Allahabad High Court
Union Of India And 2 Others vs Larsen And Tubro Limited (L And T)) on 25 May, 2023
Author: Manoj Kumar Gupta
Bench: Manoj Kumar Gupta
HIGH COURT OF JUDICATURE AT ALLAHABAD Neutral Citation No. - 2023:AHC:117074-DB Reserved on 08.05.2023 Delivered on 25.05.2023 Court No. - 21 Case :- APPEAL UNDER SECTION 37 OF ARBITRATION AND CONCILIATION ACT 1996 No. - 433 of 2023 Appellant :- Union of India and 2 others Respondent :- Larsen And Tubro Limited (L and T)) Counsel for Appellant :- Vivek Kumar Singh Counsel for Respondent :- Swetashwa Agarwal Hon'ble Manoj Kumar Gupta,J.
Hon'ble Prashant Kumar,J.
(Delivered by Hon'ble Prashant Kumar, J)
1. Heard Sri Vivek Kumar Singh, learned Senior Standing Counsel for Union of India on behalf of the appellants and Sri Swetashwa Agarwal, learned counsel for the respondent-claimant.
2. The appellants (herein) came out with a tender for modernization of Jhansi Workshop of North Central Railways. The bid of the respondent (herein) was accepted and tender was awarded to them and an agreement was executed on 27.01.2011 between the parties. As per the agreement, the original date of completion was 18.07.2012 but was extended by the appellants 10 times until 30.11.2015. During the course of execution of the work, certain dispute arose amongst the parties. As per the agreement, there was an arbitration clause. To settle the dispute amongst the parties, the claimant (respondent herein) submitted an application on 04.09.2017 for appointment of Arbitral Tribunal. As per Clause 64 (3) of General Conditions of Contract (GCC), and the Arbitral Tribunal with three member was formed.
3. The Arbitral Tribunal so constituted, entered into a reference and directed the parties to file their statement of claim, statement of defence, counter claim, rejoinder along with other relevant documents before the Tribunal in a time bound manner. The claimant filed statement of claim whereas the appellants filed a counter claim and also statement of defence to the statement of claimant filed by the claimant. The claim of the claimant as per the statement of claim were as follows:-
Sr. No. Particulars Amount in Rs. claimed by the claimant Revised Claim in Rs. claimed by the claimant Claim no. 1 Financing Charges towards Inordinate Delay in release of payments against running account bills. 2,87,14,513 2,26,25,891 Claim no. 2 Claim on account of cost incurred due to Variations in Foreign Exchange Currency Component beyond original contract period. 2,22,62,582 2,21,00,586 Claim no. 3 Claim on account of non-payment of Price Variation as per clause on Labour and Fuel etc. 1,15,40,376 98,44,886 Claim no. 4 Claim on account of Indirect Costs incurred during extended stay in the project 5,44,54,667 5,70,04,383 Claim no. 5 Refund of the amount recovered as token liquidated damages 2,88,323 2,00,000 Claim no. 6 Payment due against the final bill/variation for the additional works as per the contract 1,67,51,576 Claim no. 7 Interest on the claim amount @18% Not specified 10,27,41,682 Claim no. 8 Costs of arbitration Not specified 29,88,947 The appellants made the following counter claim:-
Sr. No. Particulars Amount in Rs.
Counter Claim Losses to Railway due to late commissioning of CNC Portal Wheel Lathe, MOD item No.-6 8,95,25,520
4. The Arbitrator after perusing all the documents and evidence on record filed by the parties had passed a detailed award on 25.12.2018. In this award, the Arbitral Tribunal had awarded the following sums against each claim:-
Sr. No. Particulars Claim Amount in Rs.
Award Sum in Rs.
