Delhi District Court
Union Of India vs M/S High-Tech Industries on 27 February, 2023
IN THE COURT OF MR. SATYABRATA PANDA, ADJ-04,
PATIALA HOUSE COURTS, NEW DELHI
(I) Arbtn no.833 of 2018
Date of institution: 23.03.2018
Arguments heard on: 27.01.2023
Date of judgment: 27.02.2023
Union of India
through
The Chief Engineer/TSP
Northern House
New Delhi-110001
.............Petitioner
VS.
M/s High-Tech Industries
E-36, Industrial Area, Phase-VII
Mohali (Punjab) ..............Respondent
(II) Arbtn no.1017 of 2018
Date of institution: 09.04.2018
Arguments heard on: 27.01.2023
Date of judgment: 27.02.2023
M/s High-Tech Industries
E-36, Industrial Area, Phase-VII
Mohali (Punjab)
............Petitioner
VS.
Union of India
through
The Chief Engineer/TSP
Northern House
New Delhi-110001
.............Respondent
Arbtnno.1017 and 833 of 2018 page no. 1
JUDGMENT
1. By way of the present common order, I shall be disposing of the two cross-petitions under section 34 of the Arbitration and Conciliation Act 1996 (hereinafter referred to as the A&C Act) filed by the parties against the award dated 29/12/2017 passed by the learned sole arbitrator Mr. Rajbir Singh, Deputy Chief Engineer/Construction/East, Northern Railway, Kashmere Gate, Delhi-110006.
2. For ease of reference, I shall refer to the parties, in the following paragraphs, as per their status before the learned arbitrator, i.e. High-Tech Industries as claimant, and the Union of India as the respondent.
3. The case of the claimant before the learned arbitrator was as follows.
Upon a successful bid by the claimant, the respondent had issued a purchase order dated 19/12/2011 for manufacture and supply of 5,00,000 Nos ERC for a total value of order of ₹ 2,52,30,000/- with a total delivery period of seven months from the date of issue of the purchase order. As per the purchase order, the progress of supply was to be as follows- first one month for arranging raw materials i.e. up to 18/01/2012; second to fourth month for 40% supply i.e. up to 18/04/2012; fifth to seventh month for 60% supply i.e. up to 18/07/2012. It was the case of the claimant that it had supplied 34,255 Nos ERC on 22/02/2012 and 47,844 Nos ERC on 22/03/2012. It was the case of the claimant that there was no more raw material available with the approved vendor RINL from whom the raw material was to be procured as per the purchase order. The claimant had intimated the respondent regarding this vide communication dated 02/04/2012. It was further the case of the claimant that the claimant had Arbtnno.1017 and 833 of 2018 page no. 2 made efforts in the month of March 2012 to procure raw materials from four other approved vendors but all these four vendors refused to supply raw materials due to non-availability of the stock and also demanded very high rates and bigger quantity orders. It was the case of the claimant that the claimant had attended a meeting with the higher officials of the respondent/Railways on 09/08/2012 and informed them about the problem of non-availability of raw material with RINL and other approved vendors, and the unexpected rise in market rates. It was the case of the claimant that the contract had become unviable for the claimant due to non-availability of raw materials with RINL and the other approved vendors. It was further the case of the claimant that subsequently on 17/05/2012, the respondent wrote to the claimant stating that RINL was ready to supply the raw materials, however it was also subject to the onerous condition that the order had to be accompanied by a payment of ₹ 5000/- per tonne EMD or full advance payment and that the rolling of the raw material would take place in June 2012 and that too after receipt of total orders to the tune of 7500 tonne. It was the case of the claimant that all these conditions were unreasonable and burdensome and as such the claimant refused to accept the same. It was further the case that subsequently on 17/07/2012, the respondent sent a letter to the claimant intimating that RINL had agreed to allow lifting period from 2 months to 4 months and advance booking amount was reduced from ₹ 5,000/- to ₹ 1,500/- per tonne and the rolling would be taken up on getting confirmed booking of 5500 tonne. It was the case of the claimant that this again was contrary to the terms and conditions of contract executed between the parties and thus was not acceptable to the claimant. Thus, the claimant could not complete the supply in the stipulated time and on 01.10.2012, the claimant issued a notice to the respondent calling Arbtnno.1017 and 833 of 2018 page no. 3 upon to refix the delivery schedule. It was the case of the claimant that instead of refixing the delivery schedule and amending the terms of the contract, the respondent issued termination letter dated 22/10/2012 terminating the contract and forfeited/encashed the bank guarantee of ₹ 10,00,000/- which was kept as security deposit. The claimant thereafter issued legal notice dated 22/12/2012 to the respondent and invoked the arbitration clause.
4. In terms of the arbitration agreement between the parties, as contained in clause 2900 of the Indian Railways Standard Conditions of Contract, the General Manager, Northern Railway, New Delhi appointed Mr. Rajbir Singh, Deputy Chief Engineer/Construction/East, Northern Railway, as the Sole Arbitrator to adjudicate upon the disputes and differences arising out of the contract between the parties.
5. The claimant filed its statement of claim before the learned arbitrator and raised the following claims: i) amount of ₹ 10,00,000/- with interest @ 18% p.a. from the date of encashment of BG till actual realisation; ii) amount of ₹ 32,12,540/- towards loss of profits with interest from 22/10/2012 till actual payment; iii) amount of ₹ 30,33,028/- towards interest of 18% p.a. from 06/12/2012 till actual payment upto 30/11/2016; and iv) costs of proceedings.
6. It was the case of the respondent before the learned arbitrator that as the claimant had failed to supply the goods in terms of the purchase order, the respondent was well within its rights to terminate the contract and encash the bank guarantee of ₹ 10,00,000/- as per the terms of contract. It was the case of the respondent that as the termination of contract and forfeiture of bank guarantee was legal, there was no question of refund of Arbtnno.1017 and 833 of 2018 page no. 4 bank guarantee amount or of payment of any amounts towards loss of profit or interest.
7. The learned arbitrator has passed the impugned award dated 29/12/2017 holding that the forfeiture of the bank guarantee was bad and has awarded sum of ₹ 10,00,000/- towards refund of the encashed bank guarantee amount. The learned arbitrator has also awarded sum of ₹ 24,647/- to the claimant towards short-payment in the third bill. The impugned award also directed the respondent to make payment of the award amount within sixty days failing which there would be interest @ 15% p.a. on the award amount from the date of the award. The learned arbitrator dismissed the other claims of the claimant towards loss of profits, interest from 06/12/2012 till 30/11/2016 and costs of the proceedings.
ARBTN. NO. 838 of 2018 (Union of India v. Hi-Tech Industries)
8. The respondent has filed the petition bearing ARBTN. No. 838/2018 u/s.
34 A&C Act against the impugned award dated 29/12/2017 passed by the learned sole arbitrator to the extent of the amounts awarded to the respondent.
9. The learned counsel for the respondent has argued that the impugned award has not correctly appreciated the facts and circumstances in which the respondent had terminated the purchase order and encashed the bank guarantee. It is submitted that the claimant was solely liable for supply of the materials within the stipulated time frame. It is submitted that the learned arbitrator failed to appreciate that the contract was legally terminated as the claimant failed to supply the required material within the original delivery period from 19/11/2011 to 18/07/2012 and thereafter within the extended delivery period of 18/07/2012 to 31/10/2012. It is Arbtnno.1017 and 833 of 2018 page no. 5 submitted that the learned arbitrator failed to appreciate that as per clause 12.5 of the tender document, it was provided that when the contract was rescinded, the security deposit was to be forfeited. It is submitted that hence the bank guarantee was legally forfeited by the respondent and as such the claimant was not entitled to the bank guarantee amount.
10. The learned counsel for the respondent has further submitted that the learned arbitrator failed to appreciate that as per clause 10.1 of the contract it was provided that "no essentiality certificate or assistance for procurement of any raw material of any kind will be given by the purchaser unless specifically indicated in the tender documents". It is further submitted that the learned arbitrator failed to appreciate that as per para 1507 of the IRS conditions it was provided that "the contractor shall be solely responsible to procure any material or obtain import or other license or permit required for the fulfilment of the contract." It is submitted that in these circumstances it was the bounden duty of the claimant to check the availability of the required material before signing and accepting the contract and that the claimant had to incur the consequences if it was unable to procure the raw material.
