Delhi District Court
Municipal Corporation Of Delhi vs M/S Surender Kishan Gupta on 10 August, 2023
IN THE COURT OF SH. SACHIN JAIN, ADDITIONAL
DISTRICT JUDGE - 02, SOUTH WEST DISTRICT,
DWARKA COURTS, DELHI
Arbtn No. 2863/17
CNR No. DLSW01-0016572017
IN THE MATTER OF:
Municipal Corporation of Delhi
Through its Executive Engineer
Div. VI, Nigam Bhawan
Kashmiri Gate, Delhi - 110006 ... Petitioner
vs.
M/s Surender Kishan Gupta
44, Anand Lok
New Delhi - 110049 ... respondent
Date of institution of petition: 07.08.2009
Date of judgment reserved: 15.07.2023
Date of pronouncement of judgment: 10.08.2023
JUDGMENT
1. The petitioner has preferred the present petition under Section 34 of the Arbitration & Conciliation Act, 1996 (herein after referred as the Act) assailing the arbitral award dated 31.03.2009, received by the petitioner on 27.04.2009, passed by the learned sole arbitrator Shri A.B. Rajoria, Delhi, whereby the learned sole arbitrator has partly allowed the claim petition of the respondent.
2. Parties are referred to as per their original rank and status as was before the learned sole arbitrator i.e. the petitioner as respondent and the respondent as the claimant.
3. Before adverting to the grounds of challenge to the award Arbtn 2863/17 MCDvs. M/s Surender Kishan Gupta Page No.1/17 as raised by the petitioner, briefly stated, the claimant was awarded a tender for construction of C.T.C at P-Block (120 Seats), J-Block (80 Seats) in Mangol Puri in Najafgarh Zone under Yamuna Action Plan vide work order no. E.E.IV/Plan TC/01-02/276 dated 27.09.2001 and an agreement with the respondent was entered into for the above tender work.
4. It was the case of the claimant that after the completion of the work and handing over the work project to the respondent, the Executive Engineer failed to release the payment of legitimate dues and as a result he wrote a letter dated 16.12.2003 to the Executive Engineer for release of the legitimate dues but no payment was released to him and hence, the dispute and differences arose between the parties and as per clause 25 of the agreement which contains arbitration clause vide letter dated 07.01.2004 the claimant invoked the arbitration clause and wrote to the Commissioner, MCD to nominate an arbitrator but as the Commissioner, MCD failed to do so within 30 days, claimant preferred an application under Section 11 of the Act before the Hon'ble High Court of Delhi with a request to appoint the arbitrator and the Hon'ble High Court vide its order dated 09.02.2005, appointed Shri K.B. Rajoria as the sole arbitrator.
5. The claimant thereafter, filed his statement of claim and raised seven claims before the learned sole arbitrator i.e.
(a) claim no.1 - for a sum of Rs.34,35,291/- being the balance payment of final bill;
(b) claim no.2 - for a sum of Rs.69,146/- on account of extra items executed but not paid;
(c) claim no.3 - for a sum of Rs.1,80,296/- for refund of security deposit;
Arbtn 2863/17 MCDvs. M/s Surender Kishan Gupta Page No.2/17(d) claim no.4 - for a sum of Rs.2,34,278/- as the loss of turn over/loss of profitability;
(e) claim no.5 - for a sum of Rs.1,49,704/- being loss over head due to undue prolongation of the work;
(f) claim no.6 - interest, pre-suit, pendent elite and future @18% per annum and
(g) claim no.7 - a sum of Rs.1,00,000/- being cost of arbitration
6. The above claims of the claimant were duly contested by the respondent MCD and the learned sole arbitrator after taking in to consideration the claim of the claimant and the objections of the MCD, vide its award dated 31.03.2009 allowed the claim no.1 and 3 of the claimant in full, rejected the claim no.2, allowed claim no.4 partly to the tune of Rs.47,353/-, claim no.5 also partly to the tune of Rs.35,189/-, claim no.6 also allowed partly and the claimant was granted interest @12% per annum calculated- qua claim no.1 and claim no.3 w.e.f. one month after submission of the final bill i.e. 04.11.2003, qua claim nos.4,5 and 7 from the date of the award and lastly, the claim no.7 partly to the tune of Rs.75,000/-.