Claim No. 1 Financing Charges towards inordinate delay 2,26,25,891 1,77,78,727/-
Claim No. 2 Claim for Variations in Foreign Exchange Currency 2,21,00,586 NIL Claim No. 3 Claim for non-payment of PVC & interest 98,44,886 1,70,18,577/-
Claim No. 4 Claim for Indirect Costs during extended stay in the project 5,70,04,383 NIL Claim No. 5 Refund of the amount recovered as token liquidated damages 2,00,000 NIL Claim No. 6 Payment due against the final bill & interest 1,67,51,576 2,28,70,261/-
Claim No. 7 Interest on the claim amount @ 18% 10,27,41,682 NIL Claim No. 8 Costs of arbitration 29,88,947 7,90,032/-
Total Award Sum 5,84,57,597/-
The Arbitral Tribunal also awarded counter claim, which is as follows:-
Sr. No. Particulars Amount in Rs.
Award Sum in Rs.
Counter Claim Losses to Railway due to late commissioning of CNC Portal Wheel Lathe, MOD item No.-6 8,95,25,520/-
31,00,000/-
5. The Tribunal awarded with a total sum of Rs. 5,53,57,597/- (Five crore fifty-three lakh fifty-seven thousand five hundred ninety-seven rupees only), which was to be paid by the appellant (herein), to the Claimant within 60 days failing which, the awarded sum shall carry post award interest @12% per annum with effect from date of award till actual payment. Apart from it, cost of arbitration was also awarded.
6. Being aggrieved by the Award passed by the Tribunal dated 25.12.2018, the appellant filed an application under Section 34 of the Arbitration and Conciliation Act, 1996 (herein after for the sake of brevity has been referred to as "Arbitration Act") before the District Judge, Jhansi, which was the place where Workshop of the North Central Railway was to be modernized. Hence, the cause of action according to appellants was in Jhansi.
7. This application under Section 34 of the Arbitration and Conciliation Act, 1996 was filed on the following grounds:-
" i. No interest on the awarded sum was payable on delayed payment of bills, which is against the terms and conditions of contract agreement. As per the para 16.3 of General Conditions of contract (GCC).
ii. That in the claim No. 3 the tribunal has wrongly awarded a sum of Rs. 1,70,18,577/- along with interest @12% towards alleged claim for non payment of PVC (Price Variation Clause) and interest. This amount awarded against the terms and conditions of agreement because the PVC bill was prepared as per formula given in para 2.3 at page No. 53 of tender booklet 'D' and as per the bill submitted by the opposite party and the same was paid to the opposite party. The opposite party signed the bills and gave no claim certificate in Measurement Book and agreed that they have no claim in future for above payments, the tribunal lapse above vital evidence and not mentioned and discussed in the Award. iii. That in claim No. 6, the tribunal wrongly awarded a sum of Rs. 2,28,70,261/- towards payments due against final bills along with interest @12% p.a. This amount of award of interest on claim amount of Rs. 1,67,51,576/- is against the terms & Conditions of contract agreement and the GCC. iv. That in the claim No. 8 the Arbitrator has wrongly awarded Rs. 5,00,000/- towards the legal fee. v. That the tribunal has not accepted the entire counter claim submitted by the appellants and has not considered the production loss suffered by appellants due to failure of opposite party. vi. That the award is vitiated by patent illegality appearing on the face of award and has over looked the contents of documents and evidence while making the award. vii. That the award was non speaking Award, and the Tribunal has accepted the evidence which is not admissible in evidence as per law."
8. The above mentioned application preferred under Section 34 of the Arbitration and Conciliation Act, 1996 was transferred to the Commercial Court, Jhansi. The respondent (herein) opposed Section 34 application on the ground of jurisdiction as the award was passed in Delhi, so it is only the Delhi Court which would have exclusive jurisdiction over the matter, and also on merits, and on the limited scope of interference by this Court under Section 34 of the Arbitration Act.