11. It is submitted by the learned counsel for the respondent that when it was the admitted position that the claimant had not supplied the requisite material within the extended delivery period, then the encashment of bank guarantee was justified and the impugned award was totally unjustified and illegal. It is submitted that the learned arbitrator has travelled beyond the four corners of the agreement and has travelled beyond his jurisdiction by holding that "procurement of the raw material by the claimant from the RDSO approved vendors/suppliers at their conditions was financially unviable for the claimant as also beyond the Arbtnno.1017 and 833 of 2018 page no. 6 reach of the contract." It is submitted that it was beyond the scope of the learned arbitrator to check whether the contract had become financially unviable for the claimant or that the procurement of the raw materials was beyond the contract. It is submitted that the claimant had not challenged the agreement and the agreement had been executed voluntarily between the parties.
12. It is further submitted by the learned counsel for the respondent that the learned arbitrator had failed to appreciate that as per clause 12.4 of the contract under the heading Security Deposits it was provided that no interest was payable on the deposits with the railways. It is submitted that as such the direction for interest @ 15% p.a. on the award amount was not permissible.
13. It is further submitted by the learned counsel for the respondent that in so far as the award of ₹ 24,647/- to the claimant towards the less payment in the third bill is concerned, the said award was beyond the scope of arbitration as the claimant had not even prayed for the grant of any amount towards the third bill in its claim petition.
14. On the other hand, the learned counsel for the claimant has submitted that the learned arbitrator has after carefully considering the evidence and the submissions of the parties has held that the bank guarantee amount was liable to be refunded to the claimant. It is submitted that the respondent has sought to argue the present petition u/s. 34 A&C Act as if it were an appeal. It is submitted that it is well settled that the scope of jurisdiction u/s. 34 A&C Act is limited. It is submitted that when the learned arbitrator has on the basis of the evidence come to a finding that the encashment of bank guarantee was not proper in the facts and Arbtnno.1017 and 833 of 2018 page no. 7 circumstances, then it would not be permissible under exercise of powers u/s. 34 A&C Act to interfere with the award.
15. I have considered the submissions of the learned counsels for both the parties and I have perused the record.
16. It would be appropriate to refer at the outset to the judgment of the Hon'ble High Court of Delhi (Division Bench) in Delhi Development Authority v. Bhardwaj Brothers, 2014 SCC OnLine Del 1581, in which the scope and ambit of jurisdiction of the Court u/s. 34 A&C Act has been lucidly delineated, and the relevant portion of the judgment is extracted hereunder:
"8. We have enquired from the counsel for the appellant whether not the said challenge is a challenge on the merits of the arbitral award. We have yet further put to the counsel for the appellant that as to how, misinterpretation of a contractual provision or misinterpretation of a contract by the Arbitral Tribunal constitutes a ground of challenge under Section 34 of the Arbitration Act.
9. We have in State Trading Corporation of India Ltd. supra held :
-
"5. The challenge in this appeal is on the ground that the learned Single Judge ignored that the interpretation of the contract between the parties given by the Arbitral Tribunal is contrary to the express terms and conditions thereof and the Arbitral Tribunal has given a meaning to the terms and conditions which is not contemplated in the contract. The senior counsel for the appellant thus wants us to read the contract between the parties, particularly the clauses relating to demurrage, and then to judge whether the interpretation thereof by the Arbitral Tribunal is correct or not.
6. In our view, the interpretation in Saw Pipes Ltd. supra (ONGC Ltd. v. Saw Pipes Ltd. (2003) 5 SCC 705) of the ground in Section 34 of the Act for setting aside of the arbitral award, for the reason of the same being in conflict Arbtnno.1017 and 833 of 2018 page no. 8 with the public policy of India, would not permit setting aside, in the aforesaid facts. A Section 34 proceeding, which in essence is the remedy of annulment, cannot be used by one party to convert the same into a remedy of appeal. In our view, mere erroneous/wrong finding of fact by the Arbitral Tribunal or even an erroneous interpretation of documents/evidence, is non-interferable under Section 34 and if such interference is done by the Court, the same will set at naught the whole purpose of amendment of the Arbitration Act.
7. Arbitration is intended to be a faster and less expensive alternative to the courts. If this is one's motivation and expectation, then the finality of the arbitral award is very important. The remedy provided in Section 34 against an arbitral award is in no sense an appeal. The legislative intent in Section 34 was to make the result of the annulment procedure prescribed therein potentially different from that in an appeal. In appeal, the decision under review not only may be confirmed, but may also be modified. In annulment, on the other hand, the decision under review may either be invalidated in whole or in part or be left to stand if the plea for annulment is rejected. Annulment operates to negate a decision, in whole or in part, thereby depriving the portion negated of legal force and returning the parties, as to that portion, to their original litigating positions. Annulment can void, while appeal can modify. Section 34 is found to provide for annulment only on the grounds affecting legitimacy of the process of decision as distinct from substantive correctness of the contents of the decision. A remedy of appeal focuses upon both legitimacy of the process of decision and the substantive correctness of the decision.
Annulment, in the case of arbitration focuses not on the correctness of decision but rather more narrowly considers whether, regardless of errors in application of law or determination of facts, the decision resulted from a legitimate process.
8. In the case of arbitration, the parties through their agreement create an entirely different situation because regardless of how complex or simple a dispute resolution mechanism they create, they almost always agree that the Arbtnno.1017 and 833 of 2018 page no. 9 resultant award will be final and binding upon them. In other words, regardless of whether there are errors of application of law or ascertainment of fact, the parties agree that the award will be regarded as substantively correct. Yet, although the content of the award is thus final, parties may still challenge the legitimacy of the decision-making process leading to the award. In essence, parties are always free to argue that they are not bound by a given "award" because what was labeled an award is the result of an illegitimate process of decision.
9. This is the core of the notion of annulment in arbitration. In a sense, annulment is all that doctrinally survives the parties' agreement to regard the award as final and binding. Given the agreement of the parties, annulment requires a challenge to the legitimacy of the process of decision, rather than the substantive correctness of the award.
10. Joseph Raz in his paper "The Politics of the Rule of Law" has opined that the function of the rule of law is to facilitate the integration of a particular piece of legislation with the underlying doctrines of the legal system; the authority of the courts to harness legislation to legal doctrine arises neither from their superior wisdom nor from any superior law of which they are the custodians; it arises out of the need to bring legislation in line with doctrine. The courts ensure coherence of purpose of law, ensuring that its different parts do not fight each other. The learned author has further observed that a law which is incoherent in purpose serves none of its inconsistent purposes very well. Purposes conflict if due to contingencies of life serving one will in some cases retard the other. The second basis for the authority of the courts to integrate legislation with doctrine is the need to mix the fruits of long established traditions with the urgencies of short term exigencies. In ensuring the coherence of law, the courts are expected to ensure the effectiveness of the democratic rule. In giving weight to the preservation of long established doctrines i.e., the traditions, they protect the long term interest of the people from being swamped by the short term. We have taken the liberty to quote from the aforesaid paper since the courts are being repeatedly called upon to adjudicate on the various Arbtnno.1017 and 833 of 2018 page no. 10 provisions of the re-enacted arbitration law. From the various pronouncements in the last about 18 years since re- enactment, it appears that the danger of interpreting the new Act in a manner doing away with the whole object/purpose of re-enactment is imminent. The courts continue to be inundated till date, in spite of repeal of the old Act 18 years ago, with cases thereunder also, particularly of challenge to the arbitral award. Provisions of the old and the new Act relating to inference with the arbitral award are vastly different. However, when the courts, in the same day are wrestling with a matter concerning arbitral award under the old Act and with that under the new Act, the chances of culling out the huge difference between the two are minimal. It is not to be forgotten that the courts deal with and rule on disputes where monies and properties of real persons are at stake. The courts do not decide in abstract. Thus, when in one case the courts interfere with the arbitral award for the reason of the same not rendering to the litigant what the courts would have granted to him, the courts find it difficult in the very next case, though under the new Act, to apply different parameters.
