Madras High Court
M/S.Rail Vikas Nigam Limited vs M/S.K.S & Co on 14 July, 2022
Author: M.Sundar
Bench: M.Sundar
Arb O.P.(Com. Div.)No.266 of 2022
IN THE HIGH COURT OF JUDICATURE AT MADRAS
Dated : 14.07.2022
Coram
THE HONOURABLE MR. JUSTICE M.SUNDAR
Arb O.P.(Com. Div.)No.266 of 2022
and
Application No.2321 of 2022
M/s.Rail Vikas Nigam Limited
Represented by the Chief Project Manager
Chennai – 600 004. ... Petitioner
vs.
M/s.K.S & Co.
No.4/150, Lake Area Main Road
Uthangudi East
Madurai – 625107. ... Respondent
Arbitration Original Petition filed under Section 34(2)(b)(ii) of the
Arbitration and Conciliation Act, 1996
(a) to set aside the Arbitration Award dated 18.11.2021 and the
Correction thereto dated 21.12.2021 made in relation to disputes arising out
of the contract between the petitioner and the respondent, for Re-
construction of Road Over bridge No.380A between Srirangam and
Tiruchchirappalli Town Railway Stations at Km.329/700-900 and
Construction of Limited Users Subway as part of Dindigul – Villupuram
doubling project in Tiruchchirappalli Divisionh of Southern Railway,
Agreement No.VNL/CPM/MAS/DG-VM/OT-8, dated 9.4.2014.
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Arb O.P.(Com. Div.)No.266 of 2022
(b). to direct the petitioner to pay the costs.
For petitioner : Mr.V.G.Suresh Kumar
For respondent : Mr.K.Harishankar
Counsel for Caveator
ORDER
Captioned Arb OP has been presented in this Court on 04.04.2022 under Section 34(2)(b)(ii) of 'The Arbitration and Conciliation Act, 1996 (Act No.26 of 1996)', which shall hereinafter be referred to as 'A and C Act' for the sake of brevity, assailing an arbitral award dated 18.11.2021 {as corrected on 21.12.2021} rendered by a three member 'Arbitral Tribunal' ('AT' for the sake of brevity, convenience and clarity). This Arbitral Award dated 18.11.2021 together with the correction on 21.12.2021 shall be collectively referred as 'impugned award' for the sake of convenience and clarity.
2.This being a legal drill under Section 34 of A and C Act, short facts shorn of elaboration will suffice. Factual matrix in a nutshell is that the 2/28 https://www.mhc.tn.gov.in/judis Arb O.P.(Com. Div.)No.266 of 2022 petitioner before this Court ('Railway Vikas Nigam Limited', hereinafter 'RVNL' for the sake of brevity, convenience and clarity) invited tenders for reconstruction of a road over-bridge and construction of a limited users sub- way on 22.10.2013; that there were bids; that this work was valued at Rs.11 Crores; that K.S & Co. which is the respondent in the captioned Arb OP was the successful bidder and K.S & Co shall hereinafter be referred to as 'Contractor' for the sake of brevity, convenience and clarity; that the description of reconstruction of a road over-bridge and construction of a limited users sub-way shall hereinafter be referred to as 'said work' for the sake of brevity, convenience and clarity; that contractor being the successful bidder was awarded a 'letter of acceptance' (LOA) dated 05.03.2014 by RVNL for a sum of Rs.11,29,90.680/-; that said work had to be completed by the contractor within 18 months from the date of LOA i.e, on or before 05.09.2015; that three extensions i.e., time extensions became necessary and three extensions, firstly upto 03.06.2017, second extension upto 03.02.2018 and third extension upto 31.03.2018 were granted by RVNL; that the contractor ultimately completed the said work on 28.02.2018 within the third and last extension; that post LOA a formal 'contract dated 09.04.2014' [hereinafter 'said contract'] was executed and 'General Conditions of 3/28 https://www.mhc.tn.gov.in/judis Arb O.P.(Com. Div.)No.266 of 2022 Contract' [GCC] of RVNL forms part of said contract; that post completion of said work the contractor raised certain disputes and triggered the Arbitration clause; that a three member Arbitral Tribunal constituted by three technocrats [former employees of RVNL] came to be constituted pursuant to certain directives issued by this Court; that the AT embarked upon the exercise of entering upon reference and adjudicating the arbitrable disputes that had arisen between the parties; that contractor as claimant before AT made claims under seven heads [including costs], out of which five were acceded to and two were acceded to partly; that RVNL as respondent before AT made counter claim under one head; that one head pertains to GST; that the counter claim of RVNL was rejected vide impugned award; that the impugned award is in favour of the contractor albeit with future interest; that RVNL has now come before this Court under Section 34 of A and C Act assailing the impugned award.
