Delhi District Court
Shyam Spectra Pvt Ltd vs Prasar Bharati on 4 June, 2021
In the Court of Shri Sanjiv Jain,
District Judge (Commercial Court)-03, Patiala House Courts
New Delhi
OMP (Comm) No. 43/2020
Shyam Spectra Pvt Ltd,
(Formally Known as Citycom Networks Pvt Ltd)
A-60, Naraina Industrial Area, Phase I,
New Delhi-110028
... Petitioner/objector
versus
Prasar Bharati
(Broadcasting Corporation of India)
Doordarshan News,
Doordarshan Bhawan,
Phase II, Copernicus Marg,
New Delhi 110001.
... Respondent/claimant
Date of institution : 11.03.2020 Date of reserving judgment : 08.04.2021 Date of decision : 04.06.2021 JUDGME NT
1. This petition under Section 34 of the Arbitration and Conciliation Act, 1996 (as amended upto date) hereinafter called the 'Act' challenges the award dated 07.01.2020 passed by the Arbitrator Ms. Girija Krishan Varma.
OMP (Comm) No. 43/2020 Page No. 1 of 38Brief facts:
2. Briefly the facts as stated in the petition are that on 28.11.2006, Prasar Bharati, (respondent herein) had floated tender no. CPC/DD/D-8/2006 for procuring fiber optic links / connectivity for analogue video and audio to provide transfer of broadcast. Shyam Spectra Pvt Ltd, (petitioner herein) submitted its bids and was awarded the contract vide letter dated 23.08.2017. An agreement dated 25.05.2007 was executed between them for providing SDI as well as analogue link over fiber optic for a period of one year commencing from 25.09.2007, unless extended further with the mutual consent of the parties. As per Note- 1 to annexure A of the agreement, in case of renewal of contract beyond initial one year, per month charges will be provided at a discount of 10% for the renewed period on the respective mentioned prices. It is stated that before the expiry of one year term of the agreement, the respondent wrote a letter dated 29.08.2008 asking the petitioner to confirm whether it was ready to give 10% discount on the present rate, if the contract is extended further, as per note-
1, which the petitioner replied vide letter dated 20.08.2008 stating that it would offer 10% discount only in case, the contract is renewed for the next one year. The respondent did not accept the petitioner's condition and renewed the contract for a period of only two months on the same terms & conditions vide letter dated 07.10.2008. According to OMP (Comm) No. 43/2020 Page No. 2 of 38 the petitioner, since the respondent never accepted its proposal to extend / renew the original agreement for one year period, there was no question of giving any discount whatsoever to the respondent. The period was extended from time to time upto October 2009, the petitioner provided the services to the respondent without any discount and the respondent never raised any objection to any of the voices raised by the petitioner. In fact, the respondent duly paid all the invoices.
3. It is stated that the respondent after about three years issued a legal notice dated 26.07.2012 to the petitioner alleging that 10% discount was to be offered by the petitioner on the bills for the extended / renewed period, however, the same was not offered, because of which, the excess payment was made by it and thus claimed refund of excess amount of Rs. 14,05,592/-. The petitioner replied to the legal notice vide its reply dated 26.10.2012 stating that the bills for the extended / renewal period were rightly raised by it as the parties could not reach any agreement with respect to 10% discount and the agreement was renewed on the existing terms & conditions only, so there is no question of any excess payment and refund thereof. The respondent then filed a suit for recovery bearing CS No. 13194/2014 on 14.01.2013, which was disposed of by the Court of Ld. ADJ, New Delhi District, vide order dated OMP (Comm) No. 43/2020 Page No. 3 of 38 23.02.2016 relegating the party to take recourse to the agreed mode of dispute resolution i.e. arbitration. The respondent then made a request to refer the dispute to arbitration vide letter dated 09.11.2016, which was received by the petitioner on 19.11.2016 making the said date as the date of commencement of the arbitral proceedings in terms of Section 21 of the Act. Since, the parties could not mutually agree upon the appointment of an Arbitrator, the respondent filed the petition no. 697/2017 before the High Court on 30.10.2017, who referred the matter to DIAC for appointment of an arbitrator and consequent arbitral proceedings vide order dated 28.05.2018.
4. The respondent filed its statement of claims before DIAC in June 2013 claiming the dues of Rs. 14,05,592/- and interest of Rs. 7,50,702/-, however, it relinquished a portion of its claim and restricted its total claim to Rs. 20,00,000/-. The petitioner contested the claims and filed statement of defence on 28.08.2018 to which the respondent filed its rejoinder on 17.09.2018. The Arbitrator vide order dated 08.01.2019 directed the parties to file their affidavits of admission & denial of documents, which were filed. Vide order dated 07.02.2019, the Arbitrator framed six issues interalia as under:
I. Whether the claim of the claimant (respondent herein) OMP (Comm) No. 43/2020 Page No. 4 of 38 is time barred?
II. Whether the agreement dated 25.09.2007 was renewed? And for what period ?
III. Whether the discount of 10% on services is applicable to the claimant or not?
IV. Whether the claimant is entitled to an award for Rs.
20,00,000/- or not?
V. What is the rate of interest on the principal amount, if any? And from which date?
VI. Relief
5. The Arbitrator then posted the matter for arguments for 01.05.2019. On that day, the counsel for the respondent produced a letter dated 06.04.2011 and extract from CAG website and sought time to produce supporting evidence to the calculation sheet filed by it along with the statement of claims (SOC). The petitioner was directed to admit / deny the documents filed by the respondent during the course of hearing and posted the matter for 22.05.2019. The respondent then filed the certified copy of CAG report and translated copy of CAG letter dated 06.04.2011 before the DIAC on 02.05.2019. The petitioner also filed an affidavit of admission / denial dated 09.05.2019 in respect of the said documents. The respondent then filed the copy of sanction orders and the account's statements on 15.05.2019. On 16.07.2019, the respondent again produced some original documents. The parties also filed their written submissions and the Arbitrator passed the impugned award on 07.01.2020 holding that the claims of the respondent are not time barred, the agreement was renewed for a period of one year and the discount of 10% OMP (Comm) No. 43/2020 Page No. 5 of 38 is applicable to the billing period from September 2008 to 31.12.2019 till the time the petitioner rendered the services to the respondent. It was held that the respondent is entitled to the principal amount of Rs. 14,50,502/- along with interest at the rate of 18% from 31.12.2009 till the date of payment along with the cost of arbitral proceedings.