9. Learned Commercial Court relying on the judgment passed by the Full Bench of 5 Judges of Hon'ble Supreme Court in the case of Bharat Aluminium Company Vs. Kaiser Aluminium Technical Services Inc.1 in which it was held that:-
"96.........The term "subject-matter of the arbitration" cannot be confused with "subject-matter of the suit". The term "subject-matter" in Section 2(1)(e) is confined to Part I. It has a reference and connection with the process of dispute resolution. Its purpose is to identify the courts having supervisory control over the arbitration proceedings. Hence, it refers to a court which would essentially be a court of the seat of the arbitration process. The provision in Section 2(1)(e) has to be construed keeping in view the provisions in Section 20 which give recognition to party autonomy. The legislature has intentionally given jurisdiction to two courts i.e. the court which would have jurisdiction where the cause of action is located and the courts where the arbitration takes place. This was necessary as on many occasions the agreement may provide for a seat of arbitration at a place which would be neutral to both the parties. Both the courts would have jurisdiction i.e. the court within whose jurisdiction the subject-matter of the suit is situated and the courts within the jurisdiction of which the dispute resolution i.e. arbitration is located.".
10. The decision of Bharat Aluminium Company was followed by the Hon'ble Supreme Court in BGS SGS SOMA JV vs. NHPC Limited2 in which the issue was, as to which court would have exclusive jurisdiction over the arbitration, as opposed to the place where whole or part of the cause of action arises. The Hon'ble Supreme Court in paragraph-38 held that:-
"38............. The Balco vs. Kaiser Aluminium Technical Services Inc., judgment, when read as a whole, applies the concept of "seat" as laid down by the English judgments (and which is in Section 20 of the Arbitration Act, 1996), by harmoniously construing Section 20 with Section 2(1)(e), so as to broaden the definition of "court", and bring within its ken courts of the "seat" of the arbitration "
11. On the basis of law laid down by Hon'ble Supreme Court, the learned Commercial Court rightly held that both the Courts of Delhi as well as the Courts in Jhansi will have jurisdiction to entertain the application filed under Section 34 of the Arbitration Act. The Commercial Court further held that the scope of interference under Section 34 of the Arbitration Act is limited. Since it was not a case wherein the Award could have been set aside on the basis of provision of Section 34 of the Arbitration Act. Hence, the application filed under Section 34 by the appellants was rejected.
12. Aggrieved by the order passed by the Commercial Court, vide its order dated 15.09.2022 has preferred the instant Arbitration Appeal under Section 37 of Arbitration Act.
13. Counsel for the appellants argued that the Arbitrator has passed the award giving 12% interest, if the amount would not be paid within 60 days from the date of passing the Award. The grant of interest is contrary to Clause 16 of GCC Rules.
Section 16 is about earnest money and security deposit.
Clause 16 (3) is extracted herein below:-
"16 (3) No interest will be payable upon the Earnest Money and Security Deposit or amounts payable to the Contractor under the Contract but Government Securities deposited in terms of Sub-Clause (1) of this clause will be payable with interest accrued thereon."
14. A plain reading of Clause 16 (3) shows that no interest is payable upon the earnest money and security deposits when paid back to the Contractor. It is clear that Clause 16 (3) only relates to non payment of interest on earnest money and security deposits made as per Clause 16 (1) and the same cannot be made applicable on Award; which remains unpaid after 60 days.
15. Counsel for the appellants has placed reliance on the judgment passed by the Hon'ble Supreme Court in the matter of Union of India Vs. Manraj Enterprises3 wherein the Hon'ble Supreme Court has held that the Arbitrator, in an arbitration proceedings, being creature of the contract has no power to award interest contrary to the terms of the agreement between the parties.
The ratio of this case has no bearing in the instant matter because Clause 16 (3) has nothing to do with the interest given on the Award. It only shows that no interest would be payable on the earnest money and security deposit.
16. This argument of the appellants is baseless and has nothing to do with the interest awarded in case the interest is only awarded if the amount awarded is not paid within 60 days from the date of Award.
17. The next argument of the appellants was based on Clause 64 of General Conditions of Contract. Clause 64 is 'Demand for Arbitration'.
The appellants relied upon Clause 64 (5) which is as follows:-
"64 (5) Where the arbitral award is for the payment of money, no interest shall be payable on whole or any part of the money for any period till the date on which the award is made."