3.Going by the case file that has been placed before this Court, RVNL has presented the captioned Arb OP under Section 34(2)(b)(ii) of A and C Act. Section 34(2)(b)(ii) has two Explanations and Explanation 1 has three clauses. There is no specific mention about which of the clauses qua 4/28 https://www.mhc.tn.gov.in/judis Arb O.P.(Com. Div.)No.266 of 2022 Explanation 1 are invoked. In any case, Explanation 2 is not one that can be invoked by a protagonist of a petition which challenges an arbitral award. As regards Explanation 1, learned counsel for RVNL on the hearing submitted that it would fall under sub-clause (ii) of Explanation 1 and first limb of sub clause (iii), i.e., conflict with most basic notions of justice. In addition to this submission, in the course of the hearing, learned counsel also made submissions to the effect that the impugned award runs contrary to the terms of said contract. This argument will necessarily fall under section 28(3) of A and C Act. Though Section 28(3) has not been invoked in the caption to the petition in the case file, the same is also being considered by this Court.
4.Learned counsel for RVNL said he would be assailing all the 7 claims and the rejection of the counter claim. Therefore, it would be appropriate to put the arguments in compartments and deal with the same. Though there are actually 7 heads of claims, they shall be referred to as claims numbers i.e., claim no.1, claim no.2 etc., for convenience.
5.Claim No.1 pertains to recovery of insurance premium. This in the considered view of this Section 34 Court is a non-starter as premium paid by 5/28 https://www.mhc.tn.gov.in/judis Arb O.P.(Com. Div.)No.266 of 2022 the contractor to the insurance company has been deducted from the monies payable to the contractor on the ground that the contractor had taken insurance belatedly. If there has been an untoward incident in the course of the work during the period when there was no insurance cover, it may well be a million dollar question as to whether the contractor or RVNL as principal employer would have absorbed it but this is hardly a point for consideration as that cannot justify the premium paid by the contractor being deducted from the monies payable to the contractor. Therefore, the impugned award directing the insurance premium recovered by RVNL from the contractor to be refunded cannot be found fault with, even on plain logic i.e., without even going into the intricacies and nuances of Section 34.
6.Claim No.2 pertains to withholding of a sum of Rs.5 lakhs from the 'running account' ['RA' for brevity]. The sum of Rs.5 lakhs held back by RVNL from the running account due to non submission of price variation claim was essentially held in favour of the contractor by holding that there is no provision in the said contract enabling the respondent to withhold any amount from a RA bill. This was assailed by learned counsel for RVNL by referring to clause 14.6 (b) of said contract. Sub clause (b) of Clause 14.6 6/28 https://www.mhc.tn.gov.in/judis Arb O.P.(Com. Div.)No.266 of 2022 reads as follows:
'(b) if the Contractor was or is failing to perform any work or obligation in accordance with the Contract, and had been so notified by the Engineer, the value of this work or obligation may be withheld until the work or obligation has been performed.'
7.Clause 14.6 (b) makes it clear that even on a demurer i.e., even if there is a provision for withholding that is only till the work is performed. There is no justification to withhold the amount after completion of the work. To be noted, as alluded to supra, in the case on hand., the entire work was admittedly and actually completed on 23.02.2018 and this 23.02.2018 is well within the third and last extension which was upto 31.03.2018. Therefore, even if there is a provision, there was no justification for withholding the monies from the running account post completion of work. Though the AT talks about there being no provision for withholding amounts from RA bill, it was also noticed that the amount withheld is arbitrary. This is captured in paragraph 7.2.5 of the impugned award which reads as follows:
'7.2.5. There is no provision which enables the Respondent to withhold any amount from a RA Bill. After all, 7/28 https://www.mhc.tn.gov.in/judis Arb O.P.(Com. Div.)No.266 of 2022 on what basis was it decided to withhold Rs.5 lakhs and not Rs.2 lakhs or Rs.7 lakhs. The amount withheld was purely arbitrary.'