Objections:
6. The petitioner challenged the impugned award on the following grounds:
A. That the Arbitrator failed to appreciate that the claims of the respondent were hopelessly time barred. It is stated that the claims raised by the respondent admittedly pertained to the period from September 2008 to October 2009 during which, the respondent claimed to have made excess payment of Rs. 14,50,502/-, however, it filed suit for recovery only on 14.01.2013, which was beyond the prescribed limitation period of three years. It is stated that the suit was disposed of by Ld. ADJ on 23.02.2016 relegating the parties to take recourse to the arbitration but the request for referring the dispute to arbitration was made vide letter dated 09.11.2016 and the arbitral proceedings commenced after a huge gap of more than three years, though should have been commenced within a period of three years. Even if the respondent is given benefit of time period spent in the Civil Suit, which was 1136 days, still, the proceeding suffers from huge unexplained delay of about one year.
B. That the Arbitrator based her conclusion by taking into consideration the letter dated 06.04.2011 allegedly written by CAG to the respondent from which date it has claimed to have gained knowledge of the excess payment. It is stated that there are neither any pleadings with respect to the said letter dated 06.04.2011 either in the statement of claims or the rejoinder nor the said letter was filed by the respondent along with the pleadings. The said letter OMP (Comm) No. 43/2020 Page No. 6 of 38 was produced at the time of final arguments which was denied by the petitioner. More so, it has not proved the letter during the proceedings. Since, the petitioner did not have any opportunity to question / deal with the said letter in the pleadings or during the evidence as no evidence was ever led qua the said letter, the same could not have been taken into consideration by the Arbitrator.
C. That the Arbitrator failed to appreciate that there were absolutely no explanations put-forth by the respondent for the huge delay with respect to its claims. Further, no date with respect to gaining knowledge was ever pleaded or proved by the respondent. Thus, the Arbitrator went beyond the scope of pleadings and evidence and on this basis, the award is liable to be set aside.
D. That the Arbitrator erred in extending the benefit of Section 17 of the Limitation Act. The respondent during the arguments had taken the plea that the payments were made under a mistake and as per Section 17, the limitation would commence from the date, when the mistake was discovered, however, neither any such plea of mistake was taken in the pleadings nor any such date when the said mistake was discovered was stated in the pleadings. It produced the letter dated 06.04.2011 written by CAG and argued that it was on this date it discovered the mistake, however, this document / fact was neither pleaded in the pleadings. It is stated that it cannot be said that the respondent discovered the alleged mistake only through CAG report. CAG had audited the records, which were already in possession of the respondent and it cannot plead ignorance of its own records to take benefit of Section 17. It is stated that a mistake can be alleged only when there is a clause and the same is ignored / overlooked. Once, there is no agreement for discount, there is no question of mistake as the actions of the parties were in consonance with the terms of the agreement. CAG report shows that the respondent never enforced the 10% discount clause and granted the extension on the same terms & conditions as reflected in the letter dated 07.10.2008. The CAG report also took note of the reply submitted by the respondent during the audit process stating that the proposal for getting 10% discount during the extended period was submitted to the Directorate of Doordarshan, however, the same was not approved and hence the extension was given OMP (Comm) No. 43/2020 Page No. 7 of 38 on the terms & conditions. The said reply shows that it was a conscious decision of the respondent to let go the 10% discount clause and renew the agreement on the same terms & conditions. It is stated that a conscious decision cannot be termed as a 'Mistake', so as to attract Section 17 of the Limitation Act.
E. That the Arbitrator failed to appreciate that there was no agreement between the parties for offering 10% discount during the extended / renewal period and as such there was no question of excess payment as claimed. From the respondent's documents i.e. CAG report, it is clear that the proposal to include 10% discount in the renewal term was declined and was never the part of the renewal term. So, in the absence of any agreement for 10% discount, the claim is rendered without any contractual basis. Further, the petitioner continued to provide the services and raised invoices on the same term and the respondent kept on making the payments without there being any objection.
F. That the Arbitrator erred in going beyond the pleadings and failed to appreciate that the respondent's claim was not supported by its own document but contrary to the same as the CAG report clearly shows that there was no agreement between the parties for offering 10% discount during the extended / renewal period, which is the edifice of the respondent's claim.
G. That the Arbitrator conducted the proceedings against the basic principles of natural justice by permitting the respondent to file documents on more than one occasions without there being any pleadings made by the respondent qua them and without even affording the petitioner to oppose the production of such documents at such a belated stage.