7. Now, coming to the present petition, the petitioner in grounds of challenge no. A to F, in nutshell has challenged the impugned award on the ground that the learned sole arbitrator has wrongly rejected the preliminary objections of the petitioner regarding applicability of new terms and conditions of the agreement which is enforceable and applicable since 17.08.1999 vide circular no. P/69/E(i)III dated 17.08.1999 on the ground that the Clauses of contract containing the new clause does not bear the signatures of the claimant, whereas it is a prevalent trade practice that generally each and every paper of the terms and Arbtn 2863/17 MCDvs. M/s Surender Kishan Gupta Page No.3/17 conditions of the agreement are not signed by both the parties save except on the stamp papers, mentioning therein the agreeability of each and every term and condition of the agreement. It is also contended that the respondent/claimant has never produced the original and signed agreement by both the parties containing old clause no.25 and thus the learned arbitrator has wrongly appreciated the applicability of old clause no.25 only on the basis of unsigned photocopy produced by the respondent/claimant and as the claimant failed to comply with new clause 25, which provides the per-requisite procedure before invocation of the arbitration clause and thus, the learned arbitrator was not having jurisdiction to entertain the claim.
8. In grounds of challenge no. G to U, in nutshell the impugned award is challenged majorly on the ground that the learned arbitrator has failed to appreciate that claimant had not submitted any bill in course of the operative period of contract in compliance of the clause 7 read with clause 9 of the agreement. The arbitrator has wrongly appreciated that as the claimant has not accepted the correctness of the measurement measured by the respondent MCD in course of operative period of contract, as such, there is no date for start of limitation period for seeking arbitration under clause 25 of the agreement, further that the interest has been wrongly granted by the Ld. Arbitrator as per claim no.6 by not appreciating that the claimant is not entitled to any interest due to non-compliance of the terms and conditions of clause no. 7 read with clause 9 of the agreement and on the ground that the claim no. 3,4 and 5 qua damages are not covered by any terms and conditions of the agreement and thus, were within the preview of Section 73 of the Indian Contract Act and Arbtn 2863/17 MCDvs. M/s Surender Kishan Gupta Page No.4/17 hence, the Ld. Arbitrator has no jurisdiction to pronounce any award as per Section 28(3) of the Act of 1996 and thus, the impugned award as a whole in against the public policy and thus, the same is liable to be set-aside.
9. Notice of the petition was issued to the respondent/claimant. In reply, he supported the award passed by the learned arbitrator. It is the stand of the respondent that the learned arbitrator has dealt with the issue of application of arbitration clause no.25 and has given his finding that the petitioner never objected to the arbitration clause relied upon by the respondent herein when the application under Section 11 of the Act of 1996 for appointment of arbitrator was filed before the Hon'ble High Court and apart from that the new clause no.25 relied upon by the petitioner did not contain the signature of the respondent.
10. It is further submitted that even the remaining objections as raised by the petitioner in the present petition are not sustainable as the learned arbitrator has given detailed finding on each and every contentions raised by the petitioner before the Ld Arbitrator and therefore, the finding of the arbitrator on facts is not open to challenge as per the provisions of Section 34 of the Act.
11. I have heard the rival submissions made by the Ld. Counsel for the parties made in tandem with the grounds of challenge and the reply thereof and have gone through the impugned award.
12. Before adverting further, it is relevant to reproduce the provisions of Section 34 of the Act and settled position of law as enunciated by the Superior Courts qua the Jurisdiction of Civil Arbtn 2863/17 MCDvs. M/s Surender Kishan Gupta Page No.5/17 Court while deciding petition under Section 34 of the Act.
