Jai Prakash & Sons vs Central Public Works Department
2021 Latest Caselaw 4803 UK

       IN THE HIGH COURT OF UTTARAKHAND
                       AT NAINITAL

           Appeal From Order NO. 499 of 2011

From the judgment and order dated 11.10.2011, passed by the
learned District Judge, Haridwar, in Misc. Civil (Arbitration) Case
No. 16 of 2007.

Jai Prakash & Sons, 24 Chakrata Road, Dehradun through
its partner Shri Pramod Mittal.
                                          .......Petitioner
                            -Versus-

Central Public Works Department, through its Executing
Engineer, Dehradun Central Division-II, CPWD, 20, Subhash
Road, Dehradun Uttarakhand
                                           .......Respondent

Advocates present in the case

For the Appellants :          Mr. V.K. Kohli, Sr. Advocate
                              assisted by Mr. Kanti Ram
                              Sharma, Adv.
For the Respondent :          Rajesh Sharma, Standing Counsel



Sri S.K. Mishra, J.

Date of hearing and Judgment 30.11.2021

1. Heard Mr. V.K. Kohli, the learned Senior Advocate assisted by Mr. Kanti Ram Sharm, the learned counsel for the appellant and Mr. Rajesh Sharma, the learned Standing Counsel for the respondent.

2. In this appeal, the contractor of the respondent has assailed the judgment passed by the learned District Judge, Haridwar, on 11.10.2011 reversing the arbitral award passed by the sole Arbitrator Shri K.N. Aggarwal in connection with dispute regarding agreement No. 6/EE/RCD/2003-04. The judgment impugned has been passed under Section 34 of the

Arbitration and Conciliation Act, 1996 (hereinafter referred to as the Act for brevity).

3. The facts of the case may be briefly stated as follows:-

(i) The work contract was awarded to the appellant by the respondent for an amount of Rs. 2,70,99,088/- vide letter dated 12.11.2003, in pursuance to open tender floated by the Central Public Works Department (hereinafter referred to as CPWD for brevity);

(ii) The period of completion of stipulated work was 15 months starting from the tenth day after the date of issuance of the letter i.e. 22.11.2003 to 21.02.2005;

(iii) The work in question was for construction of four building blocks, namely, guest room block, club house block, gymnasium and multipurpose block. The contractor was also provided the work of dismantling of two existing structures known as Old Professors Bungalow, removal of which was necessary to make available the construction site in its entirety. The tenderer was duly informed about it as per item no. 11 of the salient/mandatory requirements for the tender at page 17 of the agreement stating that the building is to be constructed after demolishing the existing old buildings:

(iv) After the respondents awarded the work to the appellant on 12.11.2003, the contractor approached the CPWD for handing over the complete site of work:

(v) The appellant's case is that vacant possession of the building was not handed over as the buildings to be

demolished was occupied and there was number of trees which was not shown in the layout plan, and, secondly, it was fouling with the layout of the building blocks to be constructed;

(vi) The building which was demolished cannot be vacated by the respondent till month of May 2004, which was more than five months after the due date of start of the work. The building structure was demolished in the month of June 2004 and the said site for construction suitably available , hence, the appellant claimed that the respondent could not perform their part of contract;

(vii) The appellant's further case that in the absence of foundation drawings/details, the construction could not be started. Same were issued on 03.08.2004 only in respect of multipurpose block and the rest architectural plans were provided on 09.12.2003 and 05.05.2004. The structural details of foundation were provided in part on 09.12.2003, 17.03.2004 and 05.05.2004;

(vii) The work was rescinded by the respondent on 10.08.2004 and earnest money amounting to Rs. 6,02,000/- and also Performance Guarantee amounting to Rs. 13,54,954/- of the appellant was forfeited and the first and the final bill of the work was also passed for negative amount of Rs. 4,26,193/-by realising the amount form the accounts of another work of the appellant. The appellant-contractor claimed that the respondent have not performed its part of contract and matter was referred to the Arbitrator.

4. The learned Arbitrator, after considering the materials before him come to hold that there was breach of contract on the part of the department as they had not, in time, given the architectural as well as the construction drawing or made the site available for starting of the construction and the execution of the work and the reasons for non starting of the work within 1/8 of the stipulated time for completion of work was not within the control of the contractor, and, therefore, agreement clause 3A will be invoked. The learned Arbitrator further held that the department was not justified in forfeiting the earnest money and the performance guarantee, the amounts of which are referred in the preceding paragraph. He further held that the contractor is entitled to a sum of Rs. 13,695/- regarding excess deduction. Rest of the claim of the contractor was not allowed. A sum of Rs. 30,000/- was allowed as cost and in all an award of Rs. 2376,518/- with simple interest @ Rs. 12% per annum was allowed on the said amount after three months of the date of the award.

5. Against such an award, objections under Section 34 of the Act were initiated before the learned District Judge, Haridwar by the CPWD. The learned District Judge, Haridwar, thereafter, as per his judgment dated 11.10.2021 set aside the award on the ground that there was violation of the terms and conditions of the contract.