8.Even if no provision for withholding finding of AT is effaced, the remaining limb of the finding will still hold good as the view of the AT as to why it should not have been Rs.2 lakhs or Rs.7 lakhs and the basis on which it is pegged at Rs.5 lakhs is arbitrary is clearly a plausible view. To be noted, as long as a view taken by a AT is not an implausibe view there would be no judicial intervention. This position of law emerges with absolute specificity and it is clear as day light post Ssangyong case law i.e., Ssangyong Engineering and Construction Company Limited Vs. National Highways Authority of India reported in (2019) 15 SCC 131. In Ssangyong case law, more particularly in paragraphs 34 to 36, Hon'ble Supreme Court made it clear that paragraphs 28 and 29 of Associate Builders case law i.e., Associate Builders Vs. Delhi Development Authority reported in (2015) 3 SCC 49 and paragraphs 35 and 38 to 40 Western Geco case law i.e., ONGC Ltd. v. Western Geco International Ltd., reported in (2014) 9 SCC 263 are no more good law and they may not have application under Section 34(2)(b)(ii) and 8/28 https://www.mhc.tn.gov.in/judis Arb O.P.(Com. Div.)No.266 of 2022 there cannot be a review on merits of the dispute. This means, if at all and if that be so, such an argument can be tested only under Section 34(2)(A) i.e., patent illegality. If we go into patent illegality slot, even mere erroneous application of law passes muster vide proviso thereto and reappreciation of evidence is forbidden. It may not be necessary to elaborate more on this. Suffice to say that in the light of Sangyong principle which explains Associate Builders case law and Western Geco case law, this argument is not available to the petitioner any longer under Section 34(2)(b)(ii) on which the captioned Arb OP is predicated.
9.Regarding Claim No.3 which pertains to crane charges, learned counsel for RVNL adverting to the tender schedule for reconstruction submitted that it was made clear that spare crane of required capacity has to be kept ready during the course of execution of the said work. This crane argument is not good enough to lift the weight of the finding returned by AT i.e., the finding that the contractor had to deploy cranes of higher capacity by relying on documents which were before AT as there has been appreciation of evidence before the AT. As already alluded to supra, re-appreciation of evidence is forbidden if it is 34(2A) and there can be no review on merits if it 9/28 https://www.mhc.tn.gov.in/judis Arb O.P.(Com. Div.)No.266 of 2022 patent illegality plea under Section 34(2A). Either way it is heads you win tails you loose situation for RVNL.
10.As regards claim No.4, the challenge in the considered view of this Court is both interesting and intriguing. It is interesting and intriguing because the complaint of RVNL is the contractor has paid more GST than the other contractors. GST is a revenue matter and RVNL which is wholly a State owned company would only stand to benefit albeit indirectly. However, this Section 34 Court does not want to make forays into those areas as a legal drill under Section 34 should perambulate within the statutory perimeter sketched by Section 34 as elucidatively explained in Ssangyong case law. Therefore, it would suffice to say that there were two expert opinions i.e., opinions from two Chartered Accountants before the AT. AT weighed the two and came to the conclusion that the opinion certificate given by one of the Chartered Accountants regarding the impact of the tax regime and obvious reference to GST regime is acceptable. A careful perusal of entire paragraph 7.4 of AT i.e., Paragraphs 7.4.1 to 7.4.16 makes it clear that this again is clearly a plausible view. There is nothing to demonstrate to this Section 34 Court that this is an implausible view. As long as it is not an implausible 10/28 https://www.mhc.tn.gov.in/judis Arb O.P.(Com. Div.)No.266 of 2022 view, judicial intervention under Section 34 is impermissible. That by itself calls it a day for the campaign against Claim No.4.
11.As regards Claim No.5 which is for compensation, though very many submissions on merits were made, this Court considers it appropriate to have a close look at the manner in which the AT has dealt with this claim. The AT has gone into all granular details about said work, period over which it was completed and has come to the conclusion that out of 31 months delay that is said to have occurred, the contractor is certainly not responsible for 26 months. There is nothing to demonstrate that it is implausible or perverse. Therefore, this is clearly an area of review on merits and this Court under Section 34 finds no compelling reason to examine the same and sit on appeal. After all, this Court cannot sit on appeal qua an Arbitral award. The finding on this compensation claim which is the most substantial chunk of the award is captured in paragraph 7.5. This is a elaborate paragraph consisting of as many as 26 sub-sub-paragraphs i.e., Paragraphs 7.5.1 to 7.5.26. A scanned reproduction of this is of immense significance/highly relevant and the same is as follows:
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12.A careful perusal of the above would make it clear that there can be no judicial intervention on the above without sitting through the merits of the matter which is clearly impermissible as this Court is not sitting on appeal qua impugned award. This takes this Section 34 Court to Claim No.6 which is on interest charges.