11. Arbitration under the 1940 Act could not achieve the savings in time and money for which it was enacted and had merely become a first step in lengthy litigation. Reference in this regard can be made to para 35 of Bharat Aluminium Company v. Kaiser Aluminium Technical Services Inc. (2012) 9 SCC 552. It was to get over the said malady that the law was sought to be overhauled. While under the old Act, the award was unenforceable till made rule of the court and for which it had to pass various tests as laid down therein and general power/authority was vested in the court to modify the award, all this was removed in the new Act. The new Act not only made the award executable as a decree after the time for preferring objection with respect thereto had expired and without requiring it to be necessarily made rule of the court but also did away with condonation of delay in filing the said objections. The reason/purpose being expediency. The grounds on which the objections could be filed are also such which if made out, the only consequence thereof could be setting aside of the award. It is for this reason that under new Act there is no power to the court to Arbtnno.1017 and 833 of 2018 page no. 11 modify the award or to remit the award etc. as under the old Act. A perusal of the various grounds enunciated in Section 34 will show that the same are procedural in nature i.e., concerning legitimacy of the process of decision. While doing so, the ground, of the award being in conflict with Public Policy of India, was also incorporated. However the juxtaposition of Section 34(2)(b)(ii) shows that the reference to 'Public Policy' is also in relation to fraud or corruption in the making of the award. The new Act was being understood so [see Konkan Railway Corporation Ltd. v. Mehul Construction Co. (2000) 7 SCC 201 (para 4 and which has not been set aside in S.B.P. & Co. v. Patel Engineering Ltd. (2005) 8 SCC 618)] till the Supreme Court in Saw Pipes Ltd. (supra) held that the phrase 'Public Policy of India' is required to be given wider meaning and if the award on the face of it is patently in violation of statutory provisions, it cannot be said to be in public interest and such award/judgment/decision is likely to adversely affect the administration of justice. In para 37 of the judgment it was held that award could be set aside if it is contrary to fundamental policy of Indian Law or the interest of India or justice or morality or if it is patently illegal. A rider was however put that illegality must go to the root of the matter and if the illegality is of trivial nature it cannot be held that the award is against the public policy. Yet another test laid down is of the award being so unfair and unreasonable that it shakes the conscience of the court.
12. The courts have thereafter been inundated with challenges to the award. The objections to the award are drafted like appeals to the courts; grounds are urged to show each and every finding of the arbitrator to be either contrary to the record or to the law and thus pleaded to be against the Public Policy of India. As aforesaid, the courts are vested with a difficult task of simultaneously dealing with such objections under two diverse provisions and which has led to the courts in some instances dealing with awards under the new Act on the parameters under the old Act.
13. The result is that the goal of re-enactment has been missed.
Arbtnno.1017 and 833 of 2018 page no. 12
14. The re-enactment was not only to achieve savings in time and prevent arbitration from merely becoming the first step in lengthy litigation but also in consonance with the international treaties and commitments of this country thereto. Since the enactment of the 1940 Act, the international barriers had disappeared and the volume of international trade had grown phenomenally. The new Act was modeled on the model law of international commercial arbitration of the United Nations Commission on International Trade Law (UNICTRAL). It was enacted to make it more responsive to contemporary requirements. The process of economic liberalization had brought huge foreign investment in India. Such foreign investment was hesitant, owing to there being no effective mode of settlement of domestic and international disputes. It was with such lofty ideals and with a view to attract foreign investment that the re-enactment was done. If the courts are to, notwithstanding such re-enactment, deal with the arbitration matters as under the old Act it would be a breach of the commitment made under the treaties on international trade.
15. Applying the aforesaid test, we are afraid, the arguments of the senior counsel for the appellant are beyond the scope of Section 34.
16. The senior counsel for the respondent has in this regard rightly argued that the scope of appeal under Section 37 is even more restricted. It has been so held by the Division Benches of this Court in Thyssen Krupp Werkstoffe v. Steel Authority of India MANU/DE/1853/2011 and Shree Vinayak Cement Clearing Agency v. Cement Corporation of India 147 (2007) DLT 385. It is also the contention of the senior counsel for the respondent that the argument made by the appellant before the learned Single Judge and being made before this Court, that the particular clause in the contract is a contract of indemnification, was not even raised before the Arbitral Tribunal and did not form the ground in the OMP filed under Section 34 of the Act and was raised for the first time in the arguments.
17. The Supreme Court in Rashtriya Ispat Nigam Ltd. v. Dewan Chand Ram Saran (2012) 5 SCC 306 refused to set aside an arbitral award, under the 1996 Act on the Arbtnno.1017 and 833 of 2018 page no. 13 ground that the view taken by the Arbitral Tribunal was against the terms of the contract and held that it could not be said that the Arbitral Tribunal had travelled outside its jurisdiction and the Court could not substitute its view in place of the interpretation accepted by the Arbitral Tribunal. It was reiterated that the Arbitral Tribunal is legitimately entitled to take the view which it holds to be correct one after considering the material before it and after interpreting the provisions of the Agreement and if the Arbitral Tribunal does so, its decision has to be accepted as final and binding. Reliance in this regard was placed on Sumitomo Heavy Industries Ltd. v. ONGC Ltd. (2010) 11 SCC 296 and on Kwality MFG. Corporation v. Central Warehousing Corporation (2009) 5 SCC 142. Similarly, in P.R. Shah, Shares & Stock Broker (P) Ltd. v. B.H.H. Securities (P) Ltd. (2012) 1 SCC 594 it was held that a Court does not sit in appeal over the award of an Arbitral Tribunal by reassessing or reappreciating evidence and an award can be challenged only under the grounds mentioned in Section 34(2) and in the absence of any such ground it is not possible to reexamine the facts to find out whether a different decision can be arrived at. A Division Bench of this Court also recently in National Highways Authority of India v. Lanco Infratech Ltd. MANU/DE/0609/2014 held that an interpretation placed on the contract is a matter within the jurisdiction of the Arbitral Tribunal and even if an error exists, this is an error of fact within jurisdiction, which cannot be reappreciated by the Court under Section 34 of the Act. The Supreme Court in Steel Authority of India Ltd. v. Gupta Brother Steel Tubes Ltd. (2009) 10 SCC 63 even while dealing with a challenge to an arbitral award under the 1940 Act reiterated that an error by the Arbitrator relatable to interpretation of contract is an error within his jurisdiction and is not an error on the face of the award and is not amenable to correction by the Courts. It was further held that the legal position is no more res integra that the Arbitrator having been made the final Arbiter of resolution of dispute between the parties, the award is not open to challenge on the ground that Arbitrator has reached at a wrong conclusion.
Arbtnno.1017 and 833 of 2018 page no. 14
18. If we were to start analyzing the contract between the parties and interpreting the terms and conditions thereof and which will necessarily have to be in the light of the contemporaneous conduct of the parties, it will be nothing else than sitting in appeal over the arbitral award and which is not permissible."
Before proceeding further, mention may also be made of New Delhi Apartment Group Housing Society v. Jyoti Swaroop Mittal MANU/DE/9107/2007 which remained to be noticed and where a Division Bench of this Court held that Saw Pipes Ltd. supra cannot be read as permitting a Court exercising powers under Section 34 to sit in appeal over the findings of fact recorded by the Arbitrator or interpretation placed upon the provisions of the agreement.
10. We have in Delhi State Industrial & Infrastructure Development Corporation Ltd. supra further held that : -
"...the parties, by agreeing to be bound by the arbitral award and by declaring it to be final, agree to be bound also by a wrong interpretation or an erroneous application of law by the Arbitral Tribunal and once the parties have so agreed, they cannot apply for setting aside of the arbitral award on the said ground. Even under the 1940 Act where the scope of interference with the award was much more, the Apex Court in Tarapore and Co. v. Cochin Shipyard Ltd., Cochin (1984) 2 SCC 680 and U.P. Hotels v. U.P. State Electricity Board (1989) 1 SCC 359 held that the arbitrator's decision on a question of law is also binding even if erroneous. Similarly, in N. Chellappan v. Secretary, Kerala State Electricity Board (1975) 1 SCC 289 it was held that even if the umpire committed an error of law in granting amount, it cannot be said to be a ground for challenging the validity of the award; the mistake may be a mistake of fact or of law."