Section 34 of the Act reads as under:-
"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 furnishes proof 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.
Arbtn 2863/17 MCDvs. M/s Surender Kishan Gupta Page No.6/17Explanation 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."
13. The scope of interference with the arbitral award in a petition under section 34 of the act, has been time and again reiterated by the superior Courts and most recently, the Hon'ble Delhi High Court in case titled as Ircon International Limited v Afcons Infrastructure Limited, 2023 SCC OnLine Del 2350, again reiterated that the scope of intervention of the Courts was limited in the cases of a challenge under Section 34 of the Act of 1996. The Court, while exercising its jurisdiction under Section 34 of the Act shall not sit in appeal or re-examine the facts and evidence of the case. It was further held that it is to be understood that Sub-section (2-A) to Section 34 of the Act, 1996 states that the Arbitral Award may be set aside by the Court if the Court finds the impugned Award is vitiated by patent illegality appearing on the face of the Award. The proviso stipulates that the Award shall not be set aside merely on the ground of erroneous application of law or by misappreciation of evidence. An Award can also be set aside under sub-clause (ii) to Clause
(b) of Section 34(2) on the ground that it is in conflict with the public policy of India, which expression has been explained in the Explanation(s) to the said section."
Arbtn 2863/17 MCDvs. M/s Surender Kishan Gupta Page No.7/1714. The meaning of 'public policy' has been discussed in detail by the Hon'ble Supreme Court in Associate Builders vs Delhi Development Authority (2015) 3 SCC 49, wherein it was observed that:
"This Section in conjunction with Section 5 makes it clear that an arbitration award that is governed by part I of the Arbitration and Conciliation Act, 1996 can be set aside only on grounds mentioned under Section 34(2) and (3), and not otherwise. It will be seen that none of the grounds contained in sub- clause 2 (a) deal with the merits of the decision rendered by an arbitral award. Only when we come to the award being in conflict with the public policy of India that the merits of an arbitral award are to be looked into under certain specified circumstances.
Such patent illegality, however, must go to the root of the matter. The public policy violation, indisputably, should be as unfair and unreasonable as to shock the conscience of the court. Where the arbitrator, however, has gone contrary to or beyond the expressed law of the contract or granted relief in the matter not in dispute would come within the purview of Section 34 of the Act. However, we would consider the applicability of the aforementioned principles while noticing the merits of the matter."
15. In Delhi Airport Metro Express (P) Ltd. Vs. DMRC (2022) 1 SCC 131, it is further held by the Hon'ble Apex Court that the explanation (1) of Section 34 of the Act, as amended by the 2015 Amendment Act, clarified the expression "Public Policy of India" making it clear that an award would be in conflict with the public policy of India only when it is induced or affected by Arbtn 2863/17 MCDvs. M/s Surender Kishan Gupta Page No.8/17 fraud or corruption or is in violation of Section 75 or Section 81 of the 1996 Act.
16. In light of the catena of judgments discussed above, it is a rule of law that a Court under Section 34 has a limited jurisdiction while dealing with the objections filed under the said provision. Though the court shall refrain from re-examining the matter on merits, but if the Ld. Arbitrator has passed the award in violation of the conditions laid down in the contract or if the Award is against the principles of law, then the Award can be set aside by the court.
17. Coming to the petition in hand, the petitioner has raised the first objection on the ground that the learned sole arbitrator has failed to appreciate the fact that vide circular dated 17.08.1999 the terms and conditions of the agreement were amended and as per the amended clause 25 of the agreement, before invoking the arbitration clause a party is bound to follow the procedure as prescribed in the amended clause and the learned sole arbitrator has wrongly came to the conclusion that as the agreement of new terms and conditions did not bear the signatures of the respondent and therefore, the same is not applicable.