6. Mr. V.K. Kohli, the learned Senior Advocate for the appellant would argue that the learned District Judge, Haridwar, completely misdirected himself by going beyond to the scope of Section 34 of the Act and in complete violation of the ratios laid down by the various judgments of the Hon'ble Supreme Court has come to the conclusion that the award can be treated as suffering from patent illegality and it was opposed to the public policy of India.

7. Mr. Rajesh Sharma, the learned Standing Counsel would argue that the order passed by the learned District Judge, Haridwar, do not suffer from any kind of illegality, and, in fact, he supports the judgment passed by the learned District Judge, Haridwar, and very emphatically contends that the appeal is devoid of merits and should be dismissed.

8. The learned District Judge, Haridwar, while deciding issue nos. 1 and 2 has come to the conclusion that the award has to be interfered with. This Court prefers to take into consideration the exact words used by him in the final portion of his findings. Same is extracted hereunder:-

"Petitioner has challenged this award on the ground that in the present case, the work was not only started, but as per the contention of the contractor, he has done some work for which the payment was asked before the Arbitrator and not only this, the Arbitrator has allowed claim no. 3 to this effect and in these circumstances, I am of the view that the argument of petitioner is very correct,

because neither the contractor nor the Arbitrator can be allowed to take and accept inconsistent pleas, because without the start of work, how claim no. 3 was made by the contractor and this claim was even allowed by the Arbitrator to some extent, which clearly shows that in this case, it was clearly proved that work was started and Clause no. 3-A of the contract-agreement was having no application at all, and this fact has not been denied by the contractor that by several notices, department has requested him to speed up the work, which was not done. A letter dated 26.06.2004 and further reminder of 23.07.2004 were issued to the contractor, the copy of which have been annexed to the affidavit of petitioner and these letters clearly shows that the progress of the work was very slow and foundation excavation work was done, which was left incomplete and the notice was given to the contractor to show cause why an action under sub-

clause 3(A), 3(b) and 3(C) of the contract- agreement be not taken on his part. After a clear notice dated 23.07.2004, when the work was not speed up and was being delayed, then vide notice dated 10.08.2004, the contract was rescinded and the earnest money deposit and performance guarantee under the contract-agreement was forfeited in clear terms, hence, as per the clear terms of the contract-agreement, this was the case of the rescindment of the contract-agreement and the earnest money and performance guarantee was rightly forfeited and Clause no. 3-A of the contract- agreement, which was applicable only before the start of the work, was not applicable in this case and the action under Clause-3 was as per the

contract-agreement and learned Arbitrator has clearly acted in contravention of the clear provisions of contract-agreement and he has ignored the express provisions of the contract by allowing claim no. 1 and 2 and as pr the provisions of Section 34(2)(A)(i) of the Act of 1996, this Award is opened to interference by the Court and in view of Clause

(d) of Section 34(2) of the Act, the award can be treated as suffering from the patent illegality and it was opposed to public policy of India as held by the Hon'ble Apex Court in Delhi Development Authority versus R.S. Sharma and company New Delhi (2008) 13 Supreme Court Cases page 80.

The contention of the respondent cannot be accepted that the work was not started, because they themselves have claimed and admitted that the work was already started and they have done some work, for which they were not paid and they preferred a claim of Rs. 3,00,000/- as claim no. 3 for that purpose, hence, they are stopped by their own contention to say that the work was not started and Clause 3-A was rightly applied by the Arbitrator. The respondent/contractor stand is no tenable.

Hence, I am of the view that claim no. 1 and 2 were awarded clearly in-contravention of the provisions of the contract-agreement and is liable to be interfered u/s 34 of the Act."

9. A careful examination of these observations of the learned District Judge, Haridwar, does not show the reasons which led him to come to the conclusion that

the award was suffering from a patent illegality and it was opposed to the public policy of India.

10. Now, it is very settled law that on application/objection under Section 34 of the Act, the learned District Judge has a very limited scope of interference but he has a substantial duty to perform. It is appropriate for us to take into consideration the exact provisions of Section 34 of the Act which reads as follows:-

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--

(a) the party making the application[establishes on the basis of the record of the arbitral tribunal that]--

(i) a party was under some incapacity, or

(ii) the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law for the time being in force; or

(iii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or

(iv) the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration: Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside; or

(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 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.

(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.] [(2A) 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 fact 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 reappreciation of evidence.] (3) An application for setting aside may not be made after three months have elapsed from the date on which the party making that application had received the arbitral award or, if a request had been made under section 33, from the date on which that request had been disposed of by the arbitral tribunal:

Provided that if the Court is satisfied that the applicant was prevented by sufficient cause from making the application within the said period of three months it may entertain the application within a further period of thirty days, but not thereafter.