13.AT refers to Clause 14.8 of said contract. Adverting to clause 14.8 of said contract, it was argued that it would operate only if one of the eventualities in 14.7 occurs and there is none in the case on hand. To buttress this submission, attention of this Court was also drawn to Clause 20.3.11 to say that interest is impermissible. This Court deems it appropriate to extract and reproduce these clauses viz., 14.7, 14.8 and 20.3.11.
14.7 Payment The Employer shall pay to the Contractor:
(a) the first installment of the advance payment within 42 days after issuing the Letter of Acceptance or within 21 days after receiving the documents in accordance with Sub-Clause 4.2 [Performance Security] and Sub-
Clause 14.2 [Advance Payment], whichever is later; 19/28 https://www.mhc.tn.gov.in/judis Arb O.P.(Com. Div.)No.266 of 2022
(b) (i) After preliminary scrutiny and certifications by the Engineer, payment of 70% of the certified net payment due (after recoveries and deductions), shall be made by the Employer within 10 days of receiving a statement and supporting documents by the Engineer subject to the condition that last interim payment certificate has been settled after detailed check. In the event of the contractor submitting bills based on false measurements, Project Director should issue a written warning to him to the effect that the facility of 70% payment without detailed check will be withdrawn in future. If the contractor repeats the misconduct this facility should be withdrawn.
(ii). The amount certified in each Interim Payment Certificate within 56 days after the Engineer receives the Statement and supporting documents. Any discrepancy shall be rectified in the next payment to the Contractor; and
(c) the amount certified in the Final Payment Certificate within 56 days after the Employer receives this Payment Certificate or, the undisputed amount shown in the Final Statement, within 56 days after the date of notification of the suspension in accordance with Sub- Clause 16.2.
20/28 https://www.mhc.tn.gov.in/judis Arb O.P.(Com. Div.)No.266 of 2022 Payment of the amount due, unless specified in the Contract Data, shall be made in INR into the bank account, nominated by the Contractor.
14.8 Delayed Payment If the Contractor does not receive payment in accordance with Sub-Clause 14.7 [Payment], the Contractor shall be entitled to receive interest compounded monthly on the amount unpaid during the period of delay. This period shall be deemed to commence on the date for payment specified in Sub- Clause 14.7 [Payment], irrespective (in the case of its sub- paragraph (b)) of the date on which any Interim Payment Certificate is issued.
Unless otherwise stated in the Special Conditions of Contract, the interest amount be calculated at the annual rate of seven percent.
The Contractor shall be entitled to this payment without formal notice or certification, and without prejudice to any other right or remedy.
20.3.11 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. 21/28 https://www.mhc.tn.gov.in/judis Arb O.P.(Com. Div.)No.266 of 2022
14.In the considered view of this Court, if one were to put clauses 14.7 and 14.8 in one basket and compare it with Clause 20.3.11 in another basket, it tantamounts to comparing apples and oranges. The reason is while clauses 14.7 and 14.8 talk about interest when the contract is operated, Clause 20.3.11 talks about interest in the event of an arbitration and an award. Clause 20.3.11 only prohibits pendente lite interest. It is nobody's case that the impugned award provides for pendente lite interest. On the contrary it only provides for future interest. Therefore, if at all and if it be so, the impugned award is in strict conformity with clause 20.3.11. Reverting to Clauses 14.7 and 14.8, a careful perusal of the two clauses make it clear that the contractor will be entitled to receive payment in accordance with 14.7 and if he does not receive payment in accordance with the sub-clauses adumbrated under 14.7, the contractor would be entitled to receive interest compounded monthly on amount paid during the period of delay. Delay has already been discussed and the AT has returned the finding that out of 31 months alleged delay, 26 months is not attributable to the contractor. Therefore, the AT acceding to claim No.6 of the contractor does not call for any intervention under Section 34.
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15.This takes this Court to Claim No.7 which is costs. Though the claims of the contractor have been acceded to substantially, no costs have been awarded and therefore, there can be no complaint in this regard.
16.As rightly submitted by learned counsel for RVNL, the counter claim of RVNL is only under one head and that one head turns on GST and the same has already been dealt with earlier where claim No.4 and challenge to the same has been discussed.
17.The sum sequitter of the discussion thus far means that there is no ground for intervention qua impugned award under Section 34 of A and C Act.