11. We are further of the view that the scope of judicial review of an arbitral award is akin to review under Article 226 of the Constitution of India of the decisions of bodies, where it is a settled principle of law (See State of U.P. v. Maharaja Dharmander Prasad Singh (1989) 2 SCC 505 and State of U.P. v. Johri Mal (2004) 4 SCC 714) that the judicial review is of the decision Arbtnno.1017 and 833 of 2018 page no. 15 making process and not of the decision on merits and cannot be converted into an appeal. This is quite evident from the various Clauses of Section 34(2)(a) which prescribe the grounds of challenge on the lines of violation of the principles of natural justice in making of the award or invalidity of the arbitral agreement and nonarbitrability of the disputes arbitrated and of the composition of the Arbitral Tribunal or arbitral procedure being not in accordance with the agreement between the parties. Section 34(2)(b) adds the ground of the arbitral award being in conflict with the public policy of India. None of the said grounds are the grounds of challenge on the merits of the award. The ground of challenge of the award being in conflict with the public policy of India is explained as the award being induced or affected by fraud or corruption or being in violation of Section 75 or Section 81. Thus the grounds of challenge are akin to the grounds of judicial review under Article 226 and not to grounds of appeal or revision. We are reminded of the merits legality distinction in judicial review as culled out by Lord Hailsham in The North Wales v. Evans (1982) 1 WLR 1155 by observing "the purpose of judicial review is to ensure that the individual receives fair treatment, and not to ensure that the authority, after according fair treatment, reaches on a matter which it is authorized by law to decide for itself a conclusion which is correct in the eyes of the Court". Lord Brightman in the same judgment held that judicial review, as the words imply, is not an appeal from a decision, but a review of the manner in which the decision was made and it would be an error to think that the Court sits in judgment not only on the correctness of the decision making process but also on the correctness of the decision itself. It was clarified that only when the issue raised in judicial review is whether a decision is vitiated the judicial review of the decision making process includes examination, as a matter of law, of the relevance of the factors. In our opinion the same is an apt test also for judicial review of the arbitral awards and just like a mere wrong decision without anything more is not enough to attract the power of judicial review, the supervisory jurisdiction conferred on the Court under the Arbitration Act is limited to see that the Arbitral Tribunal functions within the limits of its authority and that the arbitral award does not occasion miscarriage of justice. The Supreme Court in Mc. Dermott International Inc. v. Burn Standard Co. Ltd. (2006) 11 SCC 181 commenting on the radical changes brought about by the Arbtnno.1017 and 833 of 2018 page no. 16 re-enactment of the arbitration law observed that the role of the Courts under the new law is only supervisory, permitting intervention in few circumstances only, like, in case of fraud or bias by the arbitrators, violation of natural justice etc. and the Court cannot correct the errors of arbitrators and can only quash the award leaving the parties free to begin arbitration again.
12. Of the finality of arbitral awards, there is no doubt under our arbitration law. The Supreme Court as far back as in Union of India v. A.L. Rallia Ram AIR 1963 SC 1685 held that : -
"An award being a decision of an arbitrator whether a lawyer or a layman chosen by the parties, and entrusted with power to decide a dispute submitted to him is ordinarily not liable to be challenged on the ground that it is erroneous. In order to make arbitration effective and the awards enforceable, machinery is devised for lending the assistance of the ordinary Courts. The Courts are also entrusted with power to modify or correct the award on the ground of imperfect form or clerical errors, or decision on questions not referred, which are severable from those referred........The Court may also set aside an award on the ground of corruption or misconduct of the arbitrator, or that a party has been guilty of fraudulent concealment or wilful deception. But the Court cannot interfere with the award if otherwise proper on the ground that the decision appears to it to be erroneous. The award of the arbitrator is ordinarily final and conclusive, unless a contrary intention is disclosed by the agreement. The award is the decision of a domestic tribunal chosen by the parties, and the civil courts which are entrusted with the power to facilitate arbitration and to effectuate the awards, cannot exercise appellate powers over the decision. Wrong or right the decision is binding, if it be reached fairly after giving adequate opportunity to the parties to place their grievances in the manner provided in the arbitration agreement."
Of course the said judgment being under the Arbitration Act, 1940 proceeds to hold that an award is bad on the ground of error of law on the face of it. However the legislature while re-enacting the arbitration law has removed the ground of challenge of error of law on the face of the award. In Mc. Dermott International Inc. supra also it was held that the parties to the Arbitration Arbtnno.1017 and 833 of 2018 page no. 17 Agreement make a conscious decision to exclude the Courts jurisdiction as they prefer the expediency and finality offered by arbitration. We are bound to respect the said change brought about by the legislature and cannot dogmatically review the awards on the grounds of challenge which have been intentionally taken away by the legislature.
13. It cannot also be lost sight of that non-conferring of finality on the arbitral awards not only affects the speed and expense of arbitration but also has a more subtle consequences of, extensive judicial review changing the nature of the arbitral process to an even greater extent. If arbitration becomes simply another level of decision making, subject to judicial review on merits, arbitrators may begin to decide cases and write opinions in such a way as to insulate their awards against judicial reversal producing opinions that parrot the appropriate statutory standards in conclusory terms, but suffer from a lack of reasoned analysis. Such a shift from the arbitral model, in which decision makers are free to focus solely on the case before them rather than on the case as it might appear to an Appellate Court, to the administrative model, in which decision makers are often concerned primarily with building a record for review, in our opinion would substantially undercut the ability of arbitrators to successfully resolve disputes. The Courts therefore have no business weighing the merits of the grievance, considering whether there is equity in a particular claim, or determining whether there is particular language in the written instrument which will support the claim. The agreement is to submit all grievances to arbitration, not merely those which the Court will deem meritorious. The Courts if start undertaking to determine the merits of the grievance, would be usurping the function which under that Arbitration Act, 1996 is entrusted to the Arbitration Tribunal. This plenary review by the Courts of the merits would make meaningless the provisions that the arbitral award is final, for in reality it would almost never be final. We though may admit that sieving out the genuine challenges from those which are effectively appeals on merits is not easy.
14. Arbitration will not survive, much less flourish, if this core precept is not followed through by the Courts. The integrity and efficacy of arbitration as a parallel dispute resolution system will be subverted if the Courts appear unable or unwilling to restrain themselves from entering into the merits of every arbitral decision Arbtnno.1017 and 833 of 2018 page no. 18 that comes before it. The power to intervene must and should only be exercised charily, within the framework of the Arbitration Act. Minimal curial intervention is underpinned by need to recognise the autonomy of the arbitral process by encouraging finality, so that its advantage as an efficient alternative dispute resolution process is not undermined. The parties having opted for arbitration, must be taken to have acknowledged and accepted the attendant risks of having only a very limited right of recourse to the Courts. It would be neither appropriate nor consonant for the Court to lend assistance to a dissatisfied party by exercising appellate function over arbitral awards, save to the extent statutorily permitted.
15. As it would be obvious from the above, the contention aforesaid of the counsel for the appellant does not constitute a challenge to the arbitral award on the grounds permitted and as discussed hereinabove. It is not the case of the appellant that the arbitral award is vitiated, for us to go into the merits of the challenge."
(Emphasis supplied by me)
17. The Hon'ble High Court has in the subsequent judgment in National Highways Authority of India v. Oriental Structural Engineers Pvt. Ltd., 2015 SCC OnLine Del 6524 relied upon the judgments in Delhi Development Authority v. Bhardwaj Brothers (supra) and State Trading Corporation of India Ltd. v. Toepfer International Asia Pte Ltd. (supra). After referring to the said judgments in paragraph 9 of the judgment, the Hon'ble High Court proceeded to observe as follows:
"10. I have enquired from the senior counsel for the petitioner whether not at least this Court would be bound by the judgment aforesaid of the Division Bench and as per which the grounds urged by the petitioner for setting aside of the Arbitral Award are not within the ambit of Section 34(2) of the Arbitration Act.