18. This Court has gone through the copy of the impugned award and the learned arbitrator in para no.2.1.1 and 2.1.2 after discussing the rival contentions of both the parties, in clause no.2.1.3 has given his decision to the following effect:
"The arbitration clause (clause 25) as submitted by the respondent was not signed or accepted by claimant at any stage. Therefore, the submission of respondent that this clause was relevant clause for this contract agreement, cannot be agreed. The claimant submitted arbitration clause to Hon'ble High Court Arbtn 2863/17 MCDvs. M/s Surender Kishan Gupta Page No.9/17 along with the petition. Copy of the petition with arbitration clause was given to the respondent and he did not object on this arbitration clause. Therefore, the arbitration clause as submitted by the claimant is considered applicable clause for this arbitration case. As per this clause, no pre requisite procedures are to be followed before referring disputes to arbitrator. The arbitration case was referred properly and arbitrator has the authority to adjudicate".
19. After perusal of the application under Section 11 of the Act filed by the claimant along with the copy of old clause no. 25, this Court is in complete agreement with the observations made by the learned sole arbitrator to the extent that the MCD never raised any objection regarding the non applicability of the old clause no.25 of the clauses of contract before the Hon'ble High Court at the time of appointment of Arbitrator in terms of Old clause 25 of the clauses of the Contract.
20. Section 4 of the Act of 1996, provides as follows:-
4.Waiver of right to object.--A party who knows that-- (a) any provision of this Part from which the parties may derogate, or
(b) any requirement under the arbitration agreement, has not been complied with and yet proceeds with the arbitration without stating his objection to such non-
compliance without undue delay or, if a time limit is provided for stating that objection, within that period of time, shall be deemed to have waived his right to so object.
21. Thus, once the petitioner herein never objected to the invocation of arbitration clause by the claimant without following the pre-requisite procedure as per the new clause 25 of the clauses of the Contract at the time of appointment of Arbtn 2863/17 MCDvs. M/s Surender Kishan Gupta Page No.10/17 Arbitrator by the Hon'ble High Court in terms of Section 11 of the Act, as per the provisions of Section 4 of the Act, it amounts to waiver.
22. In addition thereto, this Court has also gone through the old and new clause 25 of the clauses of contract regarding invocation & settlement of dispute through arbitration, the only fundamental difference between the old clause and new clause 25 is with respect to the procedure to be adopted before invoking the arbitration clause. Admittedly, in the old clause, there was no pre-requisite procedure to be followed before invocation of the arbitration clause but as per the new clause 25(i), in case if the contractor considers any work demanded of him to be outside the requirement of the contract, or disputes any drawings, record or decision given in writing by the Engineer In-Charge on any matter in connection with or arising out of the contract of carrying out of the work, to be unacceptable, he shall promptly within 15 days requests the Superintending Engineer (SE) in writing for written instruction or decision. Thereafter, the SE shall give his written instruction or decision within a period of one month from the receipt of the contractor's letter. It is further provided in the clause that in case the SE fails to give instructions or the contractor is dissatisfied with the decision, he may within 15 days of receipt of the decision, appeal to the Chief Engineer who shall after giving opportunity of hearing to the contractor give its decision within 30 days and in case the contractor is still not satisfied, he can give notice to the Commissioner for appointment of arbitrator.
23. This issue that whether the pre-requisite/ preceding steps for invocation of arbitration clause are mandatory or merely Arbtn 2863/17 MCDvs. M/s Surender Kishan Gupta Page No.11/17 directory also came up for consideration before the superior Courts and there was divergence of views as some of the Hon'ble High Courts were of the view that pre-requisites/preceding steps laid down in a contract before the initiation of arbitration proceedings are essential and mandatory in nature whereas some of the Hon'ble High Courts are of the contrary view and held that the requirement of pre-arbitral steps is only discretionary/directory.
24. However, the Hon'ble Supreme Court of India in Demerara Distilleries (P) Ltd. v. Demerara Distilleries Ltd. (2015) 13 SCC 610, has settled the controversy and held that the requirement of pre-arbitral steps is not mandatory. In the said case, application under section 11 of the Act, was filed for the appointment of an arbitrator. However, the said application was objected on the ground of being pre-mature by the opposite party as the language of the dispute resolution clause provided the parties to engage in mutual discussion, followed by mediation and only in the absence of a resolution, to refer the disputes to arbitration. Howsoever, the Apex Court rejected this contention and held in para 5 of the judgment that the objections with regard to the application being premature and thus, the disputes not being arbitrable, would not merit any serious consideration.
