
[17] However, the determination made by the learned Arbitrator on
issue No.5 regarding the compensation for idle establishment as also
extracted hereinabove shows that the decision on that claim by the learned
Arbitrator was dehors any reason. To that extent, it can be said that the
learned Arbitrator while dealing with the claim under item No.5 committed a
patent illegality in holding that the claimant could not establish the claim by
furnishing convincing evidence and, therefore, the claim could not be
allowed. It appears that the claimant had submitted necessary vouchers,
volume-1 series and volume-2 series whereas the respondent took a plea that
the extension of time was unconditionally accepted by the claimant and no
condition could be given to claim compensation on that account.
[18] Considered thus, we are of the view that the decision of the
learned Commercial Court to set aside the entire award on grounds of patent
illegality under Section 34(2-A) of the Act of 1996 was not proper when the
challenge was confined to item Nos.2, 3 & 5. However, in this appeal, while
considering the case of the appellant in exercise of the powers under Section
37 of the Act of 1996 which are further circumscribed as regards the ground
for challenge under Section 34 of the Amended Act, we are of the view that
the findings of the learned Arbitrator on item Nos.2 and 3 do not suffer from
the vices for being interfered by the learned Commercial Court.
[19] As such, the impugned order dated 17.02.2022 passed by the
learned Judge, District Commercial Court, West Tripura, Agartala in Civil
Misc.(Arbitration) No.12 of 2018, is set aside. The matter is remitted to the
learned Arbitrator to decide the claim under item No.5 afresh, in accordance
with law.
[20] In this regard, it is pertinent to observe herein that partial setting
aside of an Award is permissible. Reference is made to the opinion of Delhi
High Court in Union of India Vs. Alcon Builders and Engineer Private
Limited, 2023 SCC OnLine Del 160, para 28 to 33 extracted hereunder:
28. Upon a combined and meaningful reading of the provisions of the A&C
Act and the aforesaid judicial precedents, in the opinion of this Court, the
following position emerges:
29. A court exercising power under Section 34 of the A&C Act cannot
"modify" an arbitral award;
30. The arbitrator's decision on each claim and counterclaim, taken
individually, is final. "Modification" means to substitute the court's own
decision for the decision made by the arbitrator on any given claim or
counterclaim; which the court cannot do.
31. If objections are filed under Section 34, impugning the arbitrator's
decision only on some of the claims or counterclaims, it is not necessary for
the court to set aside the entire arbitral award viz. the decision on all claims
and counterclaims. This follows from the limited ambit of the court's powers
under Section 34. Besides, the decision on a Section 34 petition cannot go
beyond the scope of the challenge itself.
32. When the arbitrator's decisions on multiple claims and counterclaims are
severable and not interdependent, the court is empowered under Section 34 to
set aside or uphold the arbitrator's decisions on individual and severable
claims or counterclaims; without having to set aside the entire arbitral award.
That would not amount to modification of the arbitral award.
33. The above is also in line with the overarching principle that the scope of
interference by the court under the A&C Act in arbitral proceedings and
arbitral awards, is to be minimal. The statute does not command the court to
go for the overkill. To adapt a phrase famously used by Justice Felix
Frankfurter, while exercising power under Section 34, it is not necessary to
burn the house to roast the pig."
[21] In such an event, such items of claims which cannot be
sustained and are severable from other claims can be remitted for
consideration and adjudication to the Arbitral Tribunal provided that the
severable part do not impact or disturb the findings of the learned Arbitral
Tribunal. The Delhi High Court followed this principle in MBL
Infrastructures Limited Vs. Delhi Metro Rail Corporation in OMP
(Comm) 311/2021 vide judgment dated 12.12.2023. The relevant paragraphs
of the judgment in the case of MBL Infrastructures Limited (supra) are
quoted hereunder as well:
"99. The Coordinate Bench of this Court in the judgment of NHAI v. Trichy
Thanjavur Expressway Ltd. 2023 SCC OnLine Del 5183 has summarized the
law pertaining to setting aside of the Award under Section 34 as follows:
100. "87. The Court thus records its conclusions as follows:--
A. While attempting to answer the issues flagged above, we must at the
outset, acknowledge the shift in legislative policy which underlies the
Act and which mandates intervention by courts to be minimal. This
flows from the recognition of the theory that once parties have agreed
to the resolution of their disputes by an alternative adjudicatory forum,
courts must, as a matter of first principle, refrain from interfering with
the same except on the limited grounds that the statute recognizes.