18. A plain reading of Clause 64 (5) clearly lays down that no interest would be payable pendente lite i.e. till the date on which the award was made. In this case, the Arbitral Tribunal while giving award has not granted any interest pendente lite but has gone further not to grant interest for 60 days from the date of Award if the payment is made. Even thereafter, the Arbitral Tribunal has only awarded 12% interest. Hence, we take that the interest granted by the Arbitral Tribunal is correct.
19. Learned counsel for the appellants submits that the Arbitral Tribunal has awarded interest on the delayed payment made to the claimant but there was no material to show that he has raised any bills. This argument is also not correct. However, the appellants, before the Arbitrator had acknowledged paucity of funds during the financial year 2012-13. This fact has been considered by the Arbitrator before awarding the interest on the delayed payment.
20. Apart from it, the counsel for the appellants argued that the Award was against the provision of Section 28 (3) of the Arbitration Act. Section 28 (3) of the Arbitration Act is quoted herein under:-
"While deciding and making an award, the arbitral tribunal shall, in all cases, take into account the terms of the contract and trade usage applicable to the transaction."
While arguing, the appellants could not point out anything which goes to show that the Arbitral Tribunal has not taken into account the terms of the contract and other usages.
21. Apart from it, the appellants had raised other technical issues and wanted this Court to reappreciate the evidences, which would not be permissible in an Appeal under Section 37 of the Arbitration Act. Moreover, the Arbitral Tribunal after perusing and appreciating all the documentary evidences has rightly passed the Award.
22. Counsel for the respondent argued that interference under Section 37 of the Arbitration Act is very narrow and restrictive. He has placed reliance on the following judgments in support of his arguments.
23. The Hon'ble Supreme Court in the matter of MMTC Limited v. Vedanta Limited4 has held as follows:-
"11. As far as Section 34 is concerned, the position is well settled by now that the Court does not sit in appeal over the arbitral award and may interfere on merits on the limited ground provided under Section 34 (2)(b) (ii), i.e. if the award is against the public policy of India. As per the legal position clarified through decisions of this Court prior to the amendments to the 1996 Act in 2015, a violation of Indian public policy, in turn, includes a violation of the fundamental policy of Indian law, a violation of the interest of India, conflict with justice or morality, and the existence of patent illegality in the arbitral award. Additionally, the concept of the "fundamental policy of Indian law" would cover compliance with statutes and judicial precedents, adopting a judicial approach, compliance with the principles of natural justice, and Wednesbury reasonableness. Furthermore, "patent illegality" itself has been held to mean contravention of the substantive law of India, contravention of the 1996 Act, and contravention of the terms of the contract. 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. "
24. The Hon'ble Supreme Court in the matter of The Project Director, National Highways No. 45E and 220, National Highways Authority of India v. M. Hakeem & Anr., (2021) 9 SCC 1, wherein the Hon'ble Court whilst convassing the jurisprudence behind scope of Section 14 Arbitration and Conciliation Act, 1996 concluded as follows:-
"40. It can therefore be said that this question has now been settled finally by at least 3 decisions of this Court. Even otherwise, to state that the judicial trend appears to favour an interpretation that would read into Section 34 a power to modify, revise or vary the award would be to ignore the previous law contained in the 1940 Act; as also to ignore the fact that the 1996 Act was enacted based on the UNCITRAL Model Law on International Commercial Arbitration, 1985 which, as has been pointed out in Redfern and Hunter on International Arbitration, makes it clear that, given the limited judicial interference on extremely limited grounds not dealing with the merits of an award, the 'limited remedy' under Section 34 is co- terminus with the 'limited right', namely, either to set aside an award or remand the matter under the circumstances mentioned in Section 34 of the Arbitration Act, 1996."