(4) On receipt of an application under sub-section (1), the Court may, where it is appropriate and it is so requested by a party, adjourn the proceedings for a period of time determined by it in order to give the arbitral tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the opinion of arbitral tribunal will eliminate the grounds for setting aside the arbitral award. (5) An application under this section shall be filed by a party only after issuing a prior notice to the other party and such application shall be accompanied by an affidavit by the applicant endorsing compliance with the said requirement.] (6) An application under this section shall be disposed of expeditiously, and in any event, within a period of one year from the date on which the notice referred to in sub-section (5) is served upon the other party.]

11. Thus plain reading of this provision reveals that when the arbitral award is in conflict with the public policy of India, then it can be interfered with under Section 34, sub-section (2) Clause b (ii) provided further that it comes within the explanation 1. The statute further provides that for the avoidance of any doubt, the Parliament clarified that an award in conflict with the public policy of India, only if, (emphasis supplied) (i) making of the award was induced or affected by fraud or corruption or was in violation of section 75 or section 81;(ii) in contravention with the fundamental policy of Indian law; or (iii) is in conflict with the most basic notions of morality or justice.

12. It is apparent from the records that there is no allegation in this case that either Section 75 or Section 81 of the Act is attracted. Hence, we need not go into that aspect of the matter. The only aspect that has to be seen is whether the award was induced or affected by fraud or corruption; or it was in contravention with the fundamental policy of Indian law or was in conflict with the basic notions of morality or justice.

13. There is no mention in the order, passed by the learned District Judge, Haridwar, that any of these conditions like the award was induced or affected by fraud or corruption, or in contravention with the fundamental policy of Indian law or it is in conflict with the most basic notions of morality or justice are attracted in this case. The order passed by the learned

District Judge, Haridwar, suffers from grave error on record.

14. Our opinion is fortified with the judgment of Hon'ble Apex Court in the case of Delhi Development Authority vs. R.S. Sharma and Company, New Delhi, (2008) 13 SCC 80 wherein the Hon'ble Apex Court took into consideration about 17 previous judgment and summarize the law governing the field at paragraph no. 21. We feel obliged to quote the same .

"21. From the above decisions, the following principles emerge:

(a) An Award, which is

(i) contrary to substantive provisions of law ; or

(ii) the provisions of the Arbitration and Conciliation Act, 1996 ; or

(iii) against the terms of the respective contract ; or

(iv) patently illegal, or

(iv) prejudicial to the rights of the parties, is open to interference by the Court under Section 34(2) of the Act.

(b) The award could be set aside if it is contrary to :

(a) fundamental policy of Indian Law; or

(b) the interest of India; or

(c) justice or morality;

(c) The Award could also be set aside if it is so unfair and unreasonable that it shocks the conscience of the Court.

(d) It is open to the Court to consider whether the Award is against the specific terms of contract and if so, interfere with it on the ground that it is patently illegal and opposed to the public policy of India".

With these principles and statutory provisions, particularly, Section 34(2) of the Act, let us consider whether the arbitrator as well as the Division Bench of the High Court were justified in granting the award in respect of Claims 1 to 3 and Additional Claims 1 to 3 of the claimant or the appellant DDA has made out a case for setting aside the award in respect of those claims with reference to the terms of the agreement duly executed by both parties."

15. The learned counsel for the CPWD make feeble attempt in supporting the judgment of the leaned District Judge, Hardiwar, on the ground that arbitral

award was against the terms of the respective contract. However, unless there is a clear finding to that effect by the learned District Judge as to the terms of the contract and the violation thereof, this clause cannot be invoked for setting aside the award.

16. In a recent decided case, the Hon'ble Apex Court i.e. in the case of PSA SICAL Terminals Pvt. Ltd. Vs. Board of Trustees of V.O. Chidambranar Port Trust Tuticorin, 2021 SCC online 508 has held that in an application under Section 34, the court is not expected to act as an appellate court and reappreciate the evidence. The scope of interference would be limited to grounds provided under Section 34 of the Arbitration Act. The interference would be so warranted when the award is in violation of "public policy of India", which has been held to mean "the fundamental policy of Indian law". A judicial intervention on account of interfering on the merits of the award would not be permissible. It is further held that principles of natural justice as contained in Section 18 and 34(2)(a)(iii) of the Arbitration Act would continue to be the grounds of challenge of an award. 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". It is only such arbitral awards that shock the conscience of the court, that can be set aside on the said ground.

17. In this case, the learned District Judge, Haridwar sat as an appellate court and re-assessed the materials

available on record and came to the conclusion that there is violation of the terms of the contract which is contrary to the arbitral award wherein the learned Arbitrator has come to the conclusion that because of the fault of the CPWD the work could not be completed within stipulated time. In that view of the matter, the appeal is meritorious one and has to be allowed.

18. In the ultimate analysis appeal is allowed. The judgment passed by the learned District Judge, Haridwar on 11.10.2011 in Misc. Civil (Arbitration) Case No. 16 of 2007, is hereby set aside. The award passed by the Arbitrator in Reference No. ARB/KNA/627 is restored.

19. There shall be no order as to costs.

20. Urgent certified copies of the judgment be provided as per rules.

(S.K. Mishra) Judge

PV