25. Further, the Hon'ble Delhi High Court in Ravindra Kumar Verma v. BPTP Ltd. 2014 SCC OnLine Del 6602 had overruled its previous judgment in Haldiram Mfg. Co. (P) Ltd. v. DLF Commercial Complexes Ltd. 2012 SCC OnLine Del 2139 which stated that an application invoking arbitration submitted to the Court, prior to complying with the pre-arbitral steps must be dismissed. The Hon'ble High Court while relying Arbtn 2863/17 MCDvs. M/s Surender Kishan Gupta Page No.12/17 on its earlier decisions of Sikand Construction Co. v. SBI 1978 SCC OnLine Del 180 and Saraswati Construction Co. v. East Delhi Coop. Group Housing Society Ltd. 1994 SCC OnLine Del 563 held that pre-arbitral steps stated in a pre-arbitration clause are directory in nature and not mandatory. The Hon'ble Court in para 11 further held that the existence of conciliation or mutual discussion should not be a bar in seeking to file proceedings for reference of the matter to arbitration.
26. Thus, in view of the judgments cited above, even if for the sake of argument it is upheld that the Ld. Sole arbitrator has wrongly rejected the contention of the petitioner herein qua applicability of the new clause 25 of the clauses of contract, it does not make any difference on the merits of the award as pre- arbitral steps are only directory in nature and not mandatory. It is also relevant to point out that the claimant before invocation of the arbitration clause had written a letter dated 16.12.2003 to the executive engineer (EE) and once EE failed to clear the dues, the claimant had also written a letter dated 07.01.2004 to the Commissioner MCD for appointment of arbitrator but as the Commissioner MCD failed to do so, ultimately, application u/s 11 was filed by the claimant before the Hon'ble High Court for appointment of Arbitrator thus, raising of claim before the Executive Engineer and also before the Commissioner MCD, is also a deemed compliance of the pre-requisite procedure before invocation of arbitration clause. It is also apposite to mention that the prime object of adoption of pre-requisite procedure before invocation of the Arbitration clause is to cut short the delay and avoid the parties from entering into lengthy process of arbitration and therefore, setting aside the award at this stage, Arbtn 2863/17 MCDvs. M/s Surender Kishan Gupta Page No.13/17 which has been passed by the Ld. Arbitrator after taking into consideration the rival claims of both the parties and relegating the claimant to fresh arbitration process will defeat entire objective of pre-requisite procedure.
27. In view of the above discussion and observations, the objections as raised in point A to F of the grounds of objections are not sustainable and hence, rejected.
28. As far as the plea of limitation raised by the Petitioner herein, it is observed that the Ld. Arbitrator after taking into consideration the rival submissions, duly discussed in para 2.2.1 & 2.2.2 of the award, has given its findings in para 2.2.3 and this Court has also gone through the arbitral record and has not come across any evidence produced by the respondent MCD before the Ld. Arbitrator to establish that the signatures on the final measurements were either of the claimant or his authorized representative and thus, the findings of the Ld. Arbitrator in para no. 2.2.3 of the award does not call for any interference and it is rightly held by the Ld. Arbitrator that the reference is not barred by limitation.
29. Otherwise also in case titled as Shri Avinash Sharma Vs MCD 2007 (4) Arb.L.R. 147, it has been held by the Hon'ble High Court of Delhi that the clause 25 in the contract providing for a period of 120 days for raising the dispute is void under Section 28 of the Contract Act, 1872.