7. On getting notice of the petition, the respondent filed its reply alleging that the petitioner has been deliberately trying to delay and derail the matter since 2013. The petition filed by the petitioner suffers from deficiencies and merits dismissals. The case was about the OMP (Comm) No. 43/2020 Page No. 8 of 38 interpretation of agreement dated 25.09.2007 as per which "in case of renewal of contract beyond initial one year contract, per month charges will be provided at a discount of 10% for the renewal period on the respective mentioned prices". It is stated that it is an admitted position that the agreement was renewed for one year, although, in tranches of two months at a time. The petitioner continued to raise invoices without providing any discount, which were paid by the respondent. This mistake of excess payment was discovered when CAG pointed out on 06.04.2011 and thereafter, the respondent took all steps for recovery of the said amount, which culminated into the award. It is stated that the award has meticulously dealt with the contentions raised by the parties, where the issue of limitation was also framed. After examining the entire disputes, the Arbitrator awarded in favour of the respondent. It is stated that the respondent had made all the pleadings and submissions in the statement of claims and rejoinder and it was only upon the specific queries raised during the proceedings, the respondent obtained the records and furnished before the Arbitrator, which were either the certified copies or the petitioner's own records. The petitioner was given adequate time to reply to each documents as clear from the order dated 01.05.2019. In the admission / denial, the petitioner had barely denied the documents without giving any valid reasons and its stand was rightly rejected. The OMP (Comm) No. 43/2020 Page No. 9 of 38 petitioner had admitted the invoices and it cannot go back and raise hollow contention about them. Reference is made of the case Dyna Technology Pvt Ltd Vs. Crompton Greaves Limited, 2019 SCC OnLine SC 1656 to contend that the arbitral awards should not be interfered with in a casual and clavier 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. Case of Sporty Solution Pvt Ltd Vs. Badminton Association of India, 2020 Indlaw DEL 532 is referred to state that the law as it stands today is examining the terms of a contract is exclusively within the jurisdiction of the Arbitrator and the Court cannot sit in appeal under Section 34 of the Act, if the view taken by the Arbitrator is correct but even second view is possible. The respondent denied the averments made in the petition and stated that the Arbitrator has rightly observed that CAG report was annexed as annexure C2 with the statement of claims and has rightly held that 06.04.2011 is the starting date for calculating the limitation for filing the civil suit as per the Limitation Act. The Arbitrator has rightly adjudged the issue with respect to the limitation by applying Section 17 of the Limitation Act, 1963. The factum of mistake was rightly adjudged by the Arbitrator, which came to light with the letter dated 06.04.2011. Since, the contract was OMP (Comm) No. 43/2020 Page No. 10 of 38 renewed for one year, respondent was entitled to the discounted price as held by the Arbitrator. The documents produced by the respondent were either the public record or the certified copies or the petitioner's own documents. It is stated that the Arbitrator has passed a well-reasoned award after appreciating all the evidence on record, which does not warrant interference under Section 34 of the Act.
Arguments and contentions:-
8. I have heard Ld. Counsel Sh. Surender Kumar for the petitioner and Sh. Gaurav Pathak, Ld. Counsel for the respondent.
9. Ld. Counsel for the petitioner reiterated what has been stated in the petition He referred the agreement dated 25.09.2007, Note 1 to annexure A of the agreement, letter written by the respondent to the petitioner dated 19.08.2008 seeking willingness of the petitioner to extend the contract with 10% discount, reply of the petitioner dated 20.08.2008, whereby, the petitioner had agreed to give discount @10% provided the contract is extended for one year, letter of the respondent dated 07.10.2008 extending the contract for two months without referring to its previous letters, invoices raised and paid by the respondent in terms of the previous agreement, legal notice dated 26.10.2012, which was replied by the petitioner, civil OMP (Comm) No. 43/2020 Page No. 11 of 38 suit filed by the respondent before the District Court, appointment of the Arbitrator and CAG report and submitted that the petitioner before the Arbitrator had vehemently denied the letter dated 06.04.2011, which was produced by the respondent at the final stage of the proceedings but the Arbitrator without any proof relied upon the letter and passed the impugned award.
10. Ld. Counsel referred Section 17 of the Limitation Act and stated that it was the conscious decision of the respondent not to enforce the contract. The plea of mistake cannot taken all of a sudden. Ld. Counsel contended that the impugned award is patently illegal and is liable to be set aside. In support of his contentions, Ld. Counsel referred the case of Padia Timber Company Pvt Ltd Vs. The Board of Trustees of Vishakhapattanam Port Trust, MANU/SC/0006/2021 to contend that in a contract, acceptance must be absolute and not conditional. He also referred the case of Prakash Rattan Lal Vs. Mankey Ram, MANU/DE/0107/2010 to contend that the sole purpose of pleadings is to bind the parties. The parties can lead evidence limited to their pleadings and cannot travel beyond the pleadings. He also referred the case of Nand Kishore Lal Bhai Mehta Vs. New Era Fabrics Pvt Ltd & Anr, 2015 (7) Scale 665 to contend that fresh pleadings and evidence, which is in variance to the original pleadings OMP (Comm) No. 43/2020 Page No. 12 of 38 cannot be taken unless the pleadings are incorporated by way of amendment of pleadings. He also referred the case of Union of India Vs. Ibrahimuddin & Ors, (2012) 8 SCC 148 and submitted that issue of drawing adverse inference is required to be decided by the Court taking into consideration the pleadings of the parties and to see whether any document / evidence withheld, has any relevance at all or omission of its production and the Court cannot lose sight of the fact that the burden of proof is on the party, which has made a factual averment.
11. Ld. Counsel for the respondent reiterated what has been stated in the reply to the petition and referred the award. He also referred the written synopsis filed before the Arbitrator and submitted that it is an admitted case that the agreement dated 25.09.2007 was renewed multiple times and the overall renewal period was one year. Ld. Counsel referred the proceedings of the Arbitrator dated 01.05.2019, where, upon the production of letter dated 06.04.2011 and the extract from the CAG website by the respondent, the petitioner was directed to admit / deny the documents and provide an explanation for the same including that of annexure C2 of statement of claims. Ld. Counsel also referred the proceedings dated 22.05.2019, where, it was stated by the counsel for the petitioner that the petitioner has no further documents to file neither the OMP (Comm) No. 43/2020 Page No. 13 of 38 invoices nor any account statement and thereafter, the Arbitrator listed the matter for final arguments. Ld. Counsel stated that on 16.07.2019, the petitioner had produced the invoices, which were duly verified by the authorized representative of the respondent. Ld. Counsel stated that the respondent came to know of mistake on 06.04.2011. It immediately took the action and issued legal notice upon the petitioner demanding excess payment made to it and then filed a suit for recovery. Ld. Counsel stated that there is no infirmity or illegality in the impugned award. Examining the terms of the contract is within the exclusive domain of the Arbitrator, who alone has the power to interpret the terms of the contract. If two views are possible on such terms, the view the Arbitrator has taken, ought to be followed unless & until there is patent illegality in it. The Court cannot sit in appeal under Section 34 of the Act to impose its own views.