Courts are thus obliged to bear in mind the principle of minimalist
intervention insofar as awards are concerned.
B. However, at the same time while courts are enjoined to follow the
minimalist intervention route, it would clearly be a travesty of justice if
courts were to fail to intervene where circumstances warrant and
demand corrective measures being adopted. It is these compulsions
which have led to courts evolving the serious irregularity or the patent
illegality grounds to interfere with an award. Section 34 is a clear and
unequivocal embodiment of the Legislature's intent to balance these
competing facets of arbitration.
C. Undisputedly, Section 34(2)(a)(iii) speaks of a part of an award
being exorcised from the rest. The Court finds no justification to confer
too much credence on Article 34 of the Model Law ultimately failing to
allude to a partial setting aside power even though that was provisioned
for in explicit terms in draft Articles 29, 30, 40 and 41. This since
neither the Working Group Reports nor the contemporaneous material
that we have noticed hereinbefore seem to suggest a conscious deletion
of that power. The considerable material, on the aspects surrounding
partial setting aside that we have had an occasion to review, does not
evidence any deliberation or discussion which may have predicated or
actuated its deletion. The said material is also not indicative of any
principled decision that may have been taken by member nations for
deletion of the partial setting aside power. Its absence from Article 34
which came to be ultimately adopted stands lost in a mist of conjecture.
D. We find that the key to understanding the intent underlying the
placement of the Proviso in sub-clause (iii) of Section 34(2)(a) is in the
nature of the grounds for setting aside which are spoken of in clause (a).
As would be manifest from a reading of the five sub clauses which are
positioned in Section 34(2)(a), those constitute grounds which would
strike at the very heart of the arbitral proceedings. The grounds for
setting aside which are set forth in clause (a) strike at the very
foundation of validity of arbitration proceedings. Sub-Clauses (i) to (v)
thus principally constitute grounds which would render the arbitration
proceedings void ab initio. Although the Section 34(2)(a)(iv) ground for
setting aside also falls in the same genre of a fundamental invalidity,
the Legislature has sought to temper the potential fallout of the award
being set aside in toto on that score.
E. The Proviso to sub-clause (iv) seeks to address a comprehensibly
conceivable situation where while some parts of the award may have
dealt with non-arbitrable issues or disputes falling outside the scope of
the reference, its other components or parts constitute an adjudication
which could have been validly undertaken by the AT. The Proviso thus
seeks to address such a situation and redeems as well as rescues the
valid parts of an award. This saves the parties from the spectre of
commencing arbitral proceedings all over and from scratch in respect of
all issues including those which could have validly formed part of the
arbitration.
F. The grounds for setting aside encapsulated in Section 34(2)(b) on the
other hand relate to the merits of the challenge that may be raised in
respect of an award and really do not deal with fundamental invalidity.
However, the mere fact that the Proviso found in sub clause (iv) of
Section 34(2)(a) is not replicated or reiterated in clause (b) of that
provision does not lead one to an inevitable conclusion that partial
setting aside is considered alien when a court is considering a
challenging to an award on a ground referable to that clause. In fact, the
Proviso itself provides a befitting answer to any interpretation to the
contrary. The Proviso placed in Section 34(2)(a)(iv) is not only an
acknowledgment of partial setting aside not being a concept foreign to
the setting aside power but also of parts of the award being legitimately
viewed as separate and distinct. The Proviso itself envisages parts of an
award being severable, capable of segregation and being carved out.
The Proviso is, in fact, the clearest manifestation of both an award
being set aside in part as well as an award comprising of distinct
components and parts.
G. Undoubtedly, an award may comprise a decision rendered on
multiple claims. Each claim though arising out of a composite contract
or transaction may be founded on distinct facts and flowing from
separate identifiable obligations. Just as claims may come to be
preferred resting on a particular contractual right and corresponding
obligation, the decision which an AT may render on a particular claim
could also be based on a construction of a particular covenant and thus
stand independently without drawing sustenance on a decision rendered
in the context of another. If such claims be separate, complete and self-
contained in themselves, any decision rendered thereon would
hypothetically be able to stand and survive irrespective of an invalidity
which may taint a decision on others. As long as a claim is not
subordinate, in the sense of being entwined or interdependent upon
another, a decision rendered on the same by the AT would constitute an
award in itself.