11. The senior counsel for the petitioner has not shown any judgment to the contrary.
Arbtnno.1017 and 833 of 2018 page no. 19
12. I may add, an indication of what the legislature, while re- enacting the arbitration law, meant by including the ground, of the arbitral award being in conflict with public policy of India, for setting aside of arbitral awards can be had from the Explanation to Section 34(2) which declares that an award is in conflict with the public policy of India if the making of the award was induced or affected by fraud or corruption or was in violation of Section 75 or Section 81. Sections 75 as well as 81 are contained in Part III titled 'Conciliation'. Section 75 requires the parties and the conciliator to keep confidential all matters relating to conciliation proceedings and the settlement agreement. Section 81 provides that the parties shall not rely on or introduce as evidence in arbitral or judicial proceedings, views expressed or suggestions made by the other party in respect of a possible settlement of the dispute, the admissions made by the other party in course of the conciliation proceedings, the proposals made by the conciliator, the fact that the other party had indicated his willingness to accept a proposal for settlement made by the conciliator. Thus, if the arbitral award is based on what had transpired in the conciliation proceedings which ultimately failed and not on adjudication by the Arbitral Tribunal, it would be deemed to be in conflict with the public policy of India. Though the explanation to Section 34(2) containing the ground of the arbitral award being in conflict with the public policy of India is prefaced with "without prejudice to the generality of Section 34(2)(b)(ii)" but the declaration therein of the award being in conflict with the public policy of India if the making of the award was induced by fraud or corruption or was in violation of Sections 75 or 81, in my humble view is suggestive of the expression "the public policy of India" being required to be read as meaning grounds ejusdem generis with the grounds of fraud or corruption or the award being based on material exchanged in conciliation which ultimately failed. In my view, the same cannot be read as referring to public policy of India qua adjudication of disputes in Courts, where error of law or fact is a ground for interference by higher Court. If the intent was to make the award liable to be set aside if contrary to the substantive law applicable to the decision thereof the legislature would have provided so. Even under the 1940 Act, neither the error of law nor of fact in the arbitral award was a ground for setting aside thereof. The preamble to the re-enacted Act states the purpose of the re- enactment to make our domestic law relating to arbitration in Arbtnno.1017 and 833 of 2018 page no. 20 consonance with the United Nations Commission on International Trade Law (UNCITRAL) Model Law and the grounds of interference with the arbitral award under the same were/are much narrower than the grounds of interference under the 1940 Act. If the words "in conflict with the public policy of India" are to be read as permitting interference with the arbitral award whenever the same is found to be contrary to the substantive law applicable to the merits of the dispute, the same in my view would be in violation of the preamble to the re-enacted law.
13. I may however notice Oil and Natural Gas Corporation Ltd. v. Western GECO International Ltd. (2014) 9 SCC 263 where also it was held : -
"35. What then would constitute the 'Fundamental policy of Indian Law' is the question. The decision in Saw Pipes Ltd. (supra) does not elaborate that aspect. Even so, the expression must, in our opinion, include all such fundamental principles as providing a basis for administration of justice and enforcement of law in this country. Without meaning to exhaustively enumerate the purport of the expression "Fundamental Policy of Indian Law", we may refer to three distinct and fundamental juristic principles that must necessarily be understood as a part and parcel of the Fundamental Policy of Indian law.
The first and foremost is the principle that in every determination whether by a Court or other authority that affects the rights of a citizen or leads to any civil consequences, the Court or authority concerned is bound to adopt what is in legal parlance called a 'judicial approach' in the matter. The duty to adopt a judicial approach arises from the very nature of the power exercised by the Court or the authority does not have to be separately or additionally enjoined upon the fora concerned. What must be remembered is that the importance of Judicial approach in judicial and quasi judicial determination lies in the fact so long as the Court, Tribunal or the authority exercising powers that affect the rights or obligations of the parties before them shows fidelity to judicial approach, they cannot act in an arbitrary, capricious or whimsical manner. Judicial approach ensures that the authority acts bonafide and deals with the subject in a fair, reasonable and objective Arbtnno.1017 and 833 of 2018 page no. 21 manner and that its decision is not actuated by any extraneous consideration. Judicial approach in that sense acts as a check against flaws and faults that can render the decision of a Court, Tribunal or Authority vulnerable to challenge.
36. In Ridge v. Baldwin [1963 2 All ER 66], the House of Lords was considering the question whether a Watch Committee in exercising its authority Under Section 191 of the Municipal Corporations Act, 1882 was required to act judicially. The majority decision was that it had to act judicially and since the order of dismissal was passed without furnishing to the Appellant a specific charge, it was a nullity. Dealing with the Appellant's contention that the Watch Committee had to act judicially, Lord Reid relied upon the following observations made by Atkin L.J. in [1924] 1 KB at pp. 206, 207:
Wherever anybody of persons having legal authority to determine questions affecting the rights of subjects, and having the duty to act judicially, act in excess of their legal authority, they are subject to the controlling jurisdiction of the King's Bench Division exercised in these writs.
37. The view taken by Lord Reid was relied upon by a Constitution Bench of this Court in A.C. Co. Ltd. v. P.N. Sharma AIR 1965 SC 1595 where Gajendragadkar, C.J. speaking for the Court observed:
In other words, according to Lord Reid's judgment, the necessity to follow judicial procedure and observe the principles of natural justice, flows from the nature of the decision which the watch committee had been authorised to reach Under Section 191(4). It would thus be seen that the area where the principles of natural justice have to be followed and judicial approach has to be adopted, has become wider and consequently, the horizon of writ jurisdiction has been extended in a corresponding measure. In dealing with questions as to whether any impugned orders could be revised Under Article 226 of our Constitution, the test prescribed by Lord Reid in this judgment may afford considerable assistance.
Arbtnno.1017 and 833 of 2018 page no. 22
38. Equally important and indeed fundamental to the policy of Indian law is the principle that a Court and so also a quasi-judicial authority must, while determining the rights and obligations of parties before it, do so in accordance with the principles of natural justice. Besides the celebrated 'audi alteram partem' rule one of the facets of the principles of natural justice is that the Court/authority deciding the matter must apply its mind to the attendant facts and circumstances while taking a view one way or the other.
Non-application of mind is a defect that is fatal to any adjudication. Application of mind is best demonstrated by disclosure of the mind and disclosure of mind is best done by recording reasons in support of the decision which the Court or authority is taking. The requirement that an adjudicatory authority must apply its mind is, in that view, so deeply embedded in our jurisprudence that it can be described as a fundamental policy of Indian Law.
39. No less important is the principle now recognised as a salutary juristic fundamental in administrative law that a decision which is perverse or so irrational that no reasonable person would have arrived at the same will not be sustained in a Court of law. Perversity or irrationality of decisions is tested on the touchstone of Wednesbury's principle of reasonableness. Decisions that fall short of the standards of reasonableness are open to challenge in a Court of law often in writ jurisdiction of the Superior courts but no less in statutory processes where ever the same are available.
40. It is neither necessary nor proper for us to attempt an exhaustive enumeration of what would constitute the fundamental policy of Indian law nor is it possible to place the expression in the straitjacket of a definition. What is important in the context of the case at hand is that if on facts proved before them the arbitrators fail to draw an inference which ought to have been drawn or if they have drawn an inference which is on the face of it, untenable resulting in miscarriage of justice, the adjudication even when made by an arbitral tribunal that enjoys considerable latitude and play at the joints in making awards will be open to challenge Arbtnno.1017 and 833 of 2018 page no. 23 and may be cast away or modified depending upon whether the offending part is or is not severable from the rest."