Adjudication/findings:
12. I have considered the submissions as above and gone through the impugned award and the relevant documents as well as the case laws (supra).
13. Section 34 the Arbitration and Conciliation Act as under:
"34.Application for setting aside arbitral award- (1)Re-
course to a court against an arbitral award may be made OMP (Comm) No. 43/2020 Page No. 14 of 38 only by an application for setting aside such award in ac- cordance 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 indica- tion 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 contem- plated 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 ar- bitration can be separated from those not so submitted, only that part of the arbitral award which contains deci- sions 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 pro- vision 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 settle- ment 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- I For the avoidance of any doubt, it is clari- fied that an award is in conflict with the public policy of India only if the making of the award was induced or af- fected by fraud or corruption or was in violation of Section 75 or Section 81."
ii) It is in contravention with the fundamental policy of In- dian law;
iii) It is in conflict with the most basic notions of morality or justice.
OMP (Comm) No. 43/2020 Page No. 15 of 38Explanation-II- For the avoidance of doubt, the test as to whether there is a contravention with the fundamental pol- icy 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 viti- ated 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 reappreciation of evidence.
14. In the case of Hiedelberg Cement India Ltd Vs. The Indure Pvt Ltd, OMP (Comm) No. 413/2019 decided on 29.01.2020, it was held that law of judicial review and interference in proceedings under Section 34 of the Act is no more res integra. Reference of the case Associate Builders v/s Delhi Development Authority, (2015) 3 SCC 49 was made, where the Supreme Court has held as under:
"19. When it came to construing the expression the public policy of India contained in Section 34(2)(b)(ii) of the Ar- bitration Act, 1996, this Court in ONGC Ltd. v. Saw Pipes Ltd. (2003) 5 SCC 705 : held: (SCC pp. 727-28 & 744- 45, paras 31 & 74)
31. Therefore, in our view, the phrase public policy of In- dia used in Section 34 in context is required to be given a wider meaning. It can be stated that the concept of public policy connotes some matter which concerns public good and the public interest. What is for public good or in pub- lic interest or what would be injurious or harmful to the public good or public interest has varied O.M.P. (COMM) 413/2019 Page 30 of 37 from time to time. However, the award which is, on the face of it, patently in violation of statutory provisions cannot be said to be in public interest. Such award/judgment/decision is likely to adversely affect the administration of justice. Hence, in our view in addi- tion to narrower meaning given to the term public policy in Renusagar case [Renusagar Power Co. Ltd. v. General Electric Co., 1994 Supp (1) SCC 644] it is required to be OMP (Comm) No. 43/2020 Page No. 16 of 38 held that the award could be set aside if it is patently ille- gal.
The result would be award could be set aside if it is con- trary to: (a) fundamental policy of Indian law; or (b) the interest of India; or (c) justice or morality, or (d) in addi- tion, if it is patently illegal.
Illegality must go to the root of the matter and if the ille- gality is of trivial nature it cannot be held that award is against the public policy. Award could also be set aside if it is so unfair and unreasonable that it shocks the con- science of the court. Such award is opposed to public pol- icy and is required to be adjudged void.
74. In the result, it is held that: (A)(1) The court can set aside the arbitral award under Section 34(2) of the Act if 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 indica- tion 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 contem- plated by or not falling within the terms of the O.M.P. (COMM) 413/2019 Page 31 of 37 submission to arbitra-
tion, or it contains decisions on matters beyond the scope of the submission to arbitration.
(2) The court may set aside the award:
(i)(a) if the composition of the Arbitral Tribunal was not in accordance with the agreement of the parties, (b) failing such agreement, the composition of the Arbitral Tribunal was not in accordance with Part I of the Act,
(ii) if the arbitral procedure was not in accordance with:
(a) the agreement of the parties, or (b) failing such agree-
ment, the arbitral procedure was not in accordance with Part I of the Act. However, exception for setting aside the award on the ground of composition of Arbitral Tribunal or illegality of arbitral procedure is that the agreement should not be in conflict with the provisions of Part I of OMP (Comm) No. 43/2020 Page No. 17 of 38 the Act from which parties cannot derogate. (c) If the award passed by the Arbitral Tribunal is in contravention of the provisions of the Act or any other substantive law governing the parties or is against the terms of the con- tract.
(3) The award could be set aside if it is against the public policy of India, that is to say, if it is contrary to: (a) funda- mental policy of Indian law; or (b) the interest of India; or
(c) justice or morality; or (d) if it is patently illegal. (4) It could be challenged: (a) as provided under Section 13(5); and (b) Section 16(6) of the Act.......
44. It was held that in the very recent judgments, the Supreme Court has once again reiterated the law re- lated to the examination by a Court of an Award under Section 34 of the Act. In Ssangyong Engineering & Construction Co. Ltd. vs. National Highways Authority of India Ltd. 2019 SCC OnLine SC 677, the Supreme Court has held as under:-
35. What is clear, therefore, is that the expression public policy of India, whether contained in Section 34 or in Sec-
tion 48, would now mean the fundamental policy of Indian law as explained in paragraphs 18 and 27 of Associate Builders (supra), i.e., the fundamental policy of Indian law would be relegated to the Renusagar understanding of this expression. This would necessarily mean that the Western Geco (supra) expansion has been done away with. In short, Western Geco (supra), as explained in paragraphs 28 and 29 of Associate Builders (supra), would no longer ob- tain, as under the guise of interfering with an award on the ground that the arbitrator has not adopted a judicial ap- proach, the Court's intervention would be on the merits of the award, which cannot be permitted post amendment. However, insofar as principles of natural justice are con- cerned, as contained in Sections 18 and 34(2)(a)(iii) of the 1996 Act, these continue to be grounds of challenge of an award, as is contained in paragraph 30 of Associate Builders (supra).