H. While awards as conventionally drawn, arranged and prepared may
represent an amalgam of decisions rendered by the AT on each claim,
every part thereof is, in fact, a manifestation of the decision rendered by
it on each claim that may be laid before it. The award rendered on each
such claim rules on the entitlement of the claimant and the right
asserted in that regard. One could, therefore, validly, subject of course
to the facts of a particular case, be entitled to view and acknowledge
them as binding decisions rendered by the AT on separate and distinct
claims.
I. Once an award is understood as consisting of separate components,
each standing separately and independent of the other, there appears to
be no hurdle in the way of courts adopting the doctrine of severability
and invoking a power to set aside an award partly. The power so
wielded would continue to remain one confined to "setting aside" as the
provision bids one to do and would thus constitute a valid exercise of
jurisdiction under Section 34 of the Act.
J. The Supreme Court in M. Hakeem, has enunciated the setting aside
power as being equivalent to a power to annul or setting at knot an
Arbitral Award. It has essentially held that bearing in mind the plain
language of Section 34 coupled with the Act having desisted from
adopting powers of modification or remission that existed in the
erstwhile 1940 Act, a court while considering a challenge under Section
34 would not have the power to modify.
K. The expression "modify" would clearly mean a variation or
modulation of the ultimate relief that may be accorded by an AT.
However, when a Section 34 Court were to consider exercising a power
to partially set aside, it would clearly not amount to a modification or
variation of the award. It would be confined to an offending part of the
award coming to be annulled and set aside. It is this distinction between
a modification of an award and its partial setting aside that must be
borne in mind.
L. The power to partially sever an offending part of the award would
ultimately depend on whether the said decision is independent and
distinct and whether an annulment of that part would not disturb or
impact any other finding or declaration that may have been returned by
the AT. The question of severability would have to be decided bearing
in mind whether the claims are interconnected or so intertwined that
one cannot be segregated from the other. This for the obvious reason
that if the part which is sought to be set aside is not found to stand
independently, it would be legally impermissible to partially set aside
the award. A partial setting aside should not lead to a component of the
award being rendered vulnerable or unsustainable. It is only when the
award relates to a claim which is found to stand on its own and its
setting aside would not have a cascading impact that the Court could
consider adopting the aforesaid mode.
M. The Court is thus of the firm opinion that the power to set aside an
award in part would have to abide by the considerations aforenoted
mindful of the imperatives of walking a line which would not dislodge
or disturb another part of the award. However as long as the part which
is proposed to be annulled is independent and stands unattached to any
other part of the award and it could be validly incised without affecting
the other components of the award, the recourse to partial setting aside
would be valid and justified".
101. In view of the law laid down in the aforesaid judgments, this Court is of
the view that the under section 34 of the Act, the Court is vested with the
jurisdiction to set aside certain problematic portion of the Award which are
patently illegal and shocks the conscience of this Court.
102. However, the setting aside of the Award is subjected to the condition
that the portion of the Award which has been upheld shall have due effect
and cause no such cascading impact.
************
111. This Court directs that the aforesaid claims are being remitted back to
the Tribunal to decide a fresh, taking into consideration the settled principles
of law and adjudicate the Claim no. 3 and Claim no. 4 afresh."
[22] Based on the principles enunciated in the above quoted
judgments and the discussion made hereinabove this court is of the
considered view that the aforesaid claim under item No.5 can be remitted to
the Learned Arbitrator to decide afresh. Since the proceedings were initiated
in the year 2013 and challenge thereto has remained pending for more than
10 years, it would be proper that the learned Arbitrator takes a decision on
this claim within a reasonable period of 3(three) months from the date of
receipt of copy of this judgment.
[23] The appeal stands allowed in the manner and to the extent
indicated above. Pending application(s), if any, also stands disposed of.
(ARINDAM LODH), J (APARESH KUMAR SINGH), CJ
DIPESH DEB Date: 2024.02.01 16:02:51