14. I have considered the challenge aforesaid to the arbitral award on the anvil of the above latest adjudication also. No ground, of the Arbitral Tribunal in the instant case having not adopted a judicial approach or having acted in violation of the principles of natural justice has been urged. It is also not the case that the Arbitral Tribunal has not acted bona fide or not dealt with the subject in a fair, reasonable and objective manner or that the decision of the Arbitral Tribunal was actuated by any extraneous consideration. Non application of mind by the Arbitral Tribunal is also not pleaded or argued. No case of perversity or irrationality has also been made out. The entire challenge is on the ground of the findings of the Arbitral Tribunal being factually erroneous and which is not a ground even as per the judgment (supra) of the Supreme Court. Of course, the Supreme Court in para 40 of the judgment has held that if the Arbitral Tribunal, from the facts proved before it fails, to draw an inference which ought to have been drawn or draws the inference which on the face of it is untenable, the arbitral award would be in conflict with public policy of India and the test of "fails to draw inference which ought to have been drawn or draws an inference which is untenable" is very wide but the said test is qualified with the words "resulting in miscarriage of justice". I am unable to read the judgment of the Supreme Court as opening the doors of challenge to an Arbitral Award by a detailed examination of all the facts and material before the Arbitral Tribunal and to determination of whether the inferences drawn and the consequences reached by the Arbitral Tribunal therefrom are correct or not and whether the Court agrees with the same or not. If the same were to be permitted, it would do away with the difference between the Court exercising appellate power and power of judicial review of Arbitral Award under Section 34 of the Act and would be against the several other judgments of the Supreme Court and which, in the judgment (supra) were neither considered nor differed from. The judgment (supra) of the Supreme Court, cannot be read in isolation, forgetting all other judgments of the Supreme Court and none of which have been overruled.
15. The expression "miscarriage of justice", used by the Supreme Court in the judgment (supra) as qualifying the test laid down in Arbtnno.1017 and 833 of 2018 page no. 24 para 40 thereof of the validity of the Arbitral Award, is an expression well recognized in law and generally associated with grossly unfair outcome in a judicial proceeding as when a defendant is convicted despite a lack of evidence on an essential element of a crime (per Black's Law Dictionary, Eight Edition). The Supreme Court in Union of India v. Ibrahim Uddin (2012) 8 SCC 148 cited with approval Bibhabati Devi v. Ramendra Narayan Roy AIR 1947 PC 19 holding that miscarriage of justice means such a departure from the rules which permeate all judicial procedure as to make that which happen not in the proper sense of the word 'judicial procedure' at all.
16. Thus, it is not every inference drawn or not drawn by the Arbitral Tribunal from the material before it and which the Court finds to have been wrongly drawn or not drawn, which could be held to be resulting in miscarriage of justice. Such inference/failure to interfere by the Arbitral Tribunal, even if in the opinion of the Court wrong, would permit interference under Section 34 of the Arbitration Act only if it results in a grossly unfair outcome.
17. There is another aspect of the matter. A detailed inquiry into the correctness of the inference drawn/not drawn by the Arbitral Tribunal would require the Court not only to go through and dissect the arbitral record which is often voluminous in cases as the present but to also give an opportunity to the parties/their counsels to address on the inferences drawn/not drawn by the Arbitral Tribunal and to only thereafter form an opinion. The same would again make a proceeding under Section 34 of the Arbitration Act and hearing thereof akin to an appeal from original decrees of the Court and would be an antithesis to the very concept of judicial review of arbitral award, even if the Court at the end of such a marathon hearing were to conclude that there has been no miscarriage of justice. It is thus for the contracting party challenging the Arbitral Tribunal to, in the memorandum of challenge itself, make out a case of miscarriage of justice within the parameters aforesaid. No such case has been made out in the petition in the present case. Without any such case having been made out in the memorandum of petition, this Court would not embark upon an exercise of requisitioning the arbitral record and giving an opportunity to the parties/their counsels to address on the correctness of the inference drawn/not drawn by the Arbitral Arbtnno.1017 and 833 of 2018 page no. 25 Tribunal and on the aspect of whether there has been a miscarriage of justice.
18. Mention may also be made of another recent dicta in Associate Builders v. DDA where on conspectus of plethora of cases including Western GECO International Ltd. supra, the judgment of the Single Judge of this High Court dismissing the petition under Section 34 of the Arbitration Act was restored and the judgment of the Division Bench in appeal thereagainst interfering with the award was set aside holding that the Division Bench exceeded its jurisdiction in interfering with the pure finding of facts forgetting that the arbitrator is the sole Judge of the quantity and quality of evidence before him and that the Division Bench has no business to enter into the pure question of fact to set aside the award. It was further held that the same cannot be done by any Court under jurisdiction exercised under Section 34 of the Act. The Supreme Court further held that the expression 'justice' when it comes to setting aside an award under the public policy ground can only mean that the award shocks the conscience of the Court and that it cannot possibly include what the Court thinks is unjust on the facts of a case for which the Court then seeks to substitute its own view for the arbitrator's view and does what it considers to be 'justice'. The Supreme Court observed that the Division Bench had lost sight of the fact that it is not a first Appellate Court and cannot interfere with errors of fact. The Supreme Court held that if the arbitrators have decided the dispute with a sound head and a good heart and after hearing both sides, the Courts should not interfere with their award, even if the Court disagrees with the reasons assigned by the arbitrator.
19. It is not the case of the petitioners that the arbitrators in the present case have not decided with a sound head and a good heart.
20. I therefore do not find any case for entertaining the challenge to the Arbitral Award by way of this petition and dismiss the same."
(Emphasis supplied by me)
18. Keeping the aforesaid principles in relation to the jurisdiction u/s. 34 A&C Act in mind, I have perused and analysed the impugned award. In paragraph B of the impugned award, the learned arbitrator has taken note Arbtnno.1017 and 833 of 2018 page no. 26 of the factual matrix of the contract and the dispute. In paragraph C, the learned arbitrator has set out the claims of the claimant. In paragraph D, the learned arbitrator has set out the submissions of the parties in their pleadings and arguments. In paragraph E, the learned arbitrator has set out the summary points of difference between the parties. In paragraph F, the learned arbitrator has given the grounds for the award and in paragraph G, the learned arbitrator has summarised the findings and the award. It would be appropriate to set out the paragraphs F and G of the impugned award in extenso:
"F. EXAMINATION AND GROUNDS OF AWARD *** *** *** *** *** ***
2. (i) Whether extension of D.P. without LD & without PVC is done properly by the respondent and binding upon the claimant?
(ii) As per respondent's submission dt 25.01.2017 vide para (ix), the original DP is upto 18.7.12 was extended upto 30.10.12 without LD and without PVC on the request of the claimant.
(iii) However as per the arguments of Ld. Counsel of claimant, theirs request for extension in DP without LD & with PVC was not considered by the respondent for a reasonable period, keeping non availability of raw material with approved vendors and rise in market prices, in view.
(iv) Thus it is considered that this extension of D.P by the respondent cannot be taken as sufficient in the eyes of law as raw material for the balance supply was neither available with RDSO approved vendors nor available at financially viable conditions ie much beyond the reach of the contract.
3. (i) Whether claimant was in a position to supply material keeping availability in market and financial viability within the reach of the contract, in view?
Arbtnno.1017 and 833 of 2018 page no. 27
(ii) As per efforts made by the claimant by contacting/making correspondence with approved suppliers, either the raw material was readily available or available with RINL (a govt of India Undertaking) at financially unviable condition which were much beyond the reach of contract i.e. "payment in advance by the claimant of sum of RS.82,50,000/- alongwith an confirmed order of 5500 MT raw material. However the total contract value was only Rs.2,52,30,000/- (balance value of Rs.2,10,87,284) & Total qty was only 455 MT (balance qty only 380.29 MT)
(iii) thus it is considered that claimant was not in a position to supply material keeping non availability of raw material with approved vendors and at financially unviable condition ie much beyond the reach of the contract, in view.
4. (i) Whether PVC Formula was liable to be revised by the respondent as per the actual supplier rates as base rates?
(ii) The claimant has asked for revision in PVC formula as per actual supplier rates. The respondent has submitted that PVC formula (clause no.28 & annexure vi of tender conditions page 26, 35 of 48) cannot be changed being part of the contract conditions.
(iii) It is considered that no change in PVC formula was possible being part of contract condition already agreed and signed by both the parties.
5. Whether all the above claims of the claimant are admissible as per the Contract conditions, Indian Contract Act & other related Acts.
(a) For payment of difference in 3rd bill ie Rs.67909- 43262=Rs.24,647/-in c/w less payment in 3rd bill being a documentary proof on record.
As already discussed in forgoing paras, this being a matter of record with documentary proof on record, a payment of Rs.67900- 43262=Rs.24,647/- is considered as clear and due in favour of the claimant.