OMP (Comm) No. 43/2020 Page No. 18 of 3836. It is important to notice that the ground for interfer- ence insofar as it concerns interest of India has since been deleted, and therefore, no longer obtains. Equally, 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 jus- tice. This again would be in line with O.M.P. (COMM) 413/2019 Page 34 of 37 paragraphs 36 to 39 of Associate Builders (supra), as it is only such arbitral awards that shock the conscience of the court that can be set aside on this ground.
37. Thus, it is clear that public policy of India is now con- stricted to mean firstly, that a domestic award is contrary to the fundamental policy of Indian law, as understood in paragraphs 18 and 27 of Associate Builders (supra), or secondly, that such award is against basic notions of jus- tice or morality as understood in paragraphs 36 to 39 of Associate Builders (supra). Explanation 2 to Section 34(2)
(b)(ii) and Explanation 2 to Section 48(2)(b)(ii) was added by the Amendment Act only so that Western Geco (supra), as understood in Associate Builders (supra), and para- graphs 28 and 29 in particular, is now done away with.
38. Insofar as domestic awards made in India are con- cerned, an additional ground is now available under sub- section (2A), added by the Amendment Act, 2015, to Sec- tion 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 back- door when it comes to setting aside an award on the ground of patent illegality.
39. Secondly, it is also made clear that re-appreciation of evidence, which is what an appellate court is permitted to do, cannot be permitted under the ground of patent illegal- ity appearing on the face of the award.
40. To elucidate, paragraph 42.1 of Associate Builders (supra), namely, a mere contravention of the substantive law of India, by itself, is no longer a ground available to set aside an arbitral award. Paragraph 42.2 of Associate Builders (supra), however, would remain, for if an arbitra- tor gives no reasons for an award and contravenes Section OMP (Comm) No. 43/2020 Page No. 19 of 38 31(3) of the 1996 Act, that would O.M.P. (COMM) 413/2019 Page 35 of 37 certainly amount to a patent ille- gality on the face of the award.
41. The change made in Section 28(3) by the Amendment Act really follows what is stated in paragraphs 42.3 to 45 in Associate Builders (supra), namely, that the construc- tion 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(2A).
42. What is important to note is that a decision which is perverse, as understood in paragraphs 31 and 32 of Asso- ciate Builders (supra), 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 which ignores vital evidence in arriving at its deci- sion 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 evi- dence inasmuch as such decision is not based on evidence led by the parties, and therefore, would also have to be characterised as perverse.
45. It was also observed that recently, in Hindustan Construction Company Limited & Anr. Vs. Union of India & Ors., 2019 SCC OnLine SC 1520, the Apex Court has held as under:-
55. Further, this Court has repeatedly held that an applica-
tion under Section 34 of the Arbitration Act, 1996 is a summary proceeding not in the nature of a regular suit - see Canara Nidhi Ltd. v. M. Shashikala 2019 SCC O.M.P. (COMM) 413/2019 Page 36 of 37 OnLine SC 1244 at paragraph 20. As a result, a court reviewing an arbitral OMP (Comm) No. 43/2020 Page No. 20 of 38 award under Section 34 does not sit in appeal over the award, and if the view taken by the arbitrator is possible, no interference is called for - see Associated Construction v. Pawanhans Helicopters Limited. (2008) 16 SCC 128 at paragraph 17.
56. Also, as has been held in the recent decision Ssangy- ong Engineering & Construction Co. Ltd. v. NHAI 2019 SCC OnLine SC 677, after the 2015 Amendment Act, this Court cannot interfere with an arbitral award on merits. "
15. In the backdrop of the above, let me now examine the objections against the impugned award agitated by Ld. counsel for petitioner, vis-a-vis the contentions of Ld. counsel for respondent, in support of the award.
16. There is no dispute relating to the agreement dated 25.09.2007 entered by the parties, which was for a period of one year commencing from 25.09.2007, which could be extended with the mutual consent of the parties. As per the schedule of payment, all the payments were to be made on monthly basis between 1st & 15th of every month. Clause 10 of the agreement provides 'termination', as per which, the agreement shall stand automatically terminated by end of the time, if the same is not renewed in writing between the parties or in the event, the party commits any breach of the terms & conditions of the contract in between. As per clause 14, the agreement shall not be varied except by an agreement in writing signed by the parties to the agreement. Annexure A to the agreement provides that in case of renewal of contract beyond initial one year OMP (Comm) No. 43/2020 Page No. 21 of 38 contract, per month charges will be provided at a discount of 10% for the renewed period on the respective above mentioned prices. The said agreement expired on 24.09.2008. The respondent before the expiry of the agreement, vide letter dated 19.08.2008 referring the agreement dated 25.09.2007 had asked the petitioner to issue a communication that it is ready to give 10% discount on the present rate, if the contract is extended further referring the clause under Note 1 of annexure A. The petitioner immediately responded to the letter vide letter dated 20.08.2008 stating that it is ready to offer 10% discount on the existing rates and on the same terms and conditions plus applicable taxes, in case of renewal of the contract for the next one year. The petitioner specifically laid the emphasis "in the case of renewal of the contract for the next one year" in its letter dated 20.08.2008. The letter of the respondent dated 07.10.2008 shows that the respondent did not extend the contract for the next one year but for another two months i.e. upto 24.11.2008 on the same terms & conditions as contained in the agreement dated 25.09.2007. Admittedly, the contract was extended from time to time but not for complete one year at a time but in tranches. There is no mention of 10% discount in the letters for extensions. The correspondences clearly show that the petitioner had provided the services to the respondent without any discount as per the agreement OMP (Comm) No. 43/2020 Page No. 22 of 38 dated 25.09.2007 and the respondent never raised any objection to any of the invoices raised by the petitioner and made the payments against all the invoices.