30. Coming to the remaining objections, it is argued by the Ld. Counsel for the petitioner that Ld. Arbitrator has wrongly awarded the damages as in absence of any terms and conditions in the agreement, the same falls within the preview of Section 73 of the Indian Contract act, 1872 and in absence of calling any Arbtn 2863/17 MCDvs. M/s Surender Kishan Gupta Page No.14/17 strict proof of loss suffered from the claimant, the claim no. 4 &5 in respect of damages have been wrongly allowed in favour of the claimant. Per Contra, it was argued by the Ld. Counsel for the claimant-respondent that there is no error in the decision of the Ld. Arbitrator as the claim of damages were allowed partly in favour of the claimant after taking into consideration the submissions of both the parties and detailed reasons thereof and therefore, this Court cannot sit in appeal and re-appreciate the decision of the Ld. Arbitrator.
31. It is observed that Ld. Arbitrator has awarded damages of Rs. 33,3337/- only against the claim of Rs. 2,34,478/- raised in claim no.4 and has awarded only a sum of 35,189/- against the damages of Rs. 1,49,074/- under claim no.5 by giving his detailed reasons and the petitioner herein has failed to prove that it is the claimant who has failed to comply in terms of Clause 7 and 9 of the agreement as alleged before the Ld. Arbitrator as well as before this Court and thus, the Ld. Arbitrator was well within his jurisdiction to award compensation by way of damages to the claimant. The argument of the Ld. Counsel for the petitioner that no strict proof of actual damages was called for from the claimant is not sustainable as the same is required only for the purpose of awarding special or consequential damages and not for ordinary and general damages and in addition thereto the Ld. Arbitrator has given cogent reasons for allowing the claim of damages partly in favour of the claimant and thus, the same does not require any interference.
32. Coming to the last leg of the grounds of challenge qua claim no.6 in respect of award of interest by Ld. Arbitrator, it is the plea of the Petitioner herein that in absence of any clause in Arbtn 2863/17 MCDvs. M/s Surender Kishan Gupta Page No.15/17 the agreement, the ld. Arbitrator has erred in awarding interest in favour of the claimant @ 18%. However, the plea raised is directly in teeth of Section 31 (7)(a) of the Act, which provides that "Unless otherwise agreed by the parties, where and insofar as an arbitral award is for the payment of money, the Arbitral Tribunal may include in the sum for which the award is made interest, at such rate as it deems reasonable, on the whole, or any part of the money, for the whole or any part of the period between the date on which the cause of action arose and the date on which the award is made". Thus, it is a settled law that the arbitrator has the power to award interest at all three stages: "pre- reference period", "pendent-lite" and "post-award period" but subject to the condition that the parties by agreement have not agreed otherwise.
33. The words "Unless otherwise agreed by the parties"
occurring at the start of the clause (a) of Section 31 of the Act, provides that the parties must in the agreement expressly exclude the levy of interest and in case the agreement is silent on the aspect of levy of interest, it shall be deemed that the parties have not expressly agreed to exclude the levy of interest. Thus, his plea that once the parties have not expressly agreed for levy of interest in the agreement and therefore, arbitrator has no power to allow interest over the awarded amount or other heads is not sustainable. Reference can be made to the constitution Bench Judgment of Hon'ble Apex Court titled as Executive Engineer Dhenkanal Minor Irrigation Division bench Vs N.C. Budharaj (2001) 2 SCC 721.
34. Thus, this Court does not find any error in the award of interest by the Ld. Arbitrator in favour of the claimant.
Arbtn 2863/17 MCDvs. M/s Surender Kishan Gupta Page No.16/1735. Consequently, on the basis of the discussion and observations made above, the present petition being devoid of merits is hereby dismissed.
36. Let the copy of the order be sent to the Ld. Arbitrator alongwith the arbitral record.
37. File be consigned to record room only after due completion and necessary action, as per Rules.
Pronounced in the open Court (Sachin Jain)
on 10.08.2023 Addl. District Judge-02
South West District
Dwarka Courts Complex, Delhi
Arbtn 2863/17 MCDvs. M/s Surender Kishan Gupta Page No.17/17