In the case titled as M/S Nangia Construction Pvt. Ltd. v National Building Construction Corporation Ltd., Delhi High Court observed that, “While re-appreciation of the evidence is not within the scope of an application for setting aside an award, the deference to be accorded to the arbitrator cannot extend to a conclusion which is based on no evidence at all.”
The judgement was delivered on 28th May 2020 by Honourable Justice Prateek Jalan.
Facts of the case
Appellant filed application under Sections 30 and 33 of the Arbitration Act, 1940 (hereinafter, “the 1940 Act”) for setting aside an award made by a Sole Arbitrator.
By an agreement, the State of Haryana (hereinafter, “SOH”) had awarded to NBCC/Defendant the work of widening and strengthening of an existing national highway (NH-1). NBCC in turn awarded the work to Nangia/Appellant on a back to back basis. Nangia was to receive 95% of the remuneration paid by SOH and NBCC was to retain 5% thereof.
In terms of the contract between Nangia and NBCC, 10% of the total value [₹89,67,332/-] was paid by NBCC to Nangia as mobilization advance, which was secured by a bank guarantee. The mobilization advance was to be recovered by NBCC in instalments by deduction from Nangia’s running bills.
Nangia claims to have spent the entire amount of the mobilization advance in execution of the contract. According to it, this fact was also acknowledged by NBCC in a communication dated 10/11.10.1988 addressed to SOH.
Now, controversy arose between NBCC and SOH as to whether NBCC was at all entitled to sub-contract the work. In any event, NBCC terminated the agreement with Nangia by letter dated 19.05.1989 and also invoked the bank guarantee towards mobilization advance as well as the performance bank guarantee submitted by Nangia.
Nangia’s contention was that this was a result of the dispute between SOH and NBCC, whereas NBCC asserts that delays and defaults on the part of Nangia led to the termination.
NBCC had, in the meantime, recovered a sum of ₹22,42,832/- against the mobilisation advance from the bills submitted by Nangia, the bank guarantee against the mobilisation advance was invoked for a balance amount of ₹67,25,500/-.
Nangia invoked Sections 20 and 41 of the 1940 Act, and applied to the Court for reference to arbitration and for an injunction against the invocation of the bank guarantees. Despite the injunction granted by the Court in favour of Nangia, it was unable to keep the bank guarantees alive, as a result of which they were ultimately encashed on 17.06.2008.
NBCC appointed arbitrator to adjudicate dispute between parties. Arbitrator found award in favour of Nangia and directed NBCC to refund the amount invoked under the two bank guarantees.
Award was challenged by NBCC and was restricted to the award on claim relating to refund of the mobilization advance. The court recorded that the issue of mobilization advance had not been considered in the first award and therefore, remanded the said claim for adjudication by a new arbitrator
The newly appointed arbitrator made the impugned award on 18.10.2012, rejecting Nangia’s claim, and directing the refund of the unrecovered amount of mobilization advance to NBCC, alongwith interest at the rate of 12% per annum from 01.08.1991 until the date of encashment of the bank guarantee.
Decision of Court
Court observed that the limited scope of interference with an arbitral award in a petition under Sections 30 and 33 of the 1940 Act is established by a long line of authority, right from the judgment of the Privy Council in Champsey Bhara and Company vs. Jivraj Balloo Spinning and Weaving Company Limited [1923] A.C. 480 to Supreme Court judgments of relatively recent vintage.
In Union of India vs. Jain Associates (1994) 4 SCC 665, the Court held that failure to consider material documents, leading to inconsistent findings in an award, would render it vulnerable to challenge.
High Court observed that the impugned award has proceeded primarily on the basis that the mobilization advance was in the nature of a loan recoverable by NBCC, and had not been fully recovered.
Delhi HC Bench observed that the award does not account for the fact that premature termination of the agreement by NBCC was declared to be illegal by a competent forum. The finding that the resources mobilized by Nangia from the mobilization advance was used by it after it resumed the work (consequent upon retendering) is wholly unsupported by evidence.
HC Bench concluded that reasoning of Arbitrator to be speculative. The court ultimately set aside the arbitral award and petition was allowed.
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