17. In the instant case, the respondent had filed the claims on the basis of the audit report dated 06.04.2011, which interalia highlighted the irregularities in part 1 (II) (a b), para no. (II a) 1 to 2 and (II b) 1 to 7. It was pointed out in para 5.4 of the report under the heading 'Avoidable payments to the contractors' that the audit noted that after completion of the contract in September 2008, Doordarshan, while initiating the process of fresh tendering, extended the existing contract upto 31.10.2009. The fresh tenders for hiring these four OFC links were floated in February 2009 and the commercial bids were opened in June 2009. M/s Spectranet emerged as the lowest bidder for all the four links at the rate of ................ per year and was awarded the work w.e.f. 01.11.2009. It noted that Doordarshan did not enforce the provision of discount of 10% available on the extended period i.e. from October 2008 to October 2009 and the payments made to the petitioner during the extended period worked out to .............. respectively. Thus, failure of the Doordarshan to enforce the discount provision resulted in avoidable payment of Rs. 21.67 lakhs to the contractors. Although, the management (Doordarshan) had OMP (Comm) No. 43/2020 Page No. 23 of 38 replied (December 2010) that though the proposal for getting 10% discount during the extended period was submitted to Directorate Doordarshan, however, the same was not approved and hence, the extension was given to the firms on the same terms & conditions. The audit report noted that the reply of the Department is not tenable as the provision of 10% discount during the extended period of contract was an integral part of the agreement. In addition to above, Doordarshan took four months after the bids were opened in June 2009 and finalized the contract in November 2009, in spite of the fact that the rate quoted by the lowest bidder was lower than the rates existing under the extended contracts.
18. Record shows that this very audit report made the respondent initiate the process of recovery and send the legal notice dated 27.07.2012 to the petitioner and file the civil suit for recovery before the District Court on 14.01.2013. This suit was disposed of by the District Court vide order dated 23.02.2016 relegating the parties to take recourse to the agreed mode of dispute resolution i.e. arbitration. The respondent then made a request to refer the dispute to arbitration vide letter dated 09.11.2016 and since, the parties could not mutually agree upon the appointment of an Arbitrator, on the petition of the respondent under Section 11 of the Act, the High Court OMP (Comm) No. 43/2020 Page No. 24 of 38 referred the matter to DIAC for appointment of the Arbitrator before whom, the respondent filed its statement of claim and the petitioner filed its statement of defence. The Arbitrator considered the contentions of the parties and passed the award observing that it is admitted by both the parties that the respondent (petitioner herein) provided services for the one year renewed period and the petitioner (respondent herein) made all the payments without availing 10% discount. It was held that the agreement was renewed for a period of one year and the discount of 10% is applicable to the billing period from September 2008 until 31.12.2009, till the time the petitioner rendered its services to the respondent. Both the parties have admitted to have signed the agreement along with Note 1 to annexure A, which specified that in case of renewal of contract beyond one year contract, per month charges will be provided at a discount of 10% for the renewed period. The agreement stated that the agreement was renewable on mutual terms. Both the parties admit to the letters of renewal. The respondent's letter dated 19.08.2009 seeking renewal and confirmation of 10% discount and the petitioner's reply dated 20.08.2009 accepting the renewal and confirming 10% discount offer to the respondent provided the agreement was renewed for one year would constitute offer and acceptance of an agreement. It was held that admittedly the agreement dated 25.09.2007 was OMP (Comm) No. 43/2020 Page No. 25 of 38 renewed for one year and the services were rendered by the petitioner for a further period of one year and the payments were made by the respondent as per the invoices, thus an agreement existed between the parties on the renewed terms of 10% discount and the petitioner was as much obligated as the respondent to raise invoices as per the agreed discounted pricing. The petitioner has shown no reason for not granting the discount and raising the bills on previous rates. This shows that the respondent was only under a mistaken belief and it continued to pay invoices as raised by the petitioner. It was observed that the petitioner had no intent of paying the discounted rates to the respondent, which is obvious from its attitude, though, it could have easily made a refund, when the respondent made the demand through a legal notice. Once, the discount was agreed, business ethics demand the terms of the agreement are adhered to, all the more in a case of bonafide mistake, it would have been corrected by the petitioner. It was held that the petitioner had not cooperated and not adhered to the terms of the agreement dated 25.09.2007 and mutually agreed terms of the renewal and the respondent is entitled to the refund of amount of Rs. 14,50,502/- along with interest.
19. There is no dispute that Section 34 of the Act limits a challenge of an award only on the grounds provided OMP (Comm) No. 43/2020 Page No. 26 of 38 therein and that the arbitral award should not be interfered with in casual and clavier 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 interpretations, which may sustain with a normal appellate jurisdiction and examining the terms of the contract is exclusively within the jurisdiction of the Arbitrator and that if two views are possible on such terms, the view, the Arbitrator has taken, ought to be followed, until & unless there is patent illegality in it and the Court cannot sit in appeal under Section 34 of the Act to impose its own view, if the view taken by the Arbitrator is correct but even second view is possible. However, it is equally settled that the award can be set aside, if it is contrary to the fundamental policy of Indian law or is against the basic notions of justice or morality or it suffers from patent illegality appearing on the face of award and such illegality, which goes to the root of the matter. It was held in the case of Ssangyong Engineering & Construction Co. Ltd. vs. National Highways Authority of India Ltd supra that the award can be challenged under Section 34 (2A), if the Arbitrator constitute the terms 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 matter not allotted to him as it would amount to OMP (Comm) No. 43/2020 Page No. 27 of 38 committing of error by the Arbitrator.