18.Before writing the concluding paragraph or in other words, the operative part of this order, it is deemed appropriate by this Section 34 Court to remind itself that a Section 34 legal drill is neither an appeal nor a revision. It is not even a full fledged judicial review. It is a mere challenge to an arbitral award and such challenge should be such that it fits nay snugly 23/28 https://www.mhc.tn.gov.in/judis Arb O.P.(Com. Div.)No.266 of 2022 fits into one or more of the pigeon holes adumbrated under Section 34. To put it differently, Section 34 is a default provision which is a delicate legal balance between Sections 5 and 35 of A and C Act on one side and the bedrock judicial review principle qua due process of law on the other. Section 5 of A and C Act talks about minimum judicial intervention and Section 35 of A and C Act has the sanctity of finality of arbitral awards ingrained in it. Therefore, in this fine and delicate balance unless there is something so striking which strikes at the root of an arbitral award and it so strikes that it becomes an infarct i.e., fatal to the award, an intervention is not called for.
19.This Section 34 Court also deems it appropriate to add that a Section 34 legal drill is a summary procedure. This has been set out in Clause 8.5 of the practice note forming part of the rules of Madras High Court Arbitration Rules, 2020. Clause 8.5 of the practice note reads as follows:
'8.Challenge to an award under Section 34 of the Act:
8.1. .....
.....
24/28 https://www.mhc.tn.gov.in/judis Arb O.P.(Com. Div.)No.266 of 2022 8.5 Proceedings under Section 34 of the Act shall be disposed of by a summary procedure.'
20.The aforementioned Clause 8.5 which has been made by MHC in exercise of powers under Section 82 of A and C Act draws inspiration from Fiza Developers principle. Fiza Developers principle is ratio laid down by Hon'ble Supreme Court in Fiza Developers and Inter-Trade Private Limited Vs. AMCI (India) Private Limited reported in (2009) 17 SCC 796 wherein Hon'ble Supreme Court has held that Section 34 is a one issue summary procedure. The Hon'ble Supreme Court also went on to explain that when it says that it is a one issue summary procedure it does not mean that the lis should turn on one issue. It was made clear that an arbitral award being put to challenge in a Section 34 exercise itself becomes an issue in a Section 34 Court. It is also to be noted that this Fiza Developers principle was held to be a step in a right direction subsequently in Emkay Global case law i.e., Emkay Global Financial Services Ltd. v. Girdhar Sondhi reported in (2018) 9 SCC 49.
21.In addition to clause 8.5 of the practice note, Rule 8 of the Madras 25/28 https://www.mhc.tn.gov.in/judis Arb O.P.(Com. Div.)No.266 of 2022 High Court (Arbitration) Rules, 2020 reads as follows:
'8. Procedure in relation to petitions under Section 34 of the Act:
(i) Every petition under Section 34 shall be posted for admission before the Court. On hearing a petition under Section 34 for admission, the Court may-
(a) admit and order notice to the respondent, or
(b) direct the petitioner to issue notice along with the petition and documents to the respondent before the matter is heard for admission; or
(c) dismiss the petition, with or without costs.
(ii) Where the court orders notice on admission, the Court shall endeavour to decide the admission within three months from the date of first hearing.
(iii) When notice is issued under sub-rule (i), the records of the Arbitral Tribunal:
(a) shall be requisitioned where the admission is on one or more grounds under Section 34(2)(a); and
(b) may be requisitioned in other cases.
(iv) Notwithstanding the above, the arbitral tribunal shall preserve the records of such arbitral proceedings for a period of two years from the date of the award.
(v) The Court may, at any stage of the proceedings before it, at the request of any party or suo motu, call for all or any part of 26/28 https://www.mhc.tn.gov.in/judis Arb O.P.(Com. Div.)No.266 of 2022 the records of the arbitral tribunal.
(vi) Where notice is ordered under sub rule (i), the Respondent shall not file any counter statement or counter affidavit, unless
(a) the Court directs otherwise or (b) the petition alleges that the making of the Award was induced or effected by fraud or corruption. The petition shall be decided on the grounds of challenge and the records of the arbitral tribunal in cases where the same is requisitioned under sub rules (iii) and (v).'
22.This Court tested the captioned Arb OP in accordance with the aforementioned principles/provisions to see if it prima facie passes muster qua admission . In the light of the narrative, discussion and dispositive reasoning supra, the answer is clearly not in the affirmative. In other words, the answer is it does not pass muster qua admission. CONCLUSION
23.Captioned Arb OP fails in the admission board and is therefore dismissed. Consequently, connected application is also dismissed. There shall be no order as to costs.
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