Arbtnno.1017 and 833 of 2018 page no. 28
(b) To make an Award for a sum of Rs.10,00,000/- (Ten Lacs) with interest @ 18% from the date of encashment of BG ie till actual and realization.
From the discussion at length in various paras as above, it is considered that procurement of the Raw Material by the claimant from RDSO approved Vendors/suppliers at their conditions was financially unviable for the claimant and also beyond the reach of contract. Also not granting sufficient time extension in DP by the respondent, taking availability of the raw material at reasonable conditions in view, is considered as unreasonable. Thus forfeiting the Bank Gurantee of Rs.Ten Lacs by the respondent is considered as unreasonable and undue.
(c-i) award Rs.32,12,540/- as the loss of profit payable by the respondent with 18% interest from 22.10.2012 till actual payment, and (c-ii) Interest @ 18% per annum from 6,12,12 til actual payment upto 30.11.2016=Rs.30,33,028/-, and (c-iii) Cost of proceedings in favour of the claimants and against the respondent.
All the above three claims of the claimant (para c-1 to c-iii) are beyond the jurisdiction of this Arbitration Tribunal. Hence, these three claims are not taken for consideration by the Tribunal.
G. Summary of Findings of Arbitration Proceedings:-
(I) Both the parties are bound by the terms and conditions of the contract. It has been pointed out by claimant that respondent has made Less payment of an amount of Rs. 24,647/- in 3rd bill and forfeited the BG amount of Rs Ten Lacs by illegally & unlawfully terminating the contract without considering the availability of the raw material with the approved suppliers at reasonable conditions and within the reach of the contract.
(ii) I have also gone through IRS conditions and other conditions of contract and Acts as applicable and find that the submission of the Claimant is found reasonable and correct.
Arbtnno.1017 and 833 of 2018 page no. 29
(iii) Therefore Findings regarding less payment of Rs. 24,647/- to the Claimant and forfeiting BG amount of Rs. Ten Lacs by the Respondent by illegally and unlawfully terminating the contract by the Respondent without considering the availability of the raw material with the approved suppliers at reasonable conditions & within the reach of the contract are against the Respondent and the Claim of the Claimant is considered as valid & right.
H. AWARD (I) In view of my above deliberations and discussions on various disputes and differences between Claimant & Respondent, I set aside the Termination of the contract & forfeiture of the BG Amount of Rs. Ten Lacs by the Respondent.
(ii) Therefore Respondent is directed to pay an amount of Rs.
24,647/- (Rs Twenty four thousand six hundred & forty seven) in c/w less payment in 3rd bill and to Release the forfeited BG amount of Rs. 10,00,000/- (Rs Ten Lacs) in favour of the claimant.
(iii) Both of the above payments i.e. Rs. 24,647+10,24,647 (Rs. Ten Lacs Twenty Four Thousand six Hundred & forty seven) should be made in favour of the claimant within a period of sixty days from the date of award failing which an interest @ fifteen percent per year will be paid by the respondent on the awarded amount from the date of award.
(iv) That the expenses of Rs. 10,250/- (Rs. Ten Thousand two hyundred fifty) incurred on Non Judicial stamp papers has been borne by the claimant. (Stamp papers already submitted by the claimant).
(v) The AWARD is made, signed and published by me at Delhi on 29th December,2017."
(Emphasis supplied by me)
19. First, coming to the challenge made by the respondent to the award to the findings regarding encashment of bank guarantee and award of sum of ₹ 10,00,000/- towards the bank guarantee, in so far as this challenge is concerned, this is in essence a challenge on the merits of the award which Arbtnno.1017 and 833 of 2018 page no. 30 would not be permissible under the limited scope of section 34 A&C Act. I find that the learned arbitrator has come to a finding of fact that the raw material for the supply was neither available with the approved vendors nor was it available at financially viable conditions to the claimant. The learned arbitrator has also come to the finding that not granting sufficient time extension in view of the non-availability of the raw material at reasonable conditions was also unreasonable. The learned arbitrator has found that in the facts and circumstances of the case, the forfeiture of the bank guarantee was unreasonable. The learned arbitrator has based his decision on the basis of the documentary evidence filed by the parties and upon reading of the contract. I do not find the award for refund of the bank guarantee amount to be unreasonable in the facts and circumstances of the case. Even otherwise, even if there were two views possible, the learned arbitrator would be entitled to his view and that itself would not be a ground to set aside the award. There is no infirmity in the decision- making process of the learned arbitrator which could lead to any perversity or patent illegality in the award.
20. It would be also relevant to keep in mind that as per the arbitration agreement between the parties, the appointment of the arbitrator was left to the respondent/Railways only. As per the arbitration agreement, a gazetted railway officer was to be appointed as arbitrator by the General Manager, Railways in case of contracts entered into by the Zonal Railways. It was further provided in the arbitration agreement that no person other than the person appointed by the Railways authority could act as an arbitrator and that if that was not possible, then the matter was not to be referred to arbitration at all. It was further provided that the award of the arbitrator shall be final and binding on the parties to the Arbtnno.1017 and 833 of 2018 page no. 31 contract. It would be appropriate to extract the relevant portion of the arbitration clause between the parties, as under:
"2900. Arbitration
(a) In the event of any question, dispute or difference arising under these conditions or any special conditions of contract, or in connection with this contract (except as to any matters the decision of which is specially provided for by these or the special conditions) the same shall be referred to the sole arbitration of a Gazetted Railway Officer appointed to be the arbitrator, by the General Manager in the case of contracts entered into by the Zonal Railways and Production Units: by any Member of the Railway Board, in the case of contracts entered into by the Railway Board and by the Head of the Organisation in respect of contracts entered into by the other Organisations under the Ministry of Railways.
The Gazetted Railway Officer to be appointed as arbitrator however will not be one of those who had an opportunity to deal with the matters to which the contract relates or who in the course of their duties as railway servant have expressed views on all or any of the matters under dispute or difference. The award of the arbitrator shall be final and binding on the parties to this contract.
(b) In the event of the arbitrator dying, neglecting or refusing to act or resigning or being unable to act for any reason, or his award being set aside by the court for any reason, if shall be lawful for the authority appointing the arbitrator to appoint another arbitrator in place of the outgoing in the manner aforesaid.
(c) It is further a term of this contract that no person other than the person appointed by the authority as aforesaid should act as arbitrator and that if for any reason that is not possible, the matter is not to be referred to arbitration at all.
*** *** ***"
(Emphasis supplied by me)
21. This clearly shows that the parties had agreed that a gazetted railway officer would be the sole arbitrator in the case and his award would be final and binding on the parties. It appears that that the parties had Arbtnno.1017 and 833 of 2018 page no. 32 deliberately chosen to appoint a gazetted railway officer since the parties would have considered it fit that a railway officer who would be regularly dealing with railway contracts would be the best person to understand the nuances of railway contracts and the practical aspects thereof. In the present case, the learned sole arbitrator who has been appointed is also a gazetted railway officer appointed by the General Manager, Northern Railways. The Ld. sole arbitrator being a gazetted railway officer would have had the proper expertise and experience with railway contracts. This Court would not substitute the view of the Ld. Sole Arbitrator who has expertise in the field, especially when there is nothing unreasonable which is found in the award qua the refund of the security deposit amount. In arbitration cases, the parties voluntarily agree to appoint persons as arbitrators who may not have a legal background but would be professionals having expertise in a particular field, such as in the present case a gazetted railway officer has been appointed to adjudicate the dispute with respect to railway contract. Such a gazetted railway officer would have encountered numerous railway contracts and would be aware of the practice of interpretation of railways contracts and the practical realities governing railway contracts. This Court would be loathe to interfere with the award of an arbitrator who has special expertise unless there is something really perverse in the award. In the present case, I find no perversity in the award for refund of the encashed bank guarantee/security deposit amount. Thus, the challenge to the award of ₹ 10,00,000/- towards the forfeited security deposit amount is rejected.