20. In the instant case, the contract was initially for a period of one year. The respondent before extending the contract before the expiry of the contract had asked the petitioner, if it was ready to give 10% discount on the present rate if the contract is extended further. The petitioner vide letter dated 20.08.2008 replied to the letter stating that it is ready to offer 10% discount on existing rates and same terms & conditions plus applicable taxes in case of renewal of the contract for the next one year. The letter of the respondent dated 07.10.2008 clearly shows that it was conscious / aware of the response of the petitioner that it was ready to offer 10% discount, in case of renewal of the contract for the next one year and having being conscious / aware of this fact, it extended the contract for another two months i.e. upto 24.11.2008 on the same terms & conditions as provided in the agreement dated 25.09.2007. It is not the case that the respondent extended the contract for another one year on receipt of the letter of the petitioner dated 20.08.2008. Admittedly, respondent extended the contract from time to time but in tranches and not for whole one year as requested by the petitioner in its letter dated 20.08.2008 giving the offer of 10% discount. The audit report also finds mention that the respondent had initiated the process of floating tenders in OMP (Comm) No. 43/2020 Page No. 28 of 38 February 2009 and opened the bid in June 2009. It shows that the respondent was not willing to extend the contract of the petitioner for another one year, rather, the circumstances or the procedure made the respondent extend the contract of the petitioner from time to time i.e. upto 31.10.2009.
21. The plea of the respondent that the invoices submitted by the petitioner were accepted and paid by mistake is not tenable and acceptable since, the reply of the respondent as evident from the audit report clearly states that it was the Directorate Doordarshan, who did not accord the approval of the proposal for getting 10% discount during the extended period and for this reason, the extension was given to the firms (petitioner) on the same terms & conditions. The said reply was given by the respondent to the Audit Department in December 2010, so the respondent cannot be allowed to claim that it came to know of its mistake, after getting the audit report, vide letter dated 06.04.2011. Facts & circumstances show that it was a conscious decision of the respondent to make the payment in terms of the agreement dated 25.09.2007 and not to avail 10% discount offer by renewing the contract for the next one year. The record also shows that the payment was not only made against one invoice but also against the invoices raised by the petitioner from time to OMP (Comm) No. 43/2020 Page No. 29 of 38 time on monthly basis upto October 2009. The last payment was made on 13.01.2010.
22. It is true that both the parties had signed the agreement dated 25.09.2007 containing Note 1 to annexure A and the agreement was renewable on mutual terms but the correspondences made by the parties vide letters referred to above show that the petitioner had offered the discount provided the contract was renewed for the next one year, which offer was not accepted by the respondent and the contract was extended initially for a period of two months as per the terms & conditions of the agreement dated 25.09.2007. In this case, there was no unequivocal acceptance by the petitioner. Rather, it was a conditional offer, which was not accepted by the respondent. It is true that the contract was extended from time to time but in tranches till 31.10.2009 but there was no such offer of the petitioner that it is ready to give 10% discount, even the contract is not extended for the next one year. The respondent was also conscious of this fact, which fact is also evident from the audit report, when it submitted its reply to the Audit Department in December 2010.
23. For the aforesaid discussions, it can well be said that the Arbitrator construed the contract in a manner that no fair minded or reasonable person would do or her view OMP (Comm) No. 43/2020 Page No. 30 of 38 was not even a possible view to take. The correspondence and the letters show that the discount offer was valid, if the contract would have been extended for the whole one year. Since, in the instant case, the contract was extended in tranches, the Arbitrator was wrong in interpreting the contract that it was renewed for a whole one year and the petitioner was obligated to raise invoices as per the agreed discounted pricing.
24. Now coming to limitation, the agreement dated 23.08.2007 was for the period of one year, which expired on 19.08.2008. The respondent granted the extension from time to time in tranches and the contract continued till 31.10.2009. The petitioner raised the invoices from time to time, which were paid by the respondent on monthly basis. The last payment was made on 13.01.2010 vide cheque, which was cleared on 20.01.2010. According to the respondent, the bonafide mistake on the part of the respondent came to light from the CAG audit report of 2010-11 and the letter dated 06.04.2011. Immediately, thereafter, it sent a legal notice to the petitioner vide dated 26.07.2012 alleging therein that the 10% discount was to be offered by the petitioner on the bills for the extended / renewal period, however, the same was not offered because of which excess payment was made by it. It claimed a refund of excess amount of Rs. 14,05,592/-. The OMP (Comm) No. 43/2020 Page No. 31 of 38 petitioner replied to the notice vide reply dated 26.10.2012 stating that the bills for the extended / renewal period were rightly raised by it as the parties could not reach to any agreement with respect to 10% discount and consequently, the agreement was renewed on the existing terms & conditions only. The respondent then filed a suit for recovery before the District Court on 14.01.2013, which was disposed of vide order dated 23.02.2016 relegating the parties to take recourse to the agreed mode of dispute resolution i.e. arbitration. The respondent then sent a request to refer the alleged dispute to arbitration vide letter dated 09.11.2016, which was received by the petitioner on 19.11.2016. Since, the parties could not mutually agree on the appointment of an Arbitrator, on the petition of the respondent, High Court referred the matter to DIAC vide order dated 28.05.2018, which appointed the Arbitrator. In June 2018, the respondent filed its statement of claims.
25. The statement of payments and the record show that after September 2008, the contract was renewed from time to time in tranches till 31.10.2009. The last payment was made vide cheque on 13.01.2010. On the basis of the audit report, the respondent filed the suit for recovery on 14.01.2013 i.e. after the period of three years. As per the schedule to the Limitation Act 1963, for money payable to the petitioner, or money paid for the respondent, the period OMP (Comm) No. 43/2020 Page No. 32 of 38 of limitation shall be three years and the time from which, the period begins to run from the date when the money is paid. For the sake of arguments, even if it is assumed that the limitation would start from the day, the clearance was made by the bank i.e. from 20.01.2013, still the claim was barred by limitation.