25. The Hon'ble Supreme Court in Dyna Technologies (P) Ltd. v. Crompton Greaves Ltd.5 held as follows:-
"25. Moreover, umpteen number of judgments of this Court have categorically held that the Courts should not interfere with an award merely because an alternative view on facts and interpretation of contract exists. The Courts need to be cautious and should defer to the view taken by the Arbitral Tribunal even if the reasoning provided in the award is implied unless such award portrays perversity unpardonable under Section 34 of the Arbitration Act.
26. There is no dispute that Section 34 of the Arbitration Act limits a challenge to an award only on the grounds provided therein or as interpreted by various Courts. We need to be cognizant of the fact that arbitral awards should not be interfered with in a casual and cavalier manner, unless the Court comes to a conclusion that the perversity of the award goes to the root of the matter without there being a possibility of alternative interpretation which may sustain the arbitral award. Section 34 is different in its approach and cannot be equated with a normal appellate jurisdiction. The mandate under Section 34 is to respect the finality of the arbitral award and the party autonomy to get their dispute adjudicated by an alternative forum as provided under the law. If the Courts were to interfere with the arbitral award in the usual course on factual aspects, then the commercial wisdom behind opting for alternate dispute resolution would stand frustrated."
In view of the above judicial pronouncement and the trite principles of the law of pleadings and estoppel and no patent illegality has been alleged against the award nor any submission to the effect of the same being against the public policy of India has been averred, thus the grounds so raised by the appellant may be deemed to be outside the purview of Section 37 of Arbitration and Conciliation Act, 1996.
26. The Award made by the Arbitral Tribunal are not amenable to interference either on the Section 34 or Section 37 of the Arbitration Act. The scope of interference is only where the finding of the tribunal is either contrary to the terms of the contract between the parties or ex facie, perverse that interference by this Court, is absolutely necessary. The Arbitrator/Tribunal is the final arbiter on facts as well as in law, and even errors, factual or legal, which stop short of perversity, do not merit interference under Sections 34 or 37 of the Arbitration Act.
27. The law is settled that, where the Arbitrator has assessed the material and evidence placed before him in detail, the court while considering the objections under Section 34 of the said Act does not sit as a court of appeal and is not expected to re-appreciate the entire evidence and reassess the case of the parties. The jurisdiction under Section 34 is not appellate in nature and an award passed by an Arbitrator cannot be set aside on the ground that it was erroneous. It is not open to the Court to interfere with the award merely because in the opinion of the Court, another view is possible. The duty of the Court in these circumstances is to see whether the view taken by the Arbitrator is a plausible view on the fact, pleadings and evidence before the Arbitrator.
28. As laid down by the Supreme Court in Mcdermott International Inc vs Burn Standard Co. Ltd. & Ors6, the supervisory role of the Court in arbitration proceedings has been kept at a minimum level and this is because the parties to the agreement make a conscious decision to exclude the courts' jurisdiction by opting for arbitration as the parties prefer the expediency and finality offered by it.
29. That in the matter of SSangyong Engineering and Construction Company Pvt. Ltd. v. NHAI7, the Hon'ble Supreme Court has clarified that, under no circumstances, can any court interfere with an Arbitral Tribunal on the ground that justice seems not to have been done. This would amount to, entering into the merits of the dispute, which is contrary to the ethos of Section 34 of the Arbitration Act.
30. In view of the aforesaid facts and circumstances, we come to the conclusion that the appellants have failed to make out any case for interference under Section 37 of the Arbitration Act. The Arbitral Tribunal after considering all the evidence on record has passed a detailed speaking order dealing with each and every aspects of the claim separately. All the claims of the claimant were not allowed and only those amount which were actually payable was awarded by the Arbitral Tribunal. Consequently, the application under Section 34 of the Arbitration Act has rightly been dismissed by the Commercial Court, Jhansi. The appellants (herein) has failed to make out any case which would call for interference by this Court.
31. Accordingly, the present appeal filed under Section 37 of the Arbitration Act is dismissed.
(Prashant Kumar, J.) (Manoj Kumar Gupta, J.) Order Date :- 25.05.2023 Jaswant