22. Next, coming to the challenge to award of amount of ₹ 24,647/- towards short-payment in the third bill. The submission of the learned counsel for the respondent is that this amount was awarded even when there was no Arbtnno.1017 and 833 of 2018 page no. 33 claim by the claimant in its claim petition for any short-payments in the bills. In my view, this objection of the respondent deserves to be sustained. I find that the claim for short-payment in the third bill was neither raised by the claimant in its notice invoking arbitration nor in its statement of claim before the learned arbitrator. Thus, this was not a dispute which was before the learned arbitrator, and awarding the amount towards the third bill was beyond the scope of jurisdiction of the learned arbitrator. Accordingly, the award to the extent of ₹ 24,647/- towards short-payment towards the third bill is set aside.
23. Lastly, coming to the challenge to the interest amount. It is the case of the respondent that the contract prohibited interest on the security deposit amount and hence, the award of interest is perverse. I do not find any merit in this contention. The learned arbitrator has not awarded any interest on the security deposit/bank guarantee amount from the date of encashment of bank guarantee. The interest awarded is only on the award amount from the date of the award. The award amount was an amount payable under the award and cannot be said to be a security deposit amount. Hence, it was within the jurisdiction of the learned arbitrator to award interest on the award amount from the date of the award. Thus, the challenge to the post-award interest cannot be sustained. However, I would hold that the grant of interest at 15% p.a. is excessive, in the facts and circumstances of the case, and the post-award interest rate is, accordingly, lowered to 12% p.a.
24. Accordingly, the petition filed by the respondent bearing ARBTN. No. 838/2018 is disposed of in the aforesaid terms.
Arbtnno.1017 and 833 of 2018 page no. 34 ARBTN. NO. 1017 of 2018 (Hi-Tech Industries v. Union of India)
25. The claimant has filed the petition being ARBTN. NO. 1017 of 2018 under section 34 of the A&C Act against the award to the extent that the claims of the claimant for loss of profits, pre-award interest and costs have been dismissed holding that the said claims were beyond the jurisdiction of the arbitrator. During the course of submissions, the learned counsel for the claimant submitted that the claimant was not pressing its objections in relation to the pre-award interest and costs and limited his submissions only to the dismissal of the claim for the loss of profits.
26. The learned counsel for the petitioner has submitted that under the arbitration agreement between the parties contained in the Clause 2900 of the contract there was no limitation that the arbitrator could not entertain claims for loss of profits, and hence the portion of the award dismissing the claim for loss of profits ought to be set aside.
27. On the other hand, the learned counsel for the respondent has supported the finding of the learned arbitrator and has submitted that the learned arbitrator had no jurisdiction to award loss of profits. It is further submitted that, even otherwise, the claimant had not shown on what basis it was claiming loss of profits and also there was no evidence led by the claimant in support of its claim of loss of profits.
28. I have considered the submissions of the learned counsel for the parties and I have perused the record.
29. It would be appropriate to extract the relevant portion of the arbitration clause between the parties, as under:
"2900. Arbitration Arbtnno.1017 and 833 of 2018 page no. 35
(a) In the event of any question, dispute or difference arising under these conditions or any special conditions of contract, or in connection with this contract (except as to any matters the decision of which is specially provided for by these or the special conditions) the same shall be referred to the sole arbitration of a Gazetted Railway Officer appointed to be the arbitrator, by the General Manager in the case of contracts entered into by the Zonal Railways and Production Units: by any Member of the Railway Board, in the case of contracts entered into by the Railwy Board and by the Head of the Organisation in respect of contracts entered into by the other Organisations under the Ministry of Railways.
The Gazetted Railway Officer to be appointed as arbitrator however will not be one of those who had an opportunity to deal with the matters to whichthe contract relates or who in the course of their duties as railway servant have expressed views on all or any of the matters under dipute or difference. The award of the arbitrator shall be final and binding on the parties to this contract.
*** *** ***"
(Emphasis supplied by me)
30. As per the impugned award, the learned arbitrator has declined to pass any award for loss of profits on the basis that he did not have jurisdiction. I have perused the arbitration clause and find that arbitration clause is widely worded and states that in the event of "any question, dispute or difference arising under these conditions or any special conditions of contract, or in connection with this contract (except as to any matters the decision of which is specially provided for by these or the special conditions)" the same shall be referred to arbitration. The question of loss of profits arose upon the termination of contract and as such was a question or dispute arising under or in connection with the contract. In the notice dated 22/12/2012 invoking arbitration, the claimant had raised both the issues of refund of ₹ 10,00,000/- towards the forfeited bank guarantee as well as the claim for loss of profits of ₹ 32,12,540/-. The learned Arbtnno.1017 and 833 of 2018 page no. 36 counsel for the respondent has been unable to show that the question of loss of profits was an excepted matter under the arbitration clause. Thus, I would agree with the submission of the learned counsel for the claimant that the claim for loss of profits cannot be said to be beyond the scope of jurisdiction of the learned arbitrator.
31. It appears that the Ld. Arbitrator may have been swayed by the language of the letter dated 24.06.2013, whereby the decision of the General Manager, Northern Railway, New Delhi appointing the Ld. Arbitrator was communicated to the Ld. Arbitrator. The language of the letter dated 24.06.2013 reads as under:
"R/Sir The General Manager, Northern Railway, New Delhi in terms of clause 2900 of Indian Railway Standard Conditions of Contract has appointed you as sole arbitrator to adjudicate upon dispute and difference arising out of the above mentioned contract between M/s High Tech Industries, Mohali and Union of India. The Firm is the claimant with the claim to release the withheld amount on account of security deposit of Rs.10,00,000/- which has been forfeited by the railway due to failure by the firm not to complete the supply against this P.O. The latest address of the firm as per this office record is as under:
*** *** ***
(Surender Singh)
Dy. Chief Engineer/TS"
32. It appears that the Sole Arbitrator was swayed by the second paragraph of the aforesaid letter which refers to the claim of the claimant for refund of the security deposit of Rs.10,00,000/- which was forfeited. However, the first paragraph of the letter clearly shows that the sole Arbitrator was Arbtnno.1017 and 833 of 2018 page no. 37 appointed to adjudicate upon the disputes and differences arising out of the contract between the parties and as such was widely worded. Even in the notice invoking arbitration, the claimant had raised both the disputes of release of security deposit of Rs.10,00,000/- as well as of loss of profits. Hence, the Ld. Arbitrator was not correct in holding that the issue of loss of profits was beyond the scope of his jurisdiction.
33. However, having observed that the claim was within the jurisdiction of the learned arbitrator, in the peculiar facts and circumstances of the case, I am not inclined to set aside the ultimate decision of dismissal of the claim for loss of profits, and would hold that the claim for loss of profits was liable to be dismissed. The question of loss of profits can be decided on the basis of the arbitral record which is before me. The claimant has failed to make out a case for award of loss of profits. The learned arbitrator has in the facts and circumstances of the case, come to the finding that the raw materials were not available with the approved vendors and that the contract had become financially unviable for the claimant. It is on this basis that the learned arbitrator has held that the encashment of the bank guarantee was not reasonable. This was in effect a finding that the contract had become frustrated on account of the circumstances of non-availability of raw materials in a viable manner and on this basis the encashed bank guarantee amount was directed to be refunded. In the ultimate analysis, the learned arbitrator has taken a balanced view which is fair to both parties and has, accordingly, ordered for refund of the encashed bank guarantee. There is no finding that there was any breach of contract by the respondent or any fault of the respondent. As such there would be no occasion for award of any loss of profits to the claimant. Even otherwise, the learned counsel for the Arbtnno.1017 and 833 of 2018 page no. 38 claimant has not shown any evidence on the arbitral record in support of the claimant's claim for loss of profits. I have also perused the arbitral record and find that the claimant has neither provided any basis in the statement of claim for the claim of loss of profits, nor led any evidence in support of its claim for loss of profits. Thus, the ultimate decision of dismissal of the claim for loss of profits does not merit interference.
34. In the result, the petition of the claimant under section 34 of the A&C Act being ARBTN. NO. 1017 of 2018 is dismissed.
35. Parties to bear own costs in both the petitions.
Judgment pronounced in open Court.
Files be consigned to the record room.
(SATYABRATA PANDA)
Additional District Judge-04
Judge Code- DL01057
PHC/New Delhi/27.02.2023
Arbtnno.1017 and 833 of 2018 page no. 39