26. As evident from the record, since the agreement contained the arbitration clause i.e. clause 12 for dispute resolution, the Court on the application of the petitioner vide order dated 23.02.2016 disposed of the suit relegating the parties to take recourse to the agreed mode of dispute resolution i.e. arbitration. The said order was passed by the Court on 23.02.2016 but the respondent made the request for referring the dispute to the arbitration only on 09.11.2016 i.e. after about eight months of the order. The said request was received by the petitioner on 19.11.2016. The respondent did not assign any reason for delay in making such request. Admittedly, Section 14 of the Limitation Act provides for exclusion of time of proceedings bonafide i.e. (from the period 14.01.2013 to 23.02.2016), even then, the claim was barred by limitation. Section 21 of the Act provides that unless otherwise agreed by the parties, the arbitral proceedings in respect of a particular dispute commence on the date on which a request for that dispute to be referred to arbitration is OMP (Comm) No. 43/2020 Page No. 33 of 38 received by the respondent. In the instant case, the request was received by the petitioner on 19.11.2016, so the date for the arbitral proceedings in respect of the claim would be treated as 19.11.2016.
27. In the instant case, the respondent has pleaded that the bonafide mistake came to its notice from the audit report and the letter dated 01.04.2011 and in terms of Section 17 of the Limitation Act, the period of limitation would start from the date, when the mistake came to its notice.
28. I do not find merits in this submission.
29. Section 17 of the Limitation Act, 1963 provides that the period of limitation shall not begin to run until the petitioner has discovered the mistake. In the instant case, as already discussed in the preceding paras, there was no question of mistake. It was a conscious decision of the respondent not to extend the contract for the whole one year on the terms of the petitioner and to extend the contract in tranches on the terms & conditions of the agreement dated 25.09.2007. Letters and the documents do not show that the respondent was under a mistaken belief regarding the 10% discount in the billing. The respondent had been making the payments as per the terms of the OMP (Comm) No. 43/2020 Page No. 34 of 38 agreement, which fact it had also expressed in response to the audit objections as evident from the audit report of 2010-11. It cannot be said that the date of knowledge would be pinned-down to 06.04.2011 and the limitation would commence from 06.04.2011 as observed by the Arbitrator. It is true that the time period, when the respondent pursued the legal remedies before the District Court would be excluded for calculating the limitation period but even then, the claim was barred by limitation.
The last payment was made on 13.01.2010. The clearance was made by the bank on 20.01.2010. Suit for recovery before the District Court was filed on 14.01.2013. The suit was disposed of by the District Court vide order dated 23.02.2016 relegating the parties to take recourse for arbitration. The request for arbitration was received by the petitioner on 19.11.2016, which date shall be construed as the date for reference under Section 21 of the Act. Excluding the time of the proceedings bonafied in the District Court without jurisdiction as contemplated under Section 14 of the Limitation Act, the total time taken by the respondent for initiating recovery proceedings before the Arbitrator was more than three years. So, in view of the Schedule to the Limitation Act 1963, the recovery proceeding before the Arbitrator was barred by limitation.
30. It is true that the respondent was entitled to the OMP (Comm) No. 43/2020 Page No. 35 of 38 exclusion of the time in computing the period of limitation of any suit or application but it is equally true that the party must be prompt and diligent in pursuing the matter. In the instant case, the respondent did not take any concrete steps for about eight months after disposal of the suit by taking recourse for the resolution of dispute through arbitration.
31. As regards the production of the letter dated 06.04.2011 and the extracts from CAG website by the respondent after the matter was posted for arguments and further production of certain original documents, the arbitral proceedings dated 01.05.2019 would show that the petitioner was given opportunity to admit / deny the above documents produced by the respondent and provide an explanation for the same giving time. The proceedings dated 22.05.2019 would show that the petitioner never objected to the same. Rather, it was submitted by the petitioner that he has no further documents to file neither the invoices nor any account statements. Admittedly, the parties cannot be allowed to go behind the pleadings and the parties can lead the evidence limited to their pleadings but in the instant case, the statement of claims, which the respondent had filed before the Arbitrator has a reference of the audit report no. 38 and chart of payments made by the respondent during 2008-09. It was the audit report, OMP (Comm) No. 43/2020 Page No. 36 of 38 which pointed out the excess payments. It also has a reference of the suit filed before the District Court for recovery. The rejoinder filed by the respondent also finds mention of the CAG audit report highlighting the excess payment made by the respondent. These were the official documents. Hence, it cannot be said that the respondent tried to introduce new documents or new pleas, which were not the part of the pleadings.
32. For this reason, I do not find merit in the objection of the petitioner that the Arbitrator went beyond the pleadings while taking into consideration the sanction orders and the account statements or other documents produced by the respondent during the course of proceedings. The petitioner had ample opportunity to question / deal with the said documents. I am of the view that the Arbitrator has correctly placed reliance on the letter dated 06.04.2011 written by the CAG about the audit report.
33. For the foregoing discussions, I am of the opinion that the award on the face of it is patently in violation of the statutory provisions of law and it cannot be said to be in public interest. The Arbitrator has construed the contract in a manner that no fair minded or reasonable person would do. His view is not even a possible view to take. It is against the fundamental policy of India. There is an OMP (Comm) No. 43/2020 Page No. 37 of 38 illegality as to the computation of limitation, which goes to the root of the matter. The claims filed by the respondent are barred by limitation. The award thus passed by the Arbitrator is in contravention of the provision of the Act / substantive law governing the parties.
34. The impugned award is set aside and consequently, the petition is allowed. No order as to costs.
35. File be consigned to record room.
Announced in open court
today i.e. 04.06.2021 (Sanjiv Jain)
District Judge (Commercial) - 03
Patiala House Courts, New Delhi
OMP (Comm) No. 43/2020 Page No. 